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 April 30, 2010
¨
|
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 registrant 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
|
(Registrant’s
telephone number)
|
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes ¨ No
¨
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 ¨
|
Accelerated filer ¨
|
Non-accelerated filer ¨
|
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 ¨ No x
The
number of shares of the registrant's common stock, $0.001 par value, outstanding
as of May 20, 2010 was 169,302,203.
INDEX
|
|
Page
No.
|
|
|
|
PART
I
|
FINANCIAL
INFORMATION
|
|
|
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
Balance
Sheet at April 30, 2010 (unaudited) and October 31, 2009
|
2
|
|
|
|
|
Statements
of Operations for the three and six month periods ended April 30, 2010 and
2009 and the period March 1, 2002 (inception) to April 30, 2010
(unaudited)
|
3
|
|
|
|
|
Statements
of Cash Flow for the six month periods ended April 30, 2010 and 2009 and
the period March 1, 2002 (inception) to April 30, 2010
(unaudited)
|
4
|
|
|
|
|
Supplemental
Schedule of Noncash Investing and Financing Schedules
|
5
|
|
|
|
|
Notes
to Financial Statements
|
6
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
14
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
21
|
|
|
|
Item
4T.
|
Controls
and Procedures
|
21
|
|
|
|
PART
II
|
OTHER
INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
22
|
|
|
|
Item
1A.
|
Risk
Factors
|
22
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
22
|
|
|
|
Item
6.
|
Exhibits
|
22
|
|
|
|
SIGNATURES
|
23
|
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
|
|
April 30,
2010
|
|
|
October 31,
2009
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
|
|
$ |
227,245 |
|
|
$ |
659,822 |
|
Prepaid
expenses
|
|
|
65,003 |
|
|
|
36,445 |
|
Total
Current Assets
|
|
|
292,248 |
|
|
|
696,267 |
|
|
|
|
|
|
|
|
|
|
Deferred
expenses
|
|
|
206,528 |
|
|
|
288,544 |
|
Property
and Equipment (net of accumulated depreciation)
|
|
|
45,439 |
|
|
|
54,499 |
|
Intangible
Assets (net of accumulated amortization)
|
|
|
1,486,336 |
|
|
|
1,371,638 |
|
Deferred
Financing Cost
|
|
|
- |
|
|
|
299,493 |
|
Other
Assets
|
|
|
20,685 |
|
|
|
3,876 |
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
2,051,236 |
|
|
$ |
2,714,317 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
1,782,895 |
|
|
$ |
2,368,716 |
|
Accrued
expenses
|
|
|
748,492 |
|
|
|
917,250 |
|
Convertible
Bridge Notes and fair value of embedded derivative
|
|
|
4,073,716 |
|
|
|
2,078,851 |
|
Notes
payable – including interest payable
|
|
|
940,653 |
|
|
|
1,121,094 |
|
Total
Current Liabilities
|
|
|
7,545,756 |
|
|
|
6,485,911 |
|
|
|
|
|
|
|
|
|
|
Common
Stock Warrant
|
|
|
16,467,800 |
|
|
|
11,961,734 |
|
Total
Liabilities
|
|
$ |
24,013,556 |
|
|
$ |
18,447,645 |
|
|
|
|
|
|
|
|
|
|
Shareholders’
Deficiency:
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value; 5,000,000 shares authorized; issued and
outstanding 361 at April 30, 2010 and 0 at October 31,
2009
|
|
|
|
|
|
|
|
|
Common
Stock - $0.001 par value; authorized 500,000,000 shares, issued and
outstanding 142,781,243 at April 30, 2010 and 115,638,243 at October 31,
2009
|
|
|
142,780 |
|
|
|
115,638 |
|
Additional
Paid-In Capital
|
|
|
12,572,129 |
|
|
|
754,834 |
|
Stock
subscription receivable
|
|
|
(4,881,710 |
) |
|
|
- |
|
Deficit
accumulated during the development stage
|
|
|
(29,795,519 |
) |
|
|
(16,603,800 |
) |
Total
Shareholders' Deficiency
|
|
$ |
(21,962,320 |
) |
|
$ |
(15,733,328 |
) |
Total
Liabilities and stockholders’ deficiency
|
|
$ |
2,051,236 |
|
|
$ |
2,714,317 |
|
The
accompanying notes are an integral part of these financial
statements.
ADVAXIS,
INC.
(A
Development Stage Company)
STATEMENTS
OF OPERATIONS
(unaudited)
|
|
Three Months Ended
April 30,
|
|
|
Six Months Ended
April 30,
|
|
|
Period from
March 1, 2002
(Inception) to
April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
Revenue
|
|
$
|
87,234
|
|
|
$
|
|
|
|
$
|
87,234
|
|
|
$
|
|
|
|
$
|
1,442,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
& Development Expenses
|
|
|
1,084,703
|
|
|
|
283,812
|
|
|
|
2,082,038
|
|
|
|
462,986
|
|
|
|
12,255,579
|
|
General
& Administrative Expenses
|
|
|
779,463
|
|
|
|
488,468
|
|
|
|
1,368,478
|
|
|
|
1,033,922
|
|
|
|
14,078,178
|
|
Total
Operating expenses
|
|
|
1,864,166
|
|
|
|
772,280
|
|
|
|
3,450,516
|
|
|
|
1,496,908
|
|
|
|
26,333,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(1,776,932
|
)
|
|
|
(772,280
|
)
|
|
|
(3,363,282
|
)
|
|
|
(1,496,908
|
)
|
|
|
(24,891,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(1,647,069
|
)
|
|
|
(20,658
|
)
|
|
|
(3,313,208
|
)
|
|
|
(36,052
|
)
|
|
|
(5,248,699
|
)
|
Other
Income
|
|
|
14,539
|
|
|
|
-
|
|
|
|
16,810
|
|
|
|
-
|
|
|
|
263,267
|
|
Gain
on note retirement
|
|
|
64,354
|
|
|
|
-
|
|
|
|
64,354
|
|
|
|
-
|
|
|
|
1,596,831
|
|
Net
changes in fair value of common stock warrant liability and embedded
derivative liability
|
|
|
(5,785,257
|
)
|
|
|
-
|
|
|
|
(6,875,371
|
)
|
|
|
-
|
|
|
|
(2,672,374
|
)
|
Net
(Loss) before benefit for income taxes
|
|
|
(9,130,365
|
)
|
|
|
(792,938
|
)
|
|
|
(13,470,697
|
)
|
|
|
(1,532,960
|
)
|
|
|
(30,952,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
-
|
|
|
|
-
|
|
|
|
278,978
|
|
|
|
922,020
|
|
|
|
1,201,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss)
|
|
|
(9,130,365
|
)
|
|
|
(792,938
|
)
|
|
|
(13,191,719
|
)
|
|
|
(610,940
|
)
|
|
|
(29,751,635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
attributable to preferred shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(43,884
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss) applicable to Common Stock
|
|
$
|
(9,130,365
|
)
|
|
$
|
(792,938
|
)
|
|
$
|
(13,191,719
|
)
|
|
$
|
(610,940
|
)
|
|
$
|
(29,795,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss) per share, basic
|
|
$
|
(.07
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(.11
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss) per share, diluted
|
|
$
|
(.07
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(.11
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding, basic
|
|
|
133,124,164
|
|
|
|
112,319,454
|
|
|
|
125,577,856
|
|
|
|
111,255,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares, diluted
|
|
|
133,124,164
|
|
|
|
112,319,454
|
|
|
|
125,577,856
|
|
|
|
111,255,809
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
ADVAXIS,
INC.
