SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x ANNUAL REPORT
UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR
THE FISCAL YEAR ENDED - OCTOBER 31, 2009
OR
¨
TRANSITION REPORT UNDER
SECTION 13 OR 15 (d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 000-28489
ADVAXIS,
INC.
(Name
of Registrant in Its Charter)
|
Delaware
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
02-0563870
(I.R.S.
Employer Identification No.)
|
|
Technology
Centre of New Jersey
675
US Highway One
North
Brunswick, New Jersey
(Address
of Principal Executive Offices)
|
08902
(Zip
Code)
|
|
(732)
545-1590
(Issuer’s
Telephone Number)
|
|
|
Securities registered under Section 12(b) of the Exchange Act:
|
Common Stock - $.001 par value
The Common Stock is listed on the Over-The-Counter
Bulletin
Board (OTC:BB)
|
|
|
|
|
Securities registered under Section 12(g) of the Exchange Act:
|
[None]
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
¨ No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.
Yes
¨ No
x
Check whether
the Registrant (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 (Section 232.405 of this chapter) during the
preceding 12 months (or such shorter period that the registrant was required to
submit and post such files). Yes ¨ No¨
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ¨
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.
|
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
As of
April 30, 2009, the aggregate market value of the voting common equity held by
non-affiliates was approximately $4,529,500 based on the closing bid price of
the registrant’s common stock on the Over the Counter Bulletin Board. (For
purposes of determining this amount, only directors, executive officers, and 10%
or greater stockholders and their respective affiliates have been deemed
affiliates).
The
registrant had 127,201,243 shares of Common Stock, par value $0.001 per share,
issued and outstanding as of January 27, 2010.
Table of
Contents
Form
10-K Index
|
PART
1
|
1
|
|
|
Item
1:
|
Business
|
1
|
|
Item
1A:
|
Risk
Factors
|
18
|
|
Item
2:
|
Properties
|
29
|
|
Item
3:
|
Legal
Proceedings
|
29
|
|
Item
4:
|
Submission
of Matters to a Vote of Security Holders
|
29
|
|
PART
II
|
29
|
|
|
Item
5:
|
Market
For Our Common Stock and Related Stockholder Matters
|
29
|
|
Item
6:
|
Selected
Financial Data
|
30
|
|
Item
7:
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
30
|
|
Item
7A:
|
Quantitative
Qualitative Disclosures About Market Risk
|
39
|
|
Item
8:
|
Financial
Statements and Supplementary Data
|
39
|
|
Item
9:
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosures
|
39
|
|
Item
9A(T):
|
Assessment
of the Effectiveness of Internal Controls over Financial
Reporting
|
39
|
|
Item
9B:
|
Other Information |
40
|
|
PART
III
|
40
|
|
|
Item
10:
|
Directors,
Executive Officers, Corporate Governance
|
40
|
|
Item
11:
|
Executive
Compensation
|
43
|
|
Item
12:
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
50
|
|
Item
13:
|
Certain
Relationships and Related Transactions, and Director
Independence
|
51
|
|
Item
14:
|
Principal
Accountant Fees and Services
|
52
|
|
Part
IV
|
||
|
Item
15:
|
Exhibits,
Financial Statements Schedules
|
53
|
i
FORWARD
LOOKING STATEMENTS
This
Annual Report on Form 10-K contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. When used in this Annual Report, statements that are
not statements of current or historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words “plan”, “intend”, “may,”
“will,” “expect,” “believe”, “could,” “anticipate,” “estimate,” or “continue” or
similar expressions or other variations or comparable terminology are intended
to identify such forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. Except as required by law, the Company undertakes no obligation to
update any forward-looking statements, whether as a result of new information,
future events or otherwise.
General
We are a
development stage biotechnology company with the intent to develop safe and
effective cancer vaccines that utilize multiple mechanisms of immunity. We are
developing a live Listeria vaccine technology
under license from the University of Pennsylvania (“Penn”) which secretes a
protein sequence containing a tumor-specific antigen. We believe this vaccine
technology is capable of stimulating the body’s immune system to process and
recognize the antigen as if it were foreign, generating an immune response able
to attack the cancer. We believe this to be a broadly enabling platform
technology that can be applied to the treatment of many types of cancers
infectious diseases and auto-immune disorders.
The
discoveries that underlie this innovative technology are based upon the work of
Yvonne Paterson, Ph.D., Professor of Microbiology at Penn. This
technology involves the creation of genetically engineered Listeria that
stimulate the innate immune system and induce an antigen-specific immune
response involving both arms of the adaptive immune system. In
addition, this technology supports, among other things, the immune response by
altering tumors to make them more susceptible to immune attack, stimulating the
development of specific blood cells that underlie a strong therapeutic immune
response.
We have
focused our initial development efforts upon therapeutic cancer vaccines
targeting cervical cancer, its predecessor condition, CIN, Head and Neck cancer,
breast cancer, prostate cancer, and other cancers. Our lead products in
development are as follows:
|
Product
|
Indication
|
Stage
|
||
|
ADXS11-001
|
Cervical
Cancer
|
Phase I Company
sponsored & completed in 2007.
|
||
|
Cervical
Intraepithelial Neoplasia
|
Phase II Company
sponsored study anticipated to commence in early
2010.
|
|||
|
Cervical
Cancer
|
Phase II Company
sponsored study anticipated to commence in early 2010 in India. 110
Patients with advanced cervical cancer.
|
|||
|
Cervical
Cancer
|
Phase II The GOG of the
NCI is conducting a study (timing to be
determined).
|
|||
|
Head
& Neck Cancer
|
Phase I The Cancer
Research UK (CRUK) is conducting a study of up to 45 Patients (timing to be
determined).
|
|||
|
ADXS31-142
|
Prostate
Cancer
|
Phase I Company
sponsored (timing to be determined).
|
||
|
ADXS31-164
|
Breast
Cancer
|
Phase I Company
sponsored (timing to be
determined).
|
We
have sustained losses from operations in each fiscal year since our inception,
and we expect these losses to continue for the indefinite future, due to the
substantial investment in research and development. As of October 31, 2009, we
had an accumulated deficit of $16,603,800 and shareholders’ deficiency of
$15,733,328.
To date,
we have outsourced many functions of drug development including manufacturing,
and clinical trials management. Accordingly, the expenses of these
outsourced services account for a significant amount of our accumulated
loss. We cannot predict when, if ever, any of our product candidates
will become commercially viable or approved by the FDA. We expect to
spend substantial additional sums on the continued administration and research
and development of proprietary products and technologies, including conducting
clinical trials for our product candidates, with no certainty that our products
will become commercially viable or profitable as a result of these
expenditures.
1
History
of the Company
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
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, 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 become 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. 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 26, 2006
reincorporation into Delaware (in which case it refers to the Colorado entity).
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.
Recent
Developments
Preferred
Equity Financing
On
January 11, 2010, the Company issued and sold 145 shares of non-convertible,
redeemable Series A preferred stock to Optimus Life Sciences Capital Partners
LLC (“Optimus”) pursuant to the terms of a Preferred Stock Purchase Agreement
between the Company and Optimus dated September 24, 2009 (the “ Purchase
Agreement ”). The Company received net proceeds of $1,320,000 from this
transaction. The aggregate purchase price for the Series A preferred stock was
$1.45 million (less $130,000 representing an administrative fee and the balance
of a commitment fee due and owing to Optimus under the Purchase
Agreement). Under the terms of the Purchase Agreement, Optimus
remains obligated, from time to time until September 24, 2012, to purchase up to
an additional 355 shares of Series A preferred stock at a purchase price of
$10,000 per share upon notice from the Company to Optimus, and subject to the
satisfaction of certain conditions, as set forth in the Purchase
Agreement.
In
connection with the foregoing transaction, an affiliate of Optimus was granted
33,750,000 warrants on September 24, 2009 at an exercise price of $0.20 to be
exercised and priced upon the draw down date of each tranche. On January 11,
2010, the draw down date of the first tranche, Optimus exercised warrants to
purchase 11,563,000 shares of common stock at an adjusted exercise price of
$0.17 per share. The Company and Optimus agreed to waive certain
terms and conditions in the Purchase Agreement and the warrant in order to
permit the affiliate of Optimus to exercise the warrants at such adjusted
exercise price prior to the closing of the purchase of the Preferred Stock and
acquire beneficial ownership of more than 4.99% of the Company’s common stock on
the date of exercise. As permitted by the terms of such warrants, the
aggregate exercise price of $1,965,710 received by the Company is payable
pursuant to a four year full recourse promissory note bearing interest at the
rate of 2% per year.
As a
result of anti-dilution protection provisions contained in certain of the
Company’s outstanding warrants, the Company has (i) reduced the exercise price
from $0.20 per share to $0.17 per share with respect to an aggregate of
approximately 62.0 million warrant shares to purchase the Company’s Common Stock
and (ii) correspondingly adjusted the amount of warrant shares issuable pursuant
to certain warrants such that approximately 11.0 million additional warrant
shares are issuable at $0.17 per share.
Recent
Bridge Financings
From
November 1, 2009 through February 16, 2010, we issued to certain accredited
investors (i) junior unsecured convertible promissory notes in the aggregate
principal face amount of $673,529, for an aggregate net purchase price of
$572,500 and (ii) warrants to purchase1,431,250 shares of our common stock at an
exercise price of $0.20 (prior to anti-dilution adjustments) per share, subject
to adjustments upon the occurrence of certain events. Each of these bridge notes
were issued with an original issue discount of 15% (OID) and are convertible
into shares of our common stock. The maturity dates of these
notes range between April 16 and July 30, 2010. The indebtedness
represented by the bridge notes is expressly subordinate to our currently
outstanding senior secured indebtedness (including the June 2009 bridge notes),
as well as any future senior indebtedness of any kind. We will not
make any payments to the holders of these bridge notes until the earlier of the
repayment in full or conversion of the senior indebtedness.
2
During
January and February 2010, the Company repaid $834,852 of the $1,131,353 in face
value of our June 2009 bridge notes. In addition, holders of the
remaining $296,501 of our June 2009 bridge notes agreed to extend the maturity
dates from December 31, 2009 to periods into February and March 2010. The
Company has agreed to issue additional consideration, including warrants to June
2009 bridge note holders, all of which have agreed to extend the maturity period
beyond December 31, 2009.
On
February 15, 2010, we agreed to amend the terms of the Moore Notes such that (i)
Mr. Moore may elect, at his option, to receive accumulated interest thereon on
or after March 17, 2010 (which we expect will amount to approximately $130,000),
(ii) we will begin to make monthly installment payments of $100,000 on the
outstanding principal amount beginning on April 15, 2010; provided, however,
that the balance of the principal will be repaid in full on consummation of our
next equity financing resulting in gross proceeds to us of at least $6.0 million
and (iii) we will retain $200,000 of the repayment amount for investment in our
next equity financing.
Other
Developments
On
February 9, 2010 the Company announced that Cancer Research UK (CRUK), the UK
philanthropy dedicated to cancer research, has agreed to fund the cost of a
clinical trial to investigate the use of ADXS11-001, Advaxis’ lead human
papilloma virus (HPV)-directed vaccine candidate, for the treatment of head and
neck cancer. This sponsored-clinical trial will investigate the
safety and efficacy of ADXS11-001 in head and neck cancer patients who have
previously failed treatment with surgery, radiotherapy and chemotherapy – alone
or in combination. Advaxis will provide the vaccines with all other associated
costs to be funded by CRUK. The study is to be conducted at Aintree
Hospital at the University of Liverpool, Royal Marsden Hospital in London, and
Cardiff Hospital at the University of Wales. Patient enrollment is slated for
the latter part 2010. At such time, enrollment officials anticipate recruiting a
maximum of forty-five (45) patients.
Effective
as of January 5, 2010, Mark Rosenblum, 56, was hired as Senior Vice
President, Chief Financial Officer and Secretary of the
Company. Since April 2005 Mr. Rosenblum was the Chief Financial
Officer of Hemobiotech, Inc. (OTC BB: HMBT.OB), a company primarily engaged in
the commercialization of human blood substitute technology licensed from Texas
Tech University. From 2003 until 2005, he acted as a consultant to various
distribution and manufacturing companies. From 1985 through 2003, Mr.
Rosenblum was employed by Wellman, Inc., a public
chemical manufacturing company and held positions as its Corporate
Controller, Vice President and Chief Accounting Officer. Mr. Rosenblum’s base
compensation is $225,000 per annum, with a discretionary bonus of up to 30% of
his base compensation awarded annually in March beginning in 2011. In
addition, on January 5, 2010 Mr. Rosenblum was granted options to purchase
1,000,000 shares of the Company’s Common Stock with an exercise price equal to
the closing bid price on the date of grant. One third of these
options vested on the date of grant, one third vests on the first anniversary of
the date of grant, and one third vests on the second anniversary of the date of
grant. Mr. Rosenblum may be eligible for additional option grants in
one year.
On
December 15, 2009, the Company announced its Phase II Trial Collaboration with
the National Cancer Institute Gynecologic Oncology Group to Study ADXS11-001 in
Sixty-Patient Study. The Company will collaborate with the Gynecologic Oncology
Group (GOG), a collaborative research group of the National Cancer Institute
(NCI), in a multicenter, Phase II clinical trial of the Company’s lead drug
candidate, ADXS11-001 in the treatment of advanced cervix cancer in women who
have failed prior cytotoxic therapy. This Phase II trial will be conducted by
GOG investigators and largely underwritten by the NCI. The study’s patient
population – a very sick and rapidly progressive patient population that was
treated in Advaxis Phase I trial of ADXS11-001. Under this agreement Advaxis is
responsible for covering the costs of translational research and has agreed to
pay a total of $8,003 per patient, with the bulk of the costs of this study
underwritten by NCI.
The
Company received $278,978 from the New Jersey Economic Development
Authority. Under the State of New Jersey Program for small business
we received this cash amount on January 15, 2010 from the sale of our State Net
Operating Losses (“NOL”) through December 31, 2008 and our research tax credit
for fiscal years 2007 and 2008.
Between
February and December of 2009 the US, Japanese, and European patent offices have
approved patents for a newly developed strain of Listeria that uses a novel
method of attenuation. This strain is attenuated by deleting genes
that are responsible for making a protein that is essential for the bacterial
cell wall, and by engineering back the ability to make this protein at a reduced
level. In developing this strain the objective was to improve upon
the useful properties of Listeria while reducing
potential disease causing properties of the bacterium, and in preliminary
testing this strain of Lm appears to be more
immunogenic and less virulent that prior vaccine strains.
On
December 15, 2009 the survival of the patients in Advaxis Phase I trial of the
agent were determined at the scheduled three month interval. Two
patients were still alive out of the 13 patients who were available for efficacy
analysis. At that time these patients had survived for 1,104 and
1,053 days after their initial dose. One patient who had been alive
at the prior assessment had passed away after 1,064 days. This Phase
I safety study was not designed to assess efficacy, however the response rate
was greater than that associated with historical controls and the long survival
of these patients is noteworthy.
Our
Website
We
maintain a website at www.advaxis.com which
contains descriptions of our technology, our drugs and the trial status of each
drug.
3
Strategy
During
the next 24 months, we intend to strategically focus on developing sufficient
human clinical data on ADXS11-001, our first Listeria construct, to
demonstrate the effectiveness of this technology. This technology is based on
attenuated Listeria
that secretes an antigen LLO fusion protein that can be an effective platform
for multiple therapies against cancer and infectious disease. Overall our
clinical trial plans outlined below are contingent on our ability to raise
additional capital or enter into partnerships. In the U.S., we plan on
initiating the single blind, placebo controlled Phase II clinical trial of
ADXS11-001 with three dosage arms in CIN, a pre cancerous indication. Following
the conclusion of the first arm, we expect to generate an interim assessment of
efficacy approximately 18 months following the start of the single blind,
placebo controlled Phase II Clinical Trial of ADXS11-001
In
parallel with the CIN trial, we also intend to start trials in the
development of ADXS11-001, both in the U.S. and abroad, as a treatment of late
stage cervical cancer in women who have progressed after receiving cytotoxic
therapy and head and neck cancer. We intend to hold our first Phase II trial in
the therapeutic area of cervical cancer in India. In order to run a second trial
in this patient population we are in advanced discussions with the Gynecologic
Oncology Group, which we refer to as the GOG which receives support from the
National Cancer Institute, which we refer to as the NCI. We anticipate that this
trial, with the same patient population as those studied in our first Phase I
trial, will be underwritten, in part, by the NCI. Therefore, this Phase II
multi-center study in their network in cervical cancer, is expected to result in
a cost savings to us of approximately $2.5 million to $3.0 million in trial
expenses. Furthermore, once the above trials are underway, we expect to enter
our prostate construct ADXS31-142 (formerly called Lovaxin P) into human
clinical trials as funds or partnerships are secured.
In order
to implement our strategy, we will require substantial additional investment in
the near future. Our failure to raise capital or pursue partnering
opportunities will materially and adversely affect both our ability to commence
or continue the clinical trials described above and our business, financial
condition and results of operations, and could force us to significantly curtail
or cease operations. Further, we will not have sufficient resources to develop
fully any new products or technologies unless we are able to raise substantial
additional financing over and above the preferred stock financing on acceptable
terms or secure funds from new partners.
Given our
expertise to genetically modify a host of Listeria vaccines, our longer
term strategy will be to license the commercial development of ADXS11-001 for
the indications of CIN and cervical cancer. On a global basis, these indications
are extremely large and will require one or more significant partners. We do not
intend to engage in commercial development beyond Phase II without entering into
one or more partnerships or a license agreement.
We intend
to continue to devote a substantial portion of our resources to the continued
pre-clinical development and optimization of our technology so as to develop it
to its full potential and to find appropriate new drug candidates. These
activities may require significant financial resources, as well as areas of
expertise beyond those readily available. In order to provide additional
resources and capital, we may enter into research, collaborative or commercial
partnerships, joint ventures, or other arrangements with competitive or
complementary companies, including major international pharmaceutical companies
or universities.
Background
Cancer
Despite
tremendous advances in science, cancer remains a major health problem, and for
many it continues to be the most feared of diseases. Although age-adjusted
mortality rates for all cancer fell during the 1990’s, particularly for the
major cancer sites (lung, colorectal, breast, and prostate), mortality rates are
still increasing in certain sites such as liver and non-Hodgkin’s lymphoma. In
2004, the last year for which we have reliable numbers, 1,437,180 cases of
invasive cancer were diagnosed according to the American Cancer Society, and
565,650 patients are expected to die from cancer annually.
Cancer is
the second largest cause of death in the United States, exceeded only by heart
disease. The cost of treating cancer patients in 2007 is estimated to be $219.2
billion in healthcare costs and another $18.2 billion in indirect costs
resulting from morbidity and lost productivity (source: Facts & Figures
2008, American Cancer Society). The NIH estimates the overall cost for cancer in
the year 2005 at $209.9 billion: $74.06 billion for direct medical costs, $17.5
billion for indirect morbidity costs (loss of productivity due to illness) and,
$118.4 billion for indirect mortality costs (cost of lost productivity due to
premature death). (Source: cancer facts & figures 2006, American Cancer
Society). The incidence of newly diagnosed cervical cancer in the US in 2007 was
11,070 (ibid) and numbers for newly diagnosed CIN are approximately about
250,000 patients per year based on 3.5 million abnormal Pap smears (source:
Jones HW, Cancer
1995:76:1914-18; Jones BA and Davey, Arch Pathol Lab Med 2000;
124:672-81)
4
US Cancer
Rates (2009 Estimated)
Percent
of US deaths due to cancer in 2006
Immune
System and Normal Antigen Processing
Living
creatures, including humans, are continually confronted with potentially
infectious agents. The immune system has evolved multiple mechanisms that allow
the body to recognize these agents as foreign, and to target a variety of
immunological responses, including innate, antibody, and cellular immunity that
mobilize the body’s natural defenses against these foreign agents and will
eliminate them.
Innate
Immunity:
Innate
immunity is the first step in the recognition of a foreign antigen, and
underlies an adaptive (antigen specific) response by lymphocytes. This
non-specific ingestion Phagocytosis by these cells results in their activation
and the release of various soluble mediators of immune response such as
cytokines, chemokines and co-stimulatory molecules.
Exogenous pathway of
Adaptive Immunity (Class II pathway):
Proteins
and foreign molecules ingested by Antigen Processing Cells (“APC”)
are broken down inside digestive vacuoles into small pieces, called
peptides, and the pieces are combined with proteins called Class 2 MHC (for
Major Histocompatibility Complex) in a part of the cell called the endoplasmic
reticulum. The MHC-peptide, termed and MHC-2 complex from the Class 2 (or
exogenous) pathway, is then pushed out to the cell surface where it interacts
with certain classes of lymphocytes (CD4+) such as helper T-cells that produce
induce a proliferation of stimulate B-cells, which produce antibodies, or helper
T cells that assist in the maturation of cytotoxic T-lymphocytes. This system is
called the exogenous pathway, since it is the prototypical response to an
exogenous antigen like bacteria. (Listeria generated MHC-2
responses are directed at the activation of helper T cell activation, as Listeria tends not to
stimulate antibody formation.)
5
Endogenous pathway of
Adaptive Immunity (Class I pathway):
There
exists another adaptive immune pathway, called the endogenous pathway. In this
system, when one of the body's cells begins to create unusual proteins within
the cytoplasm (as opposed to within he digestive phagosome), the protein is
broken up into peptides in the cytoplasm and directed into the endoplasmic
reticulum, where it is incorporated into an MHC-1 protein and trafficked to the
cell surface. This signal then calls effector cells of the cellular immune
system, especially CD8+ cytotoxic T-lymphocytes, to come and kill the cell. The
endogenous pathway is primarily for elimination of virus-infected or cancerous
cells.
Listeria based vaccines are
unique for many reasons, one of which is that unlike viral vectors, DNA or
peptide antigens or other vaccines, Listeria stimulates all of
the above mechanisms of immune action. Our technology allows the body to
recognize tumor-associated or tumor-specific antigens as foreign, thus creating
the immune response needed to attack the cancer. It does this by utilizing a
number of biologic characteristics of the Listeria bacteria and Advaxis
proprietary antigen-fusion protein technology to stimulate multiple therapeutic
immune mechanisms simultaneously in an integrated and coordinated
manner.
Mechanism
of Action
Listeria is a bacterium well
known to medical science because it can cause an infection in humans. Listeria is a pathogen that
causes food poisoning, typically in the very old, the very young, people who are
either immunocompromised or who eat a large quantity of the microbe as can occur
in spoiled dairy products. It is not laterally transmitted from person to
person, and is a common microbe in our environment. Most people ingest Listeria without being aware
of it, but in high quantities or in immune suppressed people Listeria can cause various
clinical conditions, including sepsis, meningitis and placental infections in
pregnant women. Fortunately, many common antibiotics can kill and sterilize
Listeria.
Because
Listeria is a live
bacterium it stimulates the innate immune system, thereby priming the adaptive
immune system to better respond to the specific antigens that the Listeria carries, which
viruses and other vectors do not do. This is a non-specific stimulation of the
overall immune system that results when certain classes of pathogens such as
bacteria (but not viruses) are detected. It provides some level of immune
protection and also serves to prime the elements of adaptive immunity to respond
in a stronger way to the specific antigenic stimulus. Listeria stimulates a strong
innate response which engenders a strong adaptive response.
Antigen
Presenting Cells (APC) are the scavengers’ in the body that circulate looking
for foreign invaders. When they find one, they ingest it, break it
down, and provide the fragments as molecular targets for the immune system to
attack. In this way they are the cells that direct a specific immune
response, and Listeria
has the ability to infect them.
When
Listeria enters the
body, it is seen as foreign by the antigen processing cells and ingested into
cellular compartments called phagolysosomes, whose destructive enzymes kill most
of the bacteria. A certain percentage of these bacteria, however, are able to
break out of the phagolysosomes and enter into the cytoplasm of the cell, where
they are relatively safe from the immune system. The bacteria multiply in the
cell, and the Listeria
is able to move to its cell surface so it can push into neighboring cells and
spread.
6
Figs 1-7.
When Listeria enters
the body, it is seen as foreign by the antigen processing cells and ingested
into cellular compartments called phagolysosomes, whose destructive enzymes kill
most of the bacteria, fragments of which are then presented to the immune system
via the exogenous pathway.
Figs 8-10
A certain percentage of bacteria is able to break out of the lysosomes and enter
into the cytoplasm of the cell, where they are safe from lysosomal destruction.
The bacteria multiply in the cell, and the Listeria is able to migrate
into neighboring cells and spread without entering the extracellular space.
Antigen produced by these bacteria enter the Class I pathway and directly
stimulate a cytotoxic T cell response.
It is the
details of Listeria
intracellular activity that are important for understanding Advaxis technology.
Inside the lysosome, Listeria produces
listeriolysin-O (“LLO”), a protein that digests a hole in the membrane of the
lysosome that allows the bacteria to escape into the cytoplasm. Once in the
cytoplasm, however, LLO is also capable of digesting a hole in the outer cell
membrane. This would destroy the host cell, and spill the bacteria back out into
the intercellular space where it would be exposed to more immune cell attacks
and destruction. To prevent this, the body has evolved a mechanism for
recognizing enzymes with this capability based upon their amino acid sequence.
The sequence of approximately 30 amino acids in LLO and similar molecules is
called the PEST sequence (for the predominant amino acids it contains) and it is
used by normal cells to force the termination of proteins that need only have a
short life in the cytoplasm. This PEST sequence serves as a routing tag that
tells the cells to route the LLO in the cytoplasm and to the proteosome for
digestion, which terminates its action and provides fragments that then go to
the endoplasmic reticulum, where it is processed just like a protein antigen in
the endogenous pathway to generate MHC-1 complexes.
7
This
mechanism is used by Listeria to its benefit
because the actions of LLO enable the bacteria to avoid digestion in the
lysosome and escape to the cytosol where they can multiply and spread and then
be neutralized so that it does not kill the host cell. Advaxis is using a
technology that co-opts this mechanism by creating a protein that is comprised
of the cancer antigen fused to a non-hemolytic portion of the LLO molecule that
contains the PEST sequence. This serves to route the molecule for accelerated
proteolytic degradation which accelerates both the rate of antigen breakdown and
the amount of antigen fragments available for incorporation in to MHC-1
complexes; thus increasing the stimulus to activate cytotoxic T cells against a
tumor specific antigen.
Other
mechanisms that Advaxis vaccines employ include Listeria’s ability to
increase the synthesis of myeloid cells such as Antigen Presenting Cells (“APC”)
and T cells, and to stimulate the maturation of immature myeloid cells to
increase the number of available activated immune cells that underlie a cancer
killing response. Immature myeloid cells actually inhibit the immune system and
Listeria removes this
inhibition within the actual tumor. Also, Listeria and LLO both
stimulate the synthesis, release, and expression of various chemicals which
stimulate a therapeutic immune response. These chemicals are called cytokines,
chemokines and co-stimulatory molecules. By doing this, not only are immune
cells activated to kill cancers and clear them from the body, but local
environments within tumors is created that support and facilitate a therapeutic
response. Finally, in a manner that appears to be unique to Advaxis vaccines,
our proprietary antigen-LLO fusion proteins, when delivered by Listeria do not stimulate
cells caused regulatory T cells (“Tregs”) which are known to inhibit a
therapeutic anticancer response. This does not occur when Listeria is engineered to
deliver only a tumor specific antigen. The ability to reduce the effect of Tregs
is currently under clinical investigation by other companies and is believed to
be a significant mechanism of achieving a therapeutic response. Listeria has other effects as
well, such as facilitating the transit of activated immune cells from the blood
and into tumors.
The
ability to reduce the number of Tregs within tumors appears to be as important
as activating the immune system against an antigen. Advaxis live Listeria vaccines have many
diverse salutary effects, not the least of which is the ability to reduce
regulatory Tregs within tumors. Over the past few years it has become
known that the reason many previous immunologic cancer treatments have failed is
that although they were able to strongly activate the immune system, they were
rendered ineffective by endogenous sources of immune inhibition within the
tumors themselves. Tregs have the ability to turn off activated
immune cells so that they no longer function within the tumor. We
have published on 2 occasions that our live Listeria vaccines that
secrete a proprietary fusion protein comprised of a non-hemolytic fragment of
the Listeria virulence
factor LLO fused to a tumor specific antigen will reduce these inhibitory cells
within tumors. In this way, our vaccines not only strongly stimulate
the immune system, but also modify the tumor micro-environment in a manner that
allows the immune system to kill and clear tumor cells.
Advaxis
live Listeria vaccines
also have the ability to modify the function of vascular endothelial cells in a
way that facilitates the trafficking of activated immune cells out of the blood
and into the tumor, where they are therapeutically effective. One
property of cancer is the modification of vascular cells to prevent activated
immune cells from transiting into the tumor. Our vaccines appear to
overcome this source of anti-tumor inhibition.
Many of
the immune effector cells, such as dendritic cells, macrophages, mast cells,
Langerhans cells and others are myeloid cells. Our vaccines have the
ability to accelerate the synthesis and maturation of these cells, as well as
their antigen specific activation, to increase the power and efficiency of the
immune response.
It should
also be noted that the live Listeria vaccines Advaxis
creates are attenuated from 10,000 to 100,000 times in order that they will not
cause disease themselves.
8
Thus,
Listeria vaccines
stimulate every immune pathway simultaneously, and in an integrated
manner. It has long been recognized that cytotoxic T lymphocytes, or
CTL, are the elements of the immune system that kill and clear cancer
cells. The amplified CTL response to Listeria vaccines are
arguably the strongest stimulator of CTL yet developed, but just as important is
the ability Advaxis vaccines have to create a local tumor environment in which
these cells can be effective. This efficacy likely results in part
from the fusion of LLO to the secreted tumor antigen since many investigators
have shown that LLO is a very strong source of immune stimulation independent of
Listeria By fusing a
molecule with strong adjuvant properties to a tumor antigen, and then having it
synthesized and secreted by live bacteria directly into the cytoplasm of Antigen
Presenting Cells, vascular endothelium and other relevant tissues an unusually
powerful and complete immune response is generated.
Recently
it has been shown that Lm -LLO vaccines can cause
epitope spreading. This means that these vaccines can stimulate the
immune system to respond to more antigens than the one they are designed to
attack. This happens when tumor cells are killed by the immune system
in response to the administered vaccine and portions of those killed cells are
then recognized by the immune system and they too become targets of an immune
attack. This broadens the immune attack and results in a more
therapeutic response.
Thus,
what makes Advaxis live Listeria vaccines so
effective are a combination of effects that stimulate multiple arms of the
immune system simultaneously in a manner that generates an integrated
physiologic response conducive to the killing and clearing of tumor
cells. These mechanisms include:
|
|
1.
|
Very
strong innate immune response
|
|
|
2.
|
Stimulates
inordinately strong killer Tregs
response
|
|
|
3.
|
Stimulates
helper Tregs
|
|
|
4.
|
Stimulates
release of and/or up-regulates immuno-stimulatory cytokines, chemokines,
co-stimulatory molecules
|
|
|
5.
|
Adjuvant
activity creates a local tumor environment that supports anti-tumor
efficacy
|
|
|
6.
|
Minimizes
inhibitory Tregs and inhibitory cytokines and shifts to Th-17
pathway
|
|
|
7.
|
Stimulates
the development and maturation of all Antigen Presenting Cells and
effector Tregs & reduces immature myeloid
cells
|
|
|
8.
|
Eliminates
sources of endogenous inhibition present within tumors that suppress
activated immune cells and prevent them from working within
tumors
|
|
|
9.
|
Effecting
non-immune systems that support the immune response, like the vascular
system, the marrow, and the maturation of cells in the blood
stream
|
|
|
10.
|
Enables
epitope spreading to increase the number of antigens attacked by the
immune system.
|
Research
and Development Program
Overview
We use
genetically engineered and highly attenuated Listeria monocytogenes as a
therapeutic agent. We start with an attenuated strain of Listeria, and then
add to this bacterium multiple copies of a plasmid that encodes a fusion protein
sequence that includes a fragment of the LLO molecule joined to the tumor
antigen of interest. This protein is secreted by the Listeria inside the antigen
processing cells, and other cells that Listeria infects which then
results in the immune response as discussed above.
We can
use different tumor, infectious disease, or other antigens in this system. By
varying the antigen, we create different therapeutic agents. Our lead agent,
ADX11-001uses a HPV derived antigen that is present in cervical cancers.
ADXS31-162 uses Her2/neu, an antigen found in many breast cancer and melanoma
cells, to induce an immune response that should be useful in treating these
conditions. See “Item 1. Description of Business -Research and Development
Programs.
9
University of
Pennsylvania
On July
1, 2002 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 has been amended and restated as of February
13, 2007.
This
license, unless sooner terminated in accordance with its terms, terminates upon
the later (a) expiration of the last to expire Penn patent rights; or (b) twenty
years after the effective date of the license. The license provides
us with the exclusive commercial rights to the patent portfolio developed at
Penn as of the effective date of the license, in connection with Dr. Paterson
and requires us to raise capital and pay various milestone, legal, filing and
licensing payments to commercialize the technology. In exchange for
the license, Penn received shares of our common stock which currently represents
approximately 3.27% of our common stock outstanding on a fully-diluted
basis. In addition, Penn is entitled to receive a non-refundable
initial license fee, license fees, royalty payments and milestone payments based
on net sales and percentages of sublicense fees and certain commercial
milestones. Under the licensing agreement, Penn is entitled to
receive 1.5% royalties on net sales in all countries. Notwithstanding
these royalty rates, we have agreed to pay Penn a total of $525,000 over a
three-year period as an advance minimum royalty after the first commercial sale
of a product under each license (which we are not expecting to begin paying
within the next five years). In addition, under the license, we
are obligated to pay an annual maintenance fee on December 31, in 2008, 2009,
2010, 2011 and 2012 and each December 31st thereafter for the remainder of the
term of the agreement of $50,000, $70,000, $100,000, $100,000 and $100,000,
respectively until the first commercial sale of a Penn licensed
product. Overall the amended and restated agreement payment terms
reflect lower near term requirements but the savings are offset by higher long
term milestone payments for the initiation of a Phase III clinical trial and the
regulatory approval for the first Penn licensed product. We are
responsible for filing new patents and maintaining and defending the existing
patents licensed to use and we are obligated to reimburse Penn for all
attorneys fees, expenses, official fees and other charges incurred in the
preparation, prosecution and maintenance of the patents licensed from
Penn.
Furthermore,
upon the achievement of the first sale of a product in certain fields, Penn will
be entitled to certain milestone payments, as follows: $2.5 million will be due
for first commercial sale of the first product in the cancer
field. In addition, $1.0 million will be due upon the date of first
commercial sale of a product in each of the secondary strategic fields
sold.
As a
result of our payment obligations under the license, assuming we have net sales
in the aggregate amount of $100.0 million from our cancer products, our total
payments to Penn over the next ten years could reach an aggregate of $5.4
million. If over the next 10 years our net sales total an aggregate
amount of only $10.0 million from our cancer products, total payments to Penn
could be $4.4 million.
Pursuant
to an option contained in our existing license agreement with Penn, as amended,
we have been in negotiations with Penn since March 2007 to further amend and
restate the terms of the license agreement to acquire the rights to use an
additional 12 dockets or more (patentable research agents) under Penn’s
ownership which, as of October 31, 2009, have generated approximately 35
additional patent applications for Listeria and LLO-based
vaccine dockets. “Docket number” or “case number” refers to a subject
on which a patent application or applications are filed. A docket number or case
number can contain several applications, which are usually related applications.
Related applications are sometimes assigned to more than one docket number, for
example if the inventor list is not identical. As a condition to our exercising
this option and entering into an amendment, we must, among other things, pay
Penn a mutually agreeable option exercise fee and reimburse Penn for all of its
historically accrued patent and licensing expenses relating to these patents
(dockets), including their legal and filing fees. As of October 31,
2009, such expenses totaled approximately $548,105. Although the
option exercise period formally expired in June 2009, we remain in negotiations
with Penn over the form of payment and expect to reach a conclusion at the close
of our next financial raise. If we fail to acquire a license to use
the additional dockets and patent applications, our patent position may be
materially and adversely affected. In addition, as of October 31,
2009, approximately $328,820 in fees and expense are due and owing to Penn by us
under our existing license agreement and other related agreements. While we
consider our relationship with Penn to be 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 agreement, 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.
Strategically
we intend to enter into sponsored research agreements with Dr. Paterson and Penn
to generate new intellectual property and to exploit all existing intellectual
property covered by the license.
Penn is
not involved in the management of our company or in our decisions with respect
to exploitation of the patent portfolio, except that Dr. Paterson is the
Chairperson of our Scientific Advisory Board.
Dr.
Yvonne Paterson
Dr.
Paterson is a Professor in the Department of Microbiology at Penn and the
inventor of our licensed technology. She has been an invited speaker
at national and international health field conferences and leading academic
institutions. She has served on many federal advisory boards, such as
the NIH expert panel to review primate centers, the Office of AIDS Research
Planning Fiscal Workshop, and the Allergy and Immunology NIH Study
Section. She has written over one hundred publications in immunology
(including a recently published book) with emphasis during the last several
years on the areas of HIV, AIDS and cancer research. Her instruction
and mentorship has trained over forty post-doctoral and doctoral students in the
fields of Biochemistry and Immunology. She was recently elected a
fellow of the American Association for the Advancement of Science.
10
Dr.
Paterson is currently the principal investigator on several grants from the
federal government and charitable trusts and the program director of training
grants. Her research interests are broad, but her laboratory has been
focused for the past ten years on developing novel approaches for prophylactic
vaccines against infectious disease and immunotherapeutic approaches to
cancer. The approach of the laboratory is based on a long-standing
interest in the properties of proteins that render them immunogenic and how such
immunogenicity may be modulated within the body.
Consulting
Agreement. On January 28, 2005 we entered into a consulting
agreement with Dr. Paterson, which expired on January 31, 2009. We
are currently in the process of establishing a revised agreement to continue to
have access to Dr. Paterson’s consulting services for one full day per
week. There can be no assurance that we will be able to enter into a
new agreement with Dr. Paterson. Dr. Paterson has advised us on an
exclusive basis on various issues related to our technology, manufacturing
issues, establishing our lab, knowledge transfer, and our long-term research and
development program. Pursuant to the expired agreement, Dr. Paterson
received $7,000 per month. Upon the closing of an additional $9.0
million in equity capital, Dr. Paterson’s rates would have increased to $9,000
per month. Also, under the prior Agreement, on February 1, 2005, she
received options to purchase 400,000 shares of our common stock at an exercise
price of $0.287 per share which are now fully vested. In total she
holds 704,365 shares of our common stock and 569,048 fully vested options to
purchase shares of our common stock.
We intend
to enter into additional sponsored research agreements with Penn in the future
with respect to research and development on our product candidates.
We
believe that Dr. Paterson’s continuing research will serve as a source of
ongoing findings and data that both supports and strengthen the existing
patents. We further believe that her work will expand the claims of
the patent portfolio (potentially including adding claims for new tumor specific
antigens, the utilization of new vectors to deliver antigens, and applying the
technology to new disease conditions) and create the infrastructure for the
future filing of new patents.
Dr.
Paterson is also the Chairman of our Scientific Advisory Board.
The
Sage Group
We are
party to a consulting agreement with The Sage Group, a health-care strategy
consultant assisting us with a program to commercialize our
vaccines. The initial agreement was entered into in January 2009 and
subsequently amended on July 22, 2009. Pursuant to the terms of
agreement, as amended, we have agreed to pay Sage (i) $5,000 per month (which we
began paying in January 2009) until an aggregate of $120,000 has been paid to
Sage under the consulting agreement and (ii) a 5% commission for certain
transactions if completed in the first 24 months of the term of the agreement,
reduced to 2% if completed in the 12 months thereafter. The Sage Group has been
paid approximately $20,600 through October 31, 2009.
Dr.
David Filer
On
January 7, 2005 we entered a consulting agreement with Dr. David Filer, a
biotech consultant. The Agreement provides that Dr, Filer spend three days
per month assisting us with our development efforts, reviewing our
scientific technical and business data and materials and introducing us to
industry analysts, institutional investor collaborators and strategic partners.
In addition, Dr. Filer received options to purchase 40,000 shares of
common stock which are fully vested. As of October 1, 2007 we entered into a new
two year agreement at a monthly fee of $5,000 including
1,500,000 warrants exercisable at $0.20 per warrant (prior to
anti-dilution adjustments) as consideration for his assistance in the raise on
October 17, 2007 as well a his advisory services and assistance. This
agreement expired on September 30, 2009 and has not been renewed.
University
of California
On March
14, 2004 we entered into a nonexclusive license and bailment agreement with the
Regents of the University of California (“UCLA”) to commercially develop
products using the XFL7 strain of Listeria monoctyogenes in humans and animals.
The agreement is effective for a period of 15 years and is renewable by mutual
consent of the parties. Advaxis paid UCLA an initial licensee fee and continues
to pay an annual maintenance fee of $1,000 for use of the Listeria. We may not sell
products using the XFL7 strain Listeria other than agreed
upon products or sublicense the rights granted under the license agreement
without the prior written consent of UCLA.
Cobra
Biomanufacturing PLC (“Cobra”)
In July
2003, we entered into an agreement with Cobra for the purpose of manufacturing
our cervical cancer vaccine ADX11-001. Cobra has extensive experience in
manufacturing gene therapy products for investigational studies. Cobra is a full
service manufacturing organization that manufactures and supplies DNA-based
therapeutics for the pharmaceutical and biotech industry. These services include
the Good Manufacturing Practices (“GMP”) manufacturing of DNA, recombinant
protein, viruses, mammalian cell products and cell banking. Cobra’s
manufacturing plan for us involves several manufacturing stages, including
process development, manufacturing of non-GMP material for toxicology studies
and manufacturing of GMP material for the Phase I trial. The agreement to
manufacture expired in December 2005 upon the delivery and completion of
stability testing of the GMP material for the Phase I trial. Cobra has agreed to
surrender the right to $300,000 of its existing fees for manufacturing in
exchange for future royalties from the sales of ADX11-001 at the rate of 1.5% of
net sales, with royalty payments not to exceed $1,950,000.
11
In
November 2005, in order to secure production of ADXS11-001 on a
long-term basis as well as other drug candidates which we are developing, we
entered into a Strategic Collaboration and Long-Term Vaccine Supply Agreement
for Listeria Cancer
Vaccines, under which Cobra will manufacture experimental and commercial
supplies of our Listeria cancer vaccines,
beginning with ADXS11-001. This agreement leaves the existing agreement in place
with respect to the studies contemplated therein, and supersedes a prior
agreement and provides for mutual exclusivity, priority of supply, collaboration
on regulatory issues, research and development of manufacturing processes that
have already resulted in new intellectual property owned by Advaxis, and the
long-term supply of live Listeria based vaccines on a
discounted basis.
In
October 20, 2007 we entered into a production agreement with Cobra to
manufacture our Phase II clinical materials using a new methodology now required
by the United Kingdom, and likely to be required by other regulatory bodies in
the future. The contract was for £274,500 plus consumables and as of October 31,
2008 we have we have recorded $543,620 in full excluding
consumables. In addition, we entered into a contract for £47,250 to
fill the Listeria in vials and as of October 31, 2008, we have recorded $107,793
in full payment. In 2009 we also have several other small contracts
to cover, testing, stability and storage of our clinical supplies.
Vibalogics GtmbH
In April
of 2008 we entered into a series of agreements with Vibalogics GmbH in Cuxhaven
Germany to provide fill and finish services for our final clinical materials
that were made for the scheduled clinical trials described
above. These agreements describe all of the fill and finish
operations as well as the specific tests that have to be performed in order to
release the clinical materials for human use.
LVEP
Management, LLC (“LVEP”)
The
Company entered into a consulting agreement with LVEP dated as of January 19,
2005, and amended on April 15, 2005, and October 31, 2005, pursuant to which Mr.
Roni Appel served as Chief Executive Officer, Chief Financial Officer and
Secretary of the Company and was compensated by consulting fees paid to LVEP.
Pursuant to an amendment dated December 15, 2006 (“effective date”) Mr. Appel
resigned as President and Chief Executive Officer and Secretary of the Company
on the effective date, but remains as a board member and consultant to the
Company.
On
February 11, 2008 the Company and LVEP agreed to satisfy the balances of the
LVEP Agreement with cash payments of $130,000 and $20,000 in the Company’s
common stock (153,846 shares). The cash payment was made on February 12, 2008
and the shares were issued on April 4, 2008 and recorded at the market value of
$14,615.
Pharm-Olam
International Ltd. (“POI”)
In April
2005, we entered into a consulting agreement with POI, whereby POI is to execute
and manage our Phase I clinical trial in ADXS11-001 for a fee of $430,000 plus
reimbursement of certain expenses. As of October 31, 2009 the Company has an
outstanding balance due POI of $219,131.
Biologics Consulting Group, Inc.
(“BCG”)
On June
1, 2006 we entered into an agreement with Biologics Consulting Group, Inc.,
which we refer to as BCG, and effective June 1, 2008, we entered into an
amendment No. 2 to provide biologics regulatory consulting services to us, on an
as needed basis, in support of the IND submission to the FDA and other related
services. The tasks to be performed under this Agreement will be agreed to in
advance by us and BCG. The term of the amendment No. 2 is from June
1, 2006 to June 1, 2010. In April 2009 we entered into Amendment No.
2 which set June 1, 2008 as the effective date and amended the term from June 1,
2006 through June 1, 2010.
Numoda
Corporation
On June
19, 2009 we entered into a Master Agreement and on July 8, 2009 we entered into
a Project Agreement with Numoda, a leading clinical trial and logistics
management company, to oversee Phase II clinical activity with ADXS11-001 for
the treatment of invasive cervical cancer and CIN. Numoda will be
responsible for integrating oversight and logistical functions with the clinical
research organizations, contract laboratories, academic laboratories and
statistical groups involved. The scope of this agreement covers over
three years and is estimated to cost $8.0 million for both trials.
12
Patents
and Licenses
Dr.
Paterson and Penn have invested significant resources and time in developing a
broad base of intellectual property around the cancer vaccine platform
technology to which on July 1, 2002 we entered into a 20-year exclusive
worldwide license and a right to grant sublicenses pursuant to our license
agreement with Penn. As of October 31, 2009 Penn has 24 issued
and 15 pending patents in the U.S. and other large countries including Japan,
and the European Union, through the Patent Cooperation Treaty system pursuant to
which we have an exclusive license to exploit the patents. Penn holds 35
additional patents and patent applications in foreign countries. We
are negotiating to license these patents as part of our Seconded Amended and
Restated Agreement with Penn. We believe that these patents will allow us
to take a lead in the U.S. in the field of Listeria -based
therapy.
In 2001,
an issue arose regarding the inventorship of U.S. Patent 6,565,852 and U.S.
Patent Application No. 09/537,642. These patent rights are included
in the patent rights licensed by Advaxis from Penn. It is
contemplated by GlaxoSmithKline plc, which we refer to as GSK, Penn and us that
the issue will be resolved through: (1) a correction of inventorship to
add certain GSK inventors, (2) where necessary and appropriate, an assignment of
GSK’s possible rights under these patent rights to Penn, and (3) a sublicense
from us to GSK of certain subject matter, which is not central to our business
plan. To date, this arrangement has not been finalized and we cannot
assure that this issue will ultimately be resolved in the manner described
above.
Pursuant
to our existing license with Penn, we had an option to license from Penn
any new future invention conceived by either Dr. Yvonne Paterson or by Dr. Fred
Frankel in the vaccine area that expired on June 17, 2009. Under our
license agreement with Penn, we expanded our intellectual property base and
gained access to inventions. Although the option exercise period
formally expired in June 2009, we remain in negotiations with Penn to obtain
additional patent licenses. Further, our previous consulting agreement
with Dr. Paterson provided, among other things, that, to the extent that Dr.
Paterson’s consulting work resulted in new inventions, such inventions were
assigned to Penn, and we have access to those inventions under existing license
agreements to be negotiated. This agreement is currently being
revised.
Our
approach to the intellectual property portfolio is to create significant
offensive and defensive patent protection for every product and technology
platform that we develop. We work closely with our patent counsel to
maintain a coherent and aggressive strategic approach to building our patent
portfolio with an emphasis in the field of cancer vaccines.
We are
aware of a private company, Anza Therapeutics, Inc (formerly Cerus Corporation),
which, is no longer in existence, but had been developing Listeria
vaccines. We believe that through our exclusive license with Penn we
have earliest known and dominant patent position in the U.S. for the use of
recombinant Listeria
monocytogenes expressing proteins or tumor antigens as a vaccine for the
treatment of infectious diseases and tumors. We successfully defended
our intellectual property by contesting a challenge made by Anza to our patent
position in Europe on a claim not available in the U.S. The EPO Board
of Appeals in Munich, Germany has ruled in favor of The Trustees of Penn and its
exclusive licensee Advaxis and reversed a patent ruling that revoked a
technology patent that had resulted from an opposition filed by
Anza. 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 method of preparation and composition of matter of recombinant bacteria
expressing tumor antigens for treatment of patients with cancer.
Based on
searches of publicly available databases, we do not believe that Anza or any
other third party owns any published Listeria patents or has any
issued patent claims that might materially and adversely affect our ability
to operate our business as currently contemplated in the field of recombinant
Listeria monocytogenes.
Additionally, our proprietary position that is the issued patents and licenses
for pending applications restricts anyone from using plasmid based Listeria constructs, or those
that are bioengineered to deliver antigens fused to LLO, ActA, or fragments of
LLO or ActA. On January 7, 2009 we made the decision to discontinue our use of
the Trademark Lovaxin and write-off of our intangible assets for trademarks
resulting in an asset impairment of $91,453 as of October 31,
2008. We developed a classic coding system for our
constructs. The rationale for this decision stemmed from several
legal challenges to the Lovaxin name over the last two years and certain rules
in Title 21 of the Code of Federal Regulations which do not allow companies to
use names that are assigned to drugs in development after marketing
approval. We will therefore focus company resources on product
development and not the defense the Lovaxin name.
On May
26, 2009, the United States Patent and Trademark Office (“PTO”) approved our
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
February 10, 2009 the U.S. PTO 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 us. 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. We believe that this technology will make our product more
effective and easier to obtain FDA regulatory approval.
13
The Drug
Development Process
The Food
and Drug Administration (“FDA”) requires that pharmaceutical and certain other
therapeutic products undergo significant clinical experimentation and clinical
testing prior to their marketing or introduction to the general
public. Clinical testing, known as clinical trials or clinical
studies, is either conducted internally by pharmaceutical or biotechnology
companies or is conducted on behalf of these companies by contract research
organizations.
The
process of conducting clinical studies is highly regulated by the FDA, as well
as by other governmental and professional bodies. Below, we describe
the principal framework in which clinical studies are conducted, as well as
describe a number of the parties involved in these studies.
Protocols. Before
commencing human clinical studies, the sponsor of a new drug must typically
receive governmental and institutional approval. In the U.S., Federal
approval is obtained by submitting an IND to the FDA and amending it for each
new proposed study. The clinical research plan is known in the industry as a
protocol. A protocol is the blueprint for each drug
study. The protocol sets forth, among other things, the
following:
|
|
·
|
Who
must be recruited as qualified participants and who is to be
excluded;
|
|
|
·
|
how
often, and how to administer the drug and at what
dose(s);
|
|
|
·
|
what
tests to perform on the participants;
and
|
|
|
·
|
what
evaluations are to be made and how the data will be
assessed.
|
Institutional
Review Board (Ethics Committee). An institutional review board is an
independent committee of professionals and lay persons which reviews clinical
research studies involving human beings and is required to adhere to guidelines
issued by the FDA. The institutional review board does not report to the FDA and
its members are not appointed by the FDA, but its records are audited by the
FDA. All clinical studies must be approved by an institutional review
board. The institutional review board is convened by the institution
where the protocol will be conducted and its role is to protect the rights of
the participants in the clinical studies. It must approve the
protocols to be used, and then oversees the conduct of the study, including: the
communications which we or the contract research organization conducting the
study at that specific site proposes to use to recruit participants, and
the form of consent which the participants will be required to sign prior to
their participation in the clinical studies.
Clinical
Trials. Human clinical studies or testing of a potential product
prior to Federal approval are generally done in three stages known as Phase I,
Phase II, and Phase III testing. The names of the phases are derived
from the CFR 21 that regulates the FDA. Generally, there are multiple studies
conducted in each phase.
Phase
I. Phase I studies involve testing a drug or product on a limited
number of participants. Phase I studies determine a drug’s basic
safety and how the drug is absorbed by, and eliminated from, the
body. This phase lasts an average of six months to a
year. Typically, cancer therapeutics are initially tested on very
late stage cancer patients.
Phase
III. Phase III studies involve testing large numbers of participants,
typically several hundred to several thousand persons. The purpose is
to verify effectiveness and long-term safety on a large scale. These
studies generally last two to six years. Phase III studies are
conducted at multiple locations or sites. Like the other phases,
Phase III requires the site to keep detailed records of data collected and
procedures performed.
New Drug
Approval. The results of the clinical trials are submitted to the
FDA as part of an NDA or BLA. Following the completion of Phase III
studies, assuming the sponsor of a potential product in the U.S. believes it has
sufficient information to support the safety and effectiveness of its product,
it submits an NDA or BLA to the FDA requesting that the product be approved for
marketing. The application is a comprehensive, multi-volume filing
that includes the results of all preclinical and clinical studies, information
about the drug’s composition, and the sponsor’s plans for producing, packaging,
labeling and testing the product. The FDA’s review of an application
can take a few months to many years, with the average review lasting 18
months. Once approved, drugs and other products may be marketed in
the U.S., subject to any conditions imposed by the FDA.
14
The drug
approval process is time-consuming, involves substantial expenditures of
resources, and depends upon a number of factors, including the severity of the
illness in question, the availability of alternative treatments, and the risks
and benefits demonstrated in the clinical trials.
On
November 21, 1997, former President Clinton signed into law the FDA
Modernization Act. That act codified the FDA’s policy of granting
“Fast Track” approval for cancer therapies and other therapies intended to treat
serious or life threatening diseases and that demonstrate the potential to
address unmet medical needs. The Fast Track program emphasizes close,
early communications between the FDA and the sponsor to improve the efficiency
of preclinical and clinical development, and to reach agreement on the design of
the major clinical efficacy studies that will be needed to support
approval. Under the Fast Track program, a sponsor also has the option
to submit and receive review of parts of the NDA or BLA on a rolling schedule
approved by FDA, which expedites the review process.
The FDA’s
Guidelines for Industry Fast Track Development Programs require that a clinical
development program must continue to meet the criteria for Fast Track
designation for an application to be reviewed under the Fast Track
Program. Previously, the FDA approved cancer therapies primarily
based on patient survival rates or data on improved quality of
life. While the FDA could consider evidence of partial tumor
shrinkage, which is often part of the data relied on for approval, such
information alone was usually insufficient to warrant approval of a cancer
therapy, except in limited situations. Under the FDA’s new policy,
which became effective on February 19, 1998, Fast Track designation ordinarily
allows a product to be considered for accelerated approval through the use of
surrogate endpoints to demonstrate effectiveness. As a result of
these provisions, the FDA has broadened authority to consider evidence of
partial tumor shrinkage or other surrogate endpoints of clinical benefit for
approval. This new policy is intended to facilitate the study of
cancer therapies and shorten the total time for marketing
approvals. Under accelerated approval, the manufacturer must continue
with the clinical testing of the product after marketing approval to validate
that the surrogate endpoint did predict meaningful clinical
benefit. To the extent applicable we intend to take advantage of the
Fast Track programs to obtain accelerated approval on our future products,
however, it is too early to tell what effect, if any, these provisions may have
on the approval of our product candidates.
Other
Regulations
Various
Federal and state laws, regulations, and recommendations relating to safe
working conditions, laboratory practices, the experimental use of animals, and
the purchase, storage, movements, import, export, use, and disposal of hazardous
or potentially hazardous substances, including radioactive compounds and
infectious disease agents, are used in connection with our research or
applicable to our activities. They include, among others, the U.S.
Atomic Energy Act, the Clean Air Act, the Clean Water Act, the Occupational
Safety and Health Act, the National Environmental Policy Act, the Toxic
Substances Control Act, and Resources Conservation and Recovery Act, national
restrictions on technology transfer, import, export, and customs regulations,
and other present and possible future local, state, or federal
regulation. The extent of governmental regulation which might result
from future legislation or administrative action cannot be accurately
predicted.
There is
a series of international harmonization treaties, known as the ICH treaties that
enable drug development to be conducted on an international
basis. These treaties specify the manner in which clinical trials are
to be conducted, and if trials adhere to the specified requirements, then they
are accepted by the regulatory bodies of in the signatory
countries. In this way the Advaxis Phase I study conducted outside of
the U.S. is accepted by the FDA.
Manufacturing
The FDA
requires that any drug or formulation to be tested in humans be manufactured in
accordance with its GMP regulations. This has been extended to
include any drug which will be tested for safety in animals in support of human
testing. The GMPs set certain minimum requirements for procedures,
record-keeping, and the physical characteristics of the laboratories used in the
production of these drugs.
We have
entered into a Long Term Vaccine Supply Agreement with Cobra for the purpose of
manufacturing our vaccines. Cobra has extensive experience in
manufacturing gene therapy products for investigational
studies. Cobra is a full service manufacturing organization that
manufactures and supplies DNA-based therapeutics for the pharmaceutical and
biotech industry. These services include the GMP manufacturing of
DNA, recombinant protein, viruses, mammalian cells products and cell
banking. Cobra’s manufacturing plan for us calls for several
manufacturing stages, including process development, manufacturing of non-GMP
material for toxicology studies and manufacturing of GMP material for the Phase
I and Phase II trials.
We have
entered into a GMP compliant filing of ADXS11-001 agreement with Vibalogics
GmbH, Zeppelinstr. 2, 27472 Cuxhaven, Germany to fill up to 5,000
vials of our clinical supplies. This agreement was for €84,800 and is
near completion in preparation for our Phase II CIN trial.
15
Competition
The
biotechnology and biopharmaceutical industries are characterized by rapid
technological developments and a high degree of competition. As a
result, our actual or proposed products could become obsolete before we recoup
any portion of our related research and development and commercialization
expenses. The biotechnology and biopharmaceutical industries are
highly competitive, and this competition comes from both biotechnology firms and
from major pharmaceutical and chemical companies, including Antigenics, Inc.,
Avi BioPharma, Inc., Biomira, Inc., Cellgenesis Inc., Biovest International,
Biosante Pharmaceuticals, Inc , Dendreon Corporation, Pharmexa-Epimmune, Inc.,
Genzyme Corp., Progenics Pharmaceuticals, Inc., and Vical Incorporated each of
which is pursuing cancer vaccines. Many of these companies have
substantially greater financial, marketing, and human resources than we do
(including, in some cases, substantially greater experience in clinical testing,
manufacturing, and marketing of pharmaceutical products). We also
experience competition in the development of our products from universities and
other research institutions and compete with others in acquiring technology from
such universities and institutions. In addition, certain of our
products may be subject to competition from products developed using other
technologies, some of which have completed numerous clinical
trials.
We expect
that our products under development and in clinical trials will address major
markets within the cancer sector. Our competition will be determined
in part by the potential indications for which drugs are developed and
ultimately approved by regulatory authorities. Additionally, the
timing of market introduction of some of our potential products or of
competitors’ products may be an important competitive
factor. Accordingly, the speed with which we can develop products,
complete preclinical testing, clinical trials and approval processes and supply
commercial quantities to market are expected to be important competitive
factors. We expect that competition among products approved for sale
will be based on various factors, including product efficacy, safety,
reliability, availability, price and patent position.
Merck has
developed the drug Gardasil and GSK has developed the drug Cervarix which can
prevent cervical cancer by vaccinating women against the virus HPV, the cause of
the disease. Gardasil is directed against four HPV species while
Cervarix is directed against two. Neither of these agents have an
approved indication for women who have a prior exposure to the HPV strains that
they protect against, nor are women protected from other strains of HPV that the
drugs do not treat. It has been written that these are cancer
vaccines, which is not true. They are anti-virus vaccines intended to
protect against strains of the HPV virus.
The
presence of these agents in the market does not eliminate the market for a
therapeutic vaccine directed against invasive cervical cancer and CIN for a
number of reasons:
HPV is
the most common sexually treated disease in the U.S., and since prior exposure
to the virus renders these anti-viral agents ineffective they tend to be limited
to younger women and do not offer protection for women who are already
infected. This is estimated to be as much as (or more than) 25% of
the female population of the U.S.
There are
believed to be approximately 10 high risk species of HPV, but these agents only
protect against the most common 2-4 strains. If a woman contracts a
high risk HPV species that is not one of those the drugs will not
work.
Women
with HPV are typically infected for over twenty years or more before they
manifest cervical cancer. Thus, the true prophylactic effect of these
agents can only be inferred at this time. We believe that there
currently exists a significant population of young woman who have not received
these agents, or for whom they will not work, and who will manifest HPV related
cervical disease for the next 40+ years. We believe this population will
continue to grow until such time as a significant percentage of women who have
not been exposed to HPV are vaccinated; which we believe is not likely to occur
within the next decade or longer. We do not know at this time whether
a significant number of women will be vaccinated to have an effect on the
epidemiology of this disease. Currently, men are not
vaccinated.
With the
exception of the campaign to eradicate polio in which vaccination was mandatory
for all school age children, vaccination is a difficult model to accomplish
because it is virtually impossible to treat everyone in any given country, much
less the entire world. This is especially true for cervical cancer as
the incentive for men to be vaccinated is small, and infected men keep the
pathogen circulating in the population.
Taken
together, experts believe that there will be a cervical cancer and CIN market
for the foreseeable future.
Scientific
Advisory Board
We
maintain a Scientific Advisory Board consisting of internationally recognized
scientists who advise us on scientific and technical aspects of our
business. The Scientific Advisory Board meets on an as needed basis
to review specific projects and to assess the value of new technologies and
developments to us. In addition, individual members of the scientific
advisory board meet with us periodically to provide advice in particular areas
of expertise. The scientific advisory board consists of the following
members, information with respect to whom is set forth below: Yvonne Paterson,
Ph.D.; Carl June, M.D.; Pramod Srivastava, Ph.D.; Bennett Lorber, M.D.; David
Weiner, Ph.D.; and Mark Einstein, M.D.
Dr. Yvonne
Paterson. For a description of our relationship with Dr.
Paterson, please see “Partnerships and Agreements-Dr. Yvonne
Paterson.”
16
Carl June,
M.D. Dr. June is currently Facility Director, Human
Immunology Center and Professor, Pathology and Laboratory Medicine Translational
Research at the Abramson Cancer Center at Penn, and previously a Director of
Translational Research at the Center and Investigator of the Abramson Family
Cancer Research Institute. He is a graduate of the Naval Academy in
Annapolis, and Baylor College of Medicine in Houston. He had graduate
training in immunology and malaria with Dr. Paul-Henri Lambert at the World
Health Organization, Geneva, Switzerland from 1978 to 1979, and post-doctoral
training in transplantation biology with Dr. E. Donnell Thomas at the Fred
Hutchinson Cancer Research Center in Seattle from 1983 to 1986. He is
board certified in Internal Medicine and Medical Oncology. Dr. June
founded the Immune Cell Biology Program and was head of the Department of
Immunology at the Naval Medical Research Institute from 1990 to
1995. Dr. June rose to Professor in the Departments of Medicine and
Cell and Molecular Biology at the Uniformed Services University for the Health
Sciences in Bethesda, Maryland before assuming his current positions as of
February 1, 1999. Dr. June maintains a research laboratory that
studies various mechanisms of lymphocyte activation that relate to immune
tolerance and adoptive immunotherapy.
Pramod
Srivastava, Ph.D. Dr. Srivastava is Professor of Immunology at the
University of Connecticut School of Medicine, where he is also Director of the
Center for Immunotherapy of Cancer and Infectious Diseases. He holds
the Physicians Health Services Chair in Cancer Immunology at the University of
Connecticut School of Medicine. Professor Srivastava is the
Scientific Founder of Antigenics, Inc. He serves on the Scientific
Advisory Council of the Cancer Research Institute, New York, and was a member of
the Experimental Immunology Study Section of the National Institutes of Health
of the U.S. Government from 1994 to 1999. He serves presently on the
board of directors of two privately held companies: Ikonisys, in New Haven,
Connecticut and CambriaTech, Lugano, Switzerland. In 1997, he was
inducted into the Roll of Honor of the International Union Against Cancer and
was listed in Who’s Who in Science and Engineering. He is among the
twenty founding members of the Academy of Cancer Immunology, New
York. Dr. Srivastava obtained his bachelor’s degree in biology and
chemistry and a master’s degree in botany (paleontology) from the University of
Allahabad, India. He then studied yeast genetics at Osaka University,
Japan. He completed his Ph.D. in biochemistry at the Center for
Cellular and Molecular Biology, Hyderabad, India, where he began his work on
tumor immunity, including identification of the first proteins that can mediate
tumor rejection. He trained at Yale University and Sloan-Kettering
Institute for Cancer Research. Dr. Srivastava has held faculty
positions at the Mount Sinai School of Medicine and Fordham University in New
York City.
Bennett Lorber,
M.D. Dr. Lorber attended Swarthmore College where he studied
zoology and art history. He graduated from the University of
Pennsylvania School of Medicine and did his residency in internal medicine and
fellowship in infectious diseases at Temple University, following which he
joined the Temple faculty. At Temple he rose through the ranks to
become Professor of Medicine and, in 1988, was named the first recipient of the
Thomas Durant Chair in Medicine. He is also a Professor of
Microbiology and Immunology and served as the Chief of the Section of Infectious
Diseases until 2006. He is a Fellow of the American College of
Physicians, a Fellow of the Infectious Diseases Society of America, and a Fellow
of the College of Physicians of Philadelphia where he serves as College
Secretary and as a member of the Board of Trustees. Dr. Lorber’s
major interest in infectious diseases is in human listeriosis, an area in which
he is regarded as an international authority. He has also been
interested in the impact of societal changes on infectious disease patterns as
well the relationship between infectious agents and chronic illness, and he has
authored papers exploring these associations. He has been repeatedly
honored for his teaching. Among his honors are 10 golden apples, the
Temple University Great Teacher Award, the Clinical Practice Award from the
Pennsylvania College of Internal Medicine, and the Bristol Award from the
Infectious Diseases Society of America. In 1996 he was the recipient
of an honorary Doctor of Science degree from Swarthmore College.
David B. Weiner,
Ph.D. Dr. David Weiner received his B.S in Biology from the
State University of New York and performed undergraduate research in the
Department of Microbiology, Chaired by Dr. Arnie Levine, at Stony Brook
University. He completed his MS and Ph.D. in Developmental
Biology/Immunology from the Children’s Hospital Research Foundation at the
University of Cincinnati in 1986. He completed his Post Doctoral
Fellowship in the Department of Pathology at Penn in 1989, under the direction
of Dr. Mark Greene. At that time he joined the Faculty at the Wistar
Institute in Philadelphia. He was recruited back to Penn in 1994. He
is currently an Associate Professor with Tenure in the Department of Pathology,
and he is the Associate Chair of the Gene Therapy and Vaccines Graduate Program
at Penn. Of relevance during his career he has worked extensively in
the areas of molecular immunology, the development of vaccines and vaccine
technology for infectious diseases and in the area of molecular oncology and
immune therapy. His laboratory is considered one of the founders of
the field of DNA vaccines as his group not only was the first to report on the
use of this technology for vaccines against HIV, but was also the first group to
advance DNA vaccine technology to clinical evaluation. In addition he
has worked on the identification of novel approaches to inhibit HIV infection by
targeting the accessory gene functions of the virus. Dr. Weiner has
authored over 260 articles in peer reviewed journals and is the author of over
28 awarded U.S. patents as well as their international
counterparts. He has served and still serves on many national and
international review boards and panels including the NIH Study section, WHO
advisory panels, the National Institute for Biological Standards and Control,
Department of Veterans Affairs Scientific Review Panel, as well as the FDA
Advisory panel - Center for Biologics Evaluation and Research, and Adult AIDS
Clinical Trial Group, among others. He also serves or has served in
an advisory capacity to several Biotechnology and Pharmaceutical
Companies. Dr. Weiner has, through training of young people in his
laboratory, advanced over 35 undergraduate scientists to Medical School or
Doctoral Programs and has trained 28 Post Doctoral Fellows and 7 Doctoral
Candidates as well as served on fourteen Doctoral Student
Committees.
17
Mark Einstein,
M.D. Dr. Einstein received his BS degree in Biology from the
University of Miami, where he also received his MD with Research Distinction in
Clinical Immunology. He also has an MS in Clinical Research Methods,
which he received with Distinction. Dr. Einstein completed his
residency in OB/GYN at Saint Barnabas Medical Center, and was a Galloway Fellow
in Gynecologic Oncology at the Sloan-Kettering Cancer Center. Dr.
Einstein has been at the Albert Einstein Cancer Center and Montefiore Medical
Center since 1999, where he has been an attending physician, Assistant Professor
of Gynecologic Oncology, and currently the Director of Clinical Research of the
Division of Gynecologic Oncology at the Albert Einstein College of Medicine and
Cancer Center, and at the Montefiore Medical Center. He is a Fellow
of the American College of Obstetrics and Gynecology and the American College of
Surgeons, as well as belonging to various research groups such as the American
Association for Cancer Research and the American Society for Clinical
Oncology. Dr. Einstein’s honors and awards include; American Cancer
Society Research Scholar, American Professors in Gynecology and Obstetrics
McNeil Faculty Award, ACOG/3M Research Award, ACOG/Solvay Research Award, Berlex
Oncology Foundation Scholar Award, and others. Dr. Einstein is a
member of the GOG Vaccine subcommittee, chairs the Gynecologic Cancer Foundation
National Cervical Cancer Education Campaign, sits on the Translational Research
Working Group Roundtable at NIH/NCI, the NHI AIDS malignancy Consortium, the
Gynecologic Cancer Foundation Task Force for Cervical Cancer Screening and
Prevention, as well as three separate committees for the Society of Gynecologic
Oncologists. Dr. Einstein is very active in the clinical assessment
of new immunological technologies for the treatment of gynecologic
cancers.
Item
1A: Risk Factors.
You
should carefully consider the risks described below as well as other information
provided to you in this annual report, including information in the section of
this document entitled “Forward-Looking Statements.” The risks and uncertainties
described below are not the only ones facing us. Additional risks and
uncertainties not presently known to us or that we currently believe are
immaterial may also impair our business operations. If any of the following
risks actually occur, our business, financial condition or results of operations
could be materially adversely affected, the value of our common stock could
decline, and you may lose all or part of your investment.
Risks
Related to our Business
We
are a development stage company.
We are an
early stage development stage company with a history of losses and can provide
no assurance as to future operating results. As a result of losses
which will continue throughout our development stage, we may exhaust our
financial resources and be unable to complete the development of our
production. Our deficit will continue to grow during our drug
development period.
We have
sustained losses from operations in each fiscal year since our inception, and we
expect losses to continue for the indefinite future, due to the substantial
investment in research and development. As of October 31, 2009, we
had an accumulated deficit of $16,603,800 and shareholders’ deficiency of
$15,733,328. We expect to spend substantial additional sums on the
continued administration and research and development of proprietary products
and technologies with no certainty that our products will become commercially
viable or profitable as a result of these expenditures.
As
a result of our current lack of financial liquidity and negative stockholders
equity, our auditors have expressed substantial concern about our ability to
continue as a “going concern."
Our
limited capital resources and operations to date have been funded primarily with
the proceeds from public and private equity and debt financings, NOL and
Research tax credits and income earned on investments and grants. Based on
our currently available cash, we do not have adequate cash on hand to cover our
anticipated expenses for the next 12 months. If we fail to raise a
significant amount of capital, we may need to significantly curtail operations,
cease operations or seek federal bankruptcy protection in the near future. These
conditions have caused our auditors to 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, 2009 included a going concern
explanatory paragraph.
There
can be no assurance that we will receive additional funding from Optimus in
connection with the preferred equity financing.
We have
entered into the Optimus purchase agreement, pursuant to which Optimus has
agreed to purchase up to 500 shares of our Series A preferred stock at a
purchase price of $10,000 per share from time to time ($5.0 million in the
aggregate), subject to our ability to effect and maintain an effective
registration statement for the shares underlying the warrant initially issued in
connection with the transaction to an affiliate of Optimus. During
January 2010, Optimus purchased 145 shares and remains obligated, from time to
time until September 24, 2012, to purchase up to an additional 355 shares upon
notice from us to Optimus, if certain conditions set forth in the purchase
agreement are satisfied, including among things that: (i) we must be in
compliance with our SEC reporting obligations, (ii) our common
stock must be quoted on the OTC Bulletin Board or another eligible trading
market, (iii) a material adverse effect relating to, among other things, our
results of operations, assets, business or financial condition must
not have occurred since September 24, 2009, other than losses incurred in the
ordinary course of business, (iv) we must not be in default under any material
agreement, and (v) Optimus and its affiliates must not own more than 9.99%
of our outstanding common stock, and (vi) we must comply with certain other
requirements set forth in the Optimus purchase agreement. If we fail
to comply with any of these requirements, including the ability to effect and
maintain a registration statement underlying the warrant issued to an affiliate
of Optimus, Optimus will not be obligated to purchase additional shares of our
Series A preferred stock and we will not receive any additional funding from
Optimus. Moreover, if we exercise our option to require Optimus to purchase
additional shares of our Series A preferred stock, and our common stock has a
closing price of less than $0.20 per share on the trading day immediately
preceding our delivery of the exercise notice, we will trigger certain
anti-dilution protection provisions in certain outstanding warrants that would
result in an adjustment to the number and price of a significant number of our
outstanding warrants.
18
Our business will
require substantial additional investment that we have not yet secured, and our
failure to raise capital and/or pursue partnering opportunities will materially
adversely affect our business, financial condition and results of
operations.
We expect
to continue to spend substantial amounts on research and development, including
conducting clinical trials for our product candidates. However, we will not have
sufficient resources to develop fully any new products or technologies unless we
are able to raise substantial additional financing on acceptable terms, secure
funds from new partners or consummate a preferred equity financing under the
Optimus purchase agreement. We cannot be assured that financing will be
available at all. Our failure to raise a significant amount of
capital in the near future, will materially adversely affect our business,
financial condition and results of operations, and we may need to significantly
curtail operations, cease operations or seek federal bankruptcy protection 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. No assurances can be given, however, that we will be
able to achieve these goals or that we will be able to continue as a going
concern.
We
have significant indebtedness which may restrict our business and operations,
adversely affect our cash flow and restrict our future access to sufficient
funding to finance desired growth.
As of
October 31, 2009, the face value of our outstanding indebtedness notes was
approximately $4.3 million, of which approximately $1.0 million is outstanding
to our chief executive officer. The total face value of the notes
outstanding as of October 31, 2009, other than the Moore Notes, is due on
or before July 30, 2010. We dedicate a substantial portion of our
cash to pay interest and principal on our debt. If we are not able to service
our debt, we would need to refinance all or part of that debt, sell assets,
borrow more money or sell securities, which we may not be able to do on
commercially reasonable terms, or at all.
As of
October 31, 2009, $3.3 million of this indebtedness is secured by substantially
all of our assets. The terms of our notes include customary events of default
and covenants that restrict our ability to incur additional indebtedness. These
restrictions and covenants may prevent us from engaging in transactions that
might otherwise be considered beneficial to us. A breach of the provisions of
our indebtedness could result in an event of default under our outstanding
notes. If an event of default occurs under our notes (after any
applicable notice and cure periods), the holders would be entitled to accelerate
the repayment of amounts outstanding, plus accrued and unpaid
interest. In the event of a default under our senior
indebtedness, the holders could also foreclose against the assets securing such
obligations. In the event of a foreclosure on all or substantially
all of our assets, we may not be able to continue to operate as a going
concern.
Our
limited operating history does not afford investors a sufficient history on
which to base an investment decision.
We
commenced our Listeria
System vaccine development business in February 2002 and have existed as a
development stage company since such time. Prior thereto we conducted
no business. Accordingly, we have a limited operating
history. Investors must consider the risks and difficulties we have
encountered in the rapidly evolving vaccine and therapeutic biopharmaceutical
industry. Such risks include the following:
|
|
·
|
competition
from companies that have substantially greater assets and financial
resources than we have;
|
|
|
·
|
need
for acceptance of products;
|
|
|
·
|
ability
to anticipate and adapt to a competitive market and rapid technological
developments;
|
|
|
·
|
amount
and timing of operating costs and capital expenditures relating to
expansion of our business, operations and
infrastructure;
|
|
|
need
to rely on multiple levels of complex financing agreements with outside
funding due to the length of the product development cycles and
governmental approved protocols associated with the pharmaceutical
industry; and
|
|
|
·
|
dependence
upon key personnel including key independent consultants and
advisors.
|
We cannot
be certain that our strategy will be successful or that we will successfully
address these risks. In the event that we do not successfully address
these risks, our business, prospects, financial condition and results of
operations could be materially and adversely affected. We may be
required to reduce our staff, discontinue certain research or development
programs of our future products and cease to operate.
19
We
can provide no assurance of the successful and timely development of new
products.
Our
products are at various stages of research and development. Further
development and extensive testing will be required to determine their technical
feasibility and commercial viability. Our success will depend on our
ability to achieve scientific and technological advances and to translate such
advances into reliable, commercially competitive products on a timely
basis. Immunotherapy and vaccine products that we may develop are not
likely to be commercially available until five to ten or more
years. The proposed development schedules for our products may be
affected by a variety of factors, including technological difficulties,
proprietary technology of others, and changes in governmental regulation, many
of which will not be within our control. Any delay in the
development, introduction or marketing of our products could result either in
such products being marketed at a time when their cost and performance
characteristics would not be competitive in the marketplace or in the shortening
of their commercial lives. In light of the long-term nature of our
projects, the unproven technology involved and the other factors described
elsewhere in “Risk Factors,” there can be no assurance that we will be able to
successfully complete the development or marketing of any new
products.
Our
research and development expenses are subject to uncertainty.
Factors
affecting our research and development expenses include, but are not limited
to:
|
|
·
|
competition
from companies that have substantially greater assets and financial
resources than we have;
|
|
|
·
|
need
for acceptance of products;
|
|
|
·
|
ability
to anticipate and adapt to a competitive market and rapid technological
developments;
|
|
|
·
|
amount
and timing of operating costs and capital expenditures relating to
expansion of our business, operations and
infrastructure;
|
|
|
·
|
need
to rely on multiple levels of outside funding due to the length of the
product development cycles and governmental approved protocols associated
with the pharmaceutical industry;
and
|
|
|
·
|
dependence
upon key personnel including key independent consultants and
advisors.
|
We
are subject to numerous risks inherent in conducting clinical
trials.
We
outsourced our clinical trials and entered into a contract with Numoda to manage
the execution of two Phase II trials for the assessment of our agent ADXS11-001
in the treatment of advanced cervix cancer in women who have failed prior
cytotoxic treatment, and in the treatment of CIN, the precursor condition to
cervix cancer. We expect to conduct the CIN trial in the U.S. and we
expect to conduct the cervix cancer trial in India in association with the
clinical research organization Max Neeman International. These trials are
scheduled to begin during the second fiscal quarter of 2010.
On
December 15, 2009, the Company announced its Phase II Trial Collaboration with
the National Cancer Institute Gynecologic Oncology Group to Study ADXS11-001 in
Sixty-Patient Study. The Company will collaborate with the Gynecologic Oncology
Group (GOG), a collaborative research group of the National Cancer Institute
(NCI), in a multicenter, Phase II clinical trial of the Company’s lead drug
candidate, ADXS11-001 in the treatment of advanced cervix cancer in women who
have failed prior cytotoxic therapy. This Phase II trial will be conducted by
GOG investigators and largely underwritten by the NCI. The study’s patient
population is a very sick and rapidly progressive patient population that was
treated in Advaxis Phase I trial of ADXS11-001. Under this agreement Advaxis is
responsible for covering the costs of translational research and has agreed to
pay a total of $8,003 per patient, with the bulk of the costs of this study
underwritten by NCI.
Agreements
with clinical investigators and medical institutions for clinical testing and
with other third parties for data management services, place substantial
responsibilities on these parties which, if unmet, could result in delays in, or
termination of, our clinical trials. For example, if any of our
clinical trial sites fail to comply with FDA-approved good clinical practices,
we may be unable to use the data gathered at those sites. If these
clinical investigators, medical institutions or other third parties do not carry
out their contractual duties or obligations or fail to meet expected deadlines,
or if the quality or accuracy of the clinical data they obtain is compromised
due to their failure to adhere to our clinical protocols or for other reasons,
our clinical trials may be extended, delayed or terminated, and we may be unable
to obtain regulatory approval for or successfully commercialize our agent
ADXS11-001. We are not certain that we will successfully recruit enough patients
to complete our clinical trials. Delays in recruitment and such
agreements would delay the initiation of the Phase II trials of
ADXS11-001.
We or our
regulators may suspend or terminate our clinical trials for a number of
reasons. We may voluntarily suspend or terminate our clinical trials
if at any time we believe they present an unacceptable risk to the patients
enrolled in our clinical trials. In addition, regulatory agencies may
order the temporary or permanent discontinuation of our clinical trials at any
time if they believe that the clinical trials are not being conducted in
accordance with applicable regulatory requirements or that they present an
unacceptable safety risk to the patients enrolled in our clinical
trials.
20
Our
clinical trial operations are subject to regulatory inspections at any
time. If regulatory inspectors conclude that we or our clinical trial
sites are not in compliance with applicable regulatory requirements for
conducting clinical trials, we may receive reports of observations or warning
letters detailing deficiencies, and we will be required to implement corrective
actions. If regulatory agencies deem our responses to be inadequate,
or are dissatisfied with the corrective actions we or our clinical trial sites
have implemented, our clinical trials may be temporarily or permanently
discontinued, we may be fined, we or our investigators may be precluded from
conducting any ongoing or any future clinical trials, the government may refuse
to approve our marketing applications or allow us to manufacture or market our
products, and we may be criminally prosecuted.
The
successful development of biopharmaceuticals is highly uncertain.
Successful
development of biopharmaceuticals is highly uncertain and is dependent on
numerous factors, many of which are beyond our control. Products that
appear promising in the early phases of development may fail to reach the market
for several reasons including:
|
|
·
|
Preclinical
study results that may show the product to be less effective than desired
(e.g., the study failed to meet its primary objectives) or to have harmful
or problematic side effects;
|
|
|
·
|
Failure
to receive the necessary regulatory approvals or a delay in receiving such
approvals. Among other things, such delays may be caused by
slow enrollment in clinical studies, length of time to achieve study
endpoints, additional time requirements for data analysis,
or Biologics License Application preparation, discussions with
the FDA, an FDA request for additional preclinical or clinical data, or
unexpected safety or manufacturing
issues;
|
|
|
·
|
Manufacturing
costs, formulation issues, pricing or reimbursement issues, or other
factors that make the product uneconomical;
and
|
|
|
·
|
The
proprietary rights of others and their competing products and technologies
that may prevent the product from being
commercialized.
|
Success
in preclinical and early clinical studies does not ensure that large-scale
clinical studies will be successful. Clinical results are frequently
susceptible to varying interpretations that may delay, limit or prevent
regulatory approvals. The length of time necessary to complete
clinical studies and to submit an application for marketing approval for a final
decision by a regulatory authority varies significantly from one product to the
next, and may be difficult to predict.
We must comply
with significant government regulations.
The
research and development, manufacture and marketing of human therapeutic and
diagnostic products are subject to regulation, primarily by the FDA in the U.S.
and by comparable authorities in other countries. These national
agencies and other federal, state, local and foreign entities regulate, among
other things, research and development activities (including testing in animals
and in humans) and the testing, manufacturing, handling, labeling, storage,
record keeping, approval, advertising and promotion of the products that we are
developing. Noncompliance with applicable requirements can result in
various adverse consequences, including delay in approving or refusal to approve
product licenses or other applications, suspension or termination of clinical
investigations, revocation of approvals previously granted, fines, criminal
prosecution, recall or seizure of products, injunctions against shipping
products and total or partial suspension of production and/or refusal to allow a
company to enter into governmental supply contracts.
The
process of obtaining requisite FDA approval has historically been costly and
time-consuming. Current FDA requirements for a new human biological
product to be marketed in the U.S. include: (1) the successful conclusion of
preclinical laboratory and animal tests, if appropriate, to gain preliminary
information on the product’s safety; (2) filing with the FDA of an
Investigational New Drug Application, which we refer to as an IND, to conduct
human clinical trials for drugs or biologics; (3) the successful completion of
adequate and well-controlled human clinical investigations to establish the
safety and efficacy of the product for its recommended use; and (4) filing by a
company and acceptance and approval by the FDA of a Biologic License
Application, which we refer to as a BLA, for a biological product, to allow
commercial distribution of a biologic product. A delay in one or more
of the procedural steps outlined above could be harmful to us in terms of
getting our product candidates through clinical testing and to
market.
We
can provide no assurance that our products will obtain regulatory approval or
that the results of clinical studies will be favorable.
In
February 2006, we received permission from the appropriate governmental agencies
in Israel, Mexico and Serbia to conduct Phase I clinical testing of ADXS11-001,
our Listeria -based
cancer vaccine that targets cervical cancer in women in those
countries. The study was completed in the fiscal quarter ended
January 31, 2008. The next step was to manufacture and test our
product for future sale or distribution in the U.S. which required a filing of
an IND with the FDA for our Phase II CIN trial. The filing was based on
information from the Phase I trial and other pre-clinical information. On
January 6, 2009 we received permission to conduct our clinical trial under this
IND from the FDA. However, even though we are allowed to conduct this
trial, as with any experimental agent, we are always at risk to be placed on
clinical hold by the FDA at any time as our product may have effects on humans
are not fully understood or documented. There can be delays in
obtaining FDA or any other necessary regulatory approvals of any proposed
product and failure to receive such approvals would have an adverse effect on
the product’s potential commercial success and on our business, prospects,
financial condition and results of operations. In addition, it is
possible that a product may be found to be ineffective or unsafe due to
conditions or facts which arise after development has been completed and
regulatory approvals have been obtained. In this event, we may be
required to withdraw such product from the market. To the extent that
our success will depend on any regulatory approvals from governmental
authorities outside of the U.S. that perform roles similar to that of the FDA,
uncertainties similar to those stated above will also exist.
21
We
rely upon patents to protect our technology. We may be unable to
protect our intellectual property rights and we may be liable for infringing the
intellectual property rights of others.
Our
ability to compete effectively will depend on our ability to maintain the
proprietary nature of our technologies, including the Listeria System, and the
proprietary technology of others with which we have entered into licensing
agreements. As of October 31, 2009 we have licensed 24 patents
that have been issued and licenses for 15 patents are pending from Penn filed in
some of the largest markets in the world and we are negotiating to enter into a
Second Amended and Restated Agreement with Penn for the rights to an additional
35 patents that Penn has applied for patents. Further, we rely on a
combination of trade secrets and nondisclosure, and other contractual agreements
and technical measures to protect our rights in the technology. We
depend upon confidentiality agreements with our officers, employees,
consultants, and subcontractors to maintain the proprietary nature of the
technology. These measures may not afford us sufficient or complete
protection, and others may independently develop technology similar to ours,
otherwise avoid the confidentiality agreements, or produce patents that would
materially and adversely affect our business, prospects, financial condition,
and results of operations. Such competitive events, technologies and
patents may limit our ability to raise funds, prevent other companies from
collaborating with us, and in certain cases prevent us from further developing
our technology due to third party patent blocking rights.
We
are aware of a private company, Anza Therapeutics, Inc (formerly Cerus
Corporation), which is no longer in existence, but had been developing Listeria
vaccines. We believe that through our exclusive license with Penn we
have earliest known and dominant patent position in the U.S. for the use of
recombinant Listeria
monocytogenes expressing proteins or tumor antigens as a vaccine for the
treatment of infectious diseases and tumors. We successfully defended
our intellectual property by contesting a challenge made by Anza to our patent
position in Europe on a claim not available in the U.S. The European
Patent Office, which we refer to as the EPO, Board of Appeals in Munich, Germany
has ruled in favor of The Trustees of Penn and its exclusive licensee Advaxis
and reversed a patent ruling that revoked a technology patent that had resulted
from an opposition filed by Anza. 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 method of preparation and composition of
matter of recombinant bacteria expressing tumor antigens for treatment of
patients with cancer. Based on searches of publicly available
databases, we do not believe that Anza or any other third party owns any
published Listeria
patents or has any issued patent claims that might materially and
adversely affect our ability to operate our business as currently
contemplated in the field of recombinant Listeria
monocytogenes. Additionally, our proprietary position that is the
issued patents and licenses for pending applications restricts anyone from using
plasmid based Listeria
constructs, or those that are bioengineered to deliver antigens fused to LLO,
ActA, or fragments of LLO or ActA.
We
are dependent upon our license agreement with Penn; if we fail to make payments
due and owing to Penn under our license agreement, our business will be
materially and adversely affected.
Although
we have obtained licenses with regard to the use of Penn’s patents as described
herein, we can provide no assurance that such licenses will not be terminated or
expire during critical periods, that we will be able to obtain licenses for
other rights which may be important to us, or, if obtained, that such licenses
will be obtained on commercially reasonable terms.
Pursuant
to an option contained in our existing license agreement with Penn, as amended,
we have been in negotiations with Penn since March 2007 to further amend and
restate the terms of the license agreement to acquire the rights to use an
additional 12 or more dockets (patentable research agents) under Penn’s
ownership which, as of October 31, 2009, have generated approximately 35
additional patent applications for Listeria and LLO-based
vaccine dockets. As a condition to our exercising this option and entering
into an amendment, we must, among other things, pay Penn a mutually agreeable
option exercise fee and reimburse Penn for all of its historically accrued
patent and licensing expenses relating to these patents (dockets), including
their legal and filing fees. As of October 31, 2009, such expenses
totaled approximately $548,105. Although the option exercise period
formally expired in June 2009, we remain in negotiations with Penn over the form
of payment and expect to reach a conclusion at the close of our next financial
raise. If we fail to acquire a license to use the additional dockets
and patent applications, our patent position may be materially and
adversely affected. In addition, as of October 31, 2009,
approximately $328,820 in fees and expense are due and owing to Penn by us under
our existing license agreement and other related agreements. While we consider
our relationship with Penn to be 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 agreement, 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.
22
If we are
unable to maintain and/or obtain licenses, we may have to develop alternatives
to avoid infringing on the patents of others, potentially causing increased
costs and delays in product development and introduction or precluding the
development, manufacture, or sale of planned products. Some of our licenses
provide for limited periods of exclusivity that require minimum license fees and
payments and/or may be extended only with the consent of the licensor. We can
provide no assurance that we will be able to meet these minimum license fees in
the future or that these third parties will grant extensions on any or all such
licenses. This same restriction may be contained in licenses obtained in the
future. Additionally, we can provide no assurance that the patents underlying
any licenses will be valid and enforceable. Furthermore, in 2001, an issue arose
regarding the inventorship of U.S. Patent 6,565,852 and U.S. Patent Application
No. 09/537,642. These patent rights are included in the patent rights licensed
by us from Penn. GlaxoSmithKline plc, Penn and we expect that the issue will be
resolved through a correction of inventorship to add certain GSK inventors,
where necessary and appropriate, an assignment of GSK’s possible rights under
these patent rights to Penn, and a sublicense from us to GSK of certain subject
matter, which is not central to our business plan. To date, this arrangement has
not been finalized and we cannot assure that this issue will ultimately be
resolved in the manner described above. To the extent any products developed by
us are based on licensed technology, royalty payments on the licenses will
reduce our gross profit from such product sales and may render the sales of such
products uneconomical.
We
have no manufacturing, sales, marketing or distribution capability and we must
rely upon third parties for such.
We do not
intend to create facilities to manufacture our products and therefore are
dependent upon third parties to do so. We currently have an agreement
with Cobra Manufacturing for production of our immunotherapies and vaccines for
research and development and testing purposes. Our reliance on third
parties for the manufacture of our products creates a dependency that could
severely disrupt our research and development, our clinical testing, and
ultimately our sales and marketing efforts if the source of such supply proves
to be unreliable or unavailable. If the contracted manufacturing
source is unreliable or unavailable, we may not be able to replace the
development of our product candidates, our clinical testing program may not be
able to go forward and our entire business plan could fail.
If
we are unable to establish or manage strategic collaborations in the future, our
revenue and product development may be limited.
Our
strategy includes eventual substantial reliance upon strategic collaborations
for marketing and commercialization of ADXS11-001, and we may rely even more on
strategic collaborations for research, development, marketing and
commercialization of our other product candidates. To date, we have
not entered into any strategic collaborations with third parties capable of
providing these services although we have been heavily reliant upon third party
outsourcing for our clinical trials execution. In addition, we have
not yet marketed or sold any of our product candidates or entered into
successful collaborations for these services in order to ultimately
commercialize our product candidates. Establishing strategic
collaborations is difficult and time-consuming. Our discussion with
potential collaborators may not lead to the establishment of collaborations on
favorable terms, if at all. For example, potential collaborators may
reject collaborations based upon their assessment of our financial, regulatory
or intellectual property position. If we successfully establish new
collaborations, these relationships may never result in the successful
development or commercialization of our product candidates or the generation of
sales revenue. To the extent that we enter into co-promotion or other
collaborative arrangements, our product revenues are likely to be lower than if
we directly marketed and sold any products that we may develop.
Management
of our relationships with our collaborators will require:
|
|
·
|
significant
time and effort from our management
team;
|
|
|
·
|
coordination
of our research and development programs with the research and development
priorities of our collaborators;
and
|
|
|
·
|
effective
allocation of our resources to multiple
projects.
|
If we
continue to enter into research and development collaborations at the early
phases of product development, our success will in part depend on the
performance of our corporate collaborators. We will not directly
control the amount or timing of resources devoted by our corporate collaborators
to activities related to our product candidates. Our corporate
collaborators may not commit sufficient resources to our research and
development programs or the commercialization, marketing or distribution of our
product candidates. If any corporate collaborator fails to commit
sufficient resources, our preclinical or clinical development programs related
to this collaboration could be delayed or terminated. Also, our
collaborators may pursue existing or other development-stage products or
alternative technologies in preference to those being developed in collaboration
with us. Finally, if we fail to make required milestone or royalty
payments to our collaborators or to observe other obligations in our agreements
with them, our collaborators may have the right to terminate those
agreements.
We may incur
substantial liabilities from any product liability claims if our insurance
coverage for those claims is inadequate.
We face
an inherent risk of product liability exposure related to the testing of our
product candidates in human clinical trials, and will face an even greater risk
if the product candidates are sold commercially. An individual may
bring a liability claim against us if one of the product candidates causes, or
merely appears to have caused, an injury. If we cannot successfully
defend ourselves against the product liability claim, we will incur substantial
liabilities. Regardless of merit or eventual outcome, liability
claims may result in:
|
|
·
|
decreased
demand for our product candidates;
|
23
|
|
·
|
damage
to our reputation;
|
|
|
·
|
withdrawal
of clinical trial participants;
|
|
|
·
|
costs
of related litigation;
|
|
|
·
|
substantial
monetary awards to patients or other
claimants;
|
|
|
·
|
loss
of revenues;
|
|
|
·
|
the
inability to commercialize product candidates;
and
|
|
|
·
|
increased
difficulty in raising required additional funds in the private and public
capital markets.
|
We have
insurance coverage on our Phase II CIN and cervical cancer trials for each
clinical trial site. We do not have product liability insurance
because we do not have products on the market. We currently are in
the process of obtaining insurance coverage and to expand such coverage to
include the sale of commercial products if marketing approval is obtained for
any of our product candidates. However, insurance coverage is
increasingly expensive and we may not be able to maintain insurance coverage at
a reasonable cost and we may not be able to obtain insurance coverage that will
be adequate to satisfy any liability that may arise.
We
may incur significant costs complying with environmental laws and
regulations.
We and
our contracted third parties will use hazardous materials, including chemicals
and biological agents and compounds that could be dangerous to human health and
safety or the environment. As appropriate, we will store these
materials and wastes resulting from their use at our or our outsourced
laboratory facility pending their ultimate use or disposal. We will
contract with a third party to properly dispose of these materials and
wastes. We will be subject to a variety of federal, state and local
laws and regulations governing the use, generation, manufacture, storage,
handling and disposal of these materials and wastes. We may also
incur significant costs complying with environmental laws and regulations
adopted in the future.
If
we use biological and hazardous materials in a manner that causes injury, we may
be liable for damages.
Our
research and development and manufacturing activities will involve the use of
biological and hazardous materials. Although we believe our safety
procedures for handling and disposing of these materials will comply with
federal, state and local laws and regulations, we cannot entirely eliminate the
risk of accidental injury or contamination from the use, storage, handling or
disposal of these materials. We do not carry specific biological or
hazardous waste insurance coverage, workers compensation or property and
casualty and general liability insurance policies which include coverage for
damages and fines arising from biological or hazardous waste exposure or
contamination. Accordingly, in the event of contamination or injury,
we could be held liable for damages or penalized with fines in an amount
exceeding our resources, and our clinical trials or regulatory approvals could
be suspended or terminated.
We need to
attract and retain highly skilled personnel; we may be unable to effectively
manage growth with our limited resources.
As of
October 31, 2009, we had eight employees. We do not intend to
significantly expand our operations and staff unless we get adequate
financing. If funded then our new employees may include key
managerial, technical, financial, research and development and operations
personnel who will not have been fully integrated into our
operations. We will be required to expand our operational and
financial systems significantly and to expand, train and manage our work force
in order to manage the expansion of our operations. Our failure to
fully integrate any new employees into our operations could have a material
adverse effect on our business, prospects, financial condition and results of
operations.
As of
January 1, 2009, we operate under an agreement with AlphaStaff, a professional
employment organization that provides us with payroll and human resources
services. Our ability to attract and retain highly skilled personnel
is critical to our operations and expansion. We face competition for
these types of personnel from other technology companies and more established
organizations, many of which have significantly larger operations and greater
financial, technical, human and other resources than we have. We may
not be successful in attracting and retaining qualified personnel on a timely
basis, on competitive terms, or at all. If we are not successful in
attracting and retaining these personnel, our business, prospects, financial
condition and results of operations will be materially adversely
affected. In such circumstances we may be unable to conduct certain
research and development programs, unable to adequately manage our clinical
trials and other products, and unable to adequately address our management
needs. As of the pay period ending January 4, 2009 we reduced the
salary of the highly compensated employees to meet our economic challenges and
our cash flow needs. As of October 31, 2009 substantially all of the
back pay and reduced pay was restored.
24
We
depend upon our senior management and key consultants and their loss or
unavailability could put us at a competitive disadvantage.
We depend
upon the efforts and abilities of our senior executives, as well as the services
of several key consultants, including Yvonne Paterson, Ph.D. The loss
or unavailability of the services of any of these individuals for any
significant period of time could have a material adverse effect on our business,
prospects, financial condition and results of operations. We have not
obtained, do not own, nor are we the beneficiary of, key-person life
insurance.
Risks
Related to the Biotechnology / Biopharmaceutical Industry
The
biotechnology and biopharmaceutical industries are characterized by rapid
technological developments and a high degree of competition. We may
be unable to compete with more substantial enterprises.
The
biotechnology and biopharmaceutical industries are characterized by rapid
technological developments and a high degree of
competition. Competition in the biopharmaceutical industry is based
significantly on scientific and technological factors. These factors
include the availability of patent and other protection for technology and
products, the ability to commercialize technological developments and the
ability to obtain governmental approval for testing, manufacturing and
marketing. We compete with specialized biopharmaceutical firms in the
U.S., Europe and elsewhere, as well as a growing number of large pharmaceutical
companies that are applying biotechnology to their operations. Many
biopharmaceutical companies have focused their development efforts in the human
therapeutics area, including cancer. Many major pharmaceutical
companies have developed or acquired internal biotechnology capabilities or made
commercial arrangements with other biopharmaceutical companies. These
companies, as well as academic institutions and governmental agencies and
private research organizations, also compete with us in recruiting and retaining
highly qualified scientific personnel and consultants. Our ability to
compete successfully with other companies in the pharmaceutical field will also
depend to a considerable degree on the continuing availability of capital to
us.
We are
aware of certain products under development or manufactured by competitors that
are used for the prevention, diagnosis, or treatment of certain diseases we have
targeted for product development. Various companies are developing
biopharmaceutical products that potentially directly compete with our product
candidates even though their approach to such treatment is
different. Several companies, such as Anza Therapeutics, Inc in
particular, as well as Biosante Pharmaceuticals Inc., Antigenics,
Inc., Avi BioPharma, Inc., Biomira, Inc., Biovest International, Dendreon
Corporation, Pharmexa-Epimmune, Inc., Genzyme Corp., Progenics Pharmaceuticals,
Inc., Vical Incorporated, and other firms with more resources than we
have are currently developing or testing immune therapeutic agents in the same
indications we are targeting.
We expect
that our products under development and in clinical trials will address major
markets within the cancer sector with a superior technology that is both safer
and more effective than our competitors. Our competition will be
determined in part by the potential indications for which drugs are developed
and ultimately approved by regulatory authorities. Additionally, the
timing of market introduction of some of our potential products or of
competitors’ products may be an important competitive
factor. Accordingly, the relative speed with which we can develop
products, complete preclinical testing, clinical trials and approval processes
and supply commercial quantities to market is expected to be important
competitive factors. We expect that competition among products
approved for sale will be based on various factors, including product efficacy,
safety, reliability, availability, price and patent position.
Risks
Related to the Securities Markets and Investments in our Common
Stock
The
price of our common stock may be volatile.
The
trading price of our common stock may fluctuate substantially. The
price of our common stock that will prevail in the market after the sale of the
shares of common stock by the selling stockholders may be higher or lower than
the price you have paid, depending on many factors, some of which are beyond our
control and may not be related to our operating performance. These
fluctuations could cause you to lose part or all of your investment in our
common stock. Those factors that could cause fluctuations include,
but are not limited to, the following:
|
|
·
|
price
and volume fluctuations in the overall stock market from time to
time;
|
|
|
·
|
fluctuations
in stock market prices and trading volumes of similar
companies;
|
|
|
·
|
actual
or anticipated changes in our net loss or fluctuations in our operating
results or in the expectations of securities
analysts;
|
|
|
·
|
the
issuance of new equity securities pursuant to a future offering, including
issuances of preferred stock pursuant to the Optimus purchase
agreement;
|
|
|
·
|
general
economic conditions and trends;
|
25
|
|
·
|
major
catastrophic events;
|
|
|
·
|
sales
of large blocks of our stock;
|
|
|
·
|
significant
dilution caused by the anti-dilutive clauses in our financial
agreements;
|
|
|
·
|
departures
of key personnel;
|
|
|
·
|
changes
in the regulatory status of our product candidates, including results of
our clinical trials;
|
|
|
·
|
events
affecting Penn or any future
collaborators;
|
|
|
·
|
announcements
of new products or technologies, commercial relationships or other events
by us or our competitors;
|
|
|
·
|
regulatory
developments in the U.S. and other
countries;
|
|
|
·
|
failure
of our common stock to be listed or quoted on the Nasdaq Stock Market,
NYSE Amex Equities or other national market
system;
|
|
|
·
|
changes
in accounting principles; and
|
|
|
·
|
discussion
of us or our stock price by the financial and scientific press and in
online investor communities.
|
|
|
·
|
Inability
of the accounting professional to keep up with the complex rules resulting
from numerous financial
instruments.
|
In the
past, following periods of volatility in the market price of a company’s
securities, securities class action litigation has often been brought against
that company. Due to the potential volatility of our stock price, we
may therefore be the target of securities litigation in the
future. Securities litigation could result in substantial costs and
divert management’s attention and resources from our business.
You
may have difficulty selling our shares because they are deemed “penny
stocks.”
Our
common stock is deemed to be “penny stock” as that term is defined in Rule
3a51-1, promulgated under the Exchange Act. Penny stocks are,
generally, stocks:
|
|
·
|
with
a price of less than $5.00 per
share;
|
|
|
·
|
that
are neither traded on a “recognized” national exchange nor listed on an
automated quotation system sponsored by a registered national securities
association meeting certain minimum initial listing standards;
and
|
|
|
·
|
of
issuers with net tangible assets less than $2.0 million (if the issuer has
been in continuous operation for at least three years) or $5.0 million (if
in continuous operation for less than three years), or with average
revenue of less than $6.0 million for the last three
years.
|
Section
15(g) of the Exchange Act and Rule 15g-2 promulgated thereunder require
broker-dealers dealing in penny stocks to provide potential investors with a
document disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document before effecting any transaction in a
“penny stock” for the investor’s account. We urge potential investors
to obtain and read this disclosure carefully before purchasing any shares that
are deemed to be “penny stock.”
Rule
15g-9 promulgated under the Exchange Act requires broker-dealers in penny stocks
to approve the account of any investor for transactions in such stocks before
selling any “penny stock” to that investor. This procedure requires
the broker-dealer to:
|
|
·
|
obtain
from the investor information about his or her financial situation,
investment experience and investment
objectives;
|
|
|
·
|
reasonably
determine, based on that information, that transactions in penny stocks
are suitable for the investor and that the investor has enough knowledge
and experience to be able to evaluate the risks of “penny stock”
transactions;
|
|
|
·
|
provide
the investor with a written statement setting forth the basis on which the
broker-dealer made his or her determination;
and
|
|
|
·
|
receive
a signed and dated copy of the statement from the investor, confirming
that it accurately reflects the investor’s financial situation, investment
experience and investment
objectives.
|
26
Compliance
with these requirements may make it harder for investors in our common stock to
resell their shares to third parties. Accordingly, our common stock
should only be purchased by investors, who understand that such investment is a
long-term and illiquid investment, and are capable of and prepared to bear the
risk of holding our common stock for an indefinite period of time.
A limited public
trading market may cause volatility in the price of our common
stock.
Our
common stock began trading on the OTC Bulletin Board on July 28, 2005 and is
quoted under the symbol ADXS.OB. The quotation of our common stock on
the OTC Bulletin Board does not assure that a meaningful, consistent and liquid
trading market currently exists, and in recent years such market has experienced
extreme price and volume fluctuations that have particularly affected the market
prices of many smaller companies like us. Our common stock is thus
subject to this volatility. Sales of substantial amounts of common
stock, or the perception that such sales might occur, could adversely affect
prevailing market prices of our common stock and our stock price may decline
substantially in a short time and our stockholders could suffer losses or be
unable to liquidate their holdings. Also there are large blocks of
restricted stock that have met the holding requirements under Rule 144 that can
be unrestricted and sold. Our stock is thinly traded due to the
limited number of shares available for trading on the market thus causing large
swings in price.
There
is no assurance of an established public trading market.
A regular
trading market for our common stock may not be sustained in the
future. The effect on the OTC Bulletin Board of these rule changes
and other proposed changes cannot be determined at this time. The OTC
Bulletin Board is an inter-dealer, over-the-counter market that provides
significantly less liquidity than the Nasdaq Stock Market. Quotes for
stocks included on the OTC Bulletin Board are not listed in the financial
sections of newspapers. As such, investors and potential investors may find it
difficult to obtain accurate stock price quotations, and holders of our common
stock may be unable to resell their securities at or near their original
offering price or at any price. Market prices for our common stock
will be influenced by a number of factors, including:
|
|
·
|
the
issuance of new equity securities pursuant to a future offering, including
issuances of preferred stock pursuant to the Optimus purchase
agreement;
|
|
|
·
|
changes
in interest rates;
|
|
|
·
|
significant
dilution caused by the anti-dilutive clauses in our financial
agreements;
|
|
|
·
|
competitive
developments, including announcements by competitors of new products or
services or significant contracts, acquisitions, strategic partnerships,
joint ventures or capital
commitments;
|
|
|
·
|
variations
in quarterly operating results;
|
|
|
·
|
change
in financial estimates by securities
analysts;
|
|
|
·
|
the
depth and liquidity of the market for our common
stock;
|
|
|
·
|
investor
perceptions of our company and the technologies industries generally;
and
|
|
|
·
|
general
economic and other national
conditions.
|
We
may not be able to achieve secondary trading of our stock in certain states
because our common stock is not nationally traded.
Because
our common stock is not listed for trading on a national securities exchange,
our common stock is subject to the securities laws of the various states and
jurisdictions of the U.S. in addition to federal securities law. This
regulation covers any primary offering we might attempt and all secondary
trading by our stockholders. If we fail to take appropriate steps to
register our common stock or qualify for exemptions for our common stock in
certain states or jurisdictions of the U.S., the investors in those
jurisdictions where we have not taken such steps may not be allowed to purchase
our stock or those who presently hold our stock may not be able to resell their
shares without substantial effort and expense. These restrictions and
potential costs could be significant burdens on our stockholders.
If
we fail to remain current on our reporting requirements, we could be removed
from the OTC Bulletin Board, which would limit the ability of broker-dealers to
sell our securities and the ability of stockholders to sell their securities in
the secondary market.
Companies
trading on the OTC Bulletin Board, such as us, must be reporting issuers under
Section 12 of the Exchange Act, as amended, and must be current in their reports
under Section 13, in order to maintain price quotation privileges on the OTC
Bulletin Board. For our third quarter 2009 we were unable to file our
quarterly report on Form 10-Q in a timely manner, but we were able to make the
filing and cure our compliance deficiency with the OTC Bulletin Board within the
grace period allowed by the OTC Bulletin Board. If we fail to remain
current on our reporting requirements, we could be removed from the OTC Bulletin
Board. As a result, the market liquidity for our securities could be
severely adversely affected by limiting the ability of broker-dealers to sell
our securities and the ability of stockholders to sell their securities in the
secondary market.
27
Our
internal control over financial reporting and our disclosure controls and
procedures have been ineffective, and failure to improve them could lead to
errors in our financial statements that could require a restatement or untimely
filings, which could cause investors to lose confidence in our reported
financial information, and a decline in our stock price.
Our chief
executive officer and chief financial officer, after evaluating the
effectiveness of our “disclosure controls and procedures”, as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e), as of the end of
the twelve month period ended October 31, 2009, concluded that as of
October 31, 2009, our internal controls over financial reporting 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 is
made known to management, including 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.
In
addition, our management assessed the effectiveness of our internal control over
financial reporting as of October 31, 2009 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 October 31, 2009, there were material weaknesses in our internal control
over financial reporting. For example, during the review of the
financial statements for the three month period ended July 31, 2009, it was
determined that our initial presentation and accounting of certain of our
convertible debt and warrants in our financial statements was not correct. In
light of this material weakness, we concluded that we did not maintain effective
internal control over financial reporting as of July 31, 2009. Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting for us. 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 revised our financial
statements for the three month period ended July 31, 2009, prior to filing our
quarterly report on Form 10-Q for the period ended July 31, 2009, but cannot
offer assurances that we will not have additional material
weaknesses. While we have taken steps to improve our internal
controls and procedures, there may continue to be material weaknesses or
deficiencies in our internal controls or ineffectiveness of our disclosure
controls and procedures. As a result of the material weakness in our internal
controls and the ineffectiveness of our disclosure controls and procedures as of
October 31, 2009, current and potential stockholders could lose confidence in
our financial reporting, which would harm our business and the trading price of
our stock.
We
may be exposed to potential risks resulting from new requirements under
Section 404 of the Sarbanes-Oxley Act of 2002.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our fiscal year
ended October 31, 2008, we were required to include in our annual report our
assessment of the effectiveness of our internal control over financial
reporting. Furthermore, beginning with our fiscal year ending October
31, 2010, our independent registered public accounting firm will be required to
attest to whether our assessment of the effectiveness of our internal control
over financial reporting is fairly stated in all material respects and
separately report on whether it believes we have maintained, in all material
respects, effective internal control over financial reporting for our fiscal
year then ending and for each fiscal year thereafter. Although we
have completed our assessment of the effectiveness of our internal control over
financial reporting, we expect to incur additional expenses and diversion of
management’s time as a result of performing the system and process evaluation,
testing and remediation required in order for us and our auditors to comply with
the auditor attestation requirements.
Our
executive officers and directors can exert significant influence over us and may
make decisions that do not always coincide with the interests of other
stockholders.
Our
officers and directors, and their affiliates, in the aggregate, beneficially
own, as of January 27, 2010, 17.2% of the outstanding shares of our common
stock. As a result, such persons, acting together, have the ability
to substantially influence all matters submitted to our stockholders for
approval, including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets, and to control
our management and affairs. Accordingly, such concentration of
ownership may have the effect of delaying, deferring or preventing a change in
or discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of our business, even if such a transaction would
be beneficial to other stockholders.
Sales
of additional equity securities may adversely affect the market price of our
common stock and your rights in us may be reduced.
We expect
to continue to incur product development and selling, general and administrative
costs, and to satisfy our funding requirements, we will need to sell additional
equity securities, which may be subject to registration rights and warrants with
anti-dilutive protective provisions. The sale or the proposed sale of
substantial amounts of our common stock in the public markets may adversely
affect the market price of our common stock and our stock price may decline
substantially. Our stockholders may experience substantial dilution
and a reduction in the price that they are able to obtain upon sale of their
shares. Also, new equity securities issued may have greater rights,
preferences or privileges than our existing common stock.
28
Additional
authorized shares of common stock available for issuance may adversely affect
the market.
We are
authorized to issue 500,000,000 shares of our common stock. As of
January 27, 2010, we had 127,201,243 shares of our common stock issued and
outstanding, excluding shares issuable upon exercise of our outstanding warrants
and options. As of October 31, 2009, we had outstanding options to
purchase 18,331,591 shares of our common stock at a weighted average exercise
price of $0.16 per share and outstanding warrants to purchase 127,456,301 shares
of our common stock, with exercise prices ranging from $0.17 to $0.29 per
share. To the extent the shares of common stock are issued or options
and warrants are exercised, holders of our common stock will experience
dilution. In addition, in the event of any future financing of equity
securities or securities convertible into or exchangeable for, common stock,
holders of our common stock may experience dilution. Moreover,
warrants to purchase up to approximately 73.0 million shares of our common stock
are subject to “full ratchet” anti-dilution protection upon certain equity
issuances below $0.17 per share (as may be further adjusted).
We
are able to issue shares of preferred stock with rights superior to those of
holders of our common stock. Such issuances can dilute the tangible
net book value of shares of our common stock.
Our
Certification of Incorporation provides for the authorization of 5,000,000
shares of “blank check” preferred stock. Pursuant to our Certificate
of Incorporation, our board of directors is authorized to issue such “blank
check” preferred stock with rights that are superior to the rights of
stockholders of our common stock, at a purchase price then approved by our board
of directors, which purchase price may be substantially lower than the market
price of shares of our common stock, without stockholder
approval. Such issuances can dilute the tangible net book value of
shares of our common stock. Pursuant to the Optimus purchase agreement, Optimus
has agreed to purchase up to 500 shares of our Series A preferred stock at a
purchase price of $10,000 per share from time to time until September 24, 2012
($5.0 million in the aggregate), subject to certain conditions. As of
January 20, 2010, Optimus has purchased 145 shares.
We
do not intend to pay dividends other than to holders of our Series A preferred
stock.
We
do not intend to pay dividends other than to holders of our Series A preferred
stock. Holders of Series A preferred stock will be entitled to
receive dividends, which will accrue in shares of Series A preferred stock on an
annual basis at a rate equal to 10% per annum from the issuance date. Accrued
dividends will be payable upon redemption of the Series A preferred
stock.
Item
2. Properties.
Our
corporate offices are currently located at a biotech industrial park located at
675 U.S. Highway 1, North Brunswick, NJ 08902. Our current Lease
Amendment Agreement dated as of March 1, 2008 with the NJEDA has expired, but
they have agreed to extend our lease on a monthly basis until December 31, 2010,
for two research and development laboratory units (total of 1,600 s.f.) and one
office (total of 655 s.f.). We believe our facility will be
sufficient for our near term purposes and the facility offers additional space
for the foreseeable future. Our monthly payment on this facility is
approximately $6,286 per month. In the event that our facility
should, for any reason, become unavailable, we believe that alternative
facilities are available at competitive rates.
Item 3. Legal
Proceedings.
As of the
date hereof, there are no material pending legal proceedings to which we are a
party or of which any of our property is the subject. In the ordinary
course of our business we may become subject to litigation regarding our
products or our compliance with applicable laws, rules, and
regulations.
Item
4. Submission
of Matters to a Vote of Security Holders.
None.
PART
II
Item
5. Market
For Our Common Stock and Related Stockholder Matters.
Since
July 28, 2005, our common stock has been quoted on the OTC Bulletin Board under
the symbol ADXS.OB. The following table shows, for the periods
indicated, the high and low bid prices per share of our common stock as reported
by the OTC Bulletin Board. These bid prices represent prices quoted
by broker-dealers on the OTC Bulletin Board. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions, and may
not represent actual transactions.
29
|
Fiscal 2009
|
Fiscal 2008
|
|||||||||||||||
|
High
|
Low
|
High
|
Low
|
|||||||||||||
|
First
Quarter (November 1-January 31)
|
$
|
0.06
|
$
|
0.01
|
$
|
0.20
|
$
|
0.13
|
||||||||
|
Second
Quarter (February 1- April 30)
|
$
|
0.05
|
$
|
0.02
|
$
|
0.15
|
$
|
0.09
|
||||||||
|
Third
Quarter (May 1 - July 31)
|
$
|
0.21
|
$
|
0.04
|
$
|
0.135
|
$
|
0.058
|
||||||||
|
Fourth
Quarter (August 1 - October 31)
|
$
|
0.19
|
$
|
0.06
|
$
|
0.07
|
$
|
0.03
|
||||||||
As
of January 27, 2010, there were approximately 100 stockholders of
record. Because shares of our common stock are held by depositaries,
brokers and other nominees, the number of beneficial holders of our shares is
substantially larger than the number of stockholders of record. Based on
information available to us, we believe there are approximately 1,700
non-objecting beneficial owners of our shares of our common stock in addition to
the stockholders of record.
We have
not declared or paid any cash dividends on our common stock, and we do not
anticipate declaring or paying cash dividends for the foreseeable future. We are
not subject to any legal restrictions respecting the payment of dividends,
except that we may not pay dividends if the payment would render us
insolvent. Any future determination as to the payment of dividends on
our common stock will be at our board of directors’ discretion and will depend
on our financial condition, operating results, capital requirements and other
factors that our board of directors considers to be relevant.
Holders
of Series A preferred stock will be entitled to receive dividends, which will
accrue in shares of Series A preferred stock on an annual basis at a rate equal
to 10% per annum from the issuance date. Accrued dividends will be payable upon
redemption of the Series A preferred stock. The Series A preferred stock ranks,
with respect to dividend rights and rights upon liquidation:
|
·
|
senior to our common stock;
and
|
|
·
|
junior to all of our existing and
future indebtedness
|
Equity
Compensation Plan Information
The
following table provides information regarding the status of our existing equity
compensation plans at October 31, 2009:
|
Plan category
|
Number of shares of
common stock to be
issued on exercise of
outstanding options,
warrants and rights
|
Weighted-
average
exercise price
of outstanding
options,
warrants and
rights
|
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in the
previous columns)
|
|||||||||
|
Equity
compensation plans approved by security holders
|
7,680,192 | $ | 0.22 | 301,333 | ||||||||
|
Equity
compensation plans not approved by security holders
|
10,651,399 | $ | 0.10 | 3,350,000 | ||||||||
|
Total
|
18,331,591 | $ | 0.16 | 3,651,333 | ||||||||
ITEM
6. Selected
Financial Data.
Not
required.
ITEM 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
This
Management’s Discussion and Analysis of Financial Conditions and Results of
Operations and other portions of this report contain forward-looking information
that involves risks and uncertainties. Our actual results could
differ materially from those anticipated by the forward-looking
information. Factors that may cause such differences include, but are
not limited to, availability and cost of financial resources, product demand,
market acceptance and other factors discussed in this report under the heading
“Risk Factors”. This Management’s Discussion and Analysis of
Financial Conditions and Results of Operations should be read in
conjunction with our financial statements and the related notes included
elsewhere in this report.
30
Overview
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 Penn which can be engineered to secrete a variety of
different protein sequences containing tumor-specific antigens leading to
the development of a variety of different products. We believe this vaccine
technology is capable of stimulating the body’s immune system to process and
recognize the antigen that has a therapeutic effect upon 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. This
technology involves the creation of genetically engineered Listeria that stimulate the
innate immune system and induce an antigen-specific immune response involving
both arms of the adaptive immune system. In addition, this technology
supports, among other things, the immune response by altering tumors to make
them more susceptible to immune attack, stimulating the development of specific
blood cells that underlie a strong therapeutic immune response.
We have
no customers. Since our inception in 2002, we have focused our
development efforts upon understanding our technology and establishing a product
development pipeline that incorporates this technology in the therapeutic cancer
vaccines area targeting cervical, head and neck, prostate, breast, and a pre
cancerous indication of CIN. Although no products have been commercialized to
date, research and development and investment continues to be placed behind the
pipeline and the advancement of this technology. Pipeline development and the
further exploration of the technology for advancement entail risk and expense.
We anticipate that our ongoing operational costs will increase significantly
when we begin several of our clinical trials.
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 $5,809,571 worth of grants applied for, we were
awarded one grant from the NIH in August 2009 for $210,739.
On
January 15, 2010 we received $278,978 from the New Jersey Economic Development
Authority. Under the State of New Jersey Program for small business
we received this cash amount from the sale of our State Net Operating Losses
through December 31, 2008 and our research tax credit for fiscal years 2007 and
2008.
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. If we fail to raise a significant amount of
capital, we may need to significantly curtail operations or cease operations in
the near future. Any sale of our common stock below $0.17 per share
(as may be further adjusted) will trigger a significant dilution due to the
anti-dilution protection provisions in certain of our outstanding warrants and
debt instruments.
Plan
of Operations
If we are
successful in our financing plans we intend to use a significant portion of the
proceeds currently under way to conduct our two Phase II trials using
ADXS11-001, our lead product candidate in development using our Listeria
System. One will be a U.S. study in CIN, the other, the other, an
Indian study in cervical cancer. We also anticipate using the funds to further
our pre-clinical and clinical, research and development efforts in developing
product candidates and to maintain our preclinical capabilities and strategic
activities. Our corporate staff will be responsible for the general
and administrative activities.
During
the next 24 months, our strategic focus will be to achieve the following goals
and objectives:
|
·
|
Continue
to raise funding to recruit patients in our U.S. based Phase II clinical
study of ADXS11-001 in the therapeutic treatment of CIN and our Indian
based Phase II study in late stage cervical
cancer;
|
|
·
|
Continue
to execute our two Phase II clinical studies of ADXS11-001 in the
therapeutic treatment of CIN and late-stage cervical cancer managed by our
clinical partner Numoda;
|
31
|
·
|
Continue
to work on our grant from the NIH awarded in August 2009 for $210,000 to
develop a single bioengineered Listeria monocytogenes (Lm)
vaccine to deliver two different antigen-adjuvant
proteins.
|
|
·
|
Continue
to focus on our collaboration with the GOG to carry out our Phase II
clