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
April 30, 2009, we had $31,488 in cash, a deficit of $2,599,756 in working
capital, $1,044,978 in notes and interest payable, stockholders deficiency of
$1,303,330 and an accumulated deficiency of $18,143,984.
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
loss for the three months ended April 30, 2009 was $792,938. Our net
loss for the six months ended April 30, 2009 was $610,940 which includes
$922,020 income received in this period from the New Jersey Technology Tax
Certificate Transfer Program.
Since our
inception until April 30, 2009, the Company has reported accumulated net losses
of $18,143,984 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 June through
September 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, as of April 30, 2009 he has
loaned $499,985 in additional Notes or $124,985 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.
Since
inception through April 30, 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.
Since
January 31, 2009 our short term financing plans through early June 2009
consisted of our CEO, Thomas Moore providing $499,985 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, our entering into a note purchase agreement on June 18,
2009 for $961,650 in senior secured convertible promissory notes (the “2009
Bridge Notes”) and the potential to raise an additional $1,000,000 through
additional debt financing will be sufficient to finance our currently planned
operations to September 2009.
We
believe this plan will provide us with enough time to allow us to raise
$18,000,000 in funds by September 2009. These funds combined with the
conversion of the $1,961,650 2009 Bridge Notes investments should meet our
financial needs until December 2011. With these funds we anticipate starting two
phase II trials this September; one in India in invasive cervical cancer and one
in the United States in CIN. We also plan on a phase II trial in the United
States with an unspecified start date to be sponsored by the National Institute
of Health (“NIH”). All three phase II trials will use our ADXS111-001
investigational drug. As part of our strategy to enhance our
development efforts we plan on filing, in the near future, a request for Fast
Track Drug Designation in cervical cancer with the FDA, which, if approved,
offers expedited regulatory review.
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 & options
valuations, impairment of intangibles and fixed assets and projected operating
results.
Recently
Issued 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,
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 strategically exploit 16
patents issued and 17 pending filed in some of the largest markets in the world
(excluding the patents issued and applied for that we are no longer pursing in
smaller markets). After careful review and analysis we decided not to
pursue 11 patents issued and 4 patent applications filed in small
countries.
This
agreement has been amended from time to time and was amended and
restated on February 13, 2007. We have acquired and paid for The First
Amended and Restated Patent License Agreement. However, the Second
Amendment that we mutually agreed to enter into on March 26, 2007 to exercise
our option to license an additional 12 other dockets or approximately 39 or more
additional patent applications for Listeria-Based and LLO-Based Vaccine dockets
was not finalized. In order to purchase this Second Amendment as of April
30, 2009 we are contingently liable for $423,725 including the reimbursement of
certain legal and filing costs. We are still in negotiations
with Penn over the form of payment (some combination of stock or cash) and
expect to reach a conclusion at the close of our next financial
raise. These fees are currently unpaid and are not recorded in our
financial statements as of the April 30, 2009. While we consider our
relationship with Penn good we are in frequent communications over payment of
past due invoices and other payables due to our lack of cash. If we fail to
reach a mutual understanding Penn may issue a default notice and we will have 60
days to cure the breach or be subject to the termination of the
agreement.
As of
April 30, 2009, all gross capitalized costs associated with the licenses and
patents filed and granted as well as and costs associated with patents pending
are $1,460,589 (excluding the Second Amendment costs) as shown under license and
patents on the table below. Out of the $1,460,589 capitalized cost the cost of
the patents and licenses issued is estimated to be $745,216 and cost of the
patents pending or in process of filing is estimated to be $715,373. The
expirations of the existing patents range from 2014 to 2020 but the expirations
may 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 or patents applications that are not issued
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 April 30, 2009 of
capitalized cost since inception of the company and the elimination of eleven
patent applications in total. No other additional 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
|
|
|
April 30,
2009
|
|
Increase/(Decrease)
|
License
|
|
$
|
529,915
|
|
|
$
|
571,275
|
|
|
$
|
41,360
|
|
Patents
|
|
|
812,910
|
|
|
|
889,314
|
|
|
|
76,404
|
|
Total
intangibles
|
|
|
1,342,825
|
|
|
|
1,460,589
|
|
|
|
117,764
|
|
Accumulated
Amortization
|
|
|
(205,428
|
)
|
|
|
(240,862
|
)
|
|
|
(35,434)
|
|
Intangible
Assets
|
|
$
|
1,137,397
|
|
|
$
|
1,219,727
|
|
|
$
|
82,330
|
|
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
April 30, 2008
|
|
|
As of
April 30, 2009
|
|
Warrants
|
|
|
87,883,769
|
|
|
|
89,417,733
|
|
Stock
Options
|
|
|
8,812,841
|
|
|
|
8,812,841
|
|
Total
All
|
|
|
96,696,610
|
|
|
|
98,230,574
|
|
On
September 22, 2008, Advaxis entered into a Note Purchase Agreement (the “Moore
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 (the “Moore Notes”). On June 15, 2009, Mr. Moore and the
Company amended the Moore Notes to increase the amounts available pursuant to
the Moore Agreement from $800,000 to $950,000 and change the maturity date of
the Notes from June 15, 2009 to the earlier of January 1, 2010 (the “Maturity
Date”) or the Company’s next equity financing resulting in gross proceeds to the
Company of at least $6 million (a “Subsequent Equity
Raise”).
On
June 18, 2009 the Company entered into a Note Purchase Agreement (the “Bridge
Note Purchase Agreement) in a private offering whereby certain accredited
investors (the “Investors”) acquired the 2009 Bridge Notes for $961,650. For
every dollar invested the Investors received warrants to purchase 2 ½ shares of
Common Stock at an exercise price of $0.20 per share, subject to adjustment upon
the occurrence of certain events. The 2009 Bridge Notes mature on December 31,
2009 if not retired sooner. The 2009 Bridge Notes may be prepaid in whole or in
part at the option of the Company without penalty at any time prior to the
Maturity Date. The warrants may be exercised on a cashless basis under certain
circumstances. In the event the Company consummates an equity financing from and
after August 1, 2009 and prior to the second business day immediately preceding
the Maturity Date, in which it sells shares of its stock with aggregate gross
proceeds of not less than $2,000,000 (a “Qualified Equity Financing”), then
prior to the Maturity Date, the Investors shall have the option to convert all
or a portion of the 2009 Bridge Notes into the same securities sold in the
Qualified Equity Financing, at an effective per share conversion price equal to
90% of the per share purchase price of the securities issued in the
Qualified Equity Financing.
In the
event the Company does not consummate a Qualified Equity Financing from and
after August 1, 2009 and prior to the second business day immediately preceding
the Maturity Date, then the Investors shall have the option to convert all or a
portion of the 2009 Bridge Notes into shares of Common Stock, at an effective
per share conversion price equal to 50% of the volume-weighted average price per
share of the Common Stock over the five (5) consecutive trading days immediately
preceding the third business day prior to the Maturity Date
To the
extent an Investor does not elect to convert its 2009 Bridge Note as described
above, the principal amount of the 2009 Bridge Note not so converted shall be
payable in cash on the Maturity Date.
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 $70,605. 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
April 30, 2009, we had outstanding warrants to purchase 89,417,733 shares of our
common stock. The exercise prices ranges from $0.187 to $0.287 per
share excluding 3,333,333 warrants purchased for $0.149 per warrant with an
exercise price of $0.001 per share. Most of these warrants include anti-dilutive
provisions that can trigger an adjustment to the number and price of the
warrants outstanding resulting from certain equity transactions issued below
their exercise price.
An
offering of common stock or warrants below $0.26 per share will trigger certain
weighted average 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 on October 17, 2007 contain “full-ratchet” anti-dilution provisions
set at $0.20 with a term of five years. Therefore any future offering
below $0.20 per share of the company’s common stock or warrants 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 30,822,220 warrants outstanding (the “Prior Warrants”) which a
vast majority 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. These Prior Warrants expire on or
before December 31, 2009. Management
is currently evaluating the dilution impact of the June 18, 2009 Bridge Notes
warrants on our current warrant holders ratchets as well as the potential effect
of the next financial raise resulting from the ratchets in the warrants.
In May
2009 all of the 3,333,333 warrants that were purchased for $0.149 per warrant
with an exercise price of $0.001were exercised on a cashless basis and 3,299,999
common shares were issued.
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:
|
|
For the six
month period
ended
April 30, 2008
|
|
|
For the six
month period
ended
April 30, 2009
|
|
Research
and development
|
|
|
14,174
|
|
|
|
31,074
|
|
General
and Administrative
|
|
|
104,829
|
|
|
|
45,692
|
|
Total
stock compensation expense recognized
|
|
$
|
119,003
|
|
|
$
|
76,766
|
|
Total
unrecognized estimated compensation expense related to non-vested stock options
granted and outstanding as of April 30, 2009 was $107,867, which is expected to
be recognized over a weighted-average period of one year and four
months.
No
options were exercised nor granted over the three months and six months ended
April 30, 2008 and 2009 periods.
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, we have no liabilities recorded for
these provisions. Accordingly, we have no liabilities recorded for these
provisions as of April 30, 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
United States, 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 a vendor CME Acuity 2,595,944 shares of common stock on December
30, 2008 in full payment for its outstanding balance. In May 2009 all or
3,333,333 of the warrants purchased for $0.149 per warrant in the October 17,
2007 raise with an exercise price of $0.001were exercised on a cashless basis
and 3,299,999 shares of common stock were issued.
On June
15, 2009, Mr. Moore and the Company amended the Moore Notes to increase the
amounts available pursuant to the Moore Agreement from $800,000 to $950,000 and
change the maturity date of the Moore Notes from June 15, 2009 to the earlier of
January 1, 2010 or the Company’s next equity financing resulting in gross
proceeds to the Company of at least $6 million.
Effective
June 18, 2009, Advaxis, Inc. (the “Company”) entered into a Note Purchase
Agreement (the “Note Purchase Agreement”) with each of accredited and/or
sophisticated investors as specified on Schedule A (collectively, the
“Investors”), pursuant to which it completed a private placement (the
“Offering”) whereby the Investors acquired senior convertible promissory notes
of the Company (the “Notes”) in the aggregate principal face amount of
$1,131,352.94, for an aggregate net purchase price of $961,650. The
Notes were issued with an original issue discount of 15%. Each
Investor paid $0.85 for each $1.00 of principal amount of Notes purchased at the
Closing. The Notes are convertible into shares of the Company’s
common stock, $0.001 par value (the “Common Stock”), all as more particularly
described below and in the form of Note attached hereto as Exhibit
4.1. For every dollar invested, each Investor received warrants to
purchase 2 ½ shares of Common Stock (the “Warrants”) at an exercise price of
$0.20 per share, subject to adjustments upon the occurrence of certain events as
more particularly described below and in the form of Warrant attached hereto as
Exhibit 4.2. The 2009 Bridge Notes are to mature on December 31, 2009 if
not retired sooner. The 2009 Bridge Notes may be prepaid in whole or in part at
the option of the Company without penalty at any time prior to the Maturity
Date. The warrants may be exercised on a cashless basis under certain
circumstances.
In the
event the Company consummates an equity financing from and after August 1, 2009
and prior to the second business day immediately preceding the Maturity Date, in
which it sells shares of its stock with aggregate gross proceeds of not less
than $2,000,000, then prior to the Maturity Date, the Investors shall have the
option to convert all or a portion of the 2009 Bridge Notes into the same
securities sold in the Qualified Equity Financing, at an effective per share
conversion price equal to 90% of the per share purchase price of the securities
issued in the Qualified Equity Financing. In the event the Company
does not consummate a Qualified Equity Financing from and after August 1, 2009
and prior to the second business day immediately preceding the Maturity Date,
then the Investors shall have the option to convert all or a portion of the 2009
Bridge Notes into shares of Common Stock, at an effective per share conversion
price equal to 50% of the volume-weighted average price per share of the Common
Stock over the five (5) consecutive trading days immediately preceding the third
business day prior to the Maturity Date. To the extent an Investor does not
elect to convert its 2009 Bridge Note as described above, the principal amount
of the 2009 Bridge Note not so converted shall be payable in cash on the
Maturity Date.
In
connection with the bridge transaction, the Company entered into a Security
Agreement, dated as of June 18, 2009 with the Investors. The Security
Agreement grants the Investors a security interest in all of the Company’s
tangible and intangible assets, as further described on Exhibit A to the
Security Agreement. The Company also entered into a Subordination Agreement,
dated as of June 18, 2009 (the “Subordination Agreement”) with the Investors and
Mr. Moore. Pursuant to the Subordination Agreement, Mr. Moore
subordinated certain rights to payments under the Moore Note to the right of
payment in full in cash of all amounts owed to the Investors pursuant to the
Notes; provided, however, that principal and interest of the Moore Note may be
repaid prior to the full payment of the Investors under certain
circumstances.
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’). 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 June
15, 2009, Mr. Moore and the Company amended the Moore Notes to increase the
amounts available pursuant to the Moore Agreement from $800,000 to $950,000 and
change the maturity date of the Notes from June 15, 2009 to the earlier of
January 1, 2010 or the Company’s next equity financing resulting in gross
proceeds to the Company of at least $6 million.
On
June 18, 2009 the Company entered into the 2009 Bridge Note Purchase Agreement
whereby the Investors acquired the 2009 Bridge Notes for $961,650. For every
dollar invested they received warrants to purchase 2 ½ shares of Common Stock at
an exercise price of $0.20 per share, subject to adjustment upon the occurrence
of certain events. The 2009 Bridge Notes are to mature on December 31, 2009 if
not retired sooner. The 2009 Bridge Notes may be prepaid in whole or in part at
the option of the Company without penalty at any time prior to the Maturity
Date. The warrants may be exercised on a cashless basis under certain
circumstances. In the event the Company consummates an equity financing from and
after August 1, 2009 and prior to the second business say immediately preceding
the Maturity Date, in which it sells shares of its stock with aggregate gross
proceeds of not less than $2,000,000, then prior to the Maturity Date, the
Investors shall have the option to convert all or a portion of the New Notes
into the same securities sold in the Qualified Equity Financing, at an effective
per share conversion price equal to 90% of the per share purchase price of the
securities issued in the Qualified Equity Financing. In the event the
Company does not consummate a Qualified Equity Financing from and after August
1, 2009 and prior to the second business day immediately preceding the Maturity
Date, then the Investors shall have the option to convert all or a portion of
the 2009 Bridge Notes into shares of Common Stock, at an effective per share
conversion price equal to 50% of the volume-weighted average price per share of
the Common Stock over the five (5) consecutive trading days immediately
preceding the third business day prior to the Maturity Date
To the
extent an Investor does not elect to convert its 2009 Bridge Note as described
above, the principal amount of the 2009 Bridge Note not so converted shall be
payable in cash on the Maturity Date.
In
connection with the bridge transaction, the Company entered into a Security
Agreement, dated as of June 18, 2009 with the Investors. The Security
Agreement grants the Investors a security interest in all of the Company’s
tangible and intangible assets, as further described on Exhibit A to the
Security Agreement the Company also entered into a Subordination Agreement,
dated as of June 18, 2009 (the “Subordination Agreement”) with the Investors and
Mr. Moore. Pursuant to the Subordination Agreement, Mr. Moore
subordinated certain rights to payments under the Moore Note to the right of
payment in full in cash of all amounts owed to the Investors pursuant to the
Notes; provided, however, that principal and interest of the Moore Note may be
repaid prior to the full payment of the Investors in certain
circumstances.
On June
1, 2009 we received the FDA letter denying our request for Orphan Drug
Designation (ODD) for the use of ADXS11-001 in invasive cervical cancer. The FDA
stated their market definition for invasive cervical cancer prevalence
(including all those who had been cured) is over the 200,000 person cut-off.
While the FDA’s response was disappointing we plan on seeking their approval for
a Fast Track designation which, if approved, will allow us an expedited
regulatory timeline.
On May
26, 2009 the United States Patent and Trademark office approved the Company’s
its patent-application Compositions and Methods for Enhancing the Immunogenicity
of Antigencs. This patent application covers the use of Listeria monocytogenes
(Lm) protein ActA and fragments of this protein for use in the creation of
antigen fusion proteins. This intellectual property protects a unique
strain of Listeria
monocytogenes for use
as a vaccine vector.
On May
20, 2009 we announced that we applied for a $2.0 Million U.S. Bio-Defense Grant,
in collaboration with a healthcare company (Collaborator), to develop an oral
formulation of its live Listeria technology for the prevention of influenza.
Also on May 4, 2009 we also announced that we applied for nearly $5.0 Million in
Grants in Response to U.S. Department of Defense Solicitation in three separate
grant proposals. On April 27, 2009 we announced that we applied for
approximately $1.0 Million worth of grants from the National Institute of
Health.
On April
17, 2009 we announced that we are in licensing discussions for our flagship
vaccine construct, ADXS11-001, in certain non-US markets.
On March
23, 2009 we announced our updated survival data for our Phase I trial of live
Listeria vaccine ADXS11-001 in patients with recurrent, metastatic, carcinoma of
the cervix. While the Phase I safety trial was not designed to evaluate efficacy
or survival as its primary endpoints, we continue to follow the survival of the
study participants. As of March 17, 2009 three of the thirteen, or twenty-three
percent, evaluable patients in the Phase I clinical trial continue to survive
beyond the historical median survival of six months or less, based on the NCI’s
GOG statistics for the treatment of recurrent, metastatic cervical cancer. These
three patients have survived, respectively, 763 days, 864 days and 894 days
after having received their first dose off ADXS11-001.
On
February 10, 2009 the United States Patent and Trademark office granted to the
Company its 13 th
approved patent being actively developed. 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.
We
believe our financial plan will provide us with enough time to allow us to raise
$18,000,000 in funds by September 2009. These funds combined with the conversion
of the $1,961,650 in New Notes investments (amounts invested and the potential
to raise an additional $1,000,000) should meet our financial needs until
December 2011. With these funds we anticipate starting two phase II trials this
September; one in India in invasive cervical cancer and one in the United States
in CIN. We also plan on a phase II trial in the United States with an
unspecified start date to be sponsored by the National Institute of Health
(“NIH”). All three phase II trials will use our ADXS111-001 investigational
drug. As part of our strategy to enhance our development efforts we
plan on filing, in the near future, a request for Fast Track Drug Designation in
cervical cancer with the FDA, which, if approved, offers expedited regulatory
review.
Our
funding plans assumes the Company will be required to repay approximately
$1,848,000 primarily to Mr. Moore for repayment of all but $200,000 of his Notes
and interest, payments, in addition to two notes and interest that we are
currently in default on, payments to our contract research organization and
payment to the University of Pennsylvania including amounts we are contingently
liable for and 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 debt and 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. We
have also applied for government grants totaling $7,641,531which could net the
company up to $5,670,111 in funding strategic research and clinical programs. In
addition, we plan on applying for the New Jersey NOL program for our tax losses
in fiscal year 2008 again this year that we were awarded last year for our
recorded losses through December 31, 2007 as well as the Research Tax Credit
Program for the first time this year.
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 through December
2011. 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 April 30, 2009 period compared to the three months ended April 30,
2008
Revenue. Our revenue
decreased by $17,956, or 100%, to $0 for the three months ended April 30, 2009
(“Fiscal 2009 Quarter”) as compared with $17,956 for the three months ended
April 30, 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 $381,063, or
57%, to $283,812 for the Fiscal 2009 Quarter as compared with $664,875 for the
Fiscal 2008 Quarter, principally attributable to the following:
●
|
Clinical
trial expenses decreased by $33,392, or 98%, to $731 from $34,123 due to
the fact that our close out of our phase I trial in the first Fiscal
2008 Quarter.
|
|
Wages,
options and lab costs decreased by $46,489, or 16% to $241,663 from
$288,152 principally due to no bonus accrual was recorded in Fiscal 2009
Quarter compared to a $27,152 accrual recorded in Fiscal 2008 Quarter and
lower overall lab costs due to the priority given to grant and publication
writing.
|
|
Consulting
expenses decreased by $14,491, or 31%, to $32,621 from $47,112, primarily
reflecting the lower effort required to prepare the Investigational New
Drug filing for the FDA or $17,213 and lower option expense or $1,778 in
Fiscal 2009 Quarter compared to the same period last year, partially
offset by slightly higher consulting expense of
$4,500.
|
|
Subcontracted
research expenses decreased by $39,900, or 100%, to $0 from $39,900
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 same period last Fiscal 2008
Quarter.
|
|
Manufacturing
expenses decreased by $246,791, to $8,797 from $255,588, or 97% resulting
from 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.
|
General and Administrative
Expenses. General and administrative expenses decreased by $483,062 or
50%, to $488,468 for the Fiscal 2009 Quarter as compared with $971,530 for the
Fiscal 2008 Quarter, primarily attributable to the following:
|
Wages,
Options and benefit expenses decreased by $130,752, or 37% to $224,655
from $355,407 principally due to (i) no bonus accrual recorded in Fiscal
2009 Quarter compared to a $15,648 accrual recorded in Fiscal 2008
Quarter, (ii) no stock issuance in Fiscal 2009 Quarter compared to $71,250
issued to the CEO per his employment agreement in Fiscal 2008 Quarter and
(iii) lower option expense of $42,780 due to vesting of the
CEO’s options in Fiscal 2008 Quarter compared to no vesting of his options
in Fiscal 2009 Quarter as they were fully vested prior to the current
quarter.
|
|
Consulting
fees decreased by $185,808, or 90%, to $20,782 from $206,590. This
decrease was primarily attributed to: $114,375 decrease in Mr. Appel’s
(our previous President & CEO) agreement settlement and consulting
fees recorded in the Fiscal 2008 Quarter and none recorded in the Fiscal
2009 Quarter. This decrease in expenses also included lower consulting
expenses due to financial advisor fees of $56,818 recorded in the Fiscal
2008 Quarter verses the fees for other consultants in the Fiscal 2009
Quarter and $14,615 lower option expenses paid to consultants in Fiscal
2009 Quarter versus Fiscal 2008
Quarter.
|
|
Offering
expenses increased by $43,991 to $43,991 from $0. This expense includes
warrant expense of $22,694 recorded in the Fiscal 2009 Quarter due to the
Note Agreement with the CEO along with $21,297 in offering expense
incurred with the preparation of the documents for the next financial
raise.
|
|
A
decrease in legal, accounting, professional and public relations expenses
of $474, or .4%, to $116,368 from $116,842, primarily as a result of a
lower overall expenses legal and filing fees off set by higher accounting
and patent expenses in Fiscal 2009 Quarter than in Fiscal 2008
Quarter.
|
|
Amortization
of intangibles and depreciation of fixed assets decreased by $281, or 1%,
to $27,247 from $27,528 primarily due to no increase in fixed assets and a
small in intangibles in the Fiscal 2009 Quarter compared to the Fiscal
2008 Quarter.
|
|
Analysis
Research cost decreased by $97,990 or 100%, to $0 from $97,990 due to a
one time report and business analysis report in the Fiscal 2008 Quarter
not repeated in Fiscal 2009
Quarter.
|
|
Recruiting
fees for the Executive Director of Product Development in Fiscal 2008
Quarter was $63,395 and there was no such expense in Fiscal 2009
Quarter.
|
|
Overall
occupancy and conference related expenses decreased by $49,301 or 47% to
$54,951 from $104,252. Overall conference expense decreased by $32,315 in
the Fiscal 2009 Quarter due to lower participation in cancer conferences
as well as lower travel expenses to the conferences of $16,440 than
compared to Fiscal 2008 Quarter.
|
Other Income (expense). Other
Income (expense) decreased by $29,826 to $20,658 in expense for Fiscal 2009
Quarter from income of $9,168 for the Fiscal 2008 Quarter. During the Fiscal
2008 and the Fiscal 2009 Quarters, we recorded interest expense of $1,945 and
$20,658 respectively, primarily related to interest accrued on our outstanding
notes. Interest earned on investments for the Fiscal 2008 and Fiscal 2009
Quarters amounted to $11,114 and $0, respectively.
Six
months ended April 30, 2009 period compared to the six months ended April 30,
2008
Revenue. Our revenue
decreased by $40,359, or 100%, to $0 for the six months ended April 30, 2009
(“Fiscal 2009 Period”) as compared with $17,956 for the three months ended April
30, 2008 (“Fiscal 2008 Period”) 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 $884,052, or
66%, to $462,986 for the Fiscal 2009 Period as compared with $1,347,038 for the
Fiscal 2008 Period, principally attributable to the following:
|
Clinical
trial expenses decreased by $98,975, or 98%, to $1,769 from $100,744
primarily due to our close out of our phase I trial in the first
Fiscal 2008 Quarter and the delay in starting up our phase II
trial.
|
|
Wages,
options and lab costs decreased by $206,806, or 36% to $365,204 from
$572,010 principally due to the recording of the full years bonus accrual
in Fiscal 2008 that was reversed in Fiscal 2009 Period or $198,527. No
bonus accrual was recorded nor paid in Fiscal 2009 Period. Wages were
$51,458 higher in Fiscal 2009 Period due to the new hire of the Executive
Director, Product Development in March 2008 that were primarily
offset by lower overall lab cost and other
compensation.
|
|
Consulting
expenses decreased by $22,333, or 26%, to $64,190 from $86,523, $45,165 of
the decrease was primarily due to the higher effort required to prepare
and submit the Investigational New Drug filing to the FDA in the Fiscal
2008 Period compared to the lower effort in Fiscal 2009 Period. This
decrease was partially offset by higher option expense of $13,832 and
consulting expense of $9,000 in the Fiscal 2009 Period compared to the
same period last year.
|
|
Subcontracted
research expenses decreased by $81,124, or 100%, to $0 from $81,124
reflecting the completion of the project prior to Fiscal 2009 Period
performed by Dr. Paterson at Penn, pursuant to a sponsored research
agreement ongoing in the same period last Fiscal 2008
Period.
|
|
Manufacturing
expenses decreased by $448,172, to $31,823 from $479,995, or 93% resulting
from the completion of our clinical supply program for the upcoming CIN
trial prior to Fiscal 2009 Period compared to the manufacturing program in
the Fiscal 2008.
|
|
Toxicology
study expenses decreased by $26,640, to $0 or 100% due the completion in
Fiscal 2008 Period of our toxicology study by Pharm Olam in connection
with our ADXS111-001 product candidates in anticipation of clinical
studies in 2008.
|
General and Administrative
Expenses. General and administrative expenses decreased by $710,198, or
41%, to $1,033,922 for the Fiscal 2009 Period as compared with $1,744,120 for
the Fiscal 2008 Period primarily attributable to the following:
|
Wages,
Options and benefit expenses decreased by $199,304, or 30% to $457,917
from $657,221 principally due to the recording of the full years bonus
accrual in Fiscal 2008 that was reversed in Fiscal 2009 Period or $68,201.
No bonus accrual was recorded nor paid in Fiscal 2009 Period nor was there
a stock issuance in Fiscal 2009 Period compared to $71,250 issued to the
CEO per his employment agreement in Fiscal 2008 Period and
lower option expense of $59,137 due to vesting of the CEO’s
options in Fiscal 2008 Period compared to two months of vesting of his
options in Fiscal 2009 Period as they became fully
vested.
|
|
Consulting
fees decreased by $284,455, or 86%, to $47,782 from $332,237. This
decrease was primarily attributed to: decrease of $161,250 in Mr. Appel’s
(our previous President & CEO) consulting fees made up of $31,250 and
a payment in settlement of his employment agreement of $130,000 in
recorded in the Fiscal 2008 Period and none were recorded in the Fiscal
2009 Period. Also consulting expenses were lower due to
financial advisor fees of $120,000 recorded in the Fiscal 2008 Period
versus the fees for other consultants in the Fiscal 2009 Period due to the
close of the offering on October
17,2007.
|
|
Offering
expenses increased by $34,293 to $66,071 from $31,778. This expense
includes warrant expense of $22,694 recorded in the Fiscal 2009 Period due
to the Note Agreement with the CEO that started in September 2008 along
with $11,599 in additional offering expense incurred with the preparation
of the documents for the next financial
raise.
|
|
A
decrease in legal, accounting, professional and public relations expenses
of $1,846, or .6%, to $285,727 from $287,573, primarily as a result of a
lower overall legal, accounting, Public relations and filing fees off set
by higher patent expenses in the Fiscal 2009 Period than in the Fiscal
2008 Period.
|
|
Amortization
of intangibles and depreciation of fixed assets increased by $1,578, or
3%, to $53,758 from $52,180 primarily due to an increase in fixed assets
and intangibles in the Fiscal 2009 Period compared to the Fiscal 2008
Period.
|
|
Analysis
Research cost decreased by $117,990 or 100%, to $0 from $117,990 due to a
one time report and business analysis report in the Fiscal 2008 Period not
repeated in Fiscal 2009 Period.
|
|
Recruiting
fees for the Executive Director of Product Development in Fiscal 2008
Period was $63,395 and there was no such expense in Fiscal 2009
Period.
|
|
Overall
occupancy and conference related expenses decreased by $79,079 or 39% to
$122,668 from $201,747. Overall conference expense has decreased by
$57,255 in the Fiscal 2009 Period due to lower participation in cancer
conferences. In addition lower travel related to the reduced conferences
attendance amounted to a decrease of $7,557 in the Fiscal 2009 Period than
incurred in the Fiscal 2008
Period.
|
Other Income (expense). Other
Income (expense) decreased by $75,948 to $36,052 in expense for Fiscal 2009
Period from income of $39,896 for the Fiscal 2008 Period. During the Fiscal 2008
and the Fiscal 2009 Periods, we recorded interest expense of $3,931 and $36,052
respectively, primarily related to interest accrued on our outstanding notes.
Interest earned on investments for the Fiscal 2008 and Fiscal 2009 Periods
amounted to $43,827 and $0, respectively.
In the
Fiscal 2009 Period there was a net change of $922,020 recorded due to a gain
recorded from the receipt of a NOL tax credit received from the State of New
Jersey tax program. There was no comparable gain in Fiscal 2008 Period as this
was the first year we were awarded this NOL credit.
We
anticipate an increase in Research and Development 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.
Liquidity
and Capital Resources
Since our
inception until April 30, 2009, the Company has reported accumulated net losses
of $18,143,984 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
loss was $610,940 for the six months ended April 30, 2009 which included a
$922,020 gain from the sale of our State of New Jersey Net Operating Losses
(recorded as a Income Tax Benefit) from inception through December 31,
2007.
Our
limited capital resources and operations to date have been funded primarily with
the proceeds from public and private equity and debt financings, NOL tax credit
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 September 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 by
September 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. We have acquired and paid for The First Amended and Restated Patent
License Agreement. However, The Second Amendment that was mutually
agreed to and entered into on March 26, 2007 to exercise our option to license
an additional 12 dockets or approximately 39 or more patent applications in
Listeria-Based and LLO-Based Vaccine patent/dockets to license was not
finalized. According to this Second Amendment, we are contingently liable
for $423,725 as of April 30, 2009 including the reimbursement of certain legal
and filing costs. We are still in negotiations with Penn over
the form and amount of payment (stock or cash or some combination) and expect to
reach a conclusion at the close of our next financial raise. These fees are
currently unpaid and are not recorded in our financial statements as of the
April 30, 2009. While we consider our relationship with Penn good we are in
frequent communications over payment of past due invoices and other payables due
to our lack of cash. If we fail to reach a mutual understanding Penn may issue a
default notice and we will have 60 days to cure the breach or be subject to the
termination of the agreement.
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 12 more 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 39 patent applications. However we are contingently
liable for this Second Agreement an estimated amount of $423,725 as of April 30,
2009. 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 April 30, 2009.
On June
15, 2009, Mr. Moore and the Company amended the Moore Notes to increase the
amounts available pursuant to the Moore Agreement from $800,000 to $950,000 and
change the maturity date of the Notes from June 15, 2009 to the earlier of
January 1, 2010 (the “Maturity Date”) or the Company’s next equity financing
resulting in gross proceeds to the Company of at least $6 million (a “Subsequent
Equity Raise”).
On
June 18, 2009 the Company entered into a Note Purchase Agreement (the “Bridge
Note Purchase Agreement) in a private offering whereby certain accredited
investors (the “Investors”) acquired the 2009 Bridge Notes for $961,650. For
every dollar invested the Investors received warrants to purchase 2 ½ shares of
Common Stock at an exercise price of $0.20 per share, subject to adjustment upon
the occurrence of certain events. The 2009 Bridge Notes mature on December 31,
2009 if not retired sooner. The 2009 Bridge Notes may be prepaid in whole or in
part at the option of the Company without penalty at any time prior to the
Maturity Date. The warrants may be exercised on a cashless basis under certain
circumstances. In the event the Company consummates an equity financing from and
after August 1, 2009 and prior to the second business say immediately preceding
the Maturity Date, in which it sells shares of its stock with aggregate gross
proceeds of not less than $2,000,000 (a “Qualified Equity Financing”), then
prior to the Maturity Date, the Investors shall have the option to convert all
or a portion of the 2009 Bridge Notes into the same securities sold in the
Qualified Equity Financing, at an effective per share conversion price equal to
90% of the per share purchase price of the securities issued in the
Qualified Equity Financing.
Off-Balance
Sheet Arrangements
As of
April 30, 2009, we had no off-balance sheet arrangements, other than our lease
for space. There were no changes in significant contractual obligations during
the three months ended April 30, 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:
|
|
It
requires assumption to be made that were uncertain at the time the
estimate was made, and
|
|
|
Changes
in the estimate of difference estimates that could have been selected
could have material impact in our results of operations or financial
condition.
|
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 were
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 the 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
|
|
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 investor’s by June
2009, we may be forced to cease
operations.
|
|
|
We
may be forced into bankruptcy.
|
|
|
Our
next raise may be at a stock price that will trigger a significant
dilution due to price and trigger ratchets in the shares and
warrants.
|
|
|
We
may not be able to make the payments we owe to University of
Pennsylvania for our Licenses or patent
costs.
|
|
|
We
may not be able to make the payments we owe to our patent law firm Pearl
Cohen Zedek Latzer LLP
|
Risks
Related to our Business
|
|
We
are highly dependent on the clinical success of our product
candidates.
|
|
|
We
are highly dependent upon collaborative partners to develop and
commercialize compounds using our
technology.
|
|
|
Our
collaborative partners control the clinical development of certain of our
drug candidates and may terminate their efforts at
will.
|
|
|
Our
product candidates are in various stages of development, and we cannot be
certain that any will be suitable for commercial
purposes.
|
|
|
Our
business will suffer if we cannot adequately protect our patent and
proprietary rights.
|
|
|
We
may be at risk of having to obtain a license from third parties making
proprietary improvements to our
technology.
|
|
|
We
are dependent on third parties to manufacture and make clinical
supplies.
|
|
|
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
|
|
Our
future business success depends heavily upon regulatory approvals, which
can be difficult to obtain for a variety of reasons, including
cost.
|
|
|
We
may face product liability claims related to participation in clinical
trials for future products.
|
|
|
We
are subject to environmental, health and safety laws and regulations for
which we incur costs to comply.
|
|
|
We
face rapid technological change and intense
competition.
|
Other
Risks
|
|
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.
|
|
|
Our
stock price has been and may continue to be
volatile.
|
|
|
Future
sales of common stock or warrants, or the prospect of future sales, may
depress our stock price.
|
|
|
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 29,
2009.
|
Item
6. Exhibits and Reports on Form 8-K
[Need to
include exhibits that you talk abou tin the 10-Q, which includes all of the
Bridge Documents. You can incorporate by reference to the 8-K/A and don’t have
to file them with the 10-Q]
|
4.1
|
Form
of Common Stock Purchase Warrant (Incorporated by reference to Exhibit 4.1
to current report on Form 8-K filed with the SEC on June 19,
2009)
|
|
4.2
|
Form
of Convertible Promissory Note (Incorporated by reference to Exhibit 4.2
to current report on Form 8-K filed with the SEC on June 19,
2009)
|
|
4.3
|
Form
of Amended Promissory Note Advaxis, Inc. and Thomas Moore (Incorporated by
reference to Exhibit 4.3 to current report on Form 8-K filed with the SEC
on June 19, 2009)
|
|
10.1
|
Form
of Note Purchase Agreement (Incorporated by reference to Exhibit 10.1 to
current report on Form 8-K filed with the SEC on June 19,
2009)
|
|
10.2
|
Form
of Security Agreement (Incorporated by reference to Exhibit 10.2 to
current report on Form 8-K filed with the SEC on June 19,
2009)
|
|
10.3
|
Form
of Subordination Agreement (Incorporated by reference to Exhibit 10.3 to
current report on Form 8-K filed with the SEC on June 19,
2009)
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley
Act of 2002
|
|
31.2
|
Certification
of Principal Financial Officer pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley
Act of 2002
|
|
32.2
|
Certification
of Principal Financial Officer pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
|
No
Reports on Form 8-K were filed during the three months ended April 30, 2009
except as follows:
|
i.
|
Report
on Form 8-K filed February 13, 2009 relating to items:
7.01.
|
|
ii.
|
Report
on Form 8-K filed April 20, 2009 relating to items: 8.01 and
9.01.
|
SIGNATURES
In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
hereunto duly authorized.
|
ADVAXIS,
INC.
Registrant
|
|
|
|
Date:
June 22, 2009
|
By:
|
/s/ Thomas Moore
|
|
|
Thomas
Moore
Chief
Executive Officer and Chairman of the Board
|
|
|
|
|
By:
|
/s/ Fredrick Cobb
|
|
|
Fredrick
Cobb
Vice
President Finance, Principal Financial
Officer
|