UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended January 31, 2009
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
|
For
the transition period from to ________________ to ________________
Commission
file number 000
28489
ADVAXIS,
INC.
|
(Exact
name of small business issuer as specified in its
charter)
|
Delaware
|
|
02-0563870
|
(State
or other jurisdiction of incorporation or organization)
|
|
(IRS
Employer Identification
No.)
|
The
Technology Centre of New Jersey, 675 Route 1, Suite 119, North Brunswick,
NJ 08902
|
(Address
of principal executive
offices)
|
(732)
545-1590
|
(Issuer’s
telephone number)
|
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes x No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
|
Accelerated
filer o
|
Non-accelerated filer
o
|
Smaller Reporting Company
x
|
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
Yes o No x
The
number of shares of the Registrant's common stock, $0.001 par value, outstanding
as of March 11, 2009 was 112,338,244.
ADVAXIS,
INC.
(A
Development Stage Company)
January
31, 2009
INDEX
|
|
Page
No.
|
|
|
|
PART
I
|
FINANCIAL
INFORMATION
|
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
Balance
Sheet at January 31, 2009 (unaudited) and October 31, 2008
|
3
|
|
|
|
|
Statements
of Operations for the three month periods ended January 31, 2009 and 2008
and the period March 1, 2002 (inception) to January 31, 2009
(unaudited)
|
4
|
|
|
|
|
Statements
of Cash Flow for the three month periods ended January 31, 2009 and 2008
and the period March 1, 2002 (inception) to January 31, 2009
(unaudited)
|
5
|
|
|
|
|
Notes
to Financial Statements
|
7
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
11
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
16
|
|
|
|
Item
4.
|
Controls
and Procedures
|
16
|
|
|
|
PART
II
|
OTHER
INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
17
|
|
|
|
Item
1A.
|
Risk
Factors
|
17
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
18
|
|
|
|
Item
6.
|
Exhibits
|
18
|
|
|
|
SIGNATURES
|
19
|
All
other items called for by the instructions to Form 10-Q have been omitted
because the items are not applicable or the relevant information is not
material.
PART
I-FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
ADVAXIS,
INC.
(A
Development Stage Company)
BALANCE
SHEETS
|
|
January 31, 2009
|
|
|
October 31, 2008
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
|
|
$ |
199,783 |
|
|
$ |
59,738 |
|
Prepaid
expenses
|
|
|
27,364 |
|
|
|
38,862 |
|
Total
Current Assets
|
|
|
227,147 |
|
|
|
98,600 |
|
|
|
|
|
|
|
|
|
|
Property
and Equipment, net
|
|
|
81,985 |
|
|
|
91,147 |
|
Intangible
Assets, net
|
|
|
1,210,183 |
|
|
|
1,137,397 |
|
Other
Assets
|
|
|
3,876 |
|
|
|
3,876 |
|
Total
Assets
|
|
$ |
1,523,191 |
|
|
$ |
1,331,020 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
& SHAREHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
1,008,652 |
|
|
$ |
998,856 |
|
Accrued
expenses
|
|
|
538,331 |
|
|
|
603,345 |
|
Notes
payable - current portion including interest payable
|
|
|
528,042 |
|
|
|
563,317 |
|
Total
Current Liabilities
|
|
|
2,075,025 |
|
|
|
2,165,518 |
|
|
|
|
|
|
|
|
|
|
Notes
payable - net of current portion
|
|
|
826 |
|
|
|
4,813 |
|
Total
Liabilities
|
|
|
2,075,851 |
|
|
$ |
2,170,331 |
|
|
|
|
|
|
|
|
|
|
Shareholders’
Deficiency:
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and
outstanding
|
|
|
- |
|
|
|
- |
|
Common
Stock - $0.001 par value; authorized 500,000,000 shares, issued and
outstanding 111,915,464 as of January 31, 2009; and 109,319,520 as of
October 31, 2008
|
|
|
111,914 |
|
|
|
109,319 |
|
Additional
Paid-In Capital
|
|
|
16,686,472 |
|
|
|
16,584,414 |
|
Deficit
accumulated during the development stage
|
|
|
(17,351,046 |
) |
|
|
(17,533,044 |
) |
Total
Shareholders' Deficiency
|
|
$ |
(552,660 |
) |
|
$ |
(839,311 |
) |
Total Liabilities
& Shareholders’ Deficiency
|
|
$ |
1,523,191 |
|
|
$ |
1,331,020 |
|
The
accompanying notes are an integral part of these financial
statements.
ADVAXIS,
INC.
(A
Development Stage Company)
STATEMENTS
OF OPERATIONS
(unaudited)
|
|
3 Months
Ended
January 31,
|
|
|
3 Months
Ended
January 31,
|
|
|
Period from
March 1, 2002
(Inception) to
January 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
Revenue
|
|
$ |
- |
|
|
$ |
22,403 |
|
|
$ |
1,325,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
& Development Expenses
|
|
|
179,174 |
|
|
|
682,163 |
|
|
|
8,037,158 |
|
General
& Administrative Expenses
|
|
|
545,454 |
|
|
|
772,590 |
|
|
|
10,554,021 |
|
Total
Operating expenses
|
|
|
724,628 |
|
|
|
1,454,752 |
|
|
|
18,591,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(724,628 |
) |
|
|
(1,432,350 |
) |
|
|
(17,266,007 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(15,396 |
) |
|
|
(1,987 |
) |
|
|
(1,099,879 |
) |
Other
Income
|
|
|
2 |
|
|
|
32,714 |
|
|
|
246,459 |
|
Gain
on note retirement
|
|
|
- |
|
|
|
- |
|
|
|
1,532,477 |
|
Net
changes in fair value of common stock warrant liability and embedded
derivative liability
|
|
|
- |
|
|
|
- |
|
|
|
(1,642,232 |
) |
Net
(loss) before benefit for income taxes
|
|
|
(740,022 |
) |
|
|
(1,401,623 |
) |
|
|
(18,229,182 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
922,020 |
|
|
|
- |
|
|
|
922,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) after tax
|
|
|
181,998 |
|
|
|
(1,401,623 |
) |
|
|
(17,307,162 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
attributable to preferred shares
|
|
|
- |
|
|
|
- |
|
|
|
43,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income loss applicable to Common Stock
|
|
$ |
181,998 |
|
|
$ |
(1,401,623 |
) |
|
$ |
(17,351,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share, basic
|
|
$ |
0.00 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share, diluted
|
|
$ |
0.00 |
|
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding, basic
|
|
|
110,222,457 |
|
|
|
107,957,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding, diluted
|
|
|
110,222,457 |
|
|
|
107,957,977 |
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
ADVAXIS,
INC.
(A
Development Stage Company)
STATEMENTS
OF CASH FLOWS
(unaudited)
|
|
3 Months ended
January 31,
|
|
|
3 Months ended
January 31,
|
|
|
Period from
March 1, 2002
(Inception) to
January 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
181,998 |
|
|
$ |
(1,401,623 |
) |
|
$ |
(17,307,162 |
) |
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
charges to consultants and employees for options and stock
|
|
|
52,676 |
|
|
|
51,889 |
|
|
|
1,905,906 |
|
Amortization
of deferred financing costs
|
|
|
- |
|
|
|
- |
|
|
|
260,000 |
|
Impairment
of intangible assets
|
|
|
26,087 |
|
|
|
- |
|
|
|
26,087 |
|
Non-cash
interest expense
|
|
|
14,722 |
|
|
|
1,007 |
|
|
|
532,907 |
|
Loss
(Gain) on change in value of warrants and embedded
derivative
|
|
|
- |
|
|
|
- |
|
|
|
1,642,232 |
|
Value
of penalty shares issued
|
|
|
- |
|
|
|
- |
|
|
|
149,276 |
|
Depreciation
expense
|
|
|
9,162 |
|
|
|
8,794 |
|
|
|
101,252 |
|
Amortization
expense of intangibles
|
|
|
17,349 |
|
|
|
15,858 |
|
|
|
330,860 |
|
Gain
on note retirement
|
|
|
|
|
|
|
- |
|
|
|
(1,532,477 |
) |
Decrease
(Increase) in prepaid expenses
|
|
|
11,498 |
|
|
|
52,044 |
|
|
|
(27,364 |
) |
Increase
in other assets
|
|
|
- |
|
|
|
- |
|
|
|
(3,876 |
) |
Increase
in accounts payable
|
|
|
61,774 |
|
|
|
14,043 |
|
|
|
1,497,836 |
|
(Decrease)
Increase in accrued expenses
|
|
|
(65,014 |
) |
|
|
121,641 |
|
|
|
522,144 |
|
Increase
in interest payable
|
|
|
- |
|
|
|
- |
|
|
|
18,291 |
|
Increase
(Decrease) in deferred revenue
|
|
|
- |
|
|
|
52,597 |
|
|
|
- |
|
Net
cash provided by (used in) operating activities
|
|
|
310,252 |
|
|
|
(1,083,750 |
) |
|
|
(11,884,088 |
) |
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid on acquisition of Great Expectations
|
|
|
- |
|
|
|
- |
|
|
|
(44,940 |
) |
Purchase
of property and equipment
|
|
|
- |
|
|
|
(6,969 |
) |
|
|
(137,657 |
) |
Cost
of intangible assets
|
|
|
(116,222 |
) |
|
|
(42,834 |
) |
|
|
(1,642,082 |
) |
Net
cash used in Investing Activities
|
|
|
(116,222 |
) |
|
|
(49,803 |
) |
|
|
(1,824,679 |
) |
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from convertible secured debenture
|
|
|
|
|
|
|
|
|
|
|
960,000 |
|
Cash
paid for deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
(260,000 |
) |
Principal
Payments on notes payable
|
|
|
(53,985 |
) |
|
|
(3,546 |
) |
|
|
(160,904 |
) |
Proceeds
from notes payable
|
|
|
|
|
|
|
|
|
|
|
1,746,224 |
|
Net
proceeds of issuance of Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
235,000 |
|
Payment
on cancellation of Warrants
|
|
|
|
|
|
|
|
|
|
|
(600,000 |
) |
Proceeds
of issuance of Common Stock, net of issuance costs
|
|
|
|
|
|
|
(78,012 |
) |
|
|
11,988,230 |
|
Net
cash (used in) provided by Financing Activities
|
|
|
(53,985 |
) |
|
|
(81,558 |
) |
|
|
13,908,550 |
|
Net
increase (decrease) in cash
|
|
|
140,045 |
|
|
|
(1,215,111 |
) |
|
|
199,783 |
|
Cash
at beginning of period
|
|
|
59,738 |
|
|
|
4,041,984 |
|
|
|
- |
|
Cash
at end of period
|
|
$ |
199,783 |
|
|
$ |
2,826,873 |
|
|
$ |
199,783 |
|
The
accompanying notes are an integral part of these financial
statements.
Supplemental
Schedule of Noncash Investing and Financing Activities
|
|
3 Months ended
January 31,
|
|
|
3 Months ended
January 31,
|
|
|
Period from
March 1, 2002
(Inception) to
January 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
Equipment
acquired under notes payable
|
|
|
- |
|
|
|
- |
|
|
$ |
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 |
|
Accounts
Payable converted to Common Stock
|
|
$ |
51,978 |
|
|
|
- |
|
|
$ |
51,978 |
|
Notes
payable and accrued interest converted to Common Stock
|
|
|
- |
|
|
|
- |
|
|
$ |
2,513,158 |
|
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 |
|
Warrants
Issued in connection with issuance of common stock
|
|
|
- |
|
|
|
- |
|
|
$ |
1,505,550 |
|
The
accompanying notes are an integral part of these financial
statements.
ADVAXIS,
INC.
NOTES
TO THE FINANCIAL STATEMENTS (unaudited)
1.
|
Nature
of Operations and Liquidity
|
Advaxis,
Inc. is a development stage biotechnology company with the intent to develop
safe and effective cancer vaccines that utilize multiple mechanisms of immunity.
We are developing a live Listeria vaccine technology
under license from the University of Pennsylvania (“Penn”) which secretes a
protein sequence containing a tumor-specific antigen. We believe this vaccine
technology is capable of stimulating the body’s immune system to process and
recognize the antigen as if it were foreign, generating an immune response able
to attack the cancer. We believe that this to be a broadly enabling platform
technology that can be applied to the treatment of many types of cancers,
infectious diseases and auto-immune disorders.
The
discoveries that underlie this innovative technology are based upon the 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
both arms of the adaptive immune system, as well as supporting the immune
response by stimulating systems like the vascular system and the development of
specific blood cells that underlie a strong therapeutic immune
response.
Since our
inception in 2002 we have focused our research and development efforts upon
understanding our technology and establishing a product development pipeline
that incorporates this technology in the therapeutic cancer vaccines area
targeting cervical, head and neck, prostate, breast, and a pre cancerous
indication of Cervical Intraepithelial Neoplasia (CIN). Although no products
have been commercialized to date, research and development and investment
continues to be placed behind the pipeline and the advancement of this
technology. Pipeline development and the further exploration of the technology
for advancement entail risk and expense. It is anticipated that ongoing
operational costs for the development stage company will increase significantly
as we expect to begin several clinical trials starting this fiscal
year.
As of
January 31, 2009, we had $199,783 in cash, a deficit of $1,847,878 in working
capital, $528,868 in notes and interest payable, stockholders deficiency of
$552,660 and an accumulated deficiency of $17,351,046.
In a
letter dated November 13, 2008 from the New Jersey Economic Development
Authority we were notified that our application for the New Jersey Technology
Tax Certificate Transfer Program was preliminarily approved. Under the State of
New Jersey Program for small business we received a net cash amount of $922,020
on December 12, 2008 from the sale of our State Net Operating Losses (“NOL”)
through December 31, 2007 of $1,084,729.
Our net
income after tax for the three months ended January 31, 2009 was $181,998 due to
the $922,020 income received in this period from the New Jersey Technology Tax
Certificate Transfer Program.
Since our
inception until January 31, 2009, the Company has reported accumulated net
losses of $17,351,046 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 and reduce expenses over the March
through May 2009 time period through various financing alternatives. During the
fiscal year ended October 31, 2008 the Company received $475,000 from Notes
provided by our CEO, Thomas Moore. Although the Company repaid him
$50,000 in the three months ended January 31, 2009, he has agreed to offer up to
$475,000 in additional notes or $100,000 in excess of his $800,000 Note Purchase
Agreement. In addition, the Company sold its New Jersey Net operating Losses to
the New Jersey Economic Development Administration (”NJEDA”) on December 12,
2008 for $922,020 and has reduced the salaries of all our highly compensated
employees effective as of January 4, 2009. We estimate that these
measures are sufficient to finance our currently planned operations to May
2009.
