Unassociated Document
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 July 31, 2009
¨
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
|
For the
transition period from to ________________ to ________________
Commission
file number 000
28489
ADVAXIS,
INC.
|
(Exact
name of small business issuer as specified in its
charter)
|
Delaware
|
|
02-0563870
|
(State
or other jurisdiction of incorporation or organization)
|
|
(IRS
Employer Identification
No.)
|
The
Technology Centre of New Jersey, 675 Route 1, Suite 119, North Brunswick,
NJ 08902
|
(Address
of principal executive
offices)
|
(732)
545-1590
|
(Issuer’s
telephone number)
|
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes x No ¨
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 (§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 ¨(not
required)
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 August 31, 2009 was 115,638,243.
ADVAXIS,
INC.
(A
Development Stage Company)
July
31, 2009
INDEX
|
|
Page
No.
|
|
|
|
PART I
|
FINANCIAL
INFORMATION
|
|
|
|
|
Item 1.
|
Financial
Statements
|
3
|
|
|
|
|
Balance
Sheets at July 31, 2009 (unaudited) and October 31, 2008
|
3
|
|
|
|
|
Statements
of Operations for the three and nine month periods ended July 31, 2009 and
2008 and the period March 1, 2002 (inception) to July 31, 2009
(unaudited)
|
4
|
|
|
|
|
Statements
of Cash Flow for the nine month periods ended July 31, 2009 and 2008 and
the period March 1, 2002 (inception) to July 31, 2009
(unaudited)
|
5
|
|
|
|
|
Notes
to Financial Statements
|
7
|
|
|
|
Item 2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
14
|
|
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
23
|
|
|
|
Item 4.
|
Controls
and Procedures
|
23
|
|
|
|
PART II
|
OTHER
INFORMATION
|
|
|
|
|
Item 1.
|
Legal
Proceedings
|
23
|
|
|
|
Item 1A.
|
Risk
Factors
|
23
|
|
|
|
Item 6.
|
Exhibits
|
25
|
|
|
|
SIGNATURES
|
26
|
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
|
|
July
31, 2009
|
|
|
October 31, 2008
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
49,126
|
|
|
$
|
59,738
|
|
Prepaid
expenses
|
|
|
40,105
|
|
|
|
38,862
|
|
Total
Current Assets
|
|
|
89,231
|
|
|
|
98,600
|
|
|
|
|
|
|
|
|
|
|
Deferred
expenses
|
|
|
366,938
|
|
|
|
-
|
|
Property
and Equipment, net
|
|
|
63,661
|
|
|
|
91,147
|
|
Intangible
Assets, net
|
|
|
1,310,078
|
|
|
|
1,137,397
|
|
Other
Assets
|
|
|
3,876
|
|
|
|
3,876
|
|
Total
Assets
|
|
$
|
1,833,784
|
|
|
$
|
1,331,020
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
& SHAREHOLDERS’ DEFICIENCY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,362,832
|
|
|
$
|
998,856
|
|
Accrued
expenses
|
|
|
965,886
|
|
|
|
603,345
|
|
Convertible
Bridge Notes and fair value of embedded derivative
|
|
|
796,154
|
|
|
|
-
|
|
Notes
payable - current portion including interest payable
|
|
|
1,094,450
|
|
|
|
563,317
|
|
Total
Current Liabilities
|
|
|
4,219,322
|
|
|
|
2,165,518
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Warrants
|
|
|
11,253,594
|
|
|
|
-
|
|
Notes
payable - net of current portion
|
|
|
-
|
|
|
|
4,813
|
|
Total
Liabilities
|
|
$
|
15,472,916
|
|
|
$
|
2,170,331
|
|
Commitments and
Contingencies
|
|
|
|
|
|
|
|
|
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 115,638,243 as of July 31, 2009; and 109,319,520 as of October
31, 2008
|
|
|
115,637
|
|
|
|
109,319
|
|
Additional
Paid-In Capital
|
|
|
4,217,074
|
|
|
|
16,584,414
|
|
Deficit
accumulated during the development stage
|
|
|
(17,971,843
|
)
|
|
|
(17,533,044
|
)
|
Total
Shareholders' Deficiency
|
|
$
|
(13,639,132
|
)
|
|
$
|
(839,311
|
)
|
Total Liabilities
& Shareholders’ Deficiency
|
|
$
|
1,833,784
|
|
|
$
|
1,331,020
|
|
The
accompanying notes are an integral part of these financial
statements.
ADVAXIS,
INC.
(A
Development Stage Company)
Statement
of Operations
(Unaudited)
|
|
3 Months
Ended
July
31,
2009
|
|
|
3 Months
Ended
July
31,
2008
|
|
|
9 Months
Ended
July
31,
2009
|
|
|
9 Months
Ended
July
31,
2008
|
|
|
Period from
March 1, 2002
(Inception) to
July
31,
2009
|
|
Revenue
|
|
$ |
(5,369 |
) |
|
$ |
28,045 |
|
|
$ |
(5,369 |
) |
|
$ |
68,404 |
|
|
$ |
1,319,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
& Development Expenses
|
|
|
476,421 |
|
|
|
657,286 |
|
|
|
939,407 |
|
|
|
2,004,324 |
|
|
|
8,797,391 |
|
General
& Administrative Expenses
|
|
|
985,726 |
|
|
|
605,319 |
|
|
|
2,019,648 |
|
|
|
2,349,439 |
|
|
|
12,028,215 |
|
Total
Operating expenses
|
|
|
1,462,147 |
|
|
|
1,262,605 |
|
|
|
2,959,055 |
|
|
|
4,353,763 |
|
|
|
20,825,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
(1,467,516
|
) |
|
|
(1,234,560
|
) |
|
|
(2,964,424
|
) |
|
|
(4,285,359
|
) |
|
|
(19,505,803
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(374,563
|
) |
|
|
(1,773
|
) |
|
|
(410,615
|
) |
|
|
(5,705
|
) |
|
|
(1,495,098
|
) |
Other
Income
|
|
|
- |
|
|
|
2,599 |
|
|
|
|
|
|
|
46,427 |
|
|
|
246,457 |
|
Gain
on note retirement
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,532,477 |
|
Net
changes in fair value of common stock warrant liability and embedded
derivative liability
|
|
|
2,014,220 |
|
|
|
- |
|
|
|
2,014,220 |
|
|
|
- |
|
|
|
371,988 |
|
Net
income (loss) before benefit for income tax benefit
|
|
|
172,141 |
|
|
|
(1,233,734
|
) |
|
|
(1,360,819
|
) |
|
|
(4,244,637
|
) |
|
|
(18,849,979
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit
|
|
|
- |
|
|
|
- |
|
|
|
922,020 |
|
|
|
- |
|
|
|
922,020 |
|
Net
income (loss)
|
|
|
172,141 |
|
|
|
(1,233,734
|
) |
|
|
(438,799
|
) |
|
|
- |
|
|
|
(17,927,959
|
) |
Dividends
attributable to preferred shares
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
43,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) applicable to common Stock
|
|
$ |
172,141 |
|
|
$ |
(1,233,734 |
) |
|
$ |
(438,799 |
) |
|
$ |
(4,244,637 |
) |
|
$ |
(17,971,843 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share, basic
|
|
$ |
0.00 |
|
|
$ |
(0.01 |
) |
|
$ |
0.00 |
|
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share, diluted
|
|
$ |
0.00 |
|
|
$ |
(0.01 |
) |
|
$ |
0.00 |
|
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding, basic
|
|
|
115,243,678 |
|
|
|
109,157,170 |
|
|
|
112,599,706 |
|
|
|
108,513,191 |
|
|
|
|
|
Weighted
average number of shares outstanding, diluted
|
|
|
115,243,678 |
|
|
|
109,157,170 |
|
|
|
112,599,706 |
|
|
|
108,513,191 |
|
|
|
|
|
The
accompanying notes 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,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(438,799 |
) |
|
$ |
(4,244,637 |
) |
|
$ |
(17,927,959 |
) |
Adjustments
to reconcile net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
charges to consultants and employees for options and
stock
|
|
|
372,695 |
|
|
|
311,806 |
|
|
|
2,225,925 |
|
Amortization
of deferred financing costs
|
|
|
- |
|
|
|
- |
|
|
|
260,000 |
|
Amortization
of Discount on bridge Loan
|
|
|
37,231 |
|
|
|
- |
|
|
|
37,321 |
|
Amortization
of Warrants on Bridge Notes
|
|
|
|
|
|
|
- |
|
|
|
53,851 |
|
Non-cash
interest expense
|
|
|
345,044 |
|
|
|
3,002 |
|
|
|
863,229 |
|
Change
in value of warrants and embedded derivative
|
|
|
(2,014,220
|
) |
|
|
- |
|
|
|
(371,988
|
) |
Value
of penalty shares issued
|
|
|
- |
|
|
|
31,778 |
|
|
|
149,276 |
|
Depreciation
expense
|
|
|
27,486 |
|
|
|
26,975 |
|
|
|
119,576 |
|
Amortization
expense of intangibles
|
|
|
54,374 |
|
|
|
51,795 |
|
|
|
367,885 |
|
Gain
on note retirement
|
|
|
- |
|
|
|
- |
|
|
|
(1,532,477
|
) |
(Increase)
Decrease in prepaid expenses
|
|
|
(1,243
|
) |
|
|
94,711 |
|
|
|
(40,105
|
) |
Increase
in other assets
|
|
|
- |
|
|
|
- |
|
|
|
(3,876
|
) |
Increase
in Deferred expenses
|
|
|
(116,938
|
) |
|
|
- |
|
|
|
(116,938
|
) |
Increase
in accounts payable
|
|
|
415,954 |
|
|
|
113,162 |
|
|
|
1,852,016 |
|
Increase
in accrued expenses
|
|
|
112,541 |
|
|
|
101,781 |
|
|
|
699,699 |
|
Accrued
interest on notes payable
|
|
|
- |
|
|
|
- |
|
|
|
18,291 |
|
Increase
in deferred revenue
|
|
|
- |
|
|
|
6,596 |
|
|
|
- |
|
Net
cash used in Operating Activities
|
|
|
(1,205,873
|
) |
|
|
(3,503,031
|
) |
|
|
(13,400,213
|
) |
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid on acquisition of Great Expectations
|
|
|
- |
|
|
|
- |
|
|
|
(44,940
|
) |
Purchase
of property and equipment
|
|
|
- |
|
|
|
(10,842
|
) |
|
|
(137,657
|
) |
Cost
of intangible assets
|
|
|
(227,054
|
) |
|
|
(178,542
|
) |
|
|
(1,752,914
|
) |
Net
cash used in Investing Activities
|
|
|
(227,054
|
) |
|
|
(189,384
|
) |
|
|
(1,935,511
|
) |
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from convertible secured debenture
|
|
|
- |
|
|
|
- |
|
|
|
960,000 |
|
Cash
paid for deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
(260,000
|
) |
Principal
payment on notes payable
|
|
|
(12,320
|
) |
|
|
(10,960
|
) |
|
|
(119,239
|
) |
Proceeds
from notes payable
|
|
|
- |
|
|
|
- |
|
|
|
1,271,224 |
|
Proceeds
from notes payable
|
|
|
1,434,635 |
|
|
|
- |
|
|
|
1,909,635 |
|
Net
proceeds of issuance of Preferred Stock
|
|
|
- |
|
|
|
- |
|
|
|
235,000 |
|
Payment
on cancellation of warrants
|
|
|
- |
|
|
|
- |
|
|
|
(600,000
|
) |
Proceeds
of issuance of Common Stock; net of issuance costs
|
|
|
- |
|
|
|
(78,013
|
) |
|
|
11,988,230 |
|
Net
cash provided by (used in) Financing Activities
|
|
$ |
1,422,315 |
|
|
$ |
(88,973 |
) |
|
$ |
15,384,850 |
|
Net
(Decrease) Increase in cash
|
|
|
(10,612
|
) |
|
|
(3,781,388
|
) |
|
|
49,126 |
|
Cash
at beginning of period
|
|
|
59,738 |
|
|
|
4,041,984 |
|
|
|
- |
|
Cash
at end of period
|
|
$ |
49,126 |
|
|
$ |
260,596 |
|
|
$ |
49,126 |
|
The
accompanying notes 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
|
|
|
|
2009
|
|
|
2008
|
|
July 31, 2009
|
|
|
|
|
|
|
|
|
|
|
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
|
|
D
Debt discount in connection with recording the original value of the
embedded derivative liability
|
|
$
|
1,023,116
|
|
|
-
|
|
$
|
1,535,912
|
|
Allocation
of the original secured convertible debentures to warrants
|
|
|
-
|
|
|
-
|
|
$
|
214,950
|
|
Allocation
of the Warrant on Bridge Loan as debt discount
|
|
$
|
250,392
|
|
|
|
|
$
|
250,392
|
|
Warrants
issued in connection with issuances of common stock
|
|
|
-
|
|
|
-
|
|
$
|
1,505,550
|
|
Warrants
recorded as a liability
|
|
$
|
12,785,695
|
|
|
|
|
$
|
12,785,695
|
|
The accompanying notes are an integral
part of these financial statements.
ADVAXIS,
INC.
NOTES TO
THE FINANCIAL STATEMENTS (unaudited)
1.
|
Nature of
Operations and Liquidity
|
Advaxis,
Inc., (the “company”) is a development stage biotechnology company with the
intent to develop safe and effective cancer vaccines that utilize multiple
mechanisms of immunity. We are developing a live Listeria vaccine technology
under license from the University of Pennsylvania (“Penn”) which secretes a
protein sequence containing a tumor-specific antigen. We believe this vaccine
technology is capable of stimulating the body’s immune system to process and
recognize the antigen as if it were foreign, generating an immune response able
to attack the cancer. We believe that this to be a broadly enabling platform
technology that can be applied to the treatment of many types of cancers,
infectious diseases and auto-immune disorders.
The
discoveries that underlie this innovative technology are based upon the work of
Yvonne Paterson, Ph.D., Professor of Microbiology at Penn, involving the
creation of genetically engineered Listeria that stimulate the
innate immune system and induce an antigen-specific immune response involving
both arms of the adaptive immune system, as well as supporting the immune
response by stimulating systems like the vascular system and the development of
specific blood cells that underlie a strong therapeutic immune
response.
Since our
inception in 2002 we have focused our research and development efforts upon
understanding our technology and establishing a product development pipeline
that incorporates this technology in the therapeutic cancer vaccines area
targeting cervical, prostate, breast and Cervical Intraepithelial Neoplasia
(CIN), a pre cancerous indication. Although no products have been commercialized
to date, research and development and investment continues to be placed behind
the pipeline and the advancement of this technology. Pipeline development and
the further exploration of the technology for advancement entail risk and
expense. It is anticipated that ongoing operational costs for the development
stage company will increase significantly as we expect to begin several clinical
trials starting this fiscal year.
As of
July 31, 2009, we had $49,126 in cash, a deficit of $4,130,091 in working
capital, $ 2,252,803 of principal and interest payable on our notes payable,
stockholders deficiency of $ 13,639,132 and an accumulated deficiency of
$17,971,843.
In a
letter dated November 13, 2008 from the New Jersey Economic Development
Authority we were notified that our application for the New Jersey Technology
Tax Certificate Transfer Program was preliminarily approved. Under the State of
New Jersey Program for small business we received a net cash amount of $922,020
on December 12, 2008 from the sale of our State Net Operating Losses (“NOL”)
through December 31, 2007 of $1,084,729.
Our net
income for the three months ended July 31, 2009 was $172,141 including
$2,014,220 for the net change in fair value of common stock warrant and embedded
derivative liabilities. Our net loss for the nine months ended July
31, 2009 was $438,799 which includes $922,020 of tax benefit received in this
period from the New Jersey Technology Tax Certificate Transfer Program and
$2,014,220 for the net change in fair value of common stock warrant and embedded
derivative liabilities
Since our
inception until July 31, 2009, the Company has reported accumulated net losses
of $17,927,959 and recurring negative cash flows from operations. In order
to maintain sufficient cash and investments to fund future operations, we are
seeking to raise additional capital and reduce expenses over the August through
September 2009 time period through various financing alternatives. During the
fiscal year ended October 31, 2008 the Company received $475,000 from Notes
provided by our CEO, Thomas Moore (the “Moore Notes”). Although the
Company repaid Mr. Moore $50,000 in the three months ended January 31, 2009, as
of July 31, 2009 he has loaned an additional $522,985 for a total of
$947,985. In addition, the Company sold its Net operating loss
(“NOL”) to the New Jersey Economic Development Administration (”NJEDA”) for
$922,020 and has reduced the salaries of all its highly compensated employees
effective as of January 4, 2009. On June 18, 2009 we also entered
into a Note Purchase Agreement for $1,131,353 in senior secured bridge notes
issued at a 15% discount and received proceeds of $961,650 (the “Bridge
Notes”).
Since
inception through July 31, 2009, principally all of the Company’s revenue has
been from grants.
The
accompanying unaudited interim consolidated financial statements include all
adjustments (consisting only of those of a normal recurring nature) necessary
for a fair statement of the results of the interim period. These interim
Financial Statements should be read in conjunction with the Company’s Financial
Statements and Notes for the year ended October 31, 2008 filed on Form 10-KSB.
We believe these financial statements reflect all adjustments (consisting only
of normal, recurring adjustments) that are necessary for a fair presentation of
our financial position and results of operations for the periods presented.
Results of operations for the interim periods presented are not necessarily
indicative of results to be expected for the year.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. There is a working capital deficiency and
recurring losses that raise substantial doubt about its ability to continue as a
going concern. The financial statements do not include any adjustments to the
carrying amount and classification of recorded assets and liabilities should we
be unable to continue operations.
Management’s intends
to seek additional funding to assure the Company’s viability, through
private or public equity offering, and/or debt financing. There can be
no assurance that management will be successful in any of those
efforts.
Since
October 31, 2008 our short term financing plans through July 2009 consisted of
the Moore Notes the sale of the NOL provided by the NJEDA, the reduction in
salaries of all our highly compensated employees effective as of January 4, 2009
and the 2009 Bridge Notes. We plan on raising an additional $1,000,000 through
additional debt financing. We anticipate that this will be sufficient to finance
our currently planned operations to October 2009.
The
preparation of financial statements in conformity with generally accepted
accounting principles required management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and the differences could be
material. The most significant estimates impact the following transactions or
account balances: stock compensation, liabilities, warrant & options
valuations, impairment of intangibles and fixed assets.
Recently
Issued Accounting Pronouncements
In June
2008, The FASB ratified Emerging Issues Task Force (EITF) Issue No 07-5,
“Determining Whether an Instrument (or Embedded Feature) is Indexed to an
Entity’s Own Stock” (EITF 07-5). EITF 07-5 mandates a two-step process for
evaluating whether an equity-linked financial instrument or embedded feature
indexed to the entities own stock. It is effective for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years, which is
our first quarter of fiscal 2010. Many of the warrants issued by the Company
contain a strike price adjustment feature, which upon adoption of EITF 07-5, may
result in the instruments no longer being considered indexed to the Company’s
own stock. Accordingly, adoption of EITF 07-5 may change the current
classification (from equity to liability) and the related accounting for many
warrants outstanding at that date. Even though the Company now
records warrants and the embedded derivative as a liability under the guidance
contained in EITF 00-19 “ Accounting for Derivative Financial Instrument 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 05-2 in order to clarify provisions of EITF
00-19, the Company determined that the conversion feature in the Bridge Notes
represented an embedded derivative since the debenture is convertible into a
variable number of shares based upon a conversion formula which could require
the Company to issue shares in excess of its authorized amount. The convertible
debentures are not considered “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. The Company is currently evaluating the
impact the adoption of EITF 07-5 may have on its financial position, results of
operation, or cash flows.
In
May 2009, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 165, Subsequent Events (“SFAS
165”), which provides guidance to establish general standards of accounting for
and disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. SFAS 165 also
requires entities to disclose the date through which subsequent events were
evaluated as well as the rational as to why the date was selected. SFAS 165 is
effective for interim and annual periods ended after June 15, 2009. The
Company has adopted the provisions of SFAS 165. The Company has evaluated
subsequent events through the date of issuance of these financial statements,
September 23, 2009.
In
July 2009, the FASB issued SFAS No. 168, FASB Accounting Standards
Codification ™ and the Hierarchy of Generally Accepted Accounting Principles — a
replacement of FASB Statement No. 162 (“SFAS 168”). With the issuance of
SFAS 168, the FASB Standards Codification (“Codification”) becomes the single
source of authoritative U.S. accounting and reporting standards applicable for
all non-governmental entities, with the exception of guidance issued by the
Securities and Exchange Commission. The Codification does not change current
U.S. GAAP, but changes the referencing of financial standards and is intended to
simplify user access to authoritative U.S. GAAP, by providing all the
authoritative literature related to a particular topic in one place. The
Codification is effective for interim and annual periods ended after
September 15, 2009. At that time, all references made to U.S. GAAP will use
the new Codification numbering system prescribed by the FASB. The adoption of
SFAS No. 168 will result in the change of disclosures to reflect the new
codification references, but otherwise the Company does not expect it to have
any effect on its financial statements.
Management
does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
Intangible
assets primarily consist of legal and filing costs associated with obtaining
patents and licenses. The license and patent costs capitalized primarily
represent the value assigned to the Company’s 20-year exclusive worldwide
license agreement with Penn which are amortized on a straight-line basis over
their remaining useful lives which are estimated to be twenty years from the
effective date of the Penn Agreement dated July 1, 2002. The value of the
license and patents is based on management’s assessment regarding the ultimate
recoverability of the amounts paid and the potential for alternative future
uses. This license now includes the exclusive right to strategically exploit 17
patents issued and 18 pending filed in some of the largest markets in the world
(excluding the patents issued and applied for that we are no longer pursing in
smaller markets). After careful review and analysis we decided not to
pursue 4 patents issued and 6 patent applications filed in smaller
countries.
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 39 or more
additional patent applications for Listeria and LLO-based vaccine dockets was
not finalized. In order to purchase this Second Amendment as of July 31,
2009 we are contingently liable for $447,108 including the reimbursement of
certain legal and filing costs. We are still in negotiations
with Penn over the form of payment, some combination of stock or cash, and
expect to reach a conclusion at the close of our next financial
raise. These fees are currently unpaid and are not recorded in our
financial statements as of the July 31, 2009. While we consider our relationship
with Penn good we are in frequent communications over payment of past due
invoices and other payables due to our lack of cash. If we fail to reach a
mutual understanding Penn may issue a default notice and we will have 60 days to
cure the breach or be subject to the termination of the agreement.
As
of July 31, 2009, all gross capitalized costs associated with the licenses and
patents filed and granted as well as costs associated with patents pending are
$1,569,880 as shown under license and patents on the table below, excluding the
Second Amendment costs. Out of the $1,569,880 capitalized cost the
cost of the patents and licenses issued is estimated to be $797,942 and cost of
the patents pending or in the process of filing is estimated to be $771,938. The
expirations of the existing patents range from 2014 to 2020 but the expirations
may be extended based on market approval if granted and/or based on existing
laws and regulations. Capitalized costs associated with patent applications that
are abandoned without future value or patents applications that are not issued
are charged to expense when the determination is made not to pursue the
application. Based on a review and analysis of its patents we determined that it
was no longer cost effective to pursue patents in other countries such as
Canada, Israel or Ireland. A review of the capitalized costs for
these countries resulted in the write-off of $26,087 as of July 31, 2009 of
capitalized cost since inception of the company and the elimination of a total
of eleven patent and patent applications. No other additional patent
applications with future value were abandoned and charged to expense in the
current or prior year. Amortization expense for licensed technology and
capitalized patent cost is included in general and administrative
expenses.
Under the
amended and restated agreement we are billed actual patent expenses as they are
passed through from Penn and or billed directly from our patent attorney. The
following is a summary of the intangibles assets as of the following fiscal
periods:
|
|
October 31,
2008
|
|
|
July 31,
2009
|
|
Increase/(Decrease)
|
License
|
|
$
|
529,915
|
|
|
$
|
571,275
|
|
|
$
|
41,360
|
|
Patents
|
|
|
812,910
|
|
|
|
998,605
|
|
|
|
185,695
|
|
Total
intangibles
|
|
|
1,342,825
|
|
|
|
1,569,880
|
|
|
|
227,055
|
|
Accumulated
Amortization
|
|
|
(205,428
|
)
|
|
|
(259,802
|
)
|
|
|
(54,374
|
)
|
Intangible
Assets
|
|
$
|
1,137,397
|
|
|
$
|
1,310,078
|
|
|
$
|
172,681
|
|
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.
|
Net Income
(Loss) Per Share
|
In
accordance with the provisions of the Statement of Financial Accounting
Standards (“SFAS”) No. 128, “Earning per Share,” basic net income or basic net
loss per common share is computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding during
the periods. Diluted earnings per share give 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 anti-dilutive provisions in the investment
agreements that effect common stock, 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 change 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 and certain common stock
include anti-dilutive provisions to adjust the number common stock and warrants
as well as the price of the warrants based on certain types of equity
transactions.
|
|
As of
July 31, 2008
|
|
|
As of
July 31, 2009
|
|
Warrants
|
|
|
94,149,587
|
|
|
|
89,143,801
|
|
Stock
Options
|
|
|
8,812,841
|
|
|
|
17,962,841
|
|
Total
All
|
|
|
102,962,428
|
|
|
|
107,106,642
|
|
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 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 (the “Maturity Date”) or the Company’s next equity financing
resulting in gross proceeds to the Company of at least $6 million (“Subsequent
Equity Raise”). The balance of the Moore Agreement is $947,985 as of July 31,
2009. 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.
Effective
June 18, 2009 we entered into a Note Purchase Agreement with each of accredited
and/or sophisticated investors, pursuant to which it completed a private
placement whereby 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. The Bridge Notes were
issued with an original issue discount of 15%. Each Investor paid
$0.85 for each $1.00 of principal amount of notes purchased at the
closing. The Bridge Notes are convertible into shares of the
Company’s common stock at an exercise price contingent on the completion of
equity financing as described below. For every dollar invested, each
Investor received warrants to purchase 2 ½ shares of common stock (the “Bridge
Warrants”) at an exercise price of $0.20 per share, subject to adjustments upon
the occurrence of certain events as more particularly described below and in the
form of Warrant. The Bridge Notes are to mature on December 31, 2009 if not
retired sooner. They may be prepaid in whole or in part at the option of the
Company without penalty at any time prior to the Maturity Date. The warrants may
be exercised on a cashless basis under certain circumstances.
In the
event the Company consummates an equity financing after August 1, 2009 and prior
to the second business day immediately preceding the Maturity Date, in which it
sells shares of its stock with aggregate gross proceeds of not less than
$2,000,000, then prior to the Maturity Date, the Investors shall have the option
to convert all or a portion of the Bridge Notes into the same securities sold in
the Qualified Equity Financing (“QEF”), at an effective per share conversion
price equal to 90% of the per share purchase price of the securities
issued in the QEF. In the event the Company does not consummate a QEF
from and after August 1, 2009 and prior to the second business day immediately
preceding the Maturity Date, then the Investors shall have the option to convert
all or a portion of the Bridge Notes into shares of common stock, at an
effective per share conversion price equal to 50% of the volume-weighted average
price (“VWAP”) per share of the common stock over the five (5) consecutive
trading days immediately preceding the third business day prior to the Maturity
Date. To the extent an Investor does not elect to convert its Bridge Note as
described above, the principal amount of the Bridge Note not so converted shall
be payable in cash on the Maturity Date.
In
connection with the bridge transaction, the Company entered into a Security
Agreement, dated as of June 18, 2009 with the Investors. The Security
Agreement grants the Investors a security interest in all of the Company’s
tangible and intangible assets, as further described in the Security Agreement.
The Company also entered into a Subordination Agreement, dated as of June 18,
2009 (the “Subordination Agreement”) with the Investors and Mr.
Moore. Pursuant to the Subordination Agreement, Mr. Moore
subordinated certain rights to payments under the Moore Notes to the right of
payment in full in cash of all amounts owed to the Investors pursuant to the
Notes; provided, however, that principal and interest of the Moore Notes may be
repaid prior to the full payment of the Investors under certain
circumstances.
BioAdvance
Biotechnology Greenhouse of Southeastern Pennsylvania Notes (“BioAdvance”)
issued us notes for $10,000 dated November 13, 2003 and $40,000 dated
December 17, 2003 that were each due on their fifth anniversary date hereof. On
February 5, 2009 they issued us a letter demanding the payment of the loans and
interest payable of $70,605. The outstanding balance of these notes as of July
31, 2009 is $72,612. We have agreed to make full payment on October 31,
2009. The terms of both Notes call for accrual of 8% interest per
annum on the unpaid principal.
6.
|
Derivative
Instruments
|
As of
July 31, 2009, there were outstanding warrants to purchase 89,143,801 shares of
our common stock (adjusted for anti-dilution provision to-date) with exercise
prices ranges from $0.183 to $0.287 per share (adjusted for anti-dilution
provisions to-date). These warrants include 2,404,125 warrants issued
to Bridge Notes holders at an exercise price of $0.20 per warrant. Most of the
warrants include anti-dilutive provisions that can trigger an adjustment to the
number and price of the warrants outstanding resulting from certain future
equity transactions issued below their exercise price.
The
warrants to purchase shares of common stock issued by the Company in connection
with our private placements consummated on October 17, 2007 (the “2007
Warrants”) contain “full-ratchet” anti-dilution provisions set at $0.20 with a
term of five years. Therefore, any future financial offering or
instrument issuance below $0.20 per share of the company’s common stock or
warrants will trigger the full-ratchet anti-dilution provisions in approximately
54,653,917 of the outstanding 2007 Warrants lowering the exercise price of such
2007 Warrants from $0.20 to an offering price and proportionately increasing the
number of shares that could be obtained upon the exercise of such
warrants. Additionally, the Company has 30,928,581 warrants
outstanding (the “Prior Warrants”) which a vast majority contain weighted
average anti-dilution provisions. As a result, an offering or
instrument issuance below $0.26 per share will trigger the weighted average
anti-dilution provisions in such outstanding Prior Warrants, substantially
lowering the exercise price of such Prior Warrants (in accordance with the terms
of the Prior Warrants) and proportionately increasing the number of shares that
could be obtained upon the exercise of such Prior Warrants. A
majority of these Prior Warrants expire on November 12, 2009 and most of the
balance will expire on or about December 31, 2009. There are also 3,561,303
warrants not included in the warrants above that are outstanding; 944,438 that
don’t include any anti-dilution provision and 2,616,865 that have some form of
anti-dilution provision.
In May
2009 all of the 3,333,333 warrants that were purchased for $0.149 per warrant
with an exercise price of $0.001were exercised on a cashless basis and 3,299,999
common shares were issued.
The Bridge
Note entered into June 18, 2009 whereby 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. The
Bridge Notes were issued with an OID of 15%. Each Investor paid $0.85 for each
$1.00 of principal amount of notes purchased at the Bridge closing. The Bridge
Notes are convertible into shares of the Company’s common stock, as previously
described in the note 5 Notes Payable. For every dollar invested they
received warrants to purchase 2 ½ shares of common stock warrants at an exercise
price of $0.20 per share, subject to adjustment upon the occurrence of certain
events detailed below. The Bridge Notes are to mature on December 31, 2009 if
not retired sooner. The warrants may be exercised on a cashless basis
under certain circumstances.
In the
event the Company consummates an equity financing after August 1, 2009 and prior
to the second business say immediately preceding the Maturity Date, in which it
sells shares of its stock with aggregate gross proceeds of not less than
$2,000,000, then prior to the Maturity Date, the Investors shall have the option
to convert all or a portion of the New Notes into the same securities sold in
the QEF, at an effective per share conversion price equal to 90% of the per
share purchase price of the securities issued in the QEF. In
the event the Company does not consummate a QEF from and after August 1, 2009
and prior to the second business day immediately preceding the Maturity Date,
then the Investors shall have the option to convert all or a portion of the
Bridge Notes into shares of common stock, at an effective per share conversion
price equal to 50% of the volume-weighted average price per share of the Common
Stock over the five (5) consecutive trading days immediately preceding the third
business day prior to the Maturity Date.
In
accounting for the Bridge Note OID the Company is amortizing the discount
of $169,703 over the life of the note by increasing the note amount each
reporting period and charging the offset to interest expense.
In
accounting for the Bridge Note’s embedded conversion feature and
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 05-2 in order to clarify provisions of EITF 00-19, the Company
determined that the conversion feature in the Bridge Notes represented an
embedded derivative since the debenture is convertible into a variable number of
shares based upon a conversion formula which could require the Company to issue
shares in excess of its authorized amount. The convertible debentures are not
considered “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. The Company measured the fair value of the embedded
derivatives at the commitment date using the Black-Scholes valuation model based
on the following assumptions:
First we
estimated the probability of outcomes that the company would be able to meet the
QEF and trigger a 10% discount on the QEF share price (“QEF Pricing”) or
alternatively not meet the QEF (“Non-QEF Pricing”) and trigger an effective per
share conversion price equal to 50% of the VWAP per share of the Common Stock
over the five (5) consecutive trading days immediately preceding the third
business day prior to the Maturity Date. The Company estimated a 70% probability
that they would be able to meet the QEF Pricing at a price of $0.15 per share of
its common stock and 30% that they would meet the Non-QEF Pricing based on its
knowledge of the Company’s current business strategy and
position. The fair value of the embedded derivative under both
outcomes was determined and then factored for the 70% and 30% outcomes to
estimate the embedded derivative value of $1,023,116 as recorded upon
issuance.
The
Company is required to record the fair market value of the embedded derivatives
at the issuance of the Bridge Notes as an embedded derivative liability
partially offsetting the Bridge Note liability (Convertible Bridge Notes and
fair value of embedded derivative) and then to amortize the value of the
embedded liability over the life of the Note by charging interest expense in the
Statement of Operations and while increasing the value of the Convertible Bridge
Notes. The amount charged to interest expenses for the quarter ended
July 31, 2009 was $54,933. The Company shall also adjust each
reporting period for any changes in fair value of the embedded derivative
liability by recording the change to the Net changes in fair value of common
stock warrant liability and embedded derivative liability in the Statement of
Operations.
The
Black-Scholes valuation method was used based on the following factors. QEF
Pricing factors used at origin (June 18, 2009) was based on a stock closing
price $0.11 per share, exercise price $0.135 per share (10% discount to QEF
Pricing) risk free interest rate 0.34%, volatility 310.97% and life of 196 days.
On July 31, 2009 stock closing price $0.09 per share, exercise price $0.135 per
share, risk free interest rate .26%, volatility 271.13% and life of 153
days. This initial embedded derivative liability of $1,023,116,
will be adjusted to fair value at each reporting period based on the current
assumptions at that time. The increase or decrease in the fair market value of
the embedded conversion feature at each reporting period will result in a
non-cash income or expense which is recorded in other income (expense) in the
Statement of Operations along with corresponding changes in the fair value of
the liability. As of July 31, 2009, the fair value of the embedded
derivative was adjusted by $231,727 resulting in a reduction of the embedded
derivative liability and a corresponding amount to other income. The
balance for the embedded derivative liability was $791,389 at July 31,
2009.