(A
Development Stage Company)
STATEMENTS
OF CASH FLOWS
(unaudited)
|
|
Six Months Ended
April 30,
|
|
|
Period from
March 1, 2002
(Inception) to
April 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(13,191,719
|
)
|
|
$
|
(610,940
|
)
|
|
$
|
(29,751,635
|
)
|
Adjustments
to reconcile net loss to net cash used in
|
|
|
|
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
charges to consultants and employees for options and
stock
|
|
|
268,696
|
|
|
|
94,943
|
|
|
|
2,693,451
|
|
Amortization
of deferred financing costs
|
|
|
-
|
|
|
|
-
|
|
|
|
260,000
|
|
Amortization
of deferred expenses
|
|
|
82,016
|
|
|
|
-
|
|
|
|
143,472
|
|
Amortization
of discount on Bridge Loans
|
|
|
480,730
|
|
|
|
|
|
|
|
604,576
|
|
Impairment
of intangible assets
|
|
|
-
|
|
|
|
|
|
|
|
26,087
|
|
Non-cash
interest expense
|
|
|
2,818,711
|
|
|
|
31,676
|
|
|
|
4,035,547
|
|
Loss
(Gain) on change in value of warrants and embedded
derivative
|
|
|
6,875,371
|
|
|
|
-
|
|
|
|
2,672,374
|
|
Value
of penalty shares issued
|
|
|
-
|
|
|
|
-
|
|
|
|
149,276
|
|
Depreciation
expense
|
|
|
19,075
|
|
|
|
18,324
|
|
|
|
147,813
|
|
Amortization
expense of intangibles
|
|
|
43,522
|
|
|
|
35,434
|
|
|
|
405,454
|
|
Gain
on note retirement
|
|
|
(64,354
|
)
|
|
|
|
|
|
|
(1,596,831
|
)
|
Decrease
(Increase) in prepaid expenses
|
|
|
(28,558
|
)
|
|
|
(13,520
|
)
|
|
|
(65,002
|
)
|
Increase
in other assets
|
|
|
(14,538
|
)
|
|
|
-
|
|
|
|
(18,415
|
)
|
(Decrease)
increase in accounts payable
|
|
|
(460,987
|
)
|
|
|
107,250
|
|
|
|
2,396,912
|
|
(Decrease)
Increase in accrued expenses
|
|
|
(168,758
|
)
|
|
|
(18,825
|
|
|
|
308,860
|
|
(Decrease)
in interest payable
|
|
|
(161,200
|
)
|
|
|
-
|
|
|
|
(142,909
|
)
|
Net
cash used in operating activities
|
|
|
(3,501,993
|
)
|
|
|
(355,658
|
)
|
|
|
(17,730,970
|
)
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid on acquisition of Great Expectations
|
|
|
|
|
|
|
-
|
|
|
|
(44,940
|
)
|
Purchase
of property and equipment
|
|
|
(10,014
|
)
|
|
|
-
|
|
|
|
(147,671
|
)
|
Cost
of intangible assets
|
|
|
(158,220
|
)
|
|
|
(117,764
|
)
|
|
|
(1,992,829
|
)
|
Net
cash used in Investing Activities
|
|
|
(168,234
|
)
|
|
|
(117,764
|
)
|
|
|
(2,185,440
|
)
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from convertible secured debenture
|
|
|
|
|
|
|
-
|
|
|
|
960,000
|
|
Cash
paid for deferred financing costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(559,493
|
)
|
Principal
payment on notes payable
|
|
|
(1,150,177
|
)
|
|
|
(4,813
|
)
|
|
|
(1,273,768
|
)
|
Proceeds
from notes payable
|
|
|
1,015,000
|
|
|
|
-
|
|
|
|
6,020,859
|
|
Payment
on notes payable
|
|
|
-
|
|
|
|
449,985
|
|
|
|
|
|
Net
proceeds of issuance of Preferred Stock
|
|
|
3,202,827
|
|
|
|
-
|
|
|
|
3,437,827
|
|
Cancellation
of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
(600,000
|
)
|
Proceeds
from exercise of warrants
|
|
|
170,000
|
|
|
|
|
|
|
|
170,000
|
|
Proceeds
from issuance of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
11,988,230
|
|
Net
cash provided by financing Activities
|
|
|
3,237,650
|
|
|
|
445,172
|
|
|
|
20,143,655
|
|
Net
(Decrease) increase in cash
|
|
|
(432,577
|
)
|
|
|
(28,250
|
)
|
|
|
227,245
|
|
Cash
at beginning of period
|
|
|
659,822
|
|
|
|
59,738
|
|
|
|
-
|
|
Cash
at end of period
|
|
$
|
227,245
|
|
|
$
|
31,488
|
|
|
$
|
227,245
|
|
The
accompanying notes are an integral part of these financial
statements.
Supplemental
Schedule of Noncash Investing and Financing Activities
|
|
Six Months Ended
April 30,
|
|
|
Period from
March 1, 2002
(Inception) to April
30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
acquired under capital lease
|
|
|
- |
|
|
|
- |
|
|
$ |
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 from consultants settled with 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
|
|
$ |
539,354 |
|
|
|
- |
|
|
$ |
2,621,796 |
|
Allocation
of the original secured convertible debentures to warrants
|
|
|
- |
|
|
|
- |
|
|
$ |
214,950 |
|
Allocation
of the warrants on Bridge Notes as debt discount
|
|
$ |
639,735 |
|
|
|
- |
|
|
$ |
1,580,246 |
|
Note
receivable in connection with exercise of warrants
|
|
$ |
4,881,710 |
|
|
|
- |
|
|
$ |
4,881,710 |
|
Warrants
Issued in connection with issuance of Common Stock
|
|
|
- |
|
|
|
- |
|
|
$ |
1,505,550 |
|
Warrants
issued in connection with issuances of Preferred stock
|
|
|
- |
|
|
|
- |
|
|
$ |
3,587,625 |
|
The
accompanying notes are an integral part of these financial
statements.
ADVAXIS,
INC.
NOTES
TO THE FINANCIAL STATEMENTS
(unaudited)
1.
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature
of Operations
Advaxis,
Inc. (the “Company”) is a development stage biotechnology company with the
intent to develop safe and effective cancer vaccines that utilize multiple
mechanisms of immunity. The Company is developing a live Listeria vaccine technology
under license from the University of Pennsylvania (“Penn”) which secretes a
protein sequence containing a tumor-specific antigen. The Company believes 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. The Company believes 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. This technology
involves 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. In addition, this technology
supports, among other things, the immune response by altering tumors to make
them more susceptible to immune attack, stimulating the development of specific
blood cells that underlie a strong therapeutic immune response.
Since the
Company’s inception in 2002, it has focused its initial development efforts upon
therapeutic cancer vaccines targeting cervical cancer, its predecessor
condition, cervical intraepithelial neoplasia, head and neck cancer, breast
cancer, prostate cancer, and other cancers. 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 Company will increase significantly as it expects to begin several
clinical trials starting this fiscal year.
Basis
of Presentation
The
accompanying unaudited interim financial statements include all adjustments
(consisting only of those of a normal recurring nature) necessary for a fair
statement of the results of the interim period. The October 31, 2009 balance
sheet is derived from the audited balance sheet included on Form 10-K. These
interim financial statements should be read in conjunction with the Company’s
Financial Statements and Notes for the fiscal year ended October 31, 2009 filed
on Form 10-K. The Company believes these financial statements reflect all
adjustments (consisting only of normal, recurring adjustments) that are
necessary for a fair presentation of its financial position and results of
operations for the periods presented. Management’s plans are to continue to
raise additional funds through the sales of debt or equity securities. 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, a
shareholders’ deficiency and recurring losses from operations 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 the Company be unable
to continue operations.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 (including the embedded
derivative liability), warrant valuation, impairment of intangibles and fixed
assets and projected operating results.
Net
Loss 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,
|
|
|
|
2010
|
|
2009
|
|
Warrants
|
|
|
85,043,407 |
|
|
|
89,417,733 |
|
Stock
Options
|
|
|
18,119,090 |
|
|
|
8,812,841 |
|
Total
|
|
|
103,162,497 |
|
|
|
98,230,574 |
|
Research
and Development Expenses
Research
and development expenses include, but are not limited to, payroll and personnel
expenses, lab expenses, clinical trial and related clinical manufacturing costs,
facilities and related overhead costs.
Accounting
for Stock-Based Compensation
Stock-based
compensation is estimated at the grant date based on the award’s fair value as
calculated by the Black-Scholes-Merton option-pricing model (hereinafter
referred to as the “BSM model”) and is recognized as expense over the requisite
service period. The BSM model requires various assumptions including volatility,
forfeiture rates and expected option life. If any of the assumptions used in the
BSM model change significantly, stock-based compensation expense may differ
materially in the future from that recorded in the current period. See Note 5
for information on stock-based compensation expense incurred in the three months
ending April 30, 2010.
Warrant
Liability/Embedded Derivative Liability
The
Company has outstanding Warrants and convertible features (Embedded Derivatives)
in its outstanding Senior and Junior Subordinated Promissory Notes. The Warrants
and Embedded Derivatives are recorded at their relative fair values at issuance
and will continue to be recorded at fair value each subsequent balance sheet
date. Any change in value between reporting periods will be recorded as other
income (expense) at each reporting date. The Warrants will continue to be
reported as liabilities until such time as they are exercised or are otherwise
modified to remove the provisions that require this treatment, at which time the
Warrants will be adjusted to fair value and reclassified from liabilities to
stockholders’ equity.
In June
2008, the FASB ratified ASC 815-40-15 (formerly 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 year 2010. EITF 07-5 did not have an
effect on the financial statements as the Company is already accounting for all
convertible instruments as liabilities.
In April
2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2010-17, Revenue Recognition—Milestone Method
(Topic 605) - Milestone Method of Revenue Recognition - a consensus of the FASB
Emerging Issues Task Force. This ASU provides guidance to vendors on the
criteria that should be met for determining whether the milestone method of
revenue recognition is appropriate. This guidance is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption is permitted.
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.
3.
INTANGIBLE ASSETS
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 25 patents issued
and 44 patents pending and applied for in most of the largest markets in the
world.
As of
April 30, 2010, all gross capitalized costs associated with the licenses and
patents filed and granted as well as costs associated with patents pending are
$1,809,794 (excluding the Second Amendment costs) as shown under license and
patents on the table below. The expirations of the existing patents range from
2014 to 2023 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.
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 intangible assets as of the end of the following
fiscal periods:
|
|
April 30,
2010
|
|
|
October 31,
2009
|
|
License
|
|
$
|
651,992
|
|
|
$
|
571,275
|
|
Patents
|
|
|
1,157,802
|
|
|
|
1,080,299
|
|
Total
intangibles
|
|
|
1,809,794
|
|
|
|
1,651,574
|
|
Accumulated
Amortization
|
|
|
(323,458
|
)
|
|
|
(279,936
|
)
|
Intangible
Assets
|
|
$
|
1,486,336
|
|
|
$
|
1,371,638
|
|
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.
4.
NOTES PAYABLE AND DERIVATIVE INSTRUMENTS
Moore
Notes
On
September 22, 2008, Advaxis entered into an agreement (the “Moore Agreement”)
with the Company’s Chief Executive Officer, Thomas Moore, pursuant to which the
Company agreed to sell senior promissory notes to Mr. Moore, from time to
time,(“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 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. The Moore Agreement was amended per the terms of the June 18, 2009 Note
Purchase Agreement (described below) retroactively to include the same warrant
provision provided to Investors in the Note Purchase Agreement.
On
February 15, 2010, we agreed to amend the terms of the Moore Notes such that (i)
Mr. Moore may elect, at his option, to receive accumulated interest thereon on
or after March 17, 2010 (which we paid during the period in the amount of
$130,000), (ii) we will begin to make monthly installment payments of $100,000
on the outstanding principal amount beginning on April 15, 2010 ( which we paid
$100,000 on April 19, 2010); provided, however, that the balance of the
principal will be repaid in full on consummation of our next equity financing
resulting in gross proceeds to us of at least $6.0 million and (iii) we will
retain $200,000 of the repayment amount for investment in our next equity
financing. The balance on outstanding Moore Notes , including accrued interest,
approximates $875,000 as of April 30, 2010. See also Note 8 - Subsequent
Events.
Senior
Convertible Promissory Notes
Effective
June 18, 2009, the Company entered into a Note Purchase Agreement with certain
accredited and/or sophisticated investors, pursuant to which the Investors
acquired senior convertible promissory notes of the Company in the aggregate
principal face amount of $1,131,353, for an aggregate net purchase price of
$961,650. At April 30, 2010, the Company had repaid $981,353 of these notes and
$150,000 principal value remained outstanding. See Note 8 – Subsequent
Events.
Junior
Subordinated Convertible Promissory Notes
Additionally,
on October 26, and October 30, 2009 the Company entered into Bridge Note
agreements whereby Investors acquired junior subordinated convertible promissory
notes of the Company in the aggregate face amounts of $1,617,647 and $529,412
for aggregate net purchase prices of $1,375,000 and $450,000 respectively. At
April 30, 2010 of the $1,617,647 the company had repaid $58,824, leaving
$1,558,824 outstanding. All $529,412 of the October 30, 2009 notes remains
outstanding.
During
the three months ended January 31, 2010 the Company entered into Bridge Note
agreements whereby Investors acquired junior subordinated convertible promissory
notes of the Company in the aggregate face amounts of $555,882 for aggregate net
purchase prices of $472,500. These junior subordinated convertible promissory
notes mature on dates ranging from March 16, 2010 through July 30, 2010 subject
to certain provisions in the note agreement. At April 30, 2010, all $555,882
remains outstanding.
During
the three months ended April 30, 2010 the company entered into Junior
Subordinated Convertible Promissory Notes in the aggregate principal value of
$640,307 for an aggregate net purchase price of $542,500. These notes mature on
dates ranging from July 30, 2010 to November 30, 2010. At April 30, 2010, the
entire $640,307, remain outstanding.
As of
April 30, 2010, all Bridge Notes were originally issued with an original issue
discounts ranging from 10% to 18%. Each Investor paid between $0.82 and $.90 for
each $1.00 of principal amount of notes purchased at the closing. The bridge
notes are convertible into shares of the Company’s common stock at an exercise
price contingent on the completion of an equity financing as described below.
For every dollar invested, each Investor received warrants to purchase 2 ½
shares of common stock (the “Bridge Warrants”) subject to adjustments upon the
occurrence of certain events as more particularly described below and in the
form of Warrant. As of April 30, 2010 all Bridge Note warrants have an exercise
price of $.17 per share. The 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.
We
refer to all Senior Convertible Promissory Notes and Junior Subordinated
Convertible Promissory Notes as “Bridge Notes”.
Activity
related to the Bridge Notes from issuance is as follows:
Bridge
Note – Principal Value - Issued
|
|
$ |
4,474,601
|
|
Principal
payments on Bridge Notes
|
|
|
(1,040,177
|
)
|
Original
Issue Discount, net of accreted interest
|
|
|
(68,375
|
)
|
Fair
Value of Attached Warrants at issuance
|
|
|
(1,580,248)
|
|
Fair
Value of Embedded Derivatives at issuance
|
|
|
(2,430,858
|
)
|
Accreted
interest on embedded derivative and warrant liabilities
|
|
|
3,641,114
|
|
|
|
|
|
|
Convertible
Bridge Notes- as of April 30, 2010
|
|
$
|
2,996,057
|
|
Embedded
Derivatives Liability at April 30, 2010
|
|
|
1,077,659
|
|
Convertible Bridge
Notes and fair value of embedded derivative
|
|
$
|
4,073,716
|
|
BioAdvance
Note
BioAdvance
Biotechnology Greenhouse of Southeastern Pennsylvania Notes (“BioAdvance”)
received notes from the Company for $10,000 dated November 13, 2003 and $40,000
dated December 17, 2003 that were each due on the fifth anniversary date
thereof. During November 2009 , the Company paid $14,788 in full payment of the
November, 13, 2003 note and BioAdvance agreed to extend the remaining note until
the Company drew down its equity line of credit with Optimus. The terms of the
outstanding note calls for accrual of 8% interest per annum on the unpaid
principal.
Derivative
Instruments
The table
below lists the Company’s derivative instruments as of April 30,
2010:
Description
|
|
Principal
|
|
|
Original
Issue
Discount
|
|
|
Warrant
Liability
|
|
|
Embedded
Derivative
Liability
|
|
Bridge
Note I-June 18, 2009
|
|
$
|
1,131,353
|
|
|
$
|
169,703
|
|
|
$
|
250,392
|
|
|
$
|
711,258
|
|
Bridge
Note II & III-October 26 & 30, 2009
|
|
|
2,147,059
|
|
|
|
322,059
|
|
|
|
690,119
|
|
|
|
868,388
|
|
Optimus
September 24, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
3,587,625
|
|
|
|
-
|
|
Other
outstanding warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
12,785,695
|
|
|
|
-
|
|
Total
Valuation at Origination
|
|
$
|
3,278,412
|
|
|
$
|
491,762
|
|
|
$
|
17,313,831
|
|
|
$
|
1,579,646
|
|
Change
in fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,352,097
|
)
|
|
|
(493,132
|
)
|
Accreted
interest
|
|
|
-
|
|
|
|
(123,846
|
)
|
|
|
-
|
|
|
|
-
|
|
Total
Valuation as of October 31, 2009
|
|
$
|
3,278,412
|
|
|
$
|
367,916
|
|
|
$
|
11,961,734
|
|
|
$
|
1,086,514
|
|
Bridge
Notes IV – December 1, 2009 through January 31, 2010
|
|
|
555,882
|
|
|
|
83,382
|
|
|
|
207,617
|
|
|
|
164,400
|
|
Bridge
Note I- Extension of Maturity Date
|
|
|
|
|
|
|
|
|
|
|
202,500
|
|
|
|
103,400
|
|
Change
in fair value
|
|
|
|
|
|
|
|
|
|
|
1,995,372
|
|
|
|
(905,259)
|
|
Accreted interest
|
|
|
|
|
|
|
(225,321)
|
|
|
|
|
|
|
|
|
|
Exercise
of Common Stock Warrants
|
|
|
|
|
|
|
|
|
|
|
(1,702,073)
|
|
|
|
|
|
Total Valuation
as of January 31, 2010
|
|
$
|
3,834,294
|
|
|
$
|
225,977
|
|
|
$
|
12,665,150
|
|
|
$
|
449,055
|
|
Bridge
Note V
|
|
|
640,307
|
|
|
|
97,807
|
|
|
|
229,619
|
|
|
|
271,554
|
|
Change
in fair value
|
|
|
|
|
|
|
|
|
|
|
5,363,854
|
|
|
|
421,404
|
|
Accreted
interest
|
|
|
|
|
|
|
(251,188
|
)
|
|
|
|
|
|
|
|
|
Exercise
of common stock warrants
|
|
|
|
|
|
|
|
|
|
|
(1,790,823
|
)
|
|
|
|
|
Note
Payoffs
|
|
|
(1,040,177
|
)
|
|
|
(4,222
|
)
|
|
|
|
|
|
|
(64,354
|
)
|
Total
Valuation as of April 30, 2010
|
|
$
|
3,434,424
|
|
|
$
|
68,374
|
|
|
$
|
16,467,800
|
|
|
$
|
1,077,659
|
|
Warrants
As of
April 30, 2010, there were outstanding warrants to purchase 85,043,407 shares of
our common stock with exercise prices ranging from $0.17 to $0.287 per
share.
These
warrants include 12,387,210 warrants issued to Bridge Notes holders at an
exercise price of $0.17 (subject to adjustment) per warrant and 7,607,000 issued
to Optimus at an exercise price of $0.20 per warrant and approximately
65,049,137 warrants issued by the Company in connection with our private
placements consummated on October 17, 2007 (the “2007 Warrants”) at an exercise
price of $.17 (subject to adjustment) and expire in October 2012.
During
January 2010 Optimus exercised 11,563,000 (of the previously issued 33,750,000)
warrants at a price of $.17 in exchange for a note with a principal amount of
$1,965,710.
During
March 2010 Optimus exercised 14,580,000 warrants at a price of $.20 in exchange
for a note with the principal amount of $2,916,000. The notes bear interest at
2% and are due in four years. The notes have been recorded as subscriptions
receivable.
Accordingly,
the Company issued 11,563,000 shares and 14,580,000 shares, respectively, of its
Common Stock. While the 7,607,000 warrants remaining at April 30,
2010 contain a repricing provision they do not contain a ratchet provisions that
would increase the number of warrants. See Note 8 - Subsequent
Events.
During
March 2010, 1,000,000 of our 2007 Warrants were exercised at a price of $.17.
The company received $170,000 in cash and issued 1,000,000 shares of its common
stock.
Warrant
Liability/Embedded Derivative Liability
The fair
value of the Warrants and Embedded Derivatives are estimated using the BSM
model. As of April 30, 2010, the fair value of the Warrants and Embedded
Derivatives were determined to be $16.5 million and $1.1 million, respectively.
We recorded approximately $6.9 million in other loss for the six months ended
April 30, 2010.
5.
ACCOUNTING FOR STOCK BASED COMPENSATION PLANS
The
Company records compensation expense associated with stock options based on the
estimated fair value of each option award that was granted using the
Black-Scholes option valuation model.
The table
below summarizes compensation expenses from share-based payment
awards:
|
|
As of April 30,
|
|
|
|
2010
|
|
|
2009
|
|
Research
and development
|
|
$
|
29,042
|
|
|
$
|
31,074
|
|
General
and Administrative
|
|
|
61,225
|
|
|
|
45,692
|
|
Total
stock compensation expense recognized
|
|
$
|
90,267
|
|
|
$
|
76,766
|
|
Total unrecognized estimated
compensation expense related to non-vested stock options granted and outstanding
as of April 30, 2010 was $488,000 which are expected to be recognized over a
weighted-average period of one year and three months.
No
options were exercised over the six months ended April 30, 2010 and 2009. For
the six months ended April 30, 2010, the Company granted 1,750,000 options at a
weighted average Black Scholes value and exercise price of approximately $0.12.
No options were granted for the three months ended April 30, 2009.
6.
COMMITMENTS AND CONTINGENCIES
University
of Pennsylvania
Pursuant
to multiple consulting agreements and a licensing agreement, the Company is
contingently liable for the following:
Under an
amended and restated 20-year exclusive worldwide (July 1, 2002 effective date)
license agreement, the Company is obligated to pay (a) $525,000 in aggregate,
divided over a three-year period as a minimum royalty after the first commercial
sale of a product. Such payments are not anticipated within the next five years.
(b) On December 31, 2008 the Company was also obligated to pay annual license
maintenance fees of $50,000 increasing to a maximum of $100,000 per year until
the first commercial sale of a licensed product. As of the date of this filing
the Company has not paid this fee. (c) Upon the initiation of a phase III
clinical trial and the regulatory approval for the first Licensor
product the Company is obligated to pay milestone payments of $400,000 and
$600,000, respectively. (d) Upon the achievement of the first sale of a product
in certain fields, the Company shall be obligated to pay certain milestone
payments, as follows: $2,500,000 shall be due for first commercial sale of the
first product in the cancer field (of which $1,000,000 shall be paid within
forty-five (45) days of the date of the first commercial sale, $1,000,000 shall
be paid on the first anniversary of the first commercial sale; and $500,000
shall be paid on the second anniversary of the date of the first commercial
sale). In addition, $1,000,000 shall be due and payable within forty-five (45)
days following the date of the first commercial sale of a product in each
of the following fields (a) infectious disease, (b) allergy, (c) autoimmune
disease, and (d) any other therapeutic indications for which licensed products
are developed. Therefore, the maximum total potential amount of milestone
payments is $3,500,000 in a cancer field. The milestone payments related to
first sales are not expected prior to obtaining a regulatory approval to market
and sell the Company’s vaccines, and such regulatory approval is not expected
within the next 5 years. In addition, the Licensor is entitled to receive a
non-refundable $157,134 payment of historical license costs. Under a licensing
agreement, the Licensor is also entitled to receive royalties of 1.5% on net
sales in all countries. In addition, we are obligated to reimburse the
Licensor for all attorneys fees, expenses, official fees and other charges
incurred in the preparation, prosecution and maintenance of the
patents licensed from the Licensor.
This
license 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 27 or more
additional patent applications for Listeria and LLO-based vaccine dockets was
not finalized until May 20, 2010.. See Note 8 - Subsequent Events.
During
the first and second quarters of 2010, the Company paid $50,000 and $203,615
respectively for Sponsored Research Agreement and Technology Transfer
services.
Dr.
Yvonne Patterson
Under a
consulting agreement with the Company’s scientific inventor, the Company is
obligated to pay $3,000 per month until the Company closes a $3,000,000 equity
financing, $5,000 per month pursuant to a $3,000,000 equity financing, $7,000
per month pursuant to a $6,000,000 equity financing, and $9,000 per month
pursuant to a $9,000,000 equity financing. Currently the scientific inventor is
earning $7,000 per month based on the agreement and milestones
achieved.
Other
Pursuant
to a Clinical Research Service Agreement, the Company is obligated to pay
Pharm–Olam International for service fees related to our Phase I clinical trial.
As of April 30, 2010, the Company has an outstanding balance of $219,131 on this
agreement.
We are
party to a consulting agreement with The Sage Group, a health-care strategy
consultant assisting us with a program to commercialize our
vaccines. The initial agreement was entered into in January 2009 and
subsequently amended on July 22, 2009. Pursuant to the terms of
agreement, as amended, we have agreed to pay Sage (i) $5,000 per month until an
aggregate of $120,000 has been paid to Sage under the consulting agreement and
(ii) a 5% commission for certain transaction if completed in the first 24 months
of the term of the agreement, reduced to 2% if completed in the 12 months
thereafter. The Sage Group has been paid approximately $40,600 through April 30,
2010.
On June
19, 2009 we entered into a Master Agreement and on July 8, 2009 we entered into
a Project Agreement with Numoda, a leading clinical trial and logistics
management company, to oversee Phase II clinical activity with ADXS11-001 for
the treatment of invasive cervical cancer and CIN. Numoda will be
responsible globally for integrating oversight and logistical functions with the
clinical research organizations, contract laboratories, academic laboratories
and statistical groups involved. The scope of this agreement covers
over three years and is estimated to cost approximately $8.3 million for both
trials. The Company is permitted to pay a portion of outstanding charges to
Numoda in the form of the Company’s common stock for which the company has
recorded deferred expenses on the balance sheet of approximately $200,000. At
April 30, 2010 the Company owed Numoda approximately $566,000. See Note 8 -
Subsequent Events.
The
Company operates under a month to month lease for its laboratory and office
space. There are no aggregate future minimum payments due as of April 30,
2010.
7.
SHAREHOLDERS’ EQUITY
Preferred
Equity Financing
On
January 11, 2010, the Company issued and sold 145 shares of non-convertible,
redeemable Series A preferred stock to Optimus Life Sciences Capital Partners,
LLC (“Optimus”) pursuant to the terms of a Preferred Stock Purchase Agreement
between the Company and Optimus dated September 24, 2009 (the “ Purchase
Agreement ”). The Company received net proceeds of $1,166,000 from this
transaction. The aggregate purchase price for the Series A preferred stock was
$1.45 million (less $285,000 representing an administrative fee and the balance
of a commitment fee due and owing to Optimus under the Purchase Agreement and
legal fees).
On March
29 and April 1, 2010, the Company issued and sold a total of 216 shares of
non-convertible, redeemable Series A preferred stock to Optimus Life Sciences
Capital Partners, LLC (“Optimus”) pursuant to the terms of a Preferred Stock
Purchase Agreement between the Company and Optimus dated September 24, 2009 (the
“ Purchase Agreement ”). The Company received net proceeds of $2,036,827 from
this transaction. The aggregate purchase price for the Series A preferred stock
was $2.16 million (less $123,173 representing administrative and legal
fees).
Under the
terms of the Purchase Agreement, Optimus remains obligated, from time to time
until September 24, 2012, to purchase up to an additional 139 shares of Series A
preferred stock at a purchase price of $10,000 per share upon notice from the
Company to Optimus, and subject to the satisfaction of certain conditions, as
set forth in the Purchase Agreement. See Note 8 - Subsequent
Events.
In
connection with the foregoing transactions, an affiliate of Optimus was granted
33,750,000 warrants on September 24, 2009 at an exercise price of $0.20 to be
exercised and priced upon the draw down date of each tranche, if lower than
$0.20.
On
January 11, 2010, the draw down date of the first tranche, Optimus exercised
warrants to purchase 11,563,000 shares of common stock at an adjusted exercise
price of $0.17 per share. As permitted by the terms of such
warrants, the aggregate exercise price of $1,965,710 received by the Company is
payable pursuant to a four year full recourse promissory note bearing interest
at the rate of 2% per year and has been recorded as a stock subscription
receivable on the balance sheet as of April 30, 2010.
On March
29, 2010, the draw down date of the second tranche, Optimus exercised warrants
to purchase 14,580,000 shares of common stock at an adjusted exercise price of
$0.20 per share. As permitted by the terms of such warrants, the
aggregate exercise price of $2,916,000 received by the Company is payable
pursuant to a four year full recourse promissory note bearing interest at the
rate of 2% per year and has been recorded as a stock subscription receivable on
the balance sheet as of April 30, 2010.
The
Company and Optimus agreed to waive certain terms and conditions in the Purchase
Agreement and the warrant in order to permit the affiliate of Optimus to
exercise the warrants at such adjusted exercise price prior to the closing of
the purchase of the Preferred Stock and acquire beneficial ownership of more
than 4.99% of the Company’s common stock on the date of exercise.
Warrants
Almost
all of our warrants (except the Optimus warrants) contain “full-ratchet”
anti-dilution provisions originally set at $0.20 with a term of five
years. The Optimus exercise of warrants on January 11, 2010 triggered the
anti dilution provisions of the warrant agreements requiring a reset of both the
price of these warrants (from $.20 to $.17) and an increase in amount of
warrants. Therefore, any future financial offering or instrument issuance
below $0.17 per share of the Company’s common stock or warrants (subject to
certain exceptions) will cause further anti-dilution and/or repricing
provisions in the above mentioned 85.0 million outstanding
warrants. Additionally, the Company had approximately 31.4 million warrants
expire during November and December 2009.
8.
SUBSEQUENT EVENTS
Issuance
of Capital Stock
Numoda
On May
10, 2010, Advaxis, Inc. (the “ Company ”) entered into a Stock Purchase
Agreement (the “ Numoda Purchase Agreement ”) with Numoda Capital Innovations,
LLC (“ NCI ”) pursuant to which the Company agreed to issue 3,500,000 shares of
its common stock to NCI, at a price per share of $0.17, in satisfaction of
$595,000 of services rendered to the Company by Numoda Corporation. The
Company has agreed to register such shares of common stock within 120 days of
May 10, 2010.
Optimus
Transaction
On May
13, 2010, the Company issued and sold 139 shares of non-convertible, redeemable
Series A preferred stock (“Series A Preferred Stock ”) to Optimus Life Sciences
Capital Partners LLC (the “ Investor ”) pursuant to the terms of a Preferred
Stock Purchase Agreement between the Company and the Investor dated September
24, 2009 (the “ Optimus Purchase Agreement ”). The aggregate purchase
price for the shares of Series A Preferred Stock was $1.39 million (of
which the Company received $1.285 million, net of $.1 million in legal
costs). No more shares of Series A Preferred Stock remain available for
sale under the Optimus Purchase Agreement
In
connection with the issuance by the Company of the Series A Preferred Stock
described above, an affiliate of the Investor exercised a warrant to purchase
7,607,000 shares of the Company’s common stock at an exercise price of $0.18 per
share. The Company and the Investor also agreed to waive certain
terms and conditions in the Optimus Purchase Agreement and such warrant in order
to permit the affiliate of the Investor to exercise such warrant and acquire
beneficial ownership of more than 4.99% of the Company’s common stock on the
date of exercise. As permitted by the terms of such warrant, the
aggregate exercise price of $1,369,260 received by the Company is payable
pursuant to a 4 year full recourse promissory note bearing interest at the rate
of 2% per year. In addition, in connection with the foregoing
issuance by the Company of the Series A Preferred Stock, the Company issued an
additional warrant to an affiliate of the Investor (the “ Additional Warrant ”)
to purchase up to 2,818,000 shares of the Company’s common stock at an exercise
price of $0.18 per share, subject to customary anti-dilution adjustments as
provided in the Additional Warrant. The exercise price of the
Additional Warrant may be paid (at the option of the Investor) in cash or by the
Investor’s issuance of a four-year, full-recourse promissory note, bearing
interest at 2% per annum, and secured by specified portfolio of assets owned by
the Investor. The Company has agreed to file a registration statement
with the Securities and Exchange Commission covering the public resale of shares
issuable upon exercise of the Additional Warrant no later than June 24, 2010 and
use commercially reasonable efforts to cause such registration statement to
become effective as soon as possible thereafter. The Additional
Warrant is exercisable through the third anniversary of the effective date of
such registration statement.
Moore
Note
During
late April 2010, the Company agreed with its Chief Executive Officer, Thomas A.
Moore, to make a payment of $200,000 due to Mr. Moore under certain of the
Company’s senior promissory notes held by Mr. Moore (the “Moore Notes”) in the
form of 1,176,471 shares of the Company’s common stock, par value $0.001 per
share (the “Common Stock”) based on a price of $0.17 per share issued in mid
May, 2010. Approximately $650,000 remains outstanding under the Moore
Notes.
Bridge
Note conversions
During
late April 2010, the Company agreed with certain of the holders of the
Company’s junior unsecured convertible promissory notes (the “Junior Bridge
Notes”) to make payments of approximately $2.42 million aggregate principal
amount due to such holders under certain of the Junior Bridge Notes in the form
of 14,237,489 shares of Common Stock based on a price of $0.17 per share
issued in mid May, 2010. Additionally, in late May 2010, the Company repaid two
Junior Bridge Notes totaling approximately $88,000.
The
principal value of Bridge Notes outstanding at May 28, 2010 approximates
$926,000.
University
of Pennsylvania
On May10,
2010, the Company and Penn entered into a second amendment (the “Second Amendment
Agreement”) to the 20-year exclusive worldwide license agreement.
Pursuant to the Second Amendment Agreement, the Company acquired exclusive
licenses for an additional 27 patents related to the Company’s proprietary Listeria vaccine technology,
some of which expire as late as 2023. As per the terms of the Second Amendment
Agreement, the Company acknowledges that it owes Penn approximately $249,000 in
patent expenses and $130,000 in sponsored research agreement fees. The Company
has agreed to satisfy these obligations in five monthly payments of $65,000
beginning in May, 2010 plus a payment of approximately $54,000 before September
30, 2010.
In
addition, the Company has exercised an option for the rights to seven additional
patent dockets at an option exercise fee of $10,000 per patent docket ($70,000
in the aggregate). Pursuant to the terms of the Second Amendment Agreement, Penn
has the option to receive the option exercise fee in the form of a cash payment
in the amount of $70,000, shares of the Company common stock valued at $140,000
(based on a price per share of the Company’s most recently completed financing
round) or a combination of cash and Company common stock (provided that the
stock component is not less than 25% of the total payment). Penn has elected to
receive payment of the option exercise fee in the form of $35,000 in cash and
$70,000 in company common stock (approximately 388,889 shares of common stock
based on a price of $0.18 per share).
After
giving effect to the foregoing payments and stock issuances, the Company will
have completed its acquisition of available patents previously reported as an
unrecorded contingent liability of approximately $589,000.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Cautionary
Note Regarding Forward Looking Statements
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 risk factors included in the Company’s
Annual Report on Form 10-K for the fiscal year ended October 31, 2009 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, the Company’s ability to raise
capital 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
On July
28, 2005 we began trading on the Over-The-Counter Bulletin Board (OTC: BB) under
the ticker symbol ADXS.
We are 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 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. This technology
involves 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. In addition, this technology supports
among other things the immune response by altering tumors to make them more
susceptible to immune attack stimulating 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 cervical intraepithelial neoplasia, which we refer to as 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. We anticipate that our
ongoing operational costs will increase significantly as we continue our four
Phase II clinical trials that started his fiscal year.
Recent
Financings
Optimus
Transaction
On May
13, 2010, the Company issued and sold 139 shares of non-convertible, redeemable
Series A preferred stock (“ Series A Preferred Stock”) to Optimus Life Sciences
Capital Partners LLC (the “ Investor”) pursuant to the terms of a Preferred
Stock Purchase Agreement between the Company and the Investor dated September
24, 2009 (the “ Optimus Purchase Agreement ”). The aggregate purchase
price for the shares of Series A Preferred Stock was $1.39 million ( of which
the Company received $1.285 million). No more shares of Series A
Preferred Stock remain available for sale under the Optimus Purchase
Agreement. .
In
connection with the issuance by the Company of the Series A Preferred Stock
described above, an affiliate of the Investor exercised a warrant to purchase
7,607,000 shares of the Company’s common stock at an exercise price of $0.18 per
share. The Company and the Investor also agreed to waive certain
terms and conditions in the Optimus Purchase Agreement and such warrant in order
to permit the affiliate of the Investor to exercise such warrant and acquire
beneficial ownership of more than 4.99% of the Company’s common stock on the
date of exercise. As permitted by the terms of such warrant, the
aggregate exercise price of $1,369,260 received by the Company is payable
pursuant to a 4 year full recourse promissory note bearing interest at the rate
of 2% per year. In addition, in connection with the foregoing
issuance by the Company of the Series A Preferred Stock, the Company issued an
additional warrant to an affiliate of the Investor (the “ Additional Warrant ”)
to purchase up to 2,818,000 shares of the Company’s common stock at an exercise
price of $0.18 per share, subject to customary anti-dilution adjustments as
provided in the Additional Warrant. The exercise price of the
Additional Warrant may be paid (at the option of the Investor) in cash or by the
Investor’s issuance of a four-year, full-recourse promissory note, bearing
interest at 2% per annum, and secured by specified portfolio of assets owned by
the Investor. The Company has agreed to file a registration statement
with the Securities and Exchange Commission covering the public resale of shares
issuable upon exercise of the Additional Warrant no later than June 24, 2010 and
use commercially reasonable efforts to cause such registration statement to
become effective as soon as possible thereafter. The Additional
Warrant is exercisable through the third anniversary of the effective date of
such registration statement.
Moore
Notes
During
late April, 2010, the Company agreed with its Chief Executive Officer, Thomas A.
Moore, to make a payment of $200,000 due to Mr. Moore under certain of the
Company’s senior promissory notes held by Mr. Moore (the “Moore Notes”) in the
form of 1,176,471 shares of the Company’s common stock, par value $0.001 per
share (the “Common Stock”) based on a price of $0.17 per share issued in mid
May, 2010. Approximately $650,000 remains outstanding under the Moore
Notes.
Bridge
Note conversions
During
late April , 2010, the Company agreed with certain of the holders of
the Company’s junior unsecured convertible promissory notes (the “Junior Bridge
Notes”) to make payments of approximately $2.42 million aggregate principal
amount due to such holders under certain of the Junior Bridge Notes with the
issuance of 14,237,489 in mid May, 2010 shares of Common Stock based on a
price of $0.17 per share. Additionally, in late May 2010, the Company repaid two
Junior Bridge Notes totaling approximately $88,000.
The
principal value of Bridge Notes outstanding at May 28, 2010 approximates
$926,000.
Other
Developments
On
February 9, 2010 we announced that Cancer Research UK (CRUK), the UK
philanthropy dedicated to cancer research, has agreed to fund the cost of a
clinical trial to investigate the use of ADXS11-001, our lead human papilloma
virus (HPV)-directed vaccine candidate, for the treatment of head and neck
cancer. This sponsored-clinical trial will investigate the safety and
efficacy of ADXS11-001 in head and neck cancer patients who have previously
failed treatment with surgery, radiotherapy and chemotherapy – alone or in
combination. We will provide the vaccines with all other associated costs to be
funded by CRUK. The study is to be conducted at Aintree Hospital at
the University of Liverpool, Royal Marsden Hospital in London, and Cardiff
Hospital at the University of Wales. Patient enrollment is slated for the latter
part 2010. At such time, enrollment officials anticipate recruiting a maximum of
forty-five (45) patients.
On May
10, 2010, the Company and Penn entered into a Second Amendment Agreement to the
20-year exclusive worldwide license agreement. Pursuant to the Second Amendment
Agreement, the Company acquired exclusive licenses for an additional 27 patents
related to the Company’s proprietary Listeria vaccine technology,
some of which expire as late as 2023. As per the terms of the Second Amendment
Agreement, the Company acknowledges that it owes Penn approximately $249,000 in
patent expenses and $130,000 in sponsored research agreement fees. The Company
has agreed to satisfy these obligations in five monthly payments of $65,000
beginning in May, 2010 plus a payment of approximately $54,000 before September
30, 2010.
In
addition, the Company has exercised an option for the rights to seven additional
patent dockets at an option exercise fee of $10,000 per patent docket ($70,000
in the aggregate). Pursuant to the terms of the Second Amendment Agreement, Penn
has the option to receive the option exercise fee in the form of a cash payment
in the amount of $70,000, shares of the Company common stock valued at $140,000
(based on a price per share of the Company’s most recently completed financing
round) or a combination of cash and Company common stock (provided that the
stock component is not less than 25% of the total payment). Penn has elected to
receive payment of the option exercise fee in the form of $35,000 in cash and
$70,000 in company common stock (approximately 388,889 shares of common stock
based on a price of $0.18 per share).
After
giving effect to the foregoing payments and stock issuances, the Company will
have completed its acquisition of available patents previously reported as an
unrecorded contingent liability of approximately $589,000.
RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30, 2010 AND 2009
Revenue
Revenue
increased for the current period by approximately $87,000 representing grant
revenue received compared to zero in the same period a year ago.
Research
and Development Expenses
Research
and development expenses increased by $800,891 to $1,084,703 for the current
2010 Quarter as compared with $283,812 for the same period a year ago,
principally attributable to the following:
|
·
|
Clinical trial expenses increased
by $750,511, to $751,242 from $731, due to our clinical trial activity
initiated during the first fiscal quarter of
2010.
|
|
·
|
Wages, including stock-based
compensation approximately $64,000, or 28% to $291,649 from $227,456,
primarily as a result of increased salaries (including an executive bonus)
and increased stock-based compensation resulting from the 2009 stock
option plan.
|
|
·
|
Legal expenses increased
approximately $16,000, which was more than offset by consulting costs
which decreased by about
$27,000.
|
We
anticipate a significant increase in R&D expenses as a result of expanded
development and commercialization efforts primarily related to clinical trials,
and product development, and expenses to be incurred in the development of
strategic and other relationships required to license, manufacture and
distribute of our product candidates.
General
and Administrative Expenses
General
and administrative expenses increased by $290,995 or 60%, to $779,463 for the
current 2010 Quarter as compared with $488,468 for the Fiscal 2009 Quarter,
resulting from the following:
|
·
|
Salaries and employee benefits
increased by approximately $170,000, or 90% to $357,785 from $188,094 a
year ago, due to higher salaries and health insurance
premiums.
|
|
·
|
Stock-based
compensation increased by $40,629, to $50,028 from $9,399 a year ago, due
to the issuance of new options under the 2009 stock option
plan.
|
|
·
|
Legal
and accounting fees increased by $125,226, to $180,675 from $55,449,
primarily as a result of increased legal fees of $83,634
and increased accounting fees of $41,492, which were more than offset
by a decrease in offering expenses of $47,393 due to the application of
financing costs to additional paid-in
capital.
|
Other
Income (Expense)
Other
Income (expense) increased by $7,332,775 to $7,353,433 in expense for Fiscal
2010 Quarter from expense of $20,658 for the Fiscal 2009 Quarter resulting from
the following:
Interest
Expense
For the
three months ended April 30, 2010, interest expense increased by $1,626,411, to
$1,647,069 from $20,658 primarily due to the sale of Bridge Notes during the
third and fourth fiscal quarters of 2009 and the six months ended April 30,
2010. Additionally warrant liabilities and embedded derivatives related to the
Bridge Notes are recorded as a liability on the balance sheet and are amortized
to interest expense over the life of the Bridge Note.
Changes
in Fair Values
The
change in fair value of the common stock warrant liability and embedded
derivative liability increased expense by approximately $5.8 million, in
the three months ending April 30, 2010, compared to $0 a year ago.
Of the $5.8 million in expense, $5.4 million related to the change in fair
value of the warrant liability and $0.4 million related to the change in fair
value of the embedded derivative liability. This change in fair value,
using the BSM model, measures the value of the warrant liability and embedded
derivative liability at each reporting period. Any change in fair value of the
liability from the prior period is recorded in the statement of operations as
income if the value of the liability decreases and expense if the value of the
liability increases.
For
the three months ending April 30, 2010, the BSM warrant value associated with
the approximately 65 million warrants issued in 2007 (“2007 warrants”) increased
by $0.06 per warrant due to the increase in the price of Advaxis common stock,
from $0.135 at January 31, 2010 to over $0.21 at April 30, 2010, resulting in
approximately $4.0 million of the $5.4 million change in fair value of warrant
liability on the statement of operations. Approximately all of $0.4 million
related to the change in fair value of the embedded derivative liability was the
result of the increase in the price of the Advaxis common stock over the three
months ending April 30, 2010.
Potential
future increases in our stock price will result in increased warrant and
embedded derivative liabilities on our balance sheet and therefore increased
expenses being recognized in our statement of operations in future
periods.
In
the current Quarter other income increased by $78,893 from $0 a year ago,
due to the non-cash gain on retirement earned on the payoff of Bridge Notes and
interest earned on notes receivable from Optimus.
RESULTS
OF OPERATIONS FOR THE SIX MONTHS ENDED APRIL 30, 2010 AND 2009
Revenue
Revenue
increased for the current period by approximately $87,000 representing grant
revenue received compared to zero in the same period a year ago.
Research
and Development Expenses
Research
and development expenses increased by $1,619,052 to $2,082,038 for six
months ended April 30, 2010 as compared with $462,986 for same period a year
ago, principally attributable to the following:
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Clinical trial expenses increased
by $1,482,907, to $1,484,676 from $1,769, primarily due to our clinical
trial activity initiated during the first fiscal quarter of
2010.
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Salaries, including stock-based
compensation, increased by approximately $70,000, primarily as a result of
increased stock-based compensation expense and salaries. Additionally, in
the six months ended April 30, 2009, a bonus accrual was reversed,
lowering expenses by approximately $122,000 in that
period.
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Consulting expenses decreased by
$49,960, or 92%, to $4,500 from $54,460, due to a decline in the number of
consultants utilized by Advaxis and no stock-based compensation compared
to a year ago.
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We
anticipate a significant increase in R&D expenses as a result of expanded
development and commercialization efforts primarily related to clinical trials,
and product development, and expenses to be incurred in the development of
strategic and other relationships required to license manufacture and distribute
of our product candidates.
General
and Administrative Expenses
General
and administrative expenses increased by $334,556, or 32%, to $1,368,478 for the
six months ended April 30, 2010 as compared to $1,033,922 for the same period
last year, primarily attributable to the following:
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Salaries
and related expenses increased by approximately $144,000, or 35% to
$556,123 from $411,653 due to wages and benefits increasing by
approximately $119,000 from higher salaries and increased health insurance
premiums partially offset by lower 401K expenses of approximately $9,000.
Additionally, in the six months ended April 30, 2009, a bonus accrual was
reversed, lowering expenses by approximately $36,000 in that
period.
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Stock-based compensation
increased $112,181, to $157,873 from $45,692 a year ago, due to the
issuance of new options under the 2009 stock option
plan.
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Legal and accounting fees
increased by approximately $190,000, primarily as a result of higher legal
fees of approximately $148,000 and higher accounting fees of approximately
$43,000 due to increased utilization of temporary professionals and
outside auditor fees in the Fiscal 2010, which were more than offset by a
decrease in offering expenses of approximately $142,000 due to the
application of financing costs to additional paid-in
capital.
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Patent expenses decreased
approximately $77,000 due to lower amounts paid to University of
Pennsylvania under our licensing agreement, offset by higher regulatory
costs of approximately
$10,000.
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Other
Income (Expense)
Other
Income (expense) increased by $10,071,363 to $10,107,415 in expense for the six
months ended April 30, 2010 compared to $36,052 a year ago, resulting from the
following:
Interest
Expense
In Fiscal
2010 Quarter interest expense increased by $3,277,156 to $3,313,208 from $36,052
primarily due to the sale of Bridge Notes during the third and fourth fiscal
quarters of 2009 and the six months ended April 30, 2010. Additionally, the debt
discount on warrant liabilities and embedded derivatives related to the Bridge
Notes are recorded as a liability on the balance sheet and are amortized to
interest expense over the life of the Bridge Note.
Changes
in Fair Values
The
change in fair value of the common stock warrant liability and embedded
derivative liability increased expense by $6,875,371, in the six months
ending April 30, 2010, compared to $0 a year ago. Of the $6.9
million in expense, $7.3 million related to the change in fair value of the
warrant liability and ($0.4) million related to the change in fair value of the
embedded derivative liability. This change in fair value, using the BSM
model, measures the value of the warrant liability and embedded derivative
liability at each reporting period. Any change in fair value of the liability
from the prior period is recorded in the statement of operations as income if
the value of the liability decreases and expense if the value of the liability
increases.
For the six months ending April 30, 2010, the BSM warrant value associated with
the approximately 65 million warrants issued in 2007 (“2007 warrants”) increased
by about $0.07 per warrant due to the increase in the price of Advaxis common
stock, from $0.13 at October 31, 2010 to over $0.21 at April 30, 2010, resulting
in approximately $4.7 million of the $7.3 million change in fair value of
warrant liability on the statement of operations. Approximately all of ($0.4)
million related to The reduction in the embedded derivative liability
($0.4 million) was the result of the increase in the price of the Advaxis
common stock over the six months ending April 30, 2010 more than off set by
changed BSM assumptions in the price in which our Bridge notes would be
converted into equity.
Potential
future increases in our stock price will result in increased warrant and
embedded derivative liabilities on our balance sheet and therefore increased
expenses being recognized in our statement of operations in future
periods.
In
Fiscal 2010 Quarter other income increased by $78,893 from $0 a year ago, due to
the non-cash gain on retirement earned on the payoff of Bridge Notes and
interest earned on notes receivable from Optimus.
Income
Tax Benefit
In the
Fiscal 2010 Quarter other income decreased by $643,044, to $278,978 income from
$922,022 primarily due to a gain recorded from the receipt of a NOL tax credit
and research tax credit received from the State of New Jersey tax program in
Fiscal 2010 Quarter of $278,978 compared to the $922,020 received in Fiscal 2009
Quarter. The decrease in the income from the program received in
Fiscal 2010 Quarter compared to Fiscal 2009 Quarter was attributed to Fiscal
2009 Quarters NOL which was the first time we received money from the program
and it covered all prior years NOL’s from our inception whereas Fiscal 2010
Quarter covered only the current year’s NOL and prior two years of the research
tax credit.
Liquidity
and Capital Resources
Since our
inception throughl April 30, 2010, the Company has reported accumulated net
losses of $29,751,635 and recurring negative cash flows from operations.
We anticipate that we will continue to generate significant losses from
operations for the foreseeable future.
Cash used
in operating activities, for the six months ending April 30, 2010, was
approximately $3.4 million, primarily because of the following: increased
R&D spending on clinical trials, increased wages and employee benefits of
about $2.0 million and increased general and administrative spending on wages,
employee benefits and professional services (primarily legal and accounting) of
about $1.2 million.
Cash used
in investing activities, for the six months ending April 30,2010, was
approximately $168,000 resulting from legal cost spending in support of our
intangible assets (patents) and costs paid to the University of Pennsylvania for
patent research.
Cash
provided by financing activities, for the six months ending April 30, 2010, was
approximately $3,140,000, resulting from the issuance of preferred stock to
Optimus.
Preferred
Equity Financing
From
January 11, 2010, through May 13, 2010 the Company issued and sold 500 shares of
non-convertible, redeemable Series A preferred stock to Optimus pursuant to the
terms of the Optimus Preferred Stock Purchase Agreement . The Company received
gross proceeds of $5,000,000 ( net proceeds of $3,104,000 in the six months
ended April 30, 2010 and $1,285,000 received in May 2010.) from this
transaction.
In
connection with the transaction, an affiliate of Optimus was granted 33,750,000
warrants on September 24, 2009 and 2,818,000 warrants on May 13, 2010. Optimus
exercised all 33,750,000 warrants at exercise prices ranging from $.17 to $.20
and the May 2010 warrants remain outstanding to date..
Notes
Payable
The
Company issued Junior Promissory Notes in the aggregate amount of $1,015,000
during the six months ended April 30, 2010. As of April 30, 2010, the
Company agreed with certain of the holders of the Company’s junior
unsecured convertible promissory notes (the “Junior Bridge Notes”) to make
payments of approximately $2.42 million aggregate principal amount due to such
holders under certain of the Junior Bridge Notes in the form of 14,237,489
shares of Common Stock based on a price of $0.17 per share. The Company’s
common stock was issued in May 2010. During the six months ended April 30, 2010
the Company paid approximately $450,000 in principal value on its Bridge
Notes
During
late April 2010, the Company agreed with our Chief Executive Officer, Thomas A.
Moore, to make a payment of $200,000 due to Mr. Moore under certain of the
Company’s senior promissory notes held by Mr. Moore (the “Moore Notes”) in the
form of 1,176,471 shares of the Company’s common stock, par value $0.001 per
share (the “Common Stock”) based on a price of $0.17 per share issue in May
2010. Approximately $650,000 remains outstanding under the Moore
Notes.
Warrants
and Other
During
the three months ended April 30, 2010 one million warrants were exercised at an
exercise price of $.17 resulting in $170,000 of cash proceeds. The company
believes that its business activities, including its four clinical trials will
create significant value as to encourage additional warrant conversions. The
Company currently has approximately 85.0 million warrants outstanding, almost
all with an exercise price of $.17.
The
Company received $278,978 from the New Jersey Economic Development
Authority. Under the State of New Jersey Program for small business
we received this cash amount on January 15, 2010 from the sale of our State Net
Operating Losses (“NOL”) through December 31, 2008 and our research tax credit
for fiscal years 2007 and 2008.
The
Company received approximately $87,000 in grant revenue related to its National
Institutes of Health grant. Approximately $118,000 remains available under this
grant and the Company expects to receive these funds during the current fiscal
year.
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 sale
and income earned on investments and grants. We have sustained losses
from operations in each fiscal year since our inception, and we expect losses to
continue for the indefinite future, due to the substantial investment in
research and development. As of April 30, 2010 and 2009, we had an accumulated
deficit of $29,795,519 and $16,603,800, respectively and shareholders’
deficiency of $21,962,320 and $15,733,328, respectively. Based on our available
cash of approximately $1,038,000 on May 21, 2010, we do not have adequate cash
on hand to cover our anticipated expenses for the next 12 months. If we fail to
raise a significant amount of capital, we may need to significantly curtail
operations in the near future. These conditions raised 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, 2009 included a going concern
explanatory paragraph.
Our
business will require substantial additional investment that we have not yet
secured, and our failure to raise capital and/or pursue partnering opportunities
will materially adversely affect our business, financial condition and results
of operations. We expect to spend substantial additional sums on the continued
administration and research and development of proprietary products and
technologies, including conducting clinical trials for our product candidates,
with no certainty that our products will become commercially viable or
profitable as a result of these expenditures. 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. 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. No
assurances can be given, however, that we will be able to achieve these goals or
that we will be able to continue as a going concern.
We are
pursuing additional investments, grants, partnerships as well as collaborations
and exploring other financing options, with the objective of minimizing dilution
and disruption.
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. During May 2010, the Company entered into the Second
Amendment with Penn whereby the Company agreed to pay certain outstanding
amounts due for patent expenses and costs related to its Sponsored Research
Agreement. The contingent liability related to the licensing of additional
patent dockets of $580,764 was settled for $70,000 for which the Company will
pay a portion in common stock.
Off-Balance
Sheet Arrangements
As of
April 30, 2010, we had no off-balance sheet arrangements, other than our lease
for space. There were no changes in significance contractual obligation during
the six months ended April 30, 2010.
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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It requires assumptions to be
made that were uncertain at the time the estimate was made,
and
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Changes in the estimate of
difference estimates that could have been selected could have an material
impact on 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 ASC 718-10-25 (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,
the preferred equity financing with Optimus and our Bridge Notes issued from
June 2009 through early February, 2010. 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 ASC 815-40-15 (formerly 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 year 2010. EITF 07-5 did not have an
effect on the financial statements as the Company is already accounting for all
convertible instruments as liabilities.
In April
2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2010-17, Revenue Recognition—Milestone Method
(Topic 605) - Milestone Method of Revenue Recognition - a consensus of the FASB
Emerging Issues Task Force. This ASU provides guidance to vendors on the
criteria that should be met for determining whether the milestone method of
revenue recognition is appropriate. This guidance is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption is permitted
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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not
Applicable
ITEM
4T. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
As of the
end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of our chief executive officer and chief
financial officer of our disclosure controls and procedures (as defined in Rule
13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation,
our chief executive officer and chief financial officer concluded that our
disclosure controls and procedures were effective to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is: (1) accumulated and communicated to our management, including
our chief executive officer and chief financial officer, as appropriate to allow
timely decisions regarding required disclosure; and (2) recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules
and forms.
Changes
in Internal Control over Financial Reporting
During
the quarter ended April 30, 2010, the Company engaged the services of additional
professional accounting personnel and added procedures for the purpose of
improving internal control over financial reporting.
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
As of the
date hereof, there are no pending legal proceedings to which we are a party or
of which any of our property is the subject. In the ordinary course
of our business we may become subject to litigation regarding our products or
our compliance with applicable laws, rules, and regulations.
ITEM
1A. RISK FACTORS
There
have been no material changes in our risk factors disclosed in our Annual Report
on Form 10-K for the year ended October 31, 2009.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During
the period covered by this report, we have issued unregistered securities to the
persons as described below. None of these transactions involved any
underwriters, underwriting discounts or commissions, except as specified below,
or any public offering, and we believe that each transaction was exempt from the
registration requirements of the Securities Act of 1933 by virtue of Section
4(2) thereof and/or Regulation D promulgated thereunder. All recipients had
adequate access to information about us. We have not furnished information under
this item to the extent that such information previously has been included under
Item 3.02 in a Current Report on Form 8-K.
During
the second quarter of 2010, we issued to certain accredited investors (i) junior
bridge notes in the aggregate principal face amount of $640,308, for an
aggregate net purchase price of $542,500 and (ii) warrants to purchase
approximately 1,356,250 shares of our common stock at an exercise price of $0.17
per share, subject to adjustments upon the occurrence of certain events. The
notes are convertible into shares of our common stock at an effective per share
conversion price equal to 90% of the per share purchase price of the securities
sold in our recent qualified equity financing. The junior bridge notes mature on
dates ranging from April 1, 2010 through November 30, 2010.
As of
April 30, 2010, the Company agreed with certain of the holders of the Company’s
junior unsecured convertible promissory notes (the “Junior Bridge Notes”) to
make payments of approximately $2.42 million aggregate principal amount due to
such holders under certain of the Junior Bridge Notes in the form of 14,237,489
shares of Common Stock based on a price of $0.17 per share, to be issued in mid
May.
During
late April 2010, the Company agreed with its Chief Executive Officer to make a
payment of $200,000 due to Mr. Moore under certain of the Company’s senior
promissory notes held by Mr. Moore (the “Moore Notes”) in the form of 1,176,471
shares of common stock (based on a price of $0.17 per share) to be issued in mid
May 2010.
Item
6. Exhibits.
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10.1
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Second
Amendment to the Amended and Restated Patent License Agreement between the
registrant and the University of Pennsylvania dated as of May 10,
2010
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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 Chief 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
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Certification
of Chief Financial Officer pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
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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,
thereunto duly authorized.
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ADVAXIS, INC.
Registrant
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Date: June 1, 2010
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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/ Mark J. Rosenblum
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Mark J. Rosenblum
Chief Financial Officer, Senior Vice President and Secretary
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