Since
inception through January 31, 2009, all of the Company’s revenue has been from
grants.
The
accompanying unaudited interim consolidated financial statements include all
adjustments (consisting only of those of a normal recurring nature) necessary
for a fair statement of the results of the interim period. These interim
Financial Statements should be read in conjunction with the Company’s Financial
Statements and Notes for the year ended October 31, 2008 filed on Form 10-KSB.
We believe these financial statements reflect all adjustments (consisting only
of normal, recurring adjustments) that are necessary for a fair presentation of
our financial position and results of operations for the periods presented.
Results of operations for the interim periods presented are not necessarily
indicative of results to be expected for the year.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. There is a working capital deficiency and
recurring losses that raise substantial doubt about its ability to continue as a
going concern. The financial statements do not include any adjustments to the
carrying amount and classification of recorded assets and liabilities should we
be unable to continue operations.
Our short
term financing plans consist of our CEO, Thomas Moore offering to provide up to
$475,000 in additional notes, continued use of the $922,020 proceeds of the sale
of New Jersey Net operating Losses provided by the New Jersey Economic
Development Administration (”NJEDA”) on December 12, 2008 and the reduction the
salaries of all our highly compensated employees effective as of January 4,
2009. We estimate that these measures and Mr. Moore’s offer to loan
an additional $100,000 to the Company in excess of his $800,000 Note Purchase
Agreement are sufficient to finance our currently planned operations to May
2009. In February 2009, the Company borrowed in additional $150,000 from Mr.
Moore under this promissory note commitment.
We
believe this is time enough to allow us to raise a minimum of $6,500,000 up to a
maximum of $17,500,000 in funds by May 2009. Whether we are successful in
raising the minimum or maximum, these funds should meet our financial needs over
the next twenty-two months. If the minimum amount is raised then we anticipate
starting a phase II trial in invasive cervical cancer in India this July and two
trials in the US with unspecified start dates to be sponsored by the National
Institute of Health (“NIH”) all using our ADXS111-001 investigational
drug. As part of our strategy to enhance our development efforts on
March 10, 2009 we filed a request for Orphan Drug Designation in cervical cancer
with the FDA, which, if approved, offers faster regulatory review and market
exclusivity to the company for a period of seven years. Under this minimum
funding plan we will need to reduce staff, maintain salary reductions on those
employees remaining and cut research efforts. As the funds exceed the minimum
level our first priority will be to avoid any staff reduction.
Use of Estimates- The preparation of financial
statements in conformity with generally accepted accounting principles required
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates and the differences could be material. The most significant estimates
impact the following transactions or account balances: stock compensation,
liabilities, warrant valuation, impairment of intangibles and fixed assets and
projected operating results.
In June
2008, The FASB ratified Emerging Issues Task Force (EITF) Issue No 07-5,
“Determining Whether an Instrument (or Embedded Feature) is Indexed to an
Entity’s Own Stock” (EITF 07-5). EITF 07-5 mandates a two-step process for
evaluating whether an equity-linked financial instrument or embedded feature
indexed to the entities own stock. It is effective for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years, which is
our first quarter of fiscal 2010. Many of the warrants issued by the Company
contain a strike price adjustment feature, which upon adoption of EITF 07-5,
will result in the instruments no longer being considered indexed to the
Company’s own stock. Accordingly, adoption of EITF 07-5 may change the current
classification (from equity to liability) and the related accounting for many
warrants outstanding at that date. The Company is currently evaluating the
impact the adoption of EITF 07-5 will have on its financial position, results of
operation, or cash flows.
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.
Intangible
assets primarily consist of legal and filing costs associated with obtaining
patents and licenses. The license and patent costs capitalized primarily
represent the value assigned to the Company’s 20-year exclusive worldwide
license agreement with Penn which are amortized on a straight-line basis over
their remaining useful lives which are estimated to be twenty years from the
effective date of Penn Agreement dated July 1, 2002. The value of the license
and patents are based on management’s assessment regarding the ultimate
recoverability of the amounts paid and the potential for alternative future
uses. This license now includes the exclusive right to exploit 15 patents issued
and 15 patents pending and applied for in most of the largest markets in the
world excluding the patents issued and applied for that we are no longer
pursing. After careful review and analysis we decided not to pursue 5 patents
issued and 6 patent applications filed in small countries. Under the Second
Amendment to the Amended and Restated Agreement, there are an additional 23
patent applications. However according to this Second Agreement, we have
the option to acquire licenses relative to these patents for an estimated
$407,278, as of January 31, 2009, which includes the reimbursement of certain
legal and filing costs. We are still in negations with Penn over
the form of payment and expect to reach a conclusion at the close of our next
financial raise. These fees are currently unpaid and not in our financial
statements as of the January 31, 2009.
As of
January 31, 2009, all gross capitalized costs associated with the licenses and
patents filed and granted as well as and costs associated with patents pending
are $1,432,960 (excluding the Second Amendment costs) as shown under license and
patents on the table below. Out of the $1,432,960 capitalized cost the cost of
the patents and licenses issued is estimated to be $680,091 and cost of the
patents pending or in process of filing is estimated to be $752,869. The
expirations of the existing patents range from 2014 to 2020 but the expirations
can be extended based on market approval if granted and/or based on existing
laws and regulations. Capitalized costs associated with patent applications that
are abandoned without future value are charged to expense when the determination
is made not to pursue the application. Based on a review and analysis of its
patents we determined that it was no longer cost effective to pursue patents in
smaller countries such as Canada, Israel or Ireland. A review of the
capitalized costs for these countries resulted in the write-off of $26,087 as of
January 31, 2009 of capitalized cost since inception of the company and the
elimination of eleven patent applications in total. No other patent applications
with future value were abandoned and charged to expense in the current or prior
year. Amortization expense for licensed technology and capitalized patent cost
is included in general and administrative expenses.
Under the
amended and restated agreement we are billed actual patent expenses as they are
passed through from Penn and or billed directly from our patent attorney. The
following is a summary of the intangibles assets as of the following fiscal
periods:
|
|
October 31, 2008
|
|
|
January 31, 2009
|
|
|
Increase/(Decrease)
|
|
License
|
|
$ |
529,915 |
|
|
$ |
570,275 |
|
|
$ |
40,360 |
|
Patents
|
|
|
812,910 |
|
|
|
862,685 |
|
|
|
49,775 |
|
Total
intangibles
|
|
|
1,342,825 |
|
|
|
1,432,960 |
|
|
|
90,135 |
|
Accumulated
Amortization
|
|
|
(205,428
|
) |
|
|
(222,777
|
) |
|
|
17,349 |
|
Intangible
Assets
|
|
$ |
1,137,397 |
|
|
$ |
1,210,183 |
|
|
$ |
72,786 |
|
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.
In
accordance with the provisions of the Statement of Financial Accounting
Standards (“SFAS”) No. 128, “Earning per Share,” basic net income or basic net
loss per common share is computed by dividing net income available to common
shareholders by the weighted average number of common shares 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, in the case of a net loss 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. In the case of net income the
impact of the potential common stock resulting from these instruments that have
intrinsic value are included in the diluted earnings per share. The table sets
forth the number of potential shares of common stock that have been excluded
from diluted net loss per share. The warrants include anti-dilutive provisions
to adjust the number and price of the warrants based on certain types of equity
transactions.
|
|
As of
January 31, 2008
|
|
|
As of
January 31, 2009
|
|
Warrants
|
|
|
87,713,770 |
|
|
|
97,187,400 |
|
Stock
Options
|
|
|
8,512,841 |
|
|
|
8,812,841 |
|
Total
All
|
|
|
96,226,611 |
|
|
|
106,000,241 |
|
On
September 22, 2008, Advaxis entered into a Note Purchase Agreement (the
“Agreement”) with the Company’s Chief Executive Officer, Thomas Moore, pursuant
to which the Company agreed to sell to Mr. Moore, from time to time, one or more
senior promissory notes (each a “Note” and collectively the “Notes”) with an
aggregate principal amount of up to $800,000. The Note or Notes, when issued,
will bear interest at a rate of 12% per annum, compounded quarterly, and will be
due and payable on the earlier of the close of the Company’s next equity
financing resulting in gross proceeds to the Company of at least $5,000,000 (the
“Subsequent Equity Raise”) or February 15, 2009 (the “Maturity Date”). The
Note(s) may be prepaid in whole or in part at the option of the Company without
penalty at any time prior to the Maturity Date. In consideration of Mr. Moore’s
agreement to purchase the Notes, the Company agreed that concurrently with the
Subsequent Equity Raise, the Company will issue to Mr. Moore a warrant to
purchase the Company’s common stock, which will entitle Mr. Moore to purchase a
number of shares of the Company’s common stock equal to one share per $1.00
invested by Mr. Moore in the purchase of one or more Notes. Such warrant would
contain the same terms and conditions as warrants issued to investors in the
Subsequent Equity Raise. As of October 31, 2008 and pursuant to the Agreement,
Mr. Moore has loaned the Company $475,000. On December 15, 2008 the
Board approved an amendment to the Agreement’s repayment terms from February 15,
2009 to June 15, 2009. In consideration for revising the repayment term the
Company repaid Mr. Moore $50,000 from the $475,000 outstanding Notes thus
reducing the balance to $425,000 as of January 31, 2009. Mr. Moore
offered to loan an additional $100,000 to the Company in excess of his 800,000
Note Purchase Agreement. In February 2009, the Company borrowed an
additional $150,000 from Mr. Moore under this promissory note
commitment.
BioAdvance Biotechnology Greenhouse of
Southeastern Pennsylvania Notes (“BioAdvance”) issued us notes for $10,000 dated
November 13, 2003 and $40,000 dated December 17, 2003 and were each
due on their fifth anniversary date hereof. On February 5, 2009 they issued us a
letter demanding the payment of the loans and interest payable of $70,604.93. We
have agreed to make payment in June 2009. The terms of both Notes call for
accrual of 8% interest per annum on the unpaid principal.
6.
|
Derivative
Instruments
|
Warrants:
As of
January 31, 2009, we had outstanding warrants to purchase 93,854,067 shares of
our common stock, with exercise prices ranging from $0.162 to $0.287 per share
excluding 3,333,333 warrants purchased for $0.149 with an exercise price of
$0.001 per share. Most of these warrants include anti-dilutive provisions
triggering the adjustment to the number and price of the warrants outstanding
resulting from certain equity transactions.
An
offering will trigger certain anti-dilution provisions in the Company's
outstanding securities. The warrants to purchase shares of common
stock (the “2007 Warrants”) issued by the Company in connection with our private
placements consummated in 2007 contain “full-ratchet” anti-dilution provisions
with a term of five years. As a result of any future offering, the
issuance of the Shares will trigger the full-ratchet anti-dilution provisions in
approximately 57,987,250 of the outstanding 2007 Warrants lowering the exercise
price of such 2007 Warrants from $0.20 and $0.001 to an offering price (or a
proportional adjustment for those priced at $0.001) and proportionately
increasing the number of shares that could be obtained upon the exercise of such
2007 Warrants. Additionally, the Company has 38,105,712 warrants
outstanding (the “Prior Warrants”) which contain weighted average anti-dilution
provisions. As a result an offering will trigger the weighted average
anti-dilution provisions in such outstanding Prior Warrants substantially
lowering the exercise price of such Prior Warrants (in accordance with the terms
of the Prior Warrants) and proportionately increasing the number of shares that
could be obtained upon the exercise of such Prior Warrants. The
anti-dilution provisions in the 2007 Warrants and the Prior Warrants will remain
in effect with respect to any future issuances below their respective then
effective exercise prices. A majority of these Prior Warrants expire on or
before December 31, 2009.
7.
|
Accounting
for Stock-Based Compensation Plans
|
The Company records compensation
expense associated with stock options in accordance with SFAS No. 123R, “Share
Based Payment,” which is a revision of SFAS No. 123. The Company adopted the
modified prospective transition method provided under SFAS No. 123R. Under this
transition method, compensation expense associated with stock options recognized
in the first quarter of fiscal year 2007, and in subsequent quarters, includes
expense related to the remaining unvested portion of all stock option awards
granted prior to April 1, 2006, the estimated fair value of each option award
granted was determined on the date of grant using the Black-Scholes option
valuation model, based on the grant date fair value estimated in accordance with
the original provisions of SFAS No. 123.
The table
below summarizes compensation expenses from share-based payment
awards:
|
|
As
of
January
31, 2008
|
|
|
As
of
January
31, 2009
|
|
Research
and development
|
|
|
(761 |
) |
|
|
16,382 |
|
General
and Administrative
|
|
|
52,650 |
|
|
|
36,293 |
|
Total
stock compensation expense recognized
|
|
$ |
51,889 |
|
|
$ |
52,675 |
|
Total
unrecognizd estimated compensation expense related to non-vested stock options
granted and outstanding as of January 31, 2009 was $131,234, which is expected
to be recognized over a weighted-average period of one year and two
months.
No options were exercised over the
three months ended January 31, 2008 and 2009. For the three months ended January
31, 2008 and 2009, the Company did not grant any options.
8.
|
Commitments
and Contingencies
|
In the ordinary course of business, we
enter into agreements with third parties that include indemnification provisions
which, in our judgment, are normal and customary for companies in our industry
sector. These agreements are typically with business partners, clinical sites,
and suppliers. In these agreements, we generally agree to indemnify, hold
harmless and reimburse indemnified parties for losses suffered or incurred by
the indemnified parties with respect to our product candidates, use of such
product candidates or other actions taken or omitted by us. The maximum
potential amount of future payments we could be required to make under these
indemnification provisions is unlimited. We have not incurred material cost to
defend lawsuits or settle claims related to these indemnification provisions. As
a result, the estimated fair value of liabilities relating to these provisions
is minimal. Accordingly, we have no liabilities recorded for these provisions as
of January 31, 2009.
In the normal course of business, we
may be confronted with issues or events that may result in a contingent
liability. These are generally related to lawsuits, claims, environmental
actions or the action of various regulatory agencies, if necessary, management
consults with counsel and other appropriate experts to assess any matters that
arise. If, in management’s opinion, we have incurred a probable loss as set
forth by accounting principles generally accepted in the US, an estimate is made
of the loss and the appropriate accounting entries are reflected in our
financial statements. There are no currently pending, threatened law suits or
claims against the Company that could have a material adverse effect on our
financial position, results of operations or cash flows.
The
Company issued our vendor CME Acuity 2,595,944 shares of common stock on
December 30, 2008 in full payment for its outstanding balance.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SAFE
HARBOR CAUTIONARY STATEMENT
The
Company has included in this Quarterly Report certain “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995 concerning the Company’s business, operations and financial condition.
“Forward-looking statements” consist of all non-historical information, and the
analysis of historical information, including the references in this Quarterly
Report to future revenues, collaborative agreements, future expense growth,
future credit exposure, earnings before interest, taxes, depreciation and
amortization, future profitability, anticipated cash resources, anticipated
capital expenditures, capital requirements, and the Company’s plans for future
periods. In addition, the words “could”, “expects”, “anticipates”, “objective”,
“plan”, “may affect”, “may depend”, “believes”, “estimates”, “projects” and
similar words and phrases are also intended to identify such forward-looking
statements. Such factors include the factors described under Part II, Item 1A.
“Risk Factors” and other factors discussed in connection with any
forward-looking statement.
Actual
results could differ materially from those projected in the Company’s
forward-looking statements due to numerous known and unknown risks and
uncertainties, including, among other things, unanticipated technological
difficulties, the length, scope and outcome of our clinical trial, costs related
to intellectual property, cost of manufacturing and higher consulting costs,
product demand, changes in domestic and foreign economic, market and regulatory
conditions, the inherent uncertainty of financial estimates and projections, the
uncertainties involved in certain legal proceedings, instabilities arising from
terrorist actions and responses thereto, and other considerations described as
“Risk Factors” in other filings by the Company with the SEC. Such factors may
also cause substantial volatility in the market price of the Company’s Common
Stock. All such forward-looking statements are current only as of the date on
which such statements were made. The Company does not undertake any obligation
to publicly update any forward-looking statement to reflect events or
circumstances after the date on which any such
statement is made or to reflect the occurrence of unanticipated
events.
General
We were
originally incorporated in the state of Colorado on June 5, 1987 under the name
Great Expectations, Inc. We were administratively dissolved on January 1, 1997
and reinstated June 18, 1998 under the name Great Expectations and Associates,
Inc. In 1999, we became a reporting company under the Securities Exchange
Act of 1934 (the “Exchange Act’). Until November 2004, we were a publicly-traded
“shell” company without any business until November 12, 2004 when we acquired
Advaxis, Inc., a Delaware corporation (“Advaxis”), through a Share Exchange and
Reorganization Agreement, dated as of August 25, 2004 (the “Share Exchange”), by
and among Advaxis, the stockholders of Advaxis and us. As a result of such
acquisition, Advaxis became our wholly owned subsidiary and our sole operating
company. On December 23, 2004, we amended and restated our articles of
incorporation and changed our name to Advaxis, Inc. On June 6, 2006 our
shareholders approved the reincorporation of the Company from the state of
Colorado to the state of Delaware by merging the Company into its wholly owned
subsidiary, which was effected on June 20, 2006. As used herein, the words
“Company” and "Advaxis" refer to the current Delaware Corporation only
unless the context references such entity prior to the June 20, 2006
reincorporation into Delaware. Our principal executive offices are located at
Technology Centre of NJ, 675 US Highway One, North Brunswick, NJ 08902 and our
telephone number is (732) 545-1590.
On July
28, 2005 we began trading on the Over-The-Counter Bulletin Board (OTC: BB) under
the ticker symbol ADXS.
Advaxis
is a development stage biotechnology company with the intent to develop safe and
effective cancer vaccines that utilize multiple mechanisms of immunity. We are
developing a live Listeria vaccine technology
under license from the University of Pennsylvania (“Penn”) which secretes a
protein sequence containing a tumor-specific antigen. We believe this vaccine
technology is capable of stimulating the body’s immune system to process and
recognize the antigen as if it were foreign, generating an immune response able
to attack the cancer. We believe that this to be a broadly enabling platform
technology that can be applied to the treatment of many types of cancers,
infectious diseases and auto-immune disorders.
The
discoveries that underlie this innovative technology are based upon the 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
both arms of the adaptive immune system, as well as supporting the immune
response by stimulating systems like the vascular system and the development of
specific blood cells that underlie a strong therapeutic immune
response.
We have
no customers. Since our inception in 2002 we have focused our development
efforts upon understanding our technology and establishing a product development
pipeline that incorporates this technology in the therapeutic cancer vaccines
area targeting cervical, head and neck, prostate, breast, and a pre cancerous
indication of CIN. Although no products have been commercialized to date,
research and development and investment continues to be placed behind the
pipeline and the advancement of this technology. Pipeline development and the
further exploration of the technology for advancement entail risk and expense.
It is anticipated that ongoing operational costs for the development stage
company will increase significantly as we expect to begin several clinical
trails starting this fiscal year.
Recent Developments
On
January 13, 2009 the European Patent Office (“EPO”) Board of Appeals in Munich,
Germany ruled in favor of The Trustees of the University of Pennsylvania and its
exclusive licensee Advaxis and reversed a patent ruling that revoked a
technology patent that had resulted from an opposition filed by Anza
Therapeutics, Inc. (“Anza”), formerly Cerus Corp (NASDAQ: CERS). The ruling of
the EPO Board of Appeal is final and cannot be appealed. The granted claims, the
subject matter of which was discovered by Dr. Yvonne Paterson, scientific
founder of Advaxis, are directed to the use of recombinant bacteria expressing a
tumor antigens for treatment of patients with cancer.
On
January 5, 2009, in a letter received from the United States Food and Drug
Administration (“FDA”), the Company was notified that it removed its clinical
hold on our Investigational New Drug Application (“IND”). Under this IND the
Company will now be able to commence its phase II cervical intraepithelial
neoplasia (“CIN”) trial subject to financing needs and our responses to two
requests for additional manufacturing lot measurements from the
FDA.
On
January 7, 2009 the Company made the decision to discontinue its use of the
Trademark Lovaxin and write-off of its intangible assets for trademarks
resulting in an asset impairment of $91,453 as of October 31, 2008. The Company
is currently developing a low cost and more classic coding system for our
constructs. The rationale for this decision stemmed from several legal
challenges to the Lovaxin name over the last two years and 21CFR rules not
permitting companies to use names that are assigned to drugs in development
after marketing approval. We will therefore focus company resources on product
development and not the defense the Lovaxin name.
On
February 10, 2009 the United States Patent and Trademark office granted to the
Company its 13th
approved patent. This intellectual property protects a unique strain
of Listeria monocytogenes for use as a
vaccine vector. This new strain of Listeria is an improvement
over the strain currently in clinical testing as it is more attenuated, more
immunogenic, and does not have an antibiotic resistance gene
inserted. This technology promises to make the company’s product more
effective and easier to obtain FDA regulatory approval.
In a
letter dated November 13, 2008 from the New Jersey Economic Development
Authority we were notified that our application for the New Jersey Technology
Tax Certificate Transfer Program was preliminarily approved. Under
the State of New Jersey Program for small business we received a net cash amount
of $922,020 on December 12, 2008 from the sale of our State Net Operating Losses
(“NOL”) through December 31, 2007 with a carrying value of $1,084,729. In the
future we intend to apply for additional benefits under the program including
the sale of research tax credits.
On
September 22, 2008, Advaxis entered into a Note Purchase Agreement (the
“Agreement”) with the Company’s Chief Executive Officer, Thomas Moore, pursuant
to which the Company agreed to sell to Mr. Moore, from time to time, one or more
senior promissory notes (each a “Note” and collectively the “Notes”) with an
aggregate principal amount of up to $800,000.
We
believe this is time enough to allow us to raise a minimum of $6,500,000 and up
to a maximum of $17,500,000 in funds. Whether we are successful in raising
the minimum or maximum, these funds should meet our financial needs over the
next twenty-two months. If the minimum amount is raised then we anticipate
starting a phase II trial in invasive cervical cancer in India this July and two
trials in the US with unspecified start dates to be sponsored by the National
Institute of Health (“NIH”) all using our ADXS111-001 investigational
drug. As part of our strategy to enhance our development efforts on
March 10, 2009 we filed a request for Orphan Drug Designation in cervical cancer
with the FDA, which, if approved, offers faster regulatory review and market
exclusivity to the company for a period of seven years. Under this minimum
funding plan we will need to reduce staff, maintain salary reductions on those
employees remaining and cut research efforts. As the funds exceed the minimum
level our first priority will be to avoid any staff reduction. Our
objective in the trial in India will be to demonstrate a significant advantage
in patient survival compared to the current standard of care and patient
survival time of six months.
If we
raise the maximum funds we will be able start our phase II CIN trial in the US
this June using our ADXS111-001 and a phase I trial in prostate cancer using our
ADXS31-142 in January 2010 in addition to the trials in the minimum
scenario. We plan on performing one arm of the CIN trial and to
access the potential outcome of the trial within the twenty-two month period.
However, in order to fund the second two arms of the CIN trial and our
longer-term cash requirements or our cash requirements for the commercialization
of any of our existing or future product candidates will require significant
funds. Therefore, 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.
In both
fund raising scenarios the Company also intends to pay approximately $1.9
million primarily to Mr. Moore for repayment of his Notes and interest, payment
of two notes and interest that we are currently in default on, payments to our
contract research organization and payment to the University of Pennsylvania for
past due patent, license and license milestone expenses. The Company’s estimate
of its allocation of the proceeds of any offering is based on the current state
of its business development and management estimates of future
prospects.
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.
If
additional capital were raised through the sale of equity or convertible debt
securities, the issuance of such securities would result in additional dilution
to our existing stockholders. We believe that we will need to raise additional
funds to sustain our plan of operations for the next twenty-two
months. If we are unable to obtain additional sources of financing or
generate sufficient cash flows from sufficient capital, it could create a
material adverse effect on future operating prospects of the
Company.
Results
of Operations
Three
months ended January 31, 2009 Compared to the three months ended January 31,
2008
Revenue. Our revenue
decreased by $22,403, or 100%, to $0 for the three months ended January 31, 2009
(“Fiscal 2009 Quarter”) as compared with $22,403 for the three months ended
January 31, 2008 (“Fiscal 2008 Quarter”) due to the grant from the State of
New Jersey received in the Fiscal 2008 Quarter not being repeated.
Research and Development
Expenses. Research and development expenses decreased by $502,989, or
74%, to $179,174 for the Fiscal 2009 Quarter as compared with $682,163 for the
Fiscal 2008 Quarter, principally attributable to the following:
·
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Clinical
trial expenses decreased by $65,584, or 98%, to $1,038 from $66,622 due to
our close out of our phase I trial in the Fiscal 2008
Quarter.
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·
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Wages,
options and lab costs decreased by $160,317, or 56% to $123,541 from
$283,858 principally due to the recording of the full years bonus reversed
in Fiscal 2009 Quarter accrued for over the entire Fiscal 2008 Year. No
bonus accrual was recorded in Fiscal 2009 Quarter.
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·
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Consulting
expenses decreased by $7,841, or 20%, to $31,570 from $39,411, primarily
reflecting the lower effort required to prepare the Investigational New
Drug filing for the FDA in the Fiscal 2009 Quarter compared to the same
period last year, partially offset by higher option expense in Fiscal 2009
Quarter.
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·
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Subcontracted
research expenses decreased by $41,225, or 100%, to $0 from $41,225
reflecting the completion prior to Fiscal 2009 Quarter of subcontract work
performed by Dr. Paterson at Penn, pursuant to a sponsored research
agreement ongoing in the first quarter Fiscal 2008
Quarter.
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·
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Manufacturing
expenses decreased by $201,381, to $23,026 from $224,407, or 90% resulting
the completion of our clinical supply program for the upcoming CIN trial
prior to Fiscal 2009 Quarter compared to the manufacturing program in the
Fiscal 2008.
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·
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Toxicology
study expenses decreased by $26,640, to $0 or 100% due the completion in
Fiscal 2008 Quarter of our toxicology study by Pharm Olam in connection
with our ADXS111-001 product candidates in anticipation of clinical
studies in 2008.
|
We
anticipate an increase in R&D expenses as a result of expanded development
and commercialization efforts related to 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 are undertaken.
General and Administrative
Expenses. General and administrative expenses decreased by $227,136, or
29%, to $545,454 for the Fiscal 2009 Quarter as compared with $772,590 for the
Fiscal 2008 Quarter, primarily attributable to the following:
·
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Wages,
Options and benefit expenses decreased by $68,552, or 23% to $233,262 from
$301,814 principally due to the recording of the full years bonus reversed
in Fiscal 2009 Quarter accrued for over the entire Fiscal 2008 Year. No
bonus accrual was recorded in Fiscal 2009 Quarter. Option expense in
Fiscal 2009 Quarter was also lower then the prior period due to fewer
options vesting.
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·
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Consulting
fees decreased by $98,646, or 79%, to $27,000 from $125,646. This
decrease was primarily attributed to: (i) $46,875 decrease in
Mr. Appel’s (our previous President & CEO) consulting fees recorded in
the Fiscal 2008 Quarter and none recorded in the Fiscal 2009 Quarter.
These decreases in expenses also included lower consulting expenses due to
financial advisor fees of $51,771 recorded in the Fiscal 2008 Quarter
verses the fees for other consultants in the Fiscal 2009
Quarter.
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·
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Offering
expenses decreased by $9,697 or 31% to $22,081 from $31,778. A penalty
expense of $31,778 was recorded in the Fiscal 2008 Quarter due to the
delay of effectiveness of the registration statement on Form SB-2, File
No. 333-147752.
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·
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A
decrease in legal, accounting, professional and public relations expenses
of $22,320, or 12%, to $168,885 from $191,205, primarily as a result of a
$20,000 expense for the Crystal Investor Research article in Fiscal 2008
Quarter not repeated in Fiscal 2009. Overall the higher accounting and
legal expense in Fiscal 2008 Quarter due to the cost of filing a
registration statement not required in Fiscal 2009 Quarter was essentially
offset by the cost of writing off patent expenses that the company decided
to abandon in Fiscal 2009 Quarter.
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·
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Amortization
of intangibles and depreciation of fixed assets increased by $1,859, or
8%, to $26,511 from $24,652 primarily due to an increase in fixed assets
and intangibles in the Fiscal 2009 Quarter compared to the Fiscal 2008
Quarter.
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·
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Overall
occupancy and conference related expenses decreased by $29,778 or 31% to
$67,717 from $97,495. Overall conference expense has decreased by $24,940
in the Fiscal 2009 Quarter due to lower participation in cancer
conferences. Additional expenses for travel to Europe for the patent
hearing in Fiscal 2009 Quarter were partially offset by lower data
monitoring costs and Radford Compensation Survey director and officer’s
insurance costs amounting to $8,728 for the Fiscal 2008
Quarter.
|
Other Income (expense). Other
Income (expense) decreased by $46,121 to $15,394 in expense for Fiscal 2009
Quarter from income of $30,727 for the Fiscal 2008 Quarter. During the Fiscal
2008 and the Fiscal 2009 Quarters, we recorded interest expense of $1,987 and
$15,396 respectively, primarily related to interest accrued on our outstanding
notes. Interest earned on investments for the Fiscal 2008 and Fiscal 2009
Quarters amounted to $32,714 and $2, respectively.
In the Fiscal 2009
Quarter there was a net change of $922,020 recorded due to a gain recorded from
the receipt of a NOL tax credit received the State of New Jersey tax program.
There was no comparable gain in Fiscal 2008 Quarter as this was the first year
we were awarded this NOL credit.
Liquidity
and Capital Resources
Since our
inception until January 31, 2009, the Company has reported accumulated net
losses of $17,351,046 and recurring negative cash flows from
operations. We
anticipate that we will continue to generate significant losses from operations
for the foreseeable future.
In a
letter dated November 13, 2008 from the New Jersey Economic Development
Authority we were notified that our application for the New Jersey Technology
Tax Certificate Transfer Program was preliminarily approved. Under the State of
New Jersey Program for small business we received a net cash amount of $922,020
on December 12, 2008 from the sale of our State Net Operating Losses (“NOL”)
through December 31, 2007 of $1,084,729.
Our net
income after taxes was $181,998 for the three months ended January 31, 2009
which includes a $922,020 gain from the sale of our State of New Jersey Net
Operating Losses from inception through December 31, 2007.
We have
limited capital resources and operations to date have been funded primarily with
the proceeds from public and private equity and debt financings and income
earned on investments and grants. We anticipate that our existing capital
resources, without implementing further cost reductions, raising additional
capital, or obtaining substantial cash inflows from potential partners or our
products, will enable us to continue operations through approximately May 2009
or sooner if unforeseen events arise that negatively impact our liquidity. These
conditions raise substantial doubt about our ability to continue as a going
concern. Consequently, the audit report prepared by our independent public
accounting firm relating to our financial statements for the year ended October
31, 2008 included a going concern explanatory paragraph.
We are
pursuing additional investments, grants, partnerships as well as collaborations
and exploring other financing options, with the objective of minimizing dilution
and disruption.
Our
business will require substantial additional investment that we have not yet
secured, and our plan is to raise capital and/or pursue partnering
opportunities. We expect to continue to spend substantial amounts on research
and development, including conducting clinical trials for our product
candidates. Further, we will not have sufficient resources to develop fully any
new products or technologies unless we are able to raise substantial additional
financing on acceptable terms or secure funds from new partners. We cannot be
assured that financing will be available at all. Our failure to raise capital
before mid May 2009 will materially adversely affect our business, financial
condition and results of operations, and could force us to reduce or cease our
operations at some time in the near future. Any additional investments or
resources required would be approached, to the extent appropriate in the
circumstances, in an incremental fashion to attempt to cause minimal disruption
or dilution. Any additional capital raised through the sale of equity
or convertible debt securities will result in dilution to our existing
stockholders.
On July
1, 2002 (effective date) we entered into a 20-year exclusive worldwide license,
with 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 dendritic 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. The First Amendment to the Amended and Restated Patent License Agreement
was entered into on March 26, 2007 to exercise our option to license an
additional Listeria-Based and LLO-Based Vaccine patent/docket and have agreed to
license 12 other patents/dockets.
This
license also grants us exclusive negotiation rights 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. Under this option we have finalized the First Amendment
to the Amended and Restated Agreement for one docket and have negotiated
licenses for more 12 dockets, with each docket having the potential of more than
one patent. Under this Second Amendment to the Amended and Restated Agreement,
there are an additional 23 patent applications. However according to this Second
Agreement, we have the option to acquire licenses relative to these patents for
an estimated $407,278, as of January 31, 2009, which includes the reimbursement
of certain legal and filing costs. We are still in negations
with Penn over the form of payment and expect to reach a conclusion at the close
of our next financial raise. These fees are currently unpaid and not
in our financial statements as of the January 31, 2009.
Off-Balance
Sheet Arrangements
As of
January 31, 2009, we had no off-balance sheet arrangements, other than our lease
for space. There were no changes in significance contractual obligation during
the three months ended January 31, 2009.
Critical
Accounting and New Accounting Pronouncements
Critical Accounting
Estimates
The
preparation of financial statements in accordance with generally accepted
accounting principles accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts and related
disclosures in the financial statements. Management considers an accounting
estimate to be critical if:
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·
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It
requires assumption to be made that were uncertain at the time the
estimate was made, and
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·
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Changes
in the estimate of difference estimates that could have been selected
could have material impact in our results of operations or financial
condition.
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Actual
results could differ from those estimates and the differences could be material.
The most significant estimates impact the following transactions or account
balances: stock compensation, liabilities, warrant valuation, impairment of
intangibles and fixed assets and projected operating results.
Share-Based Payments-The
Company records compensation expense associated with stock options in accordance
with SFAS No. 123R, “Share Based Payment,” which is a revision of SFAS No. 123.
The Company adopted the modified prospective transition method provided under
SFAS No. 123R. Under this transition method, compensation expense associated
with stock options recognized in the first quarter of fiscal year 2007, and in
subsequent quarters, includes expense related to the remaining unvested portion
of all stock option awards granted prior to April 1, 2006, the estimated fair
value of each option award granted was determined on the date of grant using the
Black-Scholes option valuation model, based on the grant date fair value
estimated in accordance with the original provisions of SFAS No.
123.
We estimate the value of
stock options awards on the date of grant using the Black-Scholes-Merton
option-pricing model. The determination of the fair value of the share-based
payment awards on the date of grant is affected by our stock price as well as
assumptions regarding a number of complex and subjective variables. These
variables include our expected stock price volatility over the term of the
awards, expected term, risk-free interest rate, expected dividends and expected
forfeiture rates. The forfeiture rate is estimated using historical option
cancellation information, adjusted for anticipated changes in expected exercise
and employment termination behavior. Our outstanding awards do not contain
market or performance conditions; therefore we have elected to recognize share
based employee compensation expense on a straight-line basis over the requisite
service period.
If
factors change and we employ different assumptions in the application of SFAS
123(R) in future periods, the compensation expense that we record under SFAS
123(R) relative to new grants may differ significantly from what we have
recorded in the current period. There is a high degree of subjectivity involved
when using option-pricing models to estimate share-based compensation under SFAS
123(R). Consequently, there is a risk that our estimates of the fair values of
our share-based compensation awards on the grant dates may bear little
resemblance to the actual values realized upon the exercise, expiration, early
termination or forfeiture of those share-based payments in the future. Employee
stock options may expire worthless or otherwise result in zero intrinsic value
as compared to the fair values originally estimated on the grant date and
reported in our financial statements. Alternatively, value may be realized from
these instruments that are significantly in excess of the fair values originally
estimated on the grant date and reported in our financial
statements.
Warrants – Warrants issued in
connection with the equity financings completed in October 2007. At the balance
sheet date we estimated the fair value of these instruments using the
Black-Scholes model, which takes into account a variety of factors, including
historical stock price volatility, risk-free interest rates, remaining term and
the closing price of our common stock. Changes in assumptions used to estimate
the fair value of these derivative instruments could result in a material change
in the fair value of the instruments. We believe the assumptions used to
estimate the fair values of the warrants are reasonable.
New Accounting
Pronouncements
In June
2008, The FASB ratified Emerging Issues Task Force (EITF) Issue No 07-5,
“Determining Whether an Instrument (or Embedded Feature) is Indexed to an
Entity’s Own Stock” (EITF 07-5). EITF 07-5 mandates a two-step process for
evaluating whether an equity-linked financial instrument or embedded feature
indexed to the entities own stock. It is effective for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years, which is
our first quarter of fiscal 2010. Many of the warrants issued by the Company
contain a strike price adjustment feature, which upon adoption of EITF 07-5, may
result in the instruments no longer being considered indexed to the Company’s
own stock. Accordingly, adoption of EITF 07-5 may change the current
classification (from equity to liability) and the related accounting for many
warrants outstanding at that date. The Company is currently evaluating the
impact the adoption of EITF 07-5 may have on its financial position, results of
operation, or cash flows.
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.
ITEM
3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
NONE
ITEM
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
The Company’s senior management is
responsible for establishing and maintaining a system of disclosure controls and
procedures (as defined in Rule 13a-15 and 15d-15 under the Securities Exchange
Act of 1934 (the “Exchange Act”) designed to ensure that information required to
be disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the Company’s management, including its
principal executive officer or officers and principal financial officer or
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.
The Company has evaluated the
effectiveness of the design and operation of its disclosure controls and
procedures under the supervision of and with the participation of management,
including the Chief Executive Officer and Chief Financial Officer, as of the end
of the period covered by this report. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures are effective.
Changes
in Internal Control over Financial Reporting
There has been no change in our
internal control over financial reporting that occurred during quarter covered
by this report that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
On
January 13, 2009 the European Patent Office (“EPO”) Board of Appeals in Munich,
Germany ruled in favor of The Trustees of the University of Pennsylvania and its
exclusive licensee Advaxis and reversed a patent ruling that revoked a
technology patent that had resulted from an opposition filed by Anza
Therapeutics, Inc. (“Anza”), formerly Cerus Corp (NASDAQ: CERS). The ruling of
the EPO Board of Appeals is final and can not be appealed. The granted claims,
the subject matter of which was discovered by Dr. Yvonne Paterson, scientific
founder of Advaxis, are directed to the use of recombinant bacteria expressing a
tumor antigens for treatment of patients with cancer.
ITEM
1A. RISK FACTORS
The
following risk factors should be read carefully in connection with evaluating
our business and the forward-looking statements that we make in this Report and
elsewhere (including oral statements) from time to time. Any of the following
risks could materially adversely affect our business, our operating results, our
financial condition and the actual outcome of matters as to which
forward-looking statements are made in this Report. Our business is subject to
many risks, which are detailed further in our Annual Report on Form 10-KSB,
including:
Financial
Risks
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·
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We
have a history of operating losses and we may never achieve profitability.
If we continue to incur losses or we fail to raise additional capital or
receive substantial cash inflows from our partners by May 2009, we may be
forced to cease operations.
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·
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We
may not be able to make the payments we owe to University of
Pennsylvania for our Licenses or patent
costs.
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·
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We
may not be able to make the payments we owe to our patent law firm Pearl
Cohen Zedek Latzer LLP
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Risks
Related to our Business
|
·
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We
are highly dependent on the clinical success of our product
candidates.
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·
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We
are highly dependent upon collaborative partners to develop and
commercialize compounds using our
technology.
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·
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Our
collaborative partners control the clinical development of certain of our
drug candidates and may terminate their efforts at
will.
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·
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Our
product candidates are in various stages of development, and we cannot be
certain that any will be suitable for commercial
purposes.
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·
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Our
business will suffer if we cannot adequately protect our patent and
proprietary rights.
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·
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We
may be at risk of having to obtain a license from third parties making
proprietary improvements to our
technology.
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·
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We
are dependent on third parties to manufacture and make clinical
supplies.
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·
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We
are dependent on our key personnel and if we cannot recruit and retain
leaders in our research, development, manufacturing, and commercial
organizations, our business will be
harmed.
|
Risks
Related to our Industry
|
·
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Our
future business success depends heavily upon regulatory approvals, which
can be difficult to obtain for a variety of reasons, including
cost.
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·
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We
may face product liability claims related to participation in clinical
trials for future products.
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·
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We
are subject to environmental, health and safety laws and regulations for
which we incur costs to comply.
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·
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We
face rapid technological change and intense
competition.
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Other
Risks
|
·
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Provisions
of our corporate charter documents, Delaware law, our financing documents
and our stockholder rights plan may dissuade potential acquirers, prevent
the replacement or removal of our current management and members of our
Board of Directors and may thereby affect the price of our common
stock.
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·
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Our
stock price has been and may continue to be
volatile.
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·
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Future
sales of common stock or warrants, or the prospect of future sales, may
depress our stock price.
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·
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For
a more complete listing and description of these and other risks that the
Company faces, please see our Annual Report on Form 10-KSB as filed with
the Securities and Exchange Commission on January 30,
2009.
|
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
On December 30, 2008 we issued
2,595,944 restricted shares of the Company’s common stock to the two principals
of a vendor in payment of their outstanding invoices.
Item
6. Exhibits and Reports on Form 8-K
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31.1
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Certification
of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley
Act of 2002
|
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31.2
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Certification
of Principal Financial Officer pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
|
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32.1
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Certification
of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley
Act of 2002
|
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32.2
|
Certification
of Principal Financial Officer pursuant to section 906 of the
Sarbanes-Oxley Act of
2002
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No
Reports on Form 8-K were filed during the three months ended January 31, 2009
except as follows:
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i.
|
Report
on Form 8-K filed December 19, 2008 relating to items: 1.01, 2.03, 8.01
and 9.01.
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ii.
|
Report
on Form 8-K filed January 6, 2009 relating to items: 8.01 and
9.01.
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|
iii
|
Report
on Form 8-K filed January 16, 2009 relating to items:
8.01.
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iv
|
Report
on Form 8-K filed February 13, 2009 relating to items:
7.01
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SIGNATURES
In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
hereunto duly authorized.
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ADVAXIS,
INC.
Registrant
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Date: March
13, 2009
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By:
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/s/ Thomas Moore
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Thomas
Moore
Chief
Executive Officer and Chairman of the Board
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By:
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/s/ Fredrick
Cobb
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Fredrick
Cobb
Vice
President Finance, Principal Financial
Officer
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