|
OMB
APPROVAL
|
OMB
Number: 3235-0416
Expires:
January 31, 2007
Estimated
Average burden
Hours
per response
136
|
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-QSB
(Mark
One)
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the
quarterly period ended July 31, 2007
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
|
For
the
transition period from ________________ to ________________
Commission
file number 000
28489
Advaxis,
Inc.
(Exact
name of small business issuer as specified in its charter)
Delaware
|
|
02-0563870
|
(State
or other jurisdiction of incorporation or organization)
|
|
(IRS
Employer Identification No.)
|
The
Technology Center of New Jersey, 675 Route 1, Suite B113, North Brunswick,
NJ
08902
(Address
of principal executive offices)
(732)
545-1590
(Issuer’s
telephone number)
(Former
name, former address and former fiscal year, if changed since last
report)
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes
x
No
o
State
the
number of shares outstanding of each of the issuer’s classes of common equity,
as of July 31, 2007:
46,059,830
shares outstanding of the Company’s Common Stock, par value $.001 per
share
Transitional
Small Business Disclosure Format (Check one): Yes o
No
x
Persons
who are to respond to the collection of information contained in this form
are
not
required to respond unless the form displays a currently valid OMB control
number.
ADVAXIS,
INC.
(A
Development Stage Company)
July
31, 2007
INDEX
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Page
No.
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|
|
|
|
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|
|
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Item
1. Condensed Financial Statements
|
|
|
|
|
|
|
|
Balance
Sheet at July 31, 2007 (unaudited)
|
|
3
|
|
|
|
|
|
Statements
of Operations for the three and nine month periods ended July 31,
2007 and
2006 (unaudited), and the period March 1, 2002 (inception) to July
31,
2007 (unaudited)
|
|
4
|
|
|
|
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|
Statement
of Cash Flows Statements for the nine month periods ended July 31,
2007
and 2006 and the period March 1, 2002 (inception) to July 31, 2007
(unaudited)
|
|
5
|
|
|
|
|
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Notes
to Condensed Financial Statements
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|
7
|
|
|
|
|
|
Item
2. Management’s Discussion and Analysis
|
|
12
|
|
|
|
|
|
Item
3. Controls and Procedures
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
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17
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18
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CERTIFICATIONS
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PART
I
Item
1. Financial Statements
ADVAXIS,
INC.
(A
Development Stage Company)
Balance
Sheet
(Unaudited)
|
|
July
31,
2007
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash
|
|
$
|
115,361
|
|
Prepaid
expenses
|
|
|
43,915
|
|
Total Current Assets
|
|
|
159,276
|
|
|
|
|
|
|
Property
and Equipment (net of accumulated depreciation of $47,452)
|
|
|
120,184
|
|
Intangible
Assets (net of accumulated amortization of $134,632)
|
|
|
938,080
|
|
Deferred
Financing Costs (net of accumulated amortization of
$179,435)
|
|
|
80,565
|
|
Other
Assets
|
|
|
3,875
|
|
|
|
|
|
|
Total
Assets
|
|
|
1,301,980
|
|
LIABILITIES
& SHAREHOLDERS’ DEFICIENCY
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Accounts
payable
|
|
|
1,117,122
|
|
Accrued
expenses
|
|
|
309,345
|
|
Notes
payable - current portion
|
|
|
70,367
|
|
Total
Current Liabilities
|
|
|
1,496,834
|
|
|
|
|
|
|
Interest
payable
|
|
|
225,819
|
|
Notes
payable - net of current portion
|
|
|
115,125
|
|
Convertible
Secured Debentures and fair value of embedded derivative
|
|
|
2,878,023
|
|
Common
Stock Warrants
|
|
|
821,010
|
|
Total
Liabilities
|
|
|
5,536,811
|
|
|
|
|
|
|
Shareholders’
Deficiency:
|
|
|
|
|
Preferred
stock, $0.001 par value; 5,000,000 shares authorized; no shares issued
and
outstanding
|
|
|
-
|
|
Common
Stock - $0.001 par value; authorized 500,000,000 shares, issued and
outstanding 46,059,830 shares
|
|
|
46,060
|
|
Additional
Paid-In Capital
|
|
|
7,435,742
|
|
Deficit
accumulated during the development stage
|
|
|
(11,716,633
|
)
|
Total
Shareholders' Deficiency
|
|
|
(4,234,831
|
)
|
Total
Liabilities and Shareholders’ Deficiency
|
|
$
|
1,301,980
|
|
The accompanying footnotes are an integral part of these financial
statements.
ADVAXIS,
INC.
(A
Development Stage Company)
Statement
of Operations
(Unaudited)
|
|
3
Months Ended July 31,
2007
|
|
3
Months Ended July 31,
2006
|
|
9
Months Ended July 31,
2007
|
|
9
Months Ended July 31,
2006
|
|
Period
from
March
1, 2002 (Inception) to
July
31,
2007
|
|
Revenue
|
|
$
|
-
|
|
$
|
-
|
|
$
|
154,201
|
|
$
|
397,312
|
|
$
|
1,259,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
& Development Expenses
|
|
|
372,434
|
|
|
262,257
|
|
|
1,397,033
|
|
|
1,098,190
|
|
|
4,645,081
|
|
General
& Administrative Expenses
|
|
|
448,492
|
|
|
426,497
|
|
|
2,296,393
|
|
|
1,444,068
|
|
|
6,640,186
|
|
Total
Operating expenses
|
|
|
820,926
|
|
|
688,754
|
|
|
3,693,426
|
|
|
2,542,258
|
|
|
11,285,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(820,926
|
)
|
|
(688,754
|
)
|
|
(3,539,225
|
)
|
|
(2,144,946
|
)
|
|
(10,025,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(108,952
|
)
|
|
(151,100
|
)
|
|
(474,488
|
)
|
|
(265,109
|
)
|
|
(940,516
|
)
|
Other
Income
|
|
|
3,168
|
|
|
27,928
|
|
|
41,140
|
|
|
63,290
|
|
|
177,562
|
|
Gain
on note retirement
|
|
|
-
|
|
|
-
|
|
|
319,967
|
|
|
-
|
|
|
319,967
|
|
Net
changes in fair value of common stock warrant liability and embedded
derivative liability
|
|
|
2,044,825
|
|
|
128,652
|
|
|
1,598,147
|
|
|
(101,272
|
)
|
|
(1,203,931
|
)
|
Net
income (loss)
|
|
|
1,118,115
|
|
|
(683,274
|
)
|
|
(2,054,459
|
)
|
|
(2,448,036
|
)
|
|
(11,672,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
attributable to preferred shares
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
43,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) applicable to Common Stock
|
|
$
|
1,118,115
|
|
$
|
(683,274
|
)
|
$
|
(2,054,459
|
)
|
$
|
(2,448,036
|
)
|
$
|
(11,716,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share, basic
|
|
$
|
0.02
|
|
$
|
(0.02
|
)
|
$
|
(0.05
|
)
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share, diluted
|
|
$
|
0.02
|
|
$
|
(0.02
|
)
|
$
|
(0.05
|
)
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding, basic
|
|
|
45,825,888
|
|
|
38,880,998
|
|
|
43,568,150
|
|
|
38,294,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding, diluted
|
|
|
54,773,193
|
|
|
38,880,998
|
|
|
43,568,150
|
|
|
38,294,316
|
|
|
|
|
The
accompanying footnotes are in integral part of these financial
statements.