Accounting
for all outstanding warrants related to the Company’s determination that all of
the outstanding warrants should be reclassified as liabilities due the fact that
the conversion feature on the Bridge Notes could require the Company to issue
shares in excess of its authorized amount. All outstanding warrants
have been recorded as a liability effective June 18, 2009, based on their fair
value calculated using the Black-Scholes-Merton valuation model and the
following assumptions: First the Company estimated the probability of
three different outcomes (i) that the Company would be able to meet the QEF at
the current warrant price of $0.20 per share, (ii) the QEF price would be $0.15
per share and trigger a 10% discount and (iii) not meet the QEF (“Non-QEF
Pricing”) and trigger an effective per share conversion price equal to 50% of
the VWAP per share of the Common Stock over the five (5) consecutive trading
days immediately preceding the third business day prior to the Maturity Date.
The Company’s estimated that there was and equal probability for each
scenario. The fair value of the warrant liability under each outcome
was determined and then averaged the outcomes to estimate the warrant value of
$13,036,087 at June 18, 2009.
This
initial warrant liability triggered by the Bridge Notes of $13,036,087 as an
reduction to the Bridge Notes liability of $250,392 for warrants issued in
connection with the bridge notes and a reduction to additional paid in capital
in the amount of $12,785,695 for all previously issued and outstanding warrants.
The Company will continue to measure the fair value of the warrants at each
reporting date using the Black-Scholes-Merton valuation model based on the
current assumptions at that point in time. The increase or decrease in the fair
market value of the warrants at each reporting period will result in a non-cash
income or expense which is recorded the Net changes in fair value of common
stock warrant liability and embedded derivative liability in the Statement of
Operations along with corresponding changes in fair value of the common stock
warrant liability. As of July 31, 2009, the fair value of the warrants was
calculated using the following assumptions:
The
Black-Scholes valuation method was used based on the following factors based on
the date of origin June 18, 2009:
|
(i)
|
$0.20
exercise price, market price $0.11, risk free interest 0.28% to 2.86%,
volatility 170.16% to 312.32%, Life 145 to 1825 days, warrants outstanding
89,143,801.
|
|
(ii)
|
$0.135
exercise price, market price $0.11, risk free interest 0.28% to 2.86%,
volatility 170.16% to 312.32%, Life 145 to 1825 days warrants outstanding
123,269,393
|
|
(iii)
|
$0.055
exercise price, market price $0.11, risk free interest 1.00% to 2.86%,
volatility 170.16% to 312.32%, Life 620 to 1825 days, warrants outstanding
202,416,414
|
The
Black-Scholes valuation method was used based on the following factors used as
of July 31,2009:
|
(i)
|
$0.20 exercise price, market price $0.09, risk free
interest 0.18% to 2.53%, volatility 170.16% to 294.68%, Life 102 to
1782 days warrants outstanding
89,143,801. |
|
(ii)
|
$0.135 exercise price, market price $0.09, risk free
interest 0.18% to 2.53%, volatility 170.16% to 294.68%, Life 102 to 1782
days, warrants outstanding 123,269,393 |
|
(iii)
|
$0.055 exercise price, market price $0.09, risk free
interest 0.8% to 2.53%, volatility 170.16% to 294.68%, Life 579 to 1782
days warrants outstanding 244,073,417 |
|
|
|
The
convertible notes payable can not be converted under outcome number (iii) above
until three days prior to the due date of the notes of December 31,
2009. In this scenario, 31,375,845 warrants with expiration dates
expire prior to this date would expire worthless. These warrants do
not have a value in the valuation under outcome number (iii) above.
The
change in fair value of the warrants resulted in a reduction to the common stock
warrant liability and other income of $1,782,493 for the three-month period
ending July 31, 2009.
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. The
increase or decrease in the fair market value of the warrants and embedded
conversion feature at each reporting period will result in a non-cash income or
expense which is recorded in other income (expense) in the Statement of
Operations along with corresponding changes n fair value of the
liability.
We
believe the assumptions used to estimate the fair values of the warrants are
reasonable.
FAS 129
Disclosures about Segments of
Enterprise and Related Information applies to contingently convertible
securities.
If in the
event the Company does not consummate a QEF from and after August 1, 2009 and
prior to the second business day immediately preceding the Maturity Date, then
the Investors shall have the option to convert all or a portion of the Bridge
Notes into shares of common stock, at an effective per share conversion price
equal to 50% of the VWAP per share of the Common Stock over the five (5)
consecutive trading days immediately preceding the third business day prior to
the Maturity Date then the following table provides a range of the
dilution:
If the
five-day VWAP per share the Common Stock at a 50% conversion feature
is:
|
·
|
$0.20/share
at a 50% conversion divided into $1,131,353 equals 11,313,530 shares plus
warrant & share dilution (1).
|
|
·
|
$0.10/share
at a 50% conversion divided into $1,131,353 equals 22,627,060 shares plus
warrant & share dilution (1).
|
|
·
|
$0.05/share
at a 50% conversion divided into $1,131,353 or 45,254,120 shares plus
warrant and share dilution (1).
|
|
·
|
$0.01/share
at a 50% conversion divided into $1,131,353 or 226,270,600 shares plus
warrant and share dilution (1).
|
(1) Based
on the dilution effect of the ratchets in the Stock Purchase Agreement and
Warrants from the October 17, 2007 raise.
7.
|
Accounting for
Stock-Based Compensation
Plans
|
The
Company records compensation expense associated with stock options in accordance
with SFAS No. 123R, “Share Based Payment,” which is a revision of SFAS No. 123.
The Company adopted the modified prospective transition method provided under
SFAS No. 123R. Under this transition method, compensation expense associated
with stock options recognized in the first quarter of fiscal year 2007, and in
subsequent quarters, includes expense related to the remaining unvested portion
of all stock option awards granted prior to April 1, 2006, the estimated fair
value of each option award granted was determined on the date of grant using the
Black-Scholes option valuation model, based on the grant date fair value
estimated in accordance with the original provisions of SFAS No.
123.
The table
below summarizes compensation expenses from share-based payment
awards:
|
|
For the nine
month period
ended
July 31, 2008
|
|
|
For the nine
month period
ended
July 31, 2009
|
|
Research
and development
|
|
|
474
|
|
|
|
143,486
|
|
General
and Administrative
|
|
|
157,009
|
|
|
|
202,984
|
|
Total
stock compensation expense recognized
|
|
$
|
157,483
|
|
|
$
|
346.470
|
|
Total
unrecognized estimated compensation expense related to non-vested stock options
granted and outstanding as of July 31, 2009 was $730,175, which is expected to
be recognized over a weighted-average period of twenty months.
No
options were exercised over the three months and nine months ended July 31, 2008
and 2009 periods, respectively. In July 2009 our Board of Directors (the
“Board”) approved a grant of 10,700,000 non-plan options at an exercise price of
$0.10 per share, with one-third vesting on July 21, 2009 and the balance to vest
equally over the anniversary of the next two years. The fair value of the grants
is approximately $637,720.
8.
|
Commitments
and Contingencies
|
In
the ordinary course of business, we enter into agreements with third parties
that include indemnification provisions which, in our judgment, are normal and
customary for companies in our industry sector. These agreements are typically
with business partners, clinical sites, and suppliers. In these agreements, we
generally agree to indemnify, hold harmless and reimburse indemnified parties
for losses suffered or incurred by the indemnified parties with respect to our
product candidates, use of such product candidates or other actions taken or
omitted by us. The maximum potential amount of future payments we could be
required to make under these indemnification provisions is unlimited. We have
not incurred material cost to defend lawsuits or settle claims related to these
indemnification provisions. As a result, we have no liabilities recorded for
these provisions. Accordingly, we have no liabilities recorded for these
provisions as of July 31, 2009.
In the
normal course of business, we may be confronted with issues or events that may
result in a contingent liability. These are generally related to lawsuits,
claims, environmental actions or the action of various regulatory agencies, if
necessary, management consults with counsel and other appropriate experts to
assess any matters that arise. If, in Management’s opinion, we have incurred a
probable loss as set forth by accounting principles generally accepted in the
US, an estimate is made of the loss and the appropriate accounting entries are
reflected in our financial statements. There are no currently pending or
threatened law suits or claims against the Company that could have a material
adverse effect on our financial position, results of operations or cash
flows.
The
Company issued to a vendor CME Acuity 2,595,944 share of common stock on
December 30, 2008 in full payment for its outstanding balance.. On February 3,
2009 we issued 422,780 shares of common stock to a board of directors member,
Richard Berman, per his compensation agreement. In May 2009 all or
3,333,333 of the warrants purchased for $0.149 per warrant in the October 17,
2007 raise with an exercise price of $0.001were exercised on a cashless basis
and 3,299,999 shares of common stock were issued. In the third
quarter ending July 31, 2009 we entered into agreements with Numoda Corporation,
Stonegate Inc. and others that allows the Company to make $805,800 payments in
the form of Company stock. This stock has not been issued as of July 31,
2009
In
accounting for the Bridge Note’s 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 05-2 in order to clarify provisions of EITF 00-19, the Company
determined that the conversion feature in the Bridge Notes represented an
embedded derivative since the debenture is convertible into a variable number of
shares based upon a conversion formula which could require the Company to issue
shares in excess of its authorized amount. The convertible debentures are not
considered “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. Accordingly, the Company is also required to record the
fair value of all of its warrants outstanding as a liability. (See Note 6) The
Company measured the fair value of the warrants at the commitment date using the
Black-Scholes valuation resulting in a $12,785,695 reduction in Additional
Paid-In Capital as July 31, 2009.
Additional
Paid-In Capital:
|
|
|
|
Balance
as of October 31, 2008:
|
|
$ |
16,584,414 |
|
Warrants
converted into common stock
|
|
|
(
3,300 |
) |
Common
stock issued to consultants
|
|
|
67,140 |
|
Stock
options granted to employees and consultants
|
|
|
354,515 |
|
Warrant
Liability recorded at inception
|
|
|
(12,785,695 |
) |
Balance
as of July 31, 2009
|
|
$ |
4,217,074 |
|
On August
19, 2009 the NIH awarded us a grant for $210,000 for the development of a Dual
Antigen Vaccine to develop a single bioengineered Lm vaccine to deliver two
different antigen-adjuvant proteins. This technology enables a single vaccine to
simultaneously attack two separate and distinct tumor targets with a higher
level of potency. Further investigational work is focusing on the use of this
dual delivery approach directed against a tumor cell surface marker to kill
tumor cells directly plus an anti-angiogenic target that would impair a tumor's
ability to grow by simultaneously reducing its blood supply.
On August
19, 2009 we announced collaboration with investigators with the City of Hope.
The City of Hope is a leading biomedical research and treatment center in the
development of a vaccine for the treatment of certain forms of leukemia and
lymphoma. This collaboration will involve the investigation in the use of our
Live Listeria vaccine proprietary Lm vaccine technology platform for Leukemia
and Lymphoma. The City of Hope investigators are studying our vaccine directed
against the tumor associated antigen WT-1. This molecule is observed to be
over-expressed in certain cancers of the blood as well as some solid tumors such
as breast, pancreas and brain cancers, which makes it a potential target for a
selective immune attack delivered via an Lm vector designed by the
Company.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SAFE
HARBOR CAUTIONARY STATEMENT
The
Company has included in this Quarterly Report certain “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995 concerning the Company’s business, operations and financial condition.
“Forward-looking statements” consist of all non-historical information, and the
analysis of historical information, including the references in this Quarterly
Report to future revenues, collaborative agreements, future expense growth,
future credit exposure, earnings before interest, taxes, depreciation and
amortization, future profitability, anticipated cash resources, anticipated
capital expenditures, capital requirements, and the Company’s plans for future
periods. In addition, the words “could”, “expects”, “anticipates”, “objective”,
“plan”, “may affect”, “may depend”, “believes”, “estimates”, “projects” and
similar words and phrases are also intended to identify such forward-looking
statements. Such factors include the factors described under Part II, Item 1A.
“Risk Factors” and other factors discussed in connection with any
forward-looking statement.
Actual
results could differ materially from those projected in the Company’s
forward-looking statements due to numerous known and unknown risks and
uncertainties, including, among other things, unanticipated technological
difficulties, the length, scope and outcome of our clinical trial, costs related
to intellectual property, cost of manufacturing and higher consulting costs,
product demand, changes in domestic and foreign economic, market and regulatory
conditions, the inherent uncertainty of financial estimates and projections, the
uncertainties involved in certain legal proceedings, instabilities arising from
terrorist actions and responses thereto, and other considerations described as
“Risk Factors” in other filings by the Company with the SEC. Such factors may
also cause substantial volatility in the market price of the Company’s Common
Stock. All such forward-looking statements are current only as of the date on
which such statements were made. The Company does not undertake any obligation
to publicly update any forward-looking statement to reflect events or
circumstances after the date on which any such statement is made or to reflect
the occurrence of unanticipated events.
General
We were
originally incorporated in the state of Colorado on June 5, 1987 under the name
Great Expectations, Inc. We were administratively dissolved on January 1, 1997
and reinstated June 18, 1998 under the name Great Expectations and Associates,
Inc. In 1999, we became a reporting company under the Securities Exchange
Act of 1934 (the “Exchange Act’). We were a publicly-traded “shell” company
without any business until November 12, 2004 when we acquired Advaxis, Inc., a
Delaware corporation (“Advaxis”), through a Share Exchange and Reorganization
Agreement, dated as of August 25, 2004 (the “Share Exchange”), by and among
Advaxis, the stockholders of Advaxis and us. As a result of such acquisition,
Advaxis became our wholly owned subsidiary and our sole operating company. On
December 23, 2004, we amended and restated our articles of incorporation and
changed our name to Advaxis, Inc. On June 6, 2006 our shareholders approved the
reincorporation of the Company from the state of Colorado to the state of
Delaware by merging the Company into its wholly owned subsidiary, which was
effected on June 20, 2006. As used herein, the words “Company” and
"Advaxis" refer to the current Delaware Corporation only unless the
context references such entity prior to the June 20, 2006 reincorporation into
Delaware. Our principal executive offices are located at Technology Centre of
NJ, 675 US Highway One, North Brunswick, NJ 08902 and our telephone number is
(732) 545-1590.
On July
28, 2005 we began trading on the Over-The-Counter Bulletin Board (“OTC:BB”)
under the ticker symbol “ADXS”.
Advaxis
is a development stage biotechnology company with the intent to develop safe and
effective cancer vaccines that utilize multiple mechanisms of immunity. We are
developing a live Listeria vaccine technology
under license from the 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 thus, generating an immune response able to attack the cancer.
We believe that this to be a broadly enabling platform technology that can be
applied to the treatment of many types of cancers, infectious diseases and
auto-immune disorders.
The
discoveries that underlie this innovative technology are based upon the work of
Yvonne Paterson, Ph.D., Professor of Microbiology at Penn, involving the
creation of genetically engineered Listeria that stimulate the
innate immune system and induce an antigen-specific immune response involving
both arms of the adaptive immune system, as well as supporting the immune
response by stimulating systems like the vascular system and the development of
specific blood cells that underlie a strong therapeutic immune
response.
We
have no customers. Since our inception in 2002 we have focused our development
efforts upon understanding our technology and establishing a product development
pipeline that incorporates this technology in the therapeutic cancer vaccines
area targeting cervical, prostate, breast, and a pre cancerous indication of
CIN. Although no products have been commercialized to date, research and
development and investment continues to be placed behind the pipeline and the
advancement of this technology. Pipeline development and the further exploration
of the technology for advancement entail risk and expense. It is anticipated
that ongoing operational costs for the development stage company will increase
significantly as we expect to begin several clinical trails starting this late
this fiscal year.
Recent
Developments
On August
19, 2009 the NIH awarded us a grant for $210,000 for the grant titled
development of a Dual Antigen Vaccine to develop a single bioengineered Lm
vaccine to deliver two different antigen-adjuvant proteins. This technology
enables a single vaccine to simultaneously attack two separate and distinct
tumor targets with a higher level of potency. Further investigational work is
focusing on the use of this dual delivery approach directed against a tumor cell
surface marker to kill tumor cells directly plus an anti-angiogenic target that
would impair a tumor's ability to grow by simultaneously reducing its blood
supply.
On August
19, 2009 we announced our collaboration with investigators with the City of Hope
(“CoH”). CoH is a leading biomedical research and treatment center in the
development of a vaccine for the treatment of certain forms of leukemia and
lymphoma. This collaboration will involve the investigation in the use of our
proprietary, live Listeria
vaccine technology platform for Leukemia and Lymphoma. The CoH
investigators are studying our vaccine directed against the tumor associated
antigen WT-1. This molecule is observed to be over-expressed in certain cancers
of the blood as well as some solid tumors such as breast, pancreas and brain
cancers, which makes it a potential target for a selective immune attack
delivered via an Listeria vector designed by
the Company.
In July
2009 we were notified that our grant application filed with Cancer Research-UK
(“CRUK”), a national philanthropy, for the use of ADXS11-001 in the treatment of
head and neck cancer in collaboration with investigators from Aintree Hospital
(Liverpool), The Royal Marsden Hospital (London), and at Cardiff
University. Although it was well received by the New Agents
Committee, it was not prioritized for funding at the present time. Given the
level of interest in the proposal, the New Agents Committee will contact us
should this situation change.
Effective
June 18, 2009 we entered into a Bridge Note Agreement with each of accredited
and/or sophisticated investors (the Investors”), pursuant to which it completed
a private placement (the “Offering”) whereby the Investors acquired senior
convertible promissory notes of the Company (the “Bridge Notes”) in the
aggregate principal face amount of $1,131,353, for an aggregate net purchase
price of $961,650. The Bridge Notes were issued with an OID of 15%. Each
Investor paid $0.85 for each $1.00 of principal amount of notes purchased at the
Bridge closing. The Bridge Notes are convertible into shares of the Company’s
common stock, as previously described in the note #5. Notes
Payable. For every dollar invested they received warrants to purchase
2 ½ shares (the “Warrants”) of common stock warrants at an exercise price of
$0.20 per share, subject to adjustment upon the occurrence of certain events.
The Bridge Notes are to mature on December 31, 2009 if not retired sooner. The
2009 Bridge Notes may be prepaid in whole or in part at the option of the
Company without penalty at any time prior to the Maturity Date. The warrants may
be exercised on a cashless basis under certain circumstances.
In the
event the Company consummates an equity financing after August 1, 2009 and prior
to the second business say immediately preceding the Maturity Date, in which it
sells shares of its stock with aggregate gross proceeds of not less than
$2,000,000, then prior to the Maturity Date, the Investors shall have the option
to convert all or a portion of the New Notes into the same securities sold in
the QEF, at an effective per share conversion price equal to 90% of the per
share purchase price of the securities issued in the QEF. In the
event the Company does not consummate a QEF from and after August 1, 2009 and
prior to the second business day immediately preceding the Maturity Date, then
the Investors shall have the option to convert all or a portion of the Bridge
Notes into shares of common stock, at an effective per share conversion price
equal to 50% of the volume-weighted average price per share of the Common Stock
over the five (5) consecutive trading days immediately preceding the third
business day prior to the Maturity Date.
To the
extent an Investor does not elect to convert its Bridge Note as described above,
the principal amount of the Bridge Note not so converted shall be payable in
cash on the Maturity Date.
In
connection with the bridge transaction, the Company entered into a Security
Agreement, dated as of June 18, 2009 with the Investors. The Security
Agreement grants the Investors a security interest in all of the Company’s
tangible and intangible assets, as further described on Exhibit A to the
Security Agreement the Company also entered into a Subordination Agreement,
dated as of June 18, 2009 (the “Subordination Agreement”) with the Investors and
Mr. Moore. Pursuant to the Subordination Agreement, Mr. Moore
subordinated certain rights to payments under the Moore Note to the right of
payment in full in and in cash of all amounts owed to the Investors pursuant to
the Notes; provided, however, that principal and interest of the Moore Note may
be repaid prior to the full payment of the Investors in certain
circumstances.
On June
15, 2009, Mr. Moore and the Company amended the Moore Notes to increase the
amounts available pursuant to the Moore Agreement from $800,000 to $950,000 and
change the maturity date of the Notes from June 15, 2009 to the earlier of
January 1, 2010 or the Company’s next equity financing resulting in gross
proceeds to the Company of at least $6 million. Also the Moore Notes were
amended as per the agreement to include the same warrant provision per dollar
invested as the subsequent Bridge Note Agreement or 2 and one-half warrant per
one dollar invested instead of one warrant.
As of
June 12, 2009 we updated survival data for our Phase I clinical trial of
ADXS11-001in the treatment of advanced, metastatic cervix patients who have
failed first line cytotoxic therapy and three (3) of the thirteen (13) evaluable
patients in the Trial, approximately twenty-three percent (23%), are still alive
at 981 days, 949 days and 850 days, respectively. The Trial's median patient
survival was 347 days. Of the 15 patients treated in the trial, eight patients
(53%) survived at least one year. These figures significantly exceed the median
survival rate established by the National Cancer Institute's Gynecologic
Oncology Group (GOG). The GOG's median survival rate varies between 3.8 and 6.2
months in studies of patients who have failed prior chemotherapy (GOG #127
protocol series). Although this trial was not designed to provide efficacy nor
survival outcomes the data is interesting.
On June
1, 2009 we received the FDA letter denying our request for Orphan Drug
Designation (“ODD”) for the use of ADXS11-001 in invasive cervical cancer. The
FDA stated their market definition for invasive cervical cancer prevalence
(including all those who had been cured) is over the 200,000 person cut-off.
While the FDA’s response was disappointing on July 31, 2009 we submitted our
application for approval for a Fast Track designation which, if approved, will
allow us an expedited regulatory timeline.
In June
2009 we engaged the Numoda Corporation, (“Numoda”) a clinical trial and
logistics management company, to oversee Phase II clinical activity with
ADXS11-001 for the treatment of invasive cervix cancer in India and serve as the
clinical research organization (“CRO”) in our CIN trial in the US. Numoda will
integrate oversight and logistical functions with the contract laboratories,
academic laboratories and statistical groups involved both in the US as well as
with the CRO to be selected in India. The estimated cost of this agreement for
both clinical trials is approximately $8,000,000 covering a 27-month
period.
On May
26, 2009 the United States Patent and Trademark office approved the Company’s
patent application “Compositions and Methods for Enhancing the Immunogenicity of
Antigencs”. This patent application covers the use of Listeria monocytogenes
(Lm) protein ActA and fragments of this protein for use in the creation of
antigen fusion proteins. This intellectual property protects a unique
strain of Listeria
monocytogenes for use
as a vaccine vector.
On May
20, 2009 we announced that we applied for a $2.0 Million U.S. Bio-Defense Grant,
in collaboration with a healthcare company (“Collaborator”), to develop an oral
formulation of its live Listeria technology for the prevention of influenza.
Also on May 4, 2009 we announced that we applied for nearly $5.0 Million in
Grants in Response to U.S. Department of Defense Solicitation in three separate
grant proposals. On April 27, 2009 we announced that we applied for
approximately $1.0 Million worth of grants from the National Institute of
Health.
On April
17, 2009 we announced that we are in licensing discussions for our flagship
vaccine constructs, ADXS11-001, in certain non-US markets. Given the status of
this licensing proposal we believe that the potential of a licensing deal is not
very likely.
On
February 10, 2009 the United States Patent and Trademark office issued patent
7,488,487 “Methods of Inducing Immune response Through the Administration of
Auxotrophic Attenuated DAT/DAL Double Mutant Listeria Strains”, assigned to Penn
and licensed to the Company. This intellectual property protects a
unique strain of Listeria monocytogenes for use as a
vaccine vector. This new strain of Listeria is an improvement
over the strain currently in clinical testing as it is more attenuated, more
immunogenic, and does not have an antibiotic resistance gene
inserted. This technology promises to make the company’s product more
effective and easier to obtain FDA regulatory approval.
We
believe our financial plan will provide us with enough time to allow us to raise
a total of $19,000,000 in funds (“Funds”) by November 2009. With these Funds we
anticipate starting two (2) phase II trials this October or November ; one in
India in invasive cervical cancer and one in the United States in CIN. We also
plan on an additional phase II clinical trial in the United States, with an
unspecified start date, to be sponsored by the National Institute of Health
(“NIH”). All three phase II trials will use our ADXS111-001 investigational
drug. As part of our strategy to enhance our development efforts on
July 31, 2009 we filed a request for Fast Track Drug Designation in cervical
cancer with the FDA, which, if approved, offers expedited regulatory
review.
Our
funding plans assumes the Company will be required to repay approximately
$1,845,000 primarily to Mr. Moore for repayment of all but $200,000 of the Moore
Notes and interest due, payments for the two notes and interest that we are
currently in default on, payments to our contract research organization (“CRO”)
and payment to the Penn including amounts we are contingently liable for and
patent, license and license milestone expenses. The Company’s estimate of its
allocation of the proceeds of any offering is based on the current state of its
business development and management estimates of future prospects.
The
following factors, among others, could cause actual results to differ from those
indicated in the above forward-looking statements: increased length and scope of
our clinical trials, failure to recruit patients, increased costs related to
intellectual property related expenses, increased cost of manufacturing and
higher consulting costs. These factors or additional risks and uncertainties not
known to us or that we currently deem immaterial may impair business operations
and may cause our actual results to differ materially from any forward-looking
statement.
Although
we believe the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements.
We expect
our future sources of liquidity to be primarily debt and equity capital raised
from investors, as well as licensing fees and milestone payments in the event we
enter into licensing agreements with third parties, and research collaboration
fees in the event we enter into research collaborations with third parties. Of
the grants applied for, there is $5,809,571 still outstanding, which could net
the company up to $4,662,860 in funding strategic research (the award of one
grant will exclude us from receiving a similar one that we’ve applied for) and
clinical programs, excluding the NIH grant that we were awarded in August 2009.
In addition, we have applied for the New Jersey NOL program for our tax losses
in fiscal year 2008 as well as the Research Tax Credit Program for the first
time this year.
If
additional capital were raised through the sale of equity or convertible debt
securities, the issuance of such securities would result in additional dilution
to our existing stockholders. We believe that we will need to raise additional
funds to sustain our plan of operations for the current year through December
2011. If we are unable to obtain additional sources of financing or
generate sufficient cash flows from sufficient capital, it could create a
material adverse effect on future operating prospects of the Company. Any sale
of the Company’s common stock at its current price will trigger a significant
dilution due to the ratchets in the warrant agreements, debt agreements and the
security purchase agreement for the October 17, 2007 raise.
Results
of Operations
Three
months ended July 31, 2009 period compared to the three months ended July 31,
2008
Revenue. Our revenue
decreased by $33,415, over 100% to a negative $5,369 for the three months ended
July 31, 2009 (“Fiscal 2009 Quarter”) as compared with $28,045 for the three
months ended July 31, 2008 (“Fiscal 2008 Quarter”) due to a grant from the
State of New Jersey received in the Fiscal 2008 Quarter not being repeated in
Fiscal 2009 Quarter combined with the State request to refund certain grant
money received on a prior grant.
Research and Development
Expenses. Research and development expenses decreased by $158,074 or 24%,
to $499,212 for the Fiscal 2009 Quarter as compared with $657,286 for the Fiscal
2008 Quarter, principally attributable to the following:
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Clinical trial expenses decreased
by $88,536, or 49%, to $92,245 from $180,781 due to the close out billing
of our phase I trial in the first Fiscal 2008 Quarter which more than
off set the one-half month of start-up cost of our phase II cervical
cancer study in India in the Fiscal 2009
Quarter.
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Wages, options and lab costs
increased by $35,236, or 11% to $353,647 from $318,411 principally due to
higher option expense of $105,069 relating to new grants partially offset
by lower compensation cost of $54,386 primarily due to no bonus accrual
recorded in Fiscal 2009 Quarter compared to a $43,858 accrual recorded in
Fiscal 2008 Quarter as well as lower overall lab costs due to the priority
given to grant and publication
writing.
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Consulting expenses increased by
$34,162, or 365%, to $43,519 from $9,357, principally due to higher option
expense of $25,375 recorded in Fiscal 2009 Quarter relating to new grants
partially offset by lower stock prices in the Fiscal 2008 Quarter that
resulted in a credit to option expense of $28,550 due to the true up of
unvested option expense recorded in Fiscal 2008. This $53,925 increase,
overall, of option expense was offset in part by lower effort required to
prepare the Investigational New Drug filing for the FDA or $11,763 and
lower other consulting expense of $8,000 in Fiscal 2009 Quarter compared
to the same period last
year.
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Subcontracted research expenses
decreased by $39,900, or 100%, to $0 from $39,900 reflecting its
completion prior to Fiscal 2009 Quarter of subcontract work performed by
Dr. Paterson at Penn, pursuant to a sponsored research agreement ongoing
in the same period last Fiscal 2008
Quarter.
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Manufacturing expenses decreased
by $99,036, to $9,802 from $108,838, or 91% resulting from the completion
of our clinical supply program for the upcoming cervical cancer and CIN
trial prior to Fiscal 2009 Quarter compared to the manufacturing program
in the Fiscal 2008
Quarter.
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General and Administrative
Expenses. General and administrative expenses increased by $401,774 or
66%, to $1,007,093 for the Fiscal 2009 Quarter as compared with $605,319 for the
Fiscal 2008 Quarter, primarily attributable to the following:
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Wages, Options and benefit
expenses increased by $85,429, or 30% to $370,374 from $284,945
principally due to higher option expense of $105,112 primarily due to new
stock option grants partially offset by lower compensation and benefit
cost of $19,683 in Fiscal 2009 Quarter compared to those expenses recorded
in Fiscal 2008 Quarter.
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Consulting fees increased by
$11,685, or 29%, to $51,367 from $39,682. This increase was primarily
attributed to new stock options grants to consultants of $21,367 recorded
partially offset by lower consulting fees of $9,682 in Fiscal 2009 Quarter
compared to the Fiscal 2008
Quarter.
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Offering expenses increased by
$268,212 to $269,562 from $1,350. The offering expenses of $308,596
consist of legal cost in preparation for financial raises and SEC filings,
partially offset by a reversal of a non-cash warrant expenses in Fiscal
2009 Quarter.
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An increase in legal, accounting,
professional and public relations expenses of $78,968, or 52%, to $230,795
from $151,827, is primarily the result of higher legal ($105,447) and
filing fees ($4,215) off set in part by lower tax prep ($7,622), patent
expenses ($9,293) and public relations fees ($17,388) in Fiscal 2009
Quarter than in Fiscal 2008
Quarter
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Amortization of intangibles and
depreciation of fixed assets increased by $1,512, or 6%, to $28,102 from
$26,590 primarily due to no increase in fixed assets and an increase in
intangibles in the Fiscal 2009 Quarter compared to the Fiscal 2008
Quarter.
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Overall occupancy and conference
related expenses decreased by $44,032 or 44% to $56,894 from $100,926.
Overall conference expense decreased by $18,093 in the Fiscal 2009 Quarter
due to lower participation in cancer conferences as well as lower travel
expenses to the conferences of $13,504 than compared to Fiscal 2008
Quarter. The remaining decrease of $12,435 was primarily due lower patent
expense.
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Other Income (expense). Other
income increased by $1,638,831 to $1,639,657 in income for Fiscal 2009 Quarter
from income of $826 for the Fiscal 2008 Quarter. In Fiscal Quarter 2009 the Net
change in fair value of common stock warrant liability and embedded liability
resulted in a $1,639,657 income that resulted from a lower fair market value on
July 31, 2009 compared to June 18, 2009, this transaction didn’t incur in Fiscal
Quarter 2008. During the Fiscal 2009 and the Fiscal 2008 Quarters, we
recorded interest expense of $374,563 and $1,773 respectively, primarily related
to interest expense on our outstanding notes. Interest earned on investments for
the Fiscal 2009 and Fiscal 2008 Quarters amounted to $0 and $2,599,
respectively.
Revenue. Our revenue
decreased by $73,773, or over 100%, to a negative $5,369 for the nine months
ended July 31, 2009 (“Fiscal 2009 Period”) as compared with $68,404 for the nine
months ended July 31, 2008 (“Fiscal 2008 Period”) due to a grant from the
State of New Jersey received in the Fiscal 2008 Quarter not being repeated in
Fiscal 2009 Quarter combined with the State request to refund certain grant
money received on a prior grant.
Research and Development
Expenses. Research and development expenses decreased by $1,042,126 or
52%, to $962,198 for the Fiscal 2009 Period as compared with $2,004,324 for the
Fiscal 2008 Period, principally attributable to the following:
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Clinical trial expenses decreased
by $187,512, or 67%, to $94,013 from $281,525 primarily due to the close
out of our phase I trial in the Fiscal 2008 Period which more than
off set the one-half month of start-up cost of our phase II cervical
cancer study in India in the Fiscal 2009
Period.
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Wages, options and lab costs
decreased by $171,571or 19% to $718,850 from $888,212 principally due to
the recording of the full years bonus accrual in Fiscal 2008 that was
reversed in Fiscal 2009 Period or $242,385. No bonus accrual was recorded
nor paid in Fiscal 2009 Period. Overall the lab costs were lower due to
the priority given to the lower cost of grant and publication writing.
These lower costs were partially offset by $107,624 higher option expense
relating to new grants in Fiscal 2009 Period and $40,930 in wages
primarily due to the new hire of the Executive Director, Product
Development in March
2008.
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Consulting expenses increased by
$11,829, or 12%, to $107,709 from $95,880, principally due to higher
option expense of $30,835 recorded in Fiscal 2009 Period relating to new
grants as compared to a credit to option expense of $36,922 due to the
true up of unvested option expense recorded in prior Fiscal periods. This
resulted in a $67,757 increase, overall, of option expense which was
offset in part by the lower effort required to prepare the Investigational
New Drug filing for the FDA or $56,928 in the Fiscal 2009 Period compared
to the same period last
year.
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Subcontracted research expenses
decreased by $121,023, or 100%, to $0 from $121,023 reflecting the
completion of the project prior to Fiscal 2009 Period performed by Dr.
Paterson at Penn, pursuant to a sponsored research agreement ongoing in
the Fiscal 2008 Period.
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Manufacturing expenses decreased
by $547,208, to $41,626 from $588,834, or 93% resulting from the
completion of our clinical supply program for the upcoming CIN trial prior
to Fiscal 2009 Period compared to the manufacturing program in the Fiscal
2008.
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Toxicology study expenses
decreased by $26,640, to $0 or 100% due the completion in Fiscal 2008
Period of our toxicology study by Pharm Olam in connection with our
ADXS111-001 product candidates in anticipation of clinical studies in
2008.
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General and Administrative
Expenses. General and administrative expenses decreased by $308,424, or
13%, to $2,041,016 for the Fiscal 2009 Period as compared with $2,349,439 for
the Fiscal 2008 Period primarily attributable to the following:
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Wages, Options and benefit
expenses decreased by $113,876, or 12% to $828,290 from $942,166
principally due to the reversal of a nine month bonus accrual in Fiscal
2009 Period or $79,039 that was recorded as expense in Fiscal 2008 Period
(no bonus accrual was recorded nor paid in Fiscal 2009 Period) and no
stock was issued in Fiscal 2009 Period compared to $71,250 worth of stock
was issued to the CEO per his employment agreement in Fiscal 2008
Period. These lower expenses were partially offset by higher
option expense of $45,975 primarily due to new stock options granted in
Fiscal 2009 Period resulting in a $105,112 expense partially offset by
lower option expenses recorded in Fiscal 2009 Period due to the nine
months vesting of the CEO’s options in Fiscal 2008 Period compared to two
months of vesting of his options in the Fiscal 2009
Period.
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Consulting fees decreased by
$272,769, or 73%, to $99,150 from $371,919. This decrease was
primarily attributed to a one-time payment in settlement of Mr. Appel’s
(our previous President & CEO) employment agreement of $130,000
recorded in the Fiscal 2008 Period. The consulting expenses were also
$180,571 lower due to reduced financial advisor fees in Fiscal 2009 Period
compared to $200,571 recorded in the Fiscal 2008 Period primarily due to
the close of the offering on October 17, 2007. These lower fees were
partially offset by $50,000 fees recorded for the Sage Group in Fiscal
2009 Period for seeking corporate partnerships that didn’t occur in Fiscal
2008 Period.
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Offering expenses increased by
$302,505 to $335,633 from $33,128. The offering expenses of $351,973
recorded included in Fiscal 2009 Period or an increase of $318,845
consists of legal costs in preparation for financial raises and SEC
filings that didn’t occur in Fiscal 2008 Period, partially offset by
non-cash warrants expense.
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An increase in legal, accounting,
professional and public relations expenses of $77,121, or 18%, to $516,521
from $439,400, primarily as a result of a higher overall legal, patent
expenses of $114,049 partially offset by lower accounting, Public
relations and tax preparation fees in Fiscal 2009 Period than in the
Fiscal 2008 Period.
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Amortization of intangibles and
depreciation of fixed assets increased by $3,090, or 4%, to $81,860 from
$78,770 primarily due to an increase in fixed assets and intangibles in
the Fiscal 2009 Period compared to the Fiscal 2008
Period.
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Analysis Research cost decreased
by $117,990 or 100%, to $0 from $117,990 due to a one time report and
business analysis report in the Fiscal 2008 Period not repeated in Fiscal
2009 Period.
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Recruiting fees for the Executive
Director of Product Development in Fiscal 2008 Period was $63,395 and
there was no such expense in Fiscal 2009
Period.
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Overall occupancy and conference
related expenses decreased by $123,110 or 41% to $179,561 from $302,672.
Conference and dues and subscription expenses have decreased by $89,044 in
the Fiscal 2009 Period due to lower participation in cancer conferences.
In addition lower travel related to the reduced conferences attendance
amounted to a decrease of $21,061 in the Fiscal 2009 Period than incurred
in Fiscal 2008
Period.
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Other Income (expense). Other
income increased by $1,562,883 to $1,603,605 in income for Fiscal 2009 Period
from income of $40,722 for the Fiscal 2008 Period. . In Fiscal Period 2009 the
Net change in fair value of common stock warrant liability and embedded
liability resulted in income of $2,014,220 due to a lower fair market value on
July 31, 2009 compared to June 18, 2009, while this transaction didn’t incur in
Fiscal Period 2008. During the Fiscal 2009 and the Fiscal 2008
Periods, we recorded interest expense of $410,615 and $5,705, respectively,
primarily related to interest accrued on our outstanding notes including
accreted interest on the of $316,623 on the value of the warrant and embedded
derivative liabilities. Interest earned on investments for the Fiscal 2009 and
Fiscal 2008 Periods amounted to $0 and $46,427, respectively
Income Tax. In the Fiscal 2009 Period
there was a net change of $922,020 recorded due to a gain recorded from the
receipt of a NOL tax credit received from the State of New Jersey tax program.
There was no comparable gain in Fiscal 2008 Period as this was the first year we
were awarded this NOL credit.
We
anticipate an increase in Research and Development expenses as a result of
expanded development and commercialization efforts related to clinical trials,
and product development, and expenses to be incurred in the development of
strategic and other relationships required ultimately if the licensing,
manufacture and distribution of our product candidates are
undertaken.
Liquidity
and Capital Resources
Since our
inception until July 31, 2009, the Company has reported accumulated net losses
of $17,971,843 and recurring negative cash flows from operations. We
anticipate that we will continue to generate significant losses from operations
for the foreseeable future.
In a
letter dated November 13, 2008 from the NJEDA we were notified that our
application for the New Jersey Technology Tax Certificate Transfer Program was
preliminarily approved. Under the State of New Jersey Program for small business
we received a net cash amount of $922,020 on December 12, 2008 from the sale of
our NOL through December 31, 2007 of $1,084,729.
Our net
loss was $438,799 for the nine months ended July 31, 2009, which included a
$922,020 gain from the sale of our State of New Jersey NOL (recorded in Income
Tax Benefit) from inception through December 31, 2007 and $2,014,220 for the net
change in fair value of common stock warrant and embedded derivative
liabilities
Our
limited capital resources and operations to date have been funded primarily with
the proceeds from public and private equity and debt financings, NOL tax credit
and income earned on investments and grants. We anticipate that our existing
capital resources, without implementing further cost reductions, raising
additional capital, or obtaining substantial cash inflows from potential
partners or our products, will enable us to continue operations through
approximately September 2009 or sooner if unforeseen events arise that
negatively impact our liquidity. These conditions raise substantial doubt about
our ability to continue as a going concern. Consequently, the audit report
prepared by our independent public accounting firm relating to our financial
statements for the year ended October 31, 2008 included a going concern
explanatory paragraph.
In May
2009 we responded to a solicitation from Northeast Biodefense Center to Develop
Oral Formulation of our proprietary Live Listeria Technology with the target set
on oral vaccine immunizing large population in case of a pandemic by applying
for a $2 million biodefense grant, in collaboration with a Collaborator, to
develop an oral formulation of its live Listeria technology for the prevention
of influenza. We were notified that we didn’t receive this grant.
Our
business will require substantial additional investment that we have not yet
secured, and our plan is to raise capital and/or pursue partnering
opportunities. We expect to continue to spend substantial amounts on research
and development, including conducting clinical trials for our product
candidates. Further, we will not have sufficient resources to develop fully any
new products or technologies unless we are able to rise substantial additional
financing on acceptable terms or secure funds from new partners. We cannot be
assured that financing will be available at all. Our failure to raise capital by
the end of September 2009 will materially adversely affect our business,
financial condition and results of operations, and could force us to reduce or
cease our operations at some time in the near future. Any additional investments
or resources required would be approached, to the extent appropriate in the
circumstances, in an incremental fashion to attempt to cause minimal disruption
or dilution. Any additional capital raised through the sale of equity
or convertible debt securities will result in dilution to our existing
stockholders.
On July
1, 2002 (effective date) we entered into a 20-year exclusive worldwide license,
with Penn with respect to the innovative work of Yvonne Paterson, Ph.D.,
Professor of Microbiology in the area of innate immunity, or the immune response
attributable to immune cells, including dendritic cells, macrophages and natural
killer cells that respond to pathogens non-specifically. This agreement has been
amended from time to time and was amended and restated on February 13,
2007. We have acquired and paid for The First Amended and Restated Patent
License Agreement. However, The Second Amendment that was mutually
agreed to and entered into on March 26, 2007 to exercise our option to license
an additional 12 dockets or approximately 39 or more patent applications in
Listeria-Based and LLO-Based Vaccine patent/dockets to license was not
finalized. According to this Second Amendment, we are contingently liable
for $447,108 as of July 31, 2009 including the reimbursement of certain legal
and filing costs. We are still in negotiations with Penn over
the form and amount of payment (stock or cash or some combination) and expect to
reach a conclusion at the close of our next financial raise. These fees are
currently unpaid and are not recorded in our financial statements as of the July
31, 2009. While we consider our relationship with Penn good we are in frequent
communications over payment of past due invoices and other payables due to our
lack of cash. If we fail to reach a mutual understanding Penn may issue a
default notice and we will have 60 days to cure the breach or be subject to the
termination of the agreement.
This
license also grants us exclusive negotiation rights and exclusive options until
June 17, 2009 to obtain exclusive licenses to new inventions on therapeutic
vaccines developed by Drs. Paterson and Fred Frankel and their laboratory. Each
option is granted to us at no cost and provides a six-month exercise period from
the date of disclosure. Under this option we have finalized the First Amendment
to the Amended and Restated Agreement for one docket and have negotiated
licenses for 12 more dockets, with each docket having the potential of more than
one patent. Under this Second Amendment to the Amended and Restated Agreement,
there are an additional 39 patent applications. However we are contingently
liable for this Second Agreement an estimated amount of $447,108 as of July 31,
2009. We are still in negotiations with Penn over the form of payment
and expect to reach a conclusion at the close of our next financial
raise. These fees are currently unpaid and not in our financial
statements as of the July 31, 2009.
Off-Balance
Sheet Arrangements
As of
July 31, 2009, we had no off-balance sheet arrangements, other than our lease
for space. There were no changes in significant contractual obligations during
the three months ended July 31, 2009.
Critical
Accounting and New Accounting Pronouncements
Critical Accounting
Estimates
The
preparation of financial statements in accordance with GAAP accepted in the US
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 assumption 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 material
impact in our results of operations or financial
condition.
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Actual
results could differ from those estimates and the differences could be material.
The most significant estimates impact the following transactions or account
balances: stock compensation, CRO liabilities, warrant valuation, impairment of
intangibles, dilution caused by ratchets in the warrants and other
agreements.
Share-Based Payments -The
Company records compensation expense associated with stock options in accordance
with SFAS No. 123R, “Share Based Payment,” which is a revision of SFAS No. 123.
The Company adopted the modified prospective transition method provided under
SFAS No. 123R. Under this transition method, compensation expense associated
with stock options recognized in the first quarter of fiscal year 2007, and in
subsequent quarters, includes expense related to the remaining unvested portion
of all stock option awards granted prior to April 1, 2006, the estimated fair
value of each option award granted was determined on the date of grant using the
Black-Scholes option valuation model, based on the grant date fair value
estimated in accordance with the original provisions of SFAS No.
123.
We
estimate the value of stock options awards on the date of grant using the
Black-Scholes-Merton option-pricing model. The determination of the fair value
of the share-based payment awards on the date of grant is affected by our stock
price as well as assumptions regarding a number of complex and subjective
variables. These variables include our expected stock price volatility over the
term of the awards, expected term, risk-free interest rate, expected dividends
and expected forfeiture rates. The forfeiture rate is estimated using historical
option cancellation information, adjusted for anticipated changes in expected
exercise and employment termination behavior. Our outstanding awards do not
contain market or performance conditions; therefore we have elected to recognize
share based employee compensation expense on a straight-line basis over the
requisite service period.
If
factors change and we employ different assumptions in the application of SFAS
123(R) in future periods, the compensation expense that we record under SFAS
123(R) relative to new grants may differ significantly from what we have
recorded in the current period. There is a high degree of subjectivity involved
when using option-pricing models to estimate share-based compensation under SFAS
123(R). Consequently, there is a risk that our estimates of the fair values of
our share-based compensation awards on the grant dates may bear little
resemblance to the actual values realized upon the exercise, expiration, early
termination or forfeiture of those share-based payments in the future. Employee
stock options may expire worthless or otherwise result in zero intrinsic value
as compared to the fair values originally estimated on the grant date and
reported in our financial statements. Alternatively, value may be realized from
these instruments that are significantly in excess of the fair values originally
estimated on the grant date and reported in our financial
statements.
Warrants – Warrants were
issued in connection with various financings through out the history of the
Company. As of July 31, 2009 the balance sheet date began estimating 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 outlined below used to estimate the
fair values of the warrants are reasonable. Accounting for all outstanding
warrants related to the Company’s determination that all of the outstanding
warrants were reclassified as liabilities due the fact that the conversion
feature on the Bridge Notes could require the Company to issue shares in excess
of its authorized amount. All outstanding warrants have been recorded
as a liability effective June 18, 2009, based on their fair value calculated
using the Black-Scholes-Merton valuation model and the following assumptions:
First the Company estimated the probability of three different outcomes (i) that
the Company would be able to meet the QEF at the current warrant price of $0.20
per share, (ii) the QEF price would be $0.15 per share and trigger a 10%
discount and (iii) not meet the QEF (“Non-QEF Pricing”) and trigger an effective
per share conversion price equal to 50% of the VWAP per share of the Common
Stock over the five (5) consecutive trading days immediately preceding the third
business day prior to the Maturity Date. The Company’s estimated that there was
and equal probability for each scenario. The fair value of the
warrant liability under each outcome was determined and then averaged the
outcomes to estimate the warrant value of $13,036,087 at June 18,
2009.
In
accounting for the Bridge Note’s embedded conversion feature and
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 05-2 in order to clarify provisions of EITF 00-19, the Company
determined that the conversion feature in the Bridge Notes represented an
embedded derivative since the debenture is convertible into a variable number of
shares based upon a conversion formula which could require the Company to issue
shares in excess of its authorized amount. The convertible debentures are not
considered “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.
As of July 31, 2009, we had outstanding
warrants to purchase 89,143,801 shares of our common stock (adjusted for
anti-dilution provision to-date) with exercise prices ranges from $0.187 to
$0.287 per share (adjusted for anti-dilution provision
to-date). These warrants include 2,404,125 warrants issued to Bridge
Notes at an exercise price of $0.20 per warrant. Most of the warrants include
anti-dilutive provisions that can trigger an adjustment to the number and price
of the warrants outstanding resulting from certain future equity transactions
issued below their exercise price. The Moore Notes also include warrants not
issued but could be issued base on contingent conditions. See Note 6 Derivative
Instruments for a discussion on warrants.
New Accounting
Pronouncements
In June
2008, The FASB ratified Emerging Issues Task Force (EITF) Issue No 07-5,
“Determining Whether an Instrument (or Embedded Feature) is Indexed to an
Entity’s Own Stock” (EITF 07-5). EITF 07-5 mandates a two-step process for
evaluating whether an equity-linked financial instrument or embedded feature
indexed to the entities own stock. It is effective for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years, which is
our first quarter of fiscal 2010. Many of the warrants issued by the Company
contain a strike price adjustment feature, which upon adoption of EITF 07-5, may
result in the instruments no longer being considered indexed to the Company’s
own stock. Accordingly, adoption of EITF 07-5 may change the current
classification (from equity to liability) and the related accounting for many
warrants outstanding at that date. Even though the Company now records warrants
and the embedded derivative as a liability under the guidance contained in EITF
00-19 “ Accounting for Derivative Financial Instrument 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 05-2 in order to clarify provisions of EITF 00-19, the
Company determined that the conversion feature in the Bridge Notes represented
an embedded derivative since the debenture is convertible into a variable number
of shares based upon a conversion formula which could require the Company to
issue shares in excess of its authorized amount. The convertible debentures are
not considered “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. The Company is currently evaluating the impact the
adoption of EITF 07-5 may have on its financial position, results of operation,
or cash flows.
In
May 2009, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 165, Subsequent Events (“SFAS
165”), which provides guidance to establish general standards of accounting for
and disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. SFAS 165 also
requires entities to disclose the date through which subsequent events were
evaluated as well as the rational as to why the date was selected. SFAS 165 is
effective for interim and annual periods ended after June 15, 2009. The
Company has adopted the provisions of SFAS 165. The Company has evaluated
subsequent events through the date of issuance of these financial statements,
September 23, 2009.
In
July 2009, the FASB issued SFAS No. 168, FASB Accounting Standards
Codification ™ and the Hierarchy of Generally Accepted Accounting Principles — a
replacement of FASB Statement No. 162 (“SFAS 168”). With the issuance of
SFAS 168, the FASB Standards Codification (“Codification”) becomes the single
source of authoritative U.S. accounting and reporting standards applicable for
all non-governmental entities, with the exception of guidance issued by the
Securities and Exchange Commission. The Codification does not change current
U.S. GAAP, but changes the referencing of financial standards and is intended to
simplify user access to authoritative U.S. GAAP, by providing all the
authoritative literature related to a particular topic in one place. The
Codification is effective for interim and annual periods ended after
September 15, 2009. At that time, all references made to U.S. GAAP will use
the new Codification numbering system prescribed by the FASB. The adoption of
SFAS No. 168 will result in the change of disclosures to reflect the new
codification references, but otherwise the Company does not expect it to have
any effect on its financial statements.
Management
does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
ITEM
3. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
NONE
ITEM
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
The chief
executive officer and the chief financial officer, after evaluating the
effectiveness of the Company’s “disclosure controls and procedures” (as defined
in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e);
collectively, “Disclosure Controls”) as of the end of the period covered by this
quarterly report (the “Evaluation Date”) have concluded that as of the
Evaluation Date, our Disclosure Controls were not effective to provide
reasonable assurance that information required to be disclosed in our reports
filed or submitted under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified by the SEC,
and that material information relating to our company and any consolidated
subsidiaries is made known to management, including the chief executive officer
and chief financial officer, particularly during the period when our periodic
reports are being prepared to allow timely decisions regarding required
disclosure.
Management
assessed the effectiveness of our internal control over financial reporting as
of the Evaluation Date based on criteria for effective internal control over
financial reporting described in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management has determined that
as of the Evaluation Date, there were material weaknesses in our internal
control over financial reporting.
During the review of the financial statements included
in this quarterly report, it was determined that the Company’s initial
presentation and accounting of certain of its convertible debt and warrants in
its financial statements was not correct. In light of this material
weakness, management has concluded that we did not maintain effective
internal control over financial reporting at the Evaluation Date.
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company. As defined by the Public Company
Accounting Oversight Board Auditing Standard No. 5, a material weakness is a
deficiency or a combination of deficiencies, such that there is a reasonable
possibility that a material misstatement of the annual or interim financial
statements will not be prevented or detected.
We are a
non-accelerated filer and are required to comply with the internal control
reporting and disclosure requirements of Section 404 of the Sarbanes-Oxley Act
for fiscal years ending December 31, 2009. Although we are working to comply
with these requirements, we have limited financial personnel, making compliance
with Section 404– very difficult
and cost ineffective, if not impossible.
Changes in
Internal Control over Financial Reporting
There has
been no change in our internal control over financial reporting that occurred
during the quarter covered by this report that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
On
January 13, 2009 the European Patent Office (“EPO”) Board of Appeals in Munich,
Germany ruled in favor of The Trustees of the University of Pennsylvania and its
exclusive licensee Advaxis and reversed a patent ruling that revoked a
technology patent that had resulted from an opposition filed by Anza
Therapeutics, Inc., formerly Cerus Corp (NASDAQ: CERS). The ruling of the EPO
Board of Appeals is final and can not be appealed. The granted claims, the
subject matter of which was discovered by Dr. Yvonne Paterson, scientific
founder of Advaxis, are directed to the use of recombinant bacteria expressing a
tumor antigens for treatment of patients with cancer.
ITEM
1A. RISK FACTORS
The following risk factors should be
read carefully in connection with evaluating our business and the
forward-looking statements that we make in this Report and elsewhere (including
oral statements) from time to time. Any of the following risks could materially
adversely affect our business, our operating results, our financial condition
and the actual outcome of matters as to which forward-looking statements are
made in this Report. Our business is subject to many risks, which are detailed
further in our Annual Report on Form 10-KSB, including:
Financial
Risks
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●
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We have a history of operating
losses and we may never achieve profitability. If we continue to incur
losses or we fail to raise additional capital or receive substantial cash
inflows from our investors by September 2009, we may be forced to
cease operations.
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●
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We may be forced into
bankruptcy.
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●
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Our next raise may be at a stock
price that will trigger a significant dilution due to price and trigger
ratchets in the shares and
warrants.
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●
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We may not be able to make back
payments we owe to Penn for our Licenses or patent
costs.
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●
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We may not be able to make the
payments we owe to our patent law firm Pearl Cohen Zedek Latzer
LLP
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Risks
Related to our Business
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●
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We are highly dependent on the
clinical success of our product
candidates.
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●
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We are highly dependent upon
collaborative partners to develop and commercialize compounds using our
technology.
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Our collaborative partners
control the clinical development of certain of our drug candidates and may
terminate their efforts at
will.
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Our product candidates are in
various stages of development, and we cannot be certain that any will be
suitable for commercial
purposes.
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●
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Our business will suffer if we
cannot adequately protect our patent and proprietary
rights.
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We may be at risk of having to
obtain a license from third parties making proprietary improvements to our
technology.
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●
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We are dependent on third parties
to manufacture and make clinical
supplies.
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●
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We are dependent on our key
personnel and if we cannot recruit and retain leaders in our research,
development, manufacturing, and commercial organizations, our business
will be harmed.
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Risks
Related to our Industry
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●
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Our future business success
depends heavily upon regulatory approvals, which can be difficult to
obtain for a variety of reasons, including
cost.
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●
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We may face product liability
claims related to participation in clinical trials for future
products.
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●
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We are subject to environmental,
health and safety laws and regulations for which we incur costs to
comply.
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●
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We face rapid technological
change and intense
competition.
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Other
Risks
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●
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Provisions of our corporate
charter documents, Delaware law, our financing documents and our
stockholder rights plan may dissuade potential acquirers, prevent the
replacement or removal of our current management and members of our Board
of Directors and may thereby affect the price of our common
stock.
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●
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Our stock price has been and may
continue to be volatile.
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●
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Future sales of common stock or
warrants, or the prospect of future sales, may depress our stock price by
trigger substantial dilution of our stock due the share price and or
ratchets in the warrants and the stock purchase
agreements.
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For
a more complete listing and description of these and other risks that the
Company faces, please see our Annual Report on Form 10-KSB as filed with the
Securities and Exchange Commission on January 29, 2009.
Item
6. Exhibits and Reports on Form 8-K
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3.1(i)
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Amended
and Restated Articles of Incorporation. (Incorporated by reference to
Annex C to DEF 14A Proxy Statement filed with the SEC on May 15,
2006)
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3.1(ii)
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Amended
and Restated Bylaws. (Incorporated by reference to Exhibit 10.4
to Quarterly Report on Form 10-QSB filed with the SEC on December 15,
2006)
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4.1
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Form
of Common Stock Purchase Warrant (Incorporated by reference to Exhibit 4.1
to current report on Form 8-K filed with the SEC on June 19,
2009)
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4.2
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Form
of Senior Secured Convertible Note (Incorporated by reference to Exhibit
4.2 to current report on Form 8-K filed with the SEC on June 19,
2009)
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4.3
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Form
of Senior Promissory Note as Amended, between Advaxis, Inc. and Thomas
Moore (Incorporated by reference to Exhibit 4.3 to current report on Form
8-K filed with the SEC on June 19, 2009)
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10.1
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Form
of Note Purchase Agreement (Incorporated by reference to Exhibit 10.1 to
current report on Form 8-K filed with the SEC on June 19,
2009)
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10.2
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Form
of Security Agreement (Incorporated by reference to Exhibit 10.2 to
current report on Form 8-K filed with the SEC on June 19,
2009)
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10.3
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Form
of Subordination Agreement (Incorporated by reference to Exhibit 10.3 to
current report on Form 8-K filed with the SEC on June 19,
2009)
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31.1
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Certification
of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley
Act of 2002
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31.2
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Certification
of Principal Financial Officer pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
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32.1
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Certification
of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley
Act of 2002
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32.2
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Certification
of Principal 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,
hereunto duly authorized.
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ADVAXIS,
INC.
Registrant
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Date:
September 23, 2009
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By:
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/s/ Thomas Moore
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Thomas
Moore
Chief
Executive Officer and Chairman of the Board
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By:
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/s/ Fredrick Cobb
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Fredrick
Cobb
Vice
President Finance, Principal Financial
Officer
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