ADVAXIS,
INC.
(A
Development Stage Company)
Statement
of Cash Flows
(Unaudited)
|
|
9
Months ended
July
31,
|
|
9
Months ended
July
31,
|
|
Period
from March 1, 2002 (Inception) to July 31,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,054,459
|
)
|
$
|
(2,448,036
|
)
|
$
|
(11,672,748
|
)
|
Adjustments
to reconcile net loss
|
|
|
|
|
|
|
|
|
|
|
to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Non-cash
charges to consultants and employees for options and stock
|
|
|
826,769
|
|
|
326,108
|
|
|
1,537,979
|
|
Amortization
of deferred financing costs
|
|
|
97,122
|
|
|
39,019
|
|
|
179,435
|
|
Non-cash
interest expense
|
|
|
264,886
|
|
|
144,614
|
|
|
495,102
|
|
Accrued
interest on notes payable
|
|
|
107,868
|
|
|
81,028
|
|
|
244,110
|
|
Loss
on change in value of warrants and embedded derivative
|
|
|
(1,598,147
|
)
|
|
101,271
|
|
|
1,203,931
|
|
Value
of penalty shares issued
|
|
|
-
|
|
|
-
|
|
|
117,498
|
|
Depreciation
expense
|
|
|
23,011
|
|
|
12,605
|
|
|
47,452
|
|
Amortization
expense of intangibles
|
|
|
40,077
|
|
|
32,311
|
|
|
137,803
|
|
Gain
on note retirement
|
|
|
(319,967
|
)
|
|
-
|
|
|
(319,967
|
)
|
(Increase)
in prepaid expenses
|
|
|
(5,815
|
)
|
|
(34,973
|
)
|
|
(43,915
|
)
|
Decrease
(increase) in other assets
|
|
|
725
|
|
|
(14,616
|
)
|
|
(3,875
|
)
|
Increase
(decrease) in accounts payable
|
|
|
428,901
|
|
|
148,654
|
|
|
1,554,328
|
|
(Decrease)increase
in accrued expenses
|
|
|
(213,122
|
)
|
|
339,981
|
|
|
293,156
|
|
(Decrease)
in deferred revenue
|
|
|
(20,350
|
)
|
|
-
|
|
|
-
|
|
Net
cash used in operating activities
|
|
|
(2,422,503
|
)
|
|
(1,272,034
|
)
|
|
(6,229,711
|
)
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Cash
paid on acquisition of Great Expectations
|
|
|
-
|
|
|
-
|
|
|
(44,940
|
)
|
Purchase
of property and equipment
|
|
|
(32,873
|
)
|
|
(6,404
|
)
|
|
(122,056
|
)
|
Cost
of intangible assets
|
|
|
(183,781
|
)
|
|
(189,546
|
)
|
|
(1,150,835
|
)
|
Net
cash used in investing Activities
|
|
|
(216,654
|
)
|
|
(195,950
|
)
|
|
(1,317,831
|
)
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from convertible secured debenture
|
|
|
-
|
|
|
3,000,000
|
|
|
3,000,000
|
|
Cash
paid for deferred financing costs
|
|
|
-
|
|
|
(260,000
|
)
|
|
(260,000
|
)
|
Proceeds
from notes payable
|
|
|
-
|
|
|
-
|
|
|
671,224
|
|
|
|
|
(6,648
|
)
|
|
-
|
|
|
(6,648
|
)
|
Net
proceeds of issuance of Preferred Stock
|
|
|
-
|
|
|
-
|
|
|
235,000
|
|
Net
proceeds of issuance of Common Stock
|
|
|
-
|
|
|
-
|
|
|
4,023,327
|
|
Net
cash provided by (used in) financing Activities
|
|
|
(6,648
|
)
|
|
2,740,000
|
|
|
7,662,903
|
|
Net
(Decrease) increase in cash
|
|
|
(2,645,805
|
)
|
|
1,272,016
|
|
|
115,361
|
|
Cash
at beginning of period
|
|
|
2,761,166
|
|
|
2,075,206
|
|
|
|
|
Cash
at end of period
|
|
$
|
115,361
|
|
$
|
3,347,222
|
|
$
|
115,361
|
|
The
accompanying footnotes are an integral part of these financial
statements.
Supplemental
Schedule of Noncash Investing and Financing Activities
|
|
9
Months ended
July
31,
|
|
9
Months ended
July
31,
|
|
Period
from March 1, 2002
(Inception)
to
|
|
|
|
2007
|
|
2006
|
|
July
31, 2007
|
|
|
|
|
|
|
|
|
|
Equipment
acquired under capital lease
|
|
$
|
45,580
|
|
|
-
|
|
$
|
45,580
|
|
Common
Stock issued to Founders
|
|
|
-
|
|
|
-
|
|
$
|
40
|
|
Notes
payable and accrued interest
|
|
|
|
|
|
|
|
|
|
|
converted
to Preferred Stock
|
|
|
-
|
|
|
-
|
|
$
|
15,969
|
|
Stock
dividend on Preferred Stock
|
|
|
-
|
|
|
-
|
|
$
|
43,884
|
|
Notes
payable and accrued interest
|
|
|
|
|
|
|
|
|
|
|
converted
to Common Stock
|
|
$
|
700,000
|
|
$
|
150,000
|
|
$
|
1,613,158
|
|
Debt
discount in connection with recording the original value of the embedded
derivative liability
|
|
|
-
|
|
$
|
512,865
|
|
$
|
512,865
|
|
Allocation
of the original secured convertible debentures to warrants
|
|
|
-
|
|
$
|
214,950
|
|
$
|
214,950
|
|
The
accompanying footnotes are an integral part of these financial
statements.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
We
are a
development stage biotechnology company utilizing multiple mechanisms of
immunity with the intent to develop cancer vaccines that are more effective
and
safer than existing vaccines. To that end, we have licensed rights from the
University of Pennsylvania (“Penn”) to use a patented system to engineer a live
attenuated Listeria monocytogenes bacteria (the “Listeria System”) to secrete a
protein sequence containing a tumor-specific antigen. Using the Listeria System,
we believe we will force the body’s immune system to process and recognize the
antigen as if it were foreign, creating the immune response needed to attack
the
cancer. Our licensed Listeria System, developed at Penn over the past 10 years,
provides a scientific basis for believing that this therapeutic approach induces
a significant immune response to a tumor. Accordingly, we believe that the
Listeria System is a broadly enabling platform technology that can be applied
to
many types of cancers. In addition, we believe there may be useful applications
in infectious diseases and auto-immune disorders. The therapeutic approach
that
comprises the Listeria System is based upon the innovative work of Yvonne
Paterson, Ph.D., Professor of Microbiology at Penn, involving the creation
of
genetically engineered Listeria that stimulate the innate immune system and
induce an antigen-specific immune response involving humoral and cellular
components. On July 1, 2002 (effective date) we entered into an exclusive
20-year license from Penn to exploit the Listeria System, subject to meeting
various royalty and other obligations (the “Penn License”) which was amended and
restated on February 13, 2007.
We
are in
the development stage and have focused our initial development efforts on five
lead compounds. In February 2006 we received governmental approvals in Mexico,
Israel and Serbia to commence in those countries a Phase I/II clinical study
of
Lovaxin C, a vaccine with a potential for treatment of cervical, and head and
neck cancer. We plan to complete this clinical study in the fourth fiscal
quarter 2007. We completed patient recruitment for the Phase I/II trial of
Lovaxin C, a Listeria-based immunotherapy for cervical cancer, after dosing
15
patients in an escalating dose clinical trial that was conducted in Mexico,
Serbia and Israel. The objective of this trial was to establish a range of
safe
doses up to a maximally tolerated dose, which has been achieved.
The
accompanying unaudited interim consolidated financial statements include all
adjustments (consisting only of those of a normal recurring nature) necessary
for a fair statement of the results of the interim period. These interim
Financial Statements should be read in conjunction with the Company’s Financial
Statements and Notes for the year ended October 31, 2006 filed on Form 10-KSB.
We believe these condensed consolidated financial statements reflect all
adjustments (consisting only of normal, recurring adjustments) that are
necessary for a fair presentation of our financial position and results of
operations for the periods presented. Results of operations for the interim
periods presented are not necessarily indicative of results to be expected
for
the year.
The
preparation of financial statements in conformity with U.S. Generally Accepted
Accounting Principles requires management to make estimates and assumptions
that
affect the reported amounts and the disclosure of contingent amounts in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has suffered losses that raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
Since
our
inception until July 31, 2007, the Company has reported accumulated net losses
of $11,716,633 and recurring negative cash flows from operations. In order
to maintain sufficient cash and investments to fund future operations, we are
seeking to raise additional capital in fiscal year 2007 through various
financing alternatives. If additional capital were raised through the sale
of
equity or convertible debt securities, the issuance of such securities would
result in dilution to our existing stockholders. We believe that the 12%
Convertible Promissory Note of $600,000 closed in August 2007 and additional
anticipated offering proceeds currently being planned, plus our cash
of $115,361 as of July 31, 2007 will be sufficient to sustain our plan of
operations for the next twelve months. However, the company cannot provide
assurances that our plans will not change, or that changed circumstances will
not result in the depletion of capital resources more rapidly than anticipated.
If we are unable to obtain additional sources of financing or generate
sufficient cash flows from sufficient capital, it could create a material
adverse effect on future operating prospects of the Company.
Since
inception through July 31, 2007, all of the Company’s revenue has been from
grants. For the three and nine month periods ended July 31, 2007, all of the
revenue was received from three National Institute of Health (“NIH”) grants and
a grant from the New Jersey Commission on Science and Technology.
Intangible
assets primarily consist of legal and filing costs associated with obtaining
trademarks, 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 includes the exclusive right to exploit 11 issued and 15
pending patents. As of July 31, 2007, all gross capitalized costs associated
with the license and patents filed and granted as well as and costs associated
with patents pending are $986,298 as shown under license and patents on the
table below. Out of the $986,298 capitalized cost the cost of the patents issued
is estimated to be $473,212 and cost of the patents pending or in process of
filing is estimated to be $513,086. The expirations of the existing patents
range from 2014 to 2020. 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 patent applications
without 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 expense.
Penn
and
the Company entered into the amended and restated license agreement on February
13, 2007 that eliminated the $482,000 obligation under the prior agreement.
This
obligation was recorded in fiscal year 2005 as an intangible asset and as of
January 31, 2007 it remained as an intangible asset with the liabilities
recorded as: a notes payable- current portion $130,000, notes payable-net of
current portion $230,000 and the balance as accounts payable. Out of the
$482,000 note payable $162,035 was recorded and the balance of $319,967 was
recorded as a gain on note retirement recorded in other income for
the April 30, 2007 fiscal period as a result of the amended and restated
license agreement with Penn. Under the amended and restated agreement we
are billed actual patent expenses as they are passed through from Penn. The
following is a summary of the intangibles assets as of the following fiscal
periods:
|
|
|
October
31, 2006
|
|
|
July 31, 2007
|
|
|
Increase/Decrease
|
|
Trademark
|
|
$
|
74,948
|
|
$
|
86,414
|
|
$
|
11,466
|
|
License
|
|
|
485,123
|
|
|
496,127
|
|
|
11,004
|
|
Patents
|
|
|
490,893
|
|
|
490,171
|
|
|
(722
|
)
|
Total
intangibles
|
|
|
1,050,964
|
|
|
1,072,712
|
|
|
21,748
|
|
Accumulated
Amortization
|
|
|
(94,555
|
)
|
|
(134,632
|
)
|
|
(40,077
|
)
|
Intangible
Assets
|
|
$
|
956,409
|
|
$
|
938,080
|
|
$
|
(18,329
|
)
|
The
accumulated amortization was adjusted this period to reflect the impact of
the
amended and restated agreement.
The
Company reviews long-lived assets for impairment whenever events or changes
in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An asset is considered to be impaired when the sum of the
undiscounted future net cash flows expected to result from the use of the asset
and its eventual disposition exceeds its carrying amount. The amount of
impairment loss, if any, is measured as the difference between the net book
value of the asset and its estimated fair value.
Basic
loss per share is computed by dividing net loss by the weighted-average number
of shares of common stock outstanding during the periods. Diluted earnings
per
share gives effect to dilutive options, warrants, convertible debt and
other potential common stock outstanding during the period. Therefore, the
impact of the potential common stock resulting from warrants, outstanding stock
options and convertible debt are not included in the computation of diluted
loss per share, as the effect would be anti-dilutive. The table sets forth
the
number of potential shares of common stock that have been excluded from diluted
net loss per share
|
|
For
the three months ended
|
|
For
the nine months ended
|
|
|
|
July
31, 2007
|
|
July
31, 2007
|
|
|
|
|
24,514,999
|
|
|
25,009,220
|
|
Stock
Options
|
|
|
8,512,841
|
|
|
8,512,841
|
|
Convertible
Debt (1)
|
|
|
-
|
|
|
8,000,000
|
|
Total
All
|
|
|
33,027,840
|
|
|
41,522,061
|
|
|
|
|
|
|
|
|
|
(1.)
Conversion of the outstanding principal of $2,000,000 assumed to be converted
at
the closing market price on July 31, 2007 at $0.25 per share.
2.
|
Secured
Convertible Debenture:
|
Pursuant
to a Securities Purchase Agreement dated February 2, 2006 ($1,500,000 principal
amount) and March 8, 2006 ($1,500,000 principal amount) we issued to Cornell
Capital Partners, LP (“Cornell”) $3,000,000 principal amount of the Company’s
Secured Convertible Debentures due February 1, 2009 (the “Debentures”) at face
amount, and five year Warrants to purchase 4,200,000 shares of Common Stock
at
the price of $0.287 per share and five year B Warrants to purchase 300,000
shares of Common Stock at a price of $0.3444 per share.
The
Debentures are convertible at a price equal to the lesser of (i) $0.287 per
share (“Fixed Conversion Price”), or (ii) 95% of the lowest volume weighted
average price of the Common Stock on the market on which the shares are listed
or traded during the 30 trading days immediately preceding the date of
conversion (“Market Conversion Price”). Interest is payable at maturity at the
rate of 6% per annum in cash or shares of Common Stock valued at the conversion
price then in effect.
Cornell
has agreed that (i) it will not convert the Debenture or exercise the Warrants
if after such conversion or exercise, its and its affiliates’ holdings will be
more than 4.9% of the outstanding shares of Common Stock, (ii) neither it nor
its affiliates will maintain a short position or effect short sales of the
Common Stock while the Debentures are outstanding, and (iii) no more than
$300,000 principal amount of the Debenture may be converted at the Market
Conversion Price during a calendar month.
The
Company may call the Debentures for redemption at the Redemption Price at any
time or from time to time but not more than $500,000 principal amount may be
called during any 30 consecutive day period. The Redemption Price will be 120%
of the principal redeemed plus accrued interest. The Company has also granted
the holder an 18-month right of first refusal assuming the Debentures are still
outstanding with respect to the Company’s issuance or sale of shares of capital
stock, options, warrants or other convertible securities. Pursuant to the
Registration Rights Agreement, the Company has registered at its expense under
the Securities Act of 1933, as amended (the “Act”) for reoffering by the holders
of the Debentures and of the Warrants and B Warrants shares of Common Stock
received upon conversion or exercise.
The
Company has granted the debentureholder a first security interest on its assets
as security for payment of the Company’s obligations.
The
Company has also agreed that as long as there is outstanding at least $500,000
principal amount of Debentures it would not, without the consent of the
Debenture holder, issue or sell any securities at a price or warrants, options
or convertible securities with an exercise or conversion price less than the
bid
price, as defined, immediately prior to the issuance, grant a further security
interest in its assets or file a registration statement on Form
S-8.
In
the
event of a Debenture default the Debenture shall, at the holder’s election,
become immediately due and payable in cash or, at the holder’s option, may be
converted into shares of Common Stock. Events of default include failure to
pay
principal when due or interest within five days following due date; failure
to
cure breaches or defaults of covenants, agreements or warrants within 10 days
following written notice of such breach or default; the entry into a change
of
control transaction meaning (A) the acquisition of effective control of more
than 50% of the outstanding voting securities by an individual or group (not
including the holder or its affiliates), or (B) the replacement of more than
one-half of the Directors not approved by a majority of the Company’s directors
as of February 2, 2006 or by directors appointed by such directors or (C) the
Company entering into an agreement to effect any of the foregoing; bankruptcy
or
insolvency acts; breach or default which results in acceleration of the maturity
of other debentures, mortgages or credit facilities, indebtedness or factor
agreements involving outstanding principal of at least $100,000; breach of
the
Registration Rights Agreement as to the maintaining effectiveness of the
registration statement which results in an inability to sell shares by holder
for a designated period; failure to maintain the eligibility of the Common
Stock
to trade on at least the Over-the-Counter Bulletin Board, and failure to make
delivery within five trading days of certificates for shares to be issued upon
conversion or the date the Company publicly announces its intention not to
comply with requests for conversion in accordance with the Debenture
terms.
The
Company paid Yorkville Advisor, LLC a fee of 8% of the principal amount of
the
Debentures sold or $240,000, and structuring and due diligence fees of $15,000
and $5,000, respectively. The amount paid to Yorkville Advisor, LLC in
connection with the Debentures was capitalized and charged to interest expense
over the three-year term of the Debentures since Yorkville is related to the
holders of the Debentures by virtue of common ownership. The amount charged
as
interest for the three months and nine months ended July 31, 2007 was
$17,151 and $97,123, respectively and since inception was $179,435. The net
proceeds after deducting legal and accounting fees and other expenses, has
been
or will be used for working capital including Phase I and initiation of Phase
II
testing of its Lovaxin C, its first Listeria cancer immunotherapy in cervical
cancer patients, and acceleration of preclinical testing for several pipeline
vaccines including Lovaxin B and Lovaxin P for breast and prostate cancer,
respectively.
In
accounting for the Debentures and the warrants described above the Company
considered the guidance contained in EITF 00-19, "Accounting for Derivative
Financial Instruments Indexed To, and Potentially Settled In, a Company's Own
Common Stock," and SFAS 133 “Accounting for Derivative Instruments and Hedging
Activities.” In accordance with the guidance provided in EITF 00-19, the Company
determined that the conversion feature of the convertible debentures represents
an embedded derivative since the debenture is convertible into a variable number
of shares based upon the conversion formula which could require the Company
to
issue shares in excess of its authorized amount. The convertible debentures
are
not considered to be “conventional” convertible debt under EITF 00-19 and the
embedded conversion feature was bifurcated from the debt host and accounted
for
as a derivative liability.
Convertible
Secured Debentures due February 1, 2009: 6% per annum
|
|
$
|
3,000,000
|
|
Common
Stock Warrant liability
|
|
$
|
(214,950
|
)
|
Embedded
derivative liability
|
|
$
|
(512,865
|
)
|
Convertible
Debenture as the date of sale
|
|
$
|
2,272,185
|
|
Amortization
of discount on warrants & embedded feature as of July 31,
2007
|
|
$
|
495,103
|
|
Conversion
of Debenture
|
|
$
|
(1,000,000
|
)
|
Convertible
Secured Debenture Liability as of July 31, 2007
|
|
$
|
1,767,288
|
|
Embedded
Derivative Liability
|
|
|
1,110,735
|
|
Convertible
Secured Debentures and Fair Value of Embedded Derivative Liability
as of
July 31, 2007
|
|
$
|
2,878,023
|
|
On
the following dates Cornell Capital Partners LP converted since April 30, 2007
the following dollars of convertible notes into shares of the Company’s common
stock.
|
|
Amount
of
Conversion
|
|
Number
of
Shares
|
|
Conversion
Share
Price
|
|
|
|
|
|
|
|
|
|
June
26, 2007
|
|
$
|
89,164
|
|
|
333,448
|
|
$
|
.2674
|
|
Total
|
|
$
|
89,164
|
|
|
333,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception
to date
|
|
$
|
1,000,000
|
|
|
6,213,725
|
|
|
|
|
Since
June 26, 2007 Cornell hasn’t converted any convertible notes into shares of the
Company’s common stock.
The
Company will continue to measure the fair value of the warrants and embedded
conversion features at each reporting date using the Black-Scholes-Merton
valuation model based on the current assumptions at that point in time. This
calculation has resulted in a fair market value significantly different than
the
previous reporting period. The increase or decrease in the fair market value
of
the warrants and embedded conversion feature at each period results in a
non-cash income or expense which is recorded in other income (expense) in the
Statement of Operations along with corresponding changes in fair value of the
liability.
The
Company is required to measure the fair value of the warrants calculated using
the Black-Scholes-Merton valuation model on the date of each reporting period
until the debt is extinguished. On July 31, 2007 the fair value of the warrants
was calculated by using the Black-Scholes-Merton valuation model with the
following assumptions: (i) 4,200,000 warrants at market price of common stock
on
the date of sale of $0.25 per share, exercise price of $0.287 and (ii) 300,000
warrants at the market price of common stock of $0.25 per share, exercise price
of $0.3444 both at risk-free interest rate of 4.6%, expected volatility of
117.26% and expected life of 3.5 years. The fair value of the warrants as of
July 31, 2007 was $821,010, or a decrease of $394,140 over the $1,215,150
recorded on April 30, 2007. This decrease in the fair value of the warrants
was
charged to the Statement of Operations as income to Net Change in Fair Value
of
Common Stock Warrant and Embedded Derivative Liability and debited to the
Balance Sheet: Common Stock Warrants Liabilities.
Similarly
the Company is also required to measure the fair value of the embedded
conversion feature allocated to the Debentures liability was based on the
Black-Scholes-Merton valuation model on the date of each reporting period.
On
July 31, 2007, the fair value of this feature was based on the following
assumptions: (i) the Market Conversion Price equal to 95% of the lowest volume
weighted average price of the Common Stock on the market on which the shares
are
listed or traded during the 30 trading days immediately preceding the date
of
conversion or $0.2366 on July 31, 2007, (ii) the July 31, 2007 market price
of
$0.25, (iii) the risk free interest rate of 4.735%, (iv) expected volatility
of
108.28% and (v) expected life of 1.5 years. The fair value of the embedded
conversion feature on July 31, 2007 was $1,110,735, or a decrease of $1,650,685
from the $2,761,421 recorded on April 30, 2007. This decrease in the fair value
of the embedded conversion feature was charged to the Statements of Operations
as income to the Net Change in Fair Value of Common Stock Warrant and
Embedded Derivative Liability and recorded in the Balance Sheet as a debit
to the Embedded Derivative Liability.
Upon
full
payment of the Debentures (through repayment or conversion to equity) the fair
value of the warrants on that date will be reclassified to equity.
On
August
23, 2007 an agreement was made by and between the Company and Cornell for
the
Company to acquire from Cornell all of the outstanding Debentures and warrants.
The Company is party to the Debentures in the original principal amount of
$3,000,000 which are convertible into shares of common stock. As of August
14,
2007, Cornell has converted $1,000,000 in principal amount of the Debentures
the
remaining principal amount of the $2,000,000, the accrued, unpaid interest
is
$233,386 and the premium upon redemption is $400,000; an aggregate of 4,500,000
warrants for purchase of Common Stock. The Company intends to acquire from
Cornell the Debentures and 4,500,000 of the Warrants on the terms set forth
below not later than October 31, 2007.
The
agreements of the parties. The Company shall have the right anytime on or
before
October 31, 2007 (the “Redemption Deadline”) to acquire from Cornell (i) all of
the Debentures (but no less than all of the Debentures) by paying Cornell
funds
for all of the then outstanding principal, accrued and unpaid interest,
applicable redemption premium provided in the Debenture Documents. And (ii)
all
of the 4,500,000 of the Warrants by paying to Cornell funds in the aggregate
of
$600,000 for the acquired Warrants. Nothing herein shall limit Cornell’s ability
to exercise its conversion rights under the Debenture or its exercise rights
under the Warrants in accordance with the Debenture Documents. Cornell hereby
waives the $500,000 limit set forth in each convertible Debenture included
in
the Debenture Documents solely with respect to the redemption contemplated
herein. Upon the acquisition of the Debentures and payment in full of all
amounts owed under the Debenture Documents, Cornell shall be deemed to have
waived any and all defaults by the Company which may exist under the Debenture
Documents. This agreement shall automatically terminate in the event that
the
acquisition has not occurred by the Redemption Deadline unless extended in
writing by the parties hereto.
On
August
24, 2007, we issued and sold an aggregate of $600,000 principal amount
promissory notes bearing interest at a rate of 12% per annum and warrants to
purchase and an aggregate of 150,000 shares of our common stock to three
investors including Thomas Moore, our Chief Executive Officer. Mr. Moore
invested $400,000 and received warrants for the purchase of 100,000 shares
of
Common Stock.
The
promissory note and accrued but unpaid interest thereon are convertible at
the
option of the holder into shares of our common stock upon the closing by the
Company of a sale of its equity securities aggregating $3,000,000 or more in
gross proceeds to the Company at a conversion rate which shall be the greater
of
a price at which such equity securities we sold or the price per share of the
last reported trade of our Common Stock on the market on which the Common Stock
is then listed, as quoted by Bloomberg LP. At any time prior to conversion,
we
have the right to prepay the promissory notes and accrued but unpaid interest
thereon.
The
warrant is exercisable for a five-year period commencing on issuance and
expiring on August 31, 2012, at a price of $0.287 per share. Provided, however,
that if (i) the average of the closing prices for any consecutive 30 Trading
Days period is at least $1.00, (ii) the average daily trading volume of the
Common Stock during such 30-Trading Day period is at least 100,000 shares,
and
(iii) a registration statement covering the resale of the shares underlying
the
warrant is at such time effective (the first date upon which the conditions
set
forth in (i), (ii) and (iii) are satisfied, being referred to as the “Early
Expiration Triggering Event”), then the warrant shall be canceled and shall be
of no further force and effect (to the extent not previously exercised) as
of
the 45th
day
following the Early Expiration Triggering Event.
Item
2. Management’s Discussion and Analysis
The
Company has included in this Quarterly Report certain “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995 concerning the Company’s business, operations and financial condition.
“Forward-looking statements” consist of all non-historical information, and the
analysis of historical information, including the references in this Quarterly
Report to future revenues, collaborative agreements, future expense growth,
future credit exposure, earnings before interest, taxes, depreciation and
amortization, future profitability, anticipated cash resources, anticipated
capital expenditures, capital requirements, and the Company’s plans for future
periods. In addition, the words “could”, “expects”, “anticipates”, “objective”,
“plan”, “may affect”, “may depend”, “believes”, “estimates”, “projects” and
similar words and phrases are also intended to identify such forward-looking
statements.
Actual
results could differ materially from those projected in the Company’s
forward-looking statements due to numerous known and unknown risks and
uncertainties, including, among other things, unanticipated technological
difficulties, the length, scope and outcome of our clinical trial, costs related
to intellectual property, cost of manufacturing and higher consulting costs,
product demand, changes in domestic and foreign economic, market and regulatory
conditions, the inherent uncertainty of financial estimates and projections,
the
uncertainties involved in certain legal proceedings, instabilities arising
from
terrorist actions and responses thereto, and other considerations described
as
“Risk Factors” in other filings by the Company with the SEC. Such factors may
also cause substantial volatility in the market price of the Company’s Common
Stock. All such forward-looking statements are current only as of the date
on
which such statements were made. The Company does not undertake any obligation
to publicly update any forward-looking statement to reflect events or
circumstances after the date on which any such statement is made or to reflect
the occurrence of unanticipated events.
Plan
of Operations
We
were
originally incorporated in the state of Colorado on June 5, 1987 under the
name
Great Expectations, Inc. We were administratively dissolved on January 1, 1997
and reinstated June 18, 1998 under the name Great Expectations and Associates,
Inc. In 1999, we became a reporting company under the Securities Exchange
Act of 1934 (the “Exchange Act’). Until November 2004, we were a publicly-traded
“shell” company without any business until November 12, 2004 when we acquired
Advaxis, Inc., a Delaware corporation (“Advaxis”), through a Share Exchange and
Reorganization Agreement, dated as of August 25, 2004 (the “Share Exchange”), by
and among Advaxis, the stockholders of Advaxis and us. As a result of such
acquisition, Advaxis became our wholly owned subsidiary and our sole operating
company. On December 23, 2004, we amended and restated our articles of
incorporation and changed our name to Advaxis, Inc. On June 6, 2006 our
shareholders approved the reincorporation of the Company from the state of
Colorado to the state of Delaware by merging the Company into its wholly owned
subsidiary, which was effected on June 20, 2006. As used herein, the words
“Company” and Advaxis refer to the current Delaware corporation only
unless the context references such entity prior to the June 20, 2006
reincorporation into Delaware. Our principal executive offices are located
at
Technology Centre of NJ, 675 US Highway One, North Brunswick, NJ 08902 and
our
telephone number is (732) 545-1590.
On
July
28, 2005 we began trading on the Over-The-Counter Bulletin Board (OTC:BB) under
the ticker symbol ADXS.
We
are a
biotechnology company utilizing multiple mechanisms of immunity with the intent
to develop cancer vaccines that are more effective and safer than existing
vaccines. We believe that by using our licensed Listeria System to engineer
a
live attenuated Listeria monocytogenes bacteria to secrete a protein sequence
containing a tumor-specific antigen, we will force the body’s immune system to
process and recognize the antigen as if it were foreign, creating the immune
response needed to attack the cancer. The licensed Listeria System, developed
at
Penn over the past 10 years, provides a scientific basis for believing that
this
therapeutic approach induces a significant immune response to the tumor.
Accordingly, we believe that the Listeria System is a broadly enabling platform
technology that can be applied in many cancers, infectious diseases and
auto-immune disorders.
We
have
no customers. We are in the development stage and have focused our initial
development efforts on five lead compounds. In February 2006 we received
governmental approvals in Mexico, Israel and Serbia to commence in those
countries a Phase I/II clinical study of Lovaxin C, a vaccine with a potential
for treatment of cervical, and head and neck cancer. We plan to complete this
clinical study in the fourth fiscal quarter 2007. We completed patient
recruitment for the Phase I/II trial of Lovaxin C, a Listeria-based
immunotherapy for cervical cancer, after dosing 15 patients in an escalating
dose clinical trial that was conducted in Mexico, Serbia and Israel. The
objective of this trial was to establish a range of safe doses up to a maximally
tolerated dose, which has been achieved.
The
Company plans to complete patient reporting in July, report the results over
the
following two months, and submit an IND for Lovaxin C to the FDA on or about
October, 2007. If the IND is approved, it would be followed by additional Phase
II clinical trials in the U.S. and internationally.
Three
months ended July 31, 2007 Compared to the three months ended July 31,
2006
Revenue.
There
was no revenue in the three months ended July 31, 2007 periods (“Fiscal 2007
Quarter”) and 2006 (“Fiscal 2006 Quarter”).
Research
and Development Expenses.
Research
and development expenses increased by $110,177, or 42%, to $372,434 for the
Fiscal 2007 Quarter as compared with $262,257 for the Fiscal 2006 Quarter,
principally attributable to the following:
·
|
Clinical
trial expenses decreased $39,422, or 49%, to $41,567 from $80,989
due to
the higher start-up expenses of our clinical trial in the third quarter
of
Fiscal 2006 compared with lower post recruitment cost in Fiscal
2007.
|
|
|
·
|
Manufacturing
expense increased by $75,684 to $77,147 in the Fiscal 2007 Quarter
as
compared with $1,463 incurred in the Fiscal 2006 Quarter due to testing
of
new formulations.
|
|
|
·
|
Wages,
salaries and related costs increased $35,811, or 29%, to $160,430
from
$124,619 principally due to expanded research and development
staffing.
|
|
|
·
|
Subcontracting,
lab supplies and consulting expenses increased by $11,244, or 20%,
to
$66,428 from $55,184, primarily due to:
|
|
|
|
·
$49,120
decreased stock option expenses due to the revaluation required
under the
FASB 123R due to decreases in the fair market value and lower consulting
expenses.
|
|
|
|
·
$14,735
increased outside research cost
|
|
|
|
|
|
|
|
·
$9,145
increased lab support and supplies
|
|
|
·
|
Toxicology
study expenses increased $26,640 in the Fiscal 2007 Quarter as a
result of
the initiation of toxicology studies to support our IND in 2007;
none were
incurred in the Fiscal 2006
Quarter.
|
We
anticipate R&D expenses to increase as a result of expanded development and
commercialization efforts related to toxicology studies, clinical trials, and
product development, and expenses to be incurred in the development of strategic
and other relationships required ultimately if the licensing, manufacture and
distribution of our product candidates is undertaken.
General
and Administrative Expenses.
General
and administrative expenses increased by $21,995, or 5%, to $448,492 for Fiscal
2007 Quarter as compared with $426,497 for the Fiscal 2006 Quarter, primarily
attributable to the following:
·
|
Wages,
option and benefit expenses increased by $118,002, or 168% to $216,025
from $98,023 primarily due to hiring the Chief Executive Officer
in
December 2006.
|
|
|
·
|
Consulting
fees and expenses decreased by $293,354 to ($137,284) from
$156,070.
|
|
|
|
·
$242,825
decreased stock option expenses due primarily to the revaluation
required
under FASB 123B due to a decrease in the fair market value and
fewer
options expense in Fiscal Quarter 2007.
|
|
|
|
· $50,529
decreased overall consulting expenses due to fewer consultants
in Fiscal
Quarter 2007.
|
|
|
·
|
An
increase primarily from conference and public relations cost of $138,471,
or 374% to $175,471 from $37,000
|
|
|
·
|
An
increase in legal fees of $49,151, or 98%, to $96,677 from $47,526
primarily resulted from task assigned to outside counsel of tasks
related
to SEC filings and fund raising
documents.
|
Other
Income (expense).
Other
Income (expense) for the Fiscal 2007 Quarter increased by $1,933,561 to
$1,939,041 from $5,480 for the Fiscal Quarter 2006 as a result of a decrease
of
($42,147) in interest expense primarily related to our outstanding secured
convertible debenture issued on February 2 and March 8, 2006, (ii) partially
offset by a decrease of $24,760 interest earned on investment, and (iii)
an increase of income resulting from a decrease of 1,916,173 in the net
changes in the fair value of common stock warrants and embedded derivative
liabilities recorded as income.
Nine
months ended July 31, 2007 compared to the nine months ended July 31,
2006
Revenue.
Our
revenue decreased by $243,111, or 61%, to $154,201 for the nine months ended
July 31, 2007 (“Fiscal 2007”) as compared with $397,312 for the same period last
year (“Fiscal 2006”) primarily due to the greater amount of the her-2 SBIR,
fusion and the FLAIR grant money received by the Company in Fiscal 2006 compared
to new grant money from the National Cancer Institute and State of New Jersey
in
Fiscal 2007.
Research
and Development Expenses.
Research
and development expenses increased by $298,843, or 27%, to $1,397,033 for Fiscal
2007 as compared with $1,098,190 for Fiscal 2006, principally attributable
to
the following:
·
|
Clinical
trial expenses decreased $35,950, or 10%, to $326,525 in Fiscal 2007 from
$362,475 due to higher start-up expenses of our clinical trial which
commenced in the second quarter of Fiscal 2006 compared with lower
post
recruitment expenses in Fiscal 2007.
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|
|
·
|
Wages,
salaries and related costs increased $154,914, or 41%, to $532,189
in
Fiscal 2007 from $377,275 principally due to our expanded research
and
development staff and bonus accrual.
|
|
|
·
|
Subcontracting,
lab supplies and consulting expenses increased by $85,561, or 28%,
to
$395,306 in Fiscal 2007 from $309,745 primarily due to:
|
|
|
|
· $77,486
increased consulting expenses.
|
|
|
|
·
$79,396
decreased outside research costs related to supporting
grants.
|
|
|
|
· $57,495
increased IND consulting expenses in support of a planned FDA
filing.
|
|
|
|
· $29,976
increased lab support and supplies.
|
|
|
·
|
Toxicology
study expenses increased by $30,722 in Fiscal 2007 period as a result
of a
study to support our IND in 2007.
|
|
|
·
|
Manufacturing
expense increased by $63,595 in Fiscal 2007 period due to a study
of a new
formulation in 2007.
|
|
|
We
anticipate a continued increase in R&D expenses as a result of expanded
development and commercialization efforts related to toxicology studies,
clinical trials, and product development, and expenses to be incurred in the
development of strategic and other relationships required ultimately if the
licensing, manufacture and distribution of our product candidates is
undertaken.
General
and Administrative Expenses.
General
and administrative expenses increased by $852,325, or 59%, to $2,296,393 for
Fiscal 2007 compared with $1,444,068 for Fiscal 2006, period, primarily
attributable to the following:
·
|
Wages,
options and benefit expenses increased by $382,126, or $154% to $629,717
in Fiscal 2007 from $247,591 due to additions to administrative staff
in
the second quarter Fiscal 2006 and hiring the employment of a Chief
Executive Officer in December 2006.
|
|
|
·
|
Consulting
fees and expenses increased by $239,705, or 40%, to $837,882 in Fiscal
2007 from $598,177. Such increase was primarily attributed to an
amendment
of the consulting agreement with LVEP, an affiliate of Mr. Appel,
A
Director, resulting in: (i) an increase of $295,320 of option expense
(ii)
decrease of his bonus by $4,615; partially offset by a reduction
of
$51,000 in other consulting expenses.
|
|
|
·
|
An
increase in overall expenses of $89,301 for insurance costs of $15,892,
taxes $10,953, depreciation and amortization expenses of $18,172
and
overall operating expenses of $44,284.
|
|
|
|
An
increase in legal expenses of $9,159, or 4%, to $247,690 from $238,531,
primarily the result of increased task assigned to outside counsel
related
to SEC filings and fund raising documents.
|
|
|
·
|
An
increase in conference and public relations costs of $132,034 or
118% to
$243,846 from $111,812 due to market studies and conference
attendance.
|
Other
Income (expense).
Other
Income (expense) for the Fiscal 2007 increased by $1,787,856 to income of
$1,484,766 compared to expense of ($303,089) due to (i) for Fiscal 2007, an
increase of interest expense of $209,379 or 79%,from $265,109 to $474,488
primarily related to our outstanding secured convertible debenture issued on
February 2 and March 8, 2006, (ii) a decrease of $22,150 of interest earned
on
investments (iii) a net change of $1,699,418 in the fair value of common stock
warrants and embedded derivative liabilities recorded as income (non-cash item)
compared to the fair values for the same period of the prior year for the
secured convertible debenture and (iv) a $319,967 gain in retirement of the
Penn
note.
No
provision for income taxes was made for either Fiscal period due to significant
tax losses during and prior to such periods primarily due to the higher overall
cost of development and operating as a public company.
On
July
31, 2007, our cash balance was $115,361, and primarily due to the greater
overall deficit, which resulted in a working capital deficiency of ($1,337,558)
at July 31, 2007 as compared to working capital of $1,254,651 as of October
31,
2006 which benefited from net proceeds of approximately $2,740,000 from the
sale
to an investor of our 6% Secured Convertible Debentures in the principal amount
of $3,000,000 in February and March 2006.
We
intend
to use our available cash, additional financing, and resources during the next
12 months following July 31, 2007 to conduct our Phase I/II clinical trial
in
cervical cancer using Lovaxin C, one of our lead product candidates in
development using our Listeria System, maintain our research and development
team to assist in the further development of Lovaxin P (our Listeria vaccine
directed toward treatment of prostate cancer) and Lovaxin B (our Listeria
vaccine directed toward treatment of breast cancer), as well as in the
development of several additional Listeria based vaccines for the treatment
of
cancer, and to enhance our manufacturing capabilities and strategic
activities.
Contingent
obligations
On
July
1, 2002 (effective date) we entered into a 20-year exclusive worldwide license,
with the University of Pennsylvania (“Penn”) with respect to the
innovative work of Yvonne Paterson, Ph.D., Professor of Microbiology in the
area
of innate immunity, or the immune response attributable to immune cells,
including dentritic cells, macrophages and natural killer cells, that respond
to
pathogens non-specifically. This agreement has been amended from time to time
and was amended and restated on February 13, 2007.
The
license, unless sooner terminated in accordance with its terms, terminates
upon
the later of: (a) expiration of the last to expire Penn patent rights; or (b)
twenty years after the effective date. The license provides us with the
exclusive commercial rights to the patent portfolio developed at Penn as of
the
effective date, in connection with Dr. Paterson and requires us to raise
capital, pay various milestone, legal, filing and licensing payments to
commercialize the technology. In exchange for the license, Penn received shares
of our common stock which currently represents approximately 14% of our common
stock outstanding on a fully-diluted basis. In addition, Penn is entitled to
receive a non-refundable initial license fee, license fees, royalty payments
and
milestone payments based on net sales and percentages of sublicense fees and
certain commercial milestones, as follows: 1.5% royalties on net sales in all
countries; notwithstanding this royalty rate, we have agreed to pay Penn a
total
of $525,000 over a three-year period as an advance minimum royalty after the
first commercial sale of a product under each license (which payments we do
not
expect to begin within the next five years); an annual maintenance fee starting
on December 31, 2008, until the first commercial sale of a Penn licensed
product. Based on the agreement we made a $162,034 License payment
from the original $482,000.
The
amended and restated agreement eliminated an obligation to pay $319,967 to
Penn
upon receiving financing or on certain dates on or before December 15, 2007.
This obligation was recorded in fiscal year 2005 as an intangible asset as
of
January 31, 2007 as an intangible asset and a liability. Under the amended
and
restated agreement we are billed actual patent expenses as they are passed
through from Penn. Overall the amended and restated agreement payment
terms reflect lower near-term requirements resulting in, a gain of $319,967
due
the retirement in notes payable. The impact of this amended and restated
agreement is included in the financial statements as of April 30, 2007. Under
this agreement we are responsible for filing new patents and maintaining
the existing patents licensed to use and we are to reimburse Penn for all
attorneys’ fees, expenses, official fees and other charges incurred in the
preparation, prosecution and maintenance of the patents licensed from
Penn.
Furthermore,
upon the achievement of the first sale of a product in certain fields, Penn
shall be entitled to milestone payments, as follows: $2,500,000 shall be due
for
first commercial sale of the first product in the cancer field; and $1,000,000
shall be due upon the date of first commercial sale of a product in each of
the
secondary strategic fields sold. Therefore, the total potential amount of
milestone payments is $3,500,000 in the cancer field.
Assuming
we have net sales in the aggregate amount of $100 million from our cancer
products, our total payments under the license to Penn over the next ten years
could reach an aggregate of $5,420,000. If over the next 10 years our net sales
total only $10 million in aggregate from our cancer products, total payments
to
Penn could aggregate $4,445,000.
The
license also grants us exclusive negotiation and exclusive options until June
17, 2009 to obtain exclusive licenses to new inventions on therapeutic vaccines
developed by Drs.’ Paterson and Fred Frankel and their laboratory. Each option
is granted us at no additional cost and provides a six-month exercise period
from the date of disclosure. On February 13, 2007 we exercised an option and
have a 90 day period to negotiate in good faith a comprehensive license
agreement at licensing fees up to $10,000. An amendment dated March 26, 2007,
to
the amended and restated patent license agreement the Company was granted an
option to license docket R3702 at a $10,000 docket cost of (R3702 including
6
possible patents) plus $33,788 in patent legal and filing costs that were
capitalized in the second fiscal 2007 quarter period. The option allows us
to
negotiate licenses for approximately 13 additional dockets eac h containing
numerous inventions. We estimate, if fully exercised, license fees, legal
expense, and other filing expenses for the 13 dockets will aggregate
approximately $400,000 over the next few years.
Item
3. Controls and Procedures.
As
of the
end of the period covered by this report, based on an evaluation of the
Company’s disclosure controls and procedures (as defined in Rules 13a-15(e)
under the Securities Exchange Act of 1934), each of the Chief Executive Officer
and the Vice President of Finance, Principal Financial Officer of the Company,
has concluded that the Company’s disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company
in
its Exchange Act reports is recorded, processed, summarized and reported within
the applicable time periods specified by the rules and forms of the Securities
and Exchange Commission.
There
were no significant changes in the Company’s internal controls or in any other
factors that could significantly affect those controls subsequent to the date
of
the most recent evaluation of the Company’s internal controls by the Company,
including any corrective actions with regard to any significant deficiencies
or
material weaknesses.
PART
II - OTHER INFORMATION
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
During
the three months ended and nine months ended July 31, 2007, we issued as
compensation 33,335 and 100,001shares respectively, of Common Stock pursuant
to
an agreement with our Investor Relations service provider (IRG) and (ii) an
aggregate 274,014 shares earned through nine months ended July 31, 2007 and
2007, to a Director and employees. Each recipient agreed that no transfer of
the
shares may be affected unless the shares are registered under the Securities
Act
of 1933, as amended (the “Act”) or exempt from registration.
The
above
sales were exempt from registration under the Act by virtue of the provisions
of
Section 4(2) thereof.
Table
of Contents
Item
6. Exhibits and Reports on Form 8-K
31.1
|
|
Certification
of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
31.2
|
|
Certification
of Principal Financial Officer pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
32.1
|
|
Certification
of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley
Act of 2002
|
|
|
|
32.2
|
|
Certification
of Principal Financial Officer pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
|
No
Reports on Form 8-K were filed during the three months ended July 31,
2007.
SIGNATURES
In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
hereunto duly authorized.
|
|
|
|
ADVAXIS,
INC.
Registrant
|
|
|
|
Date: September
14, 2007
|
By:
|
/s/ Thomas
Moore
Thomas
Moore
|
|
Chief
Executive Officer and Chairman of the
Board
|
|
|
|
|
By:
|
/s/ Fredrick
Cobb
Fredrick
Cobb
|
|
Vice
President Finance, Principal Financial
Officer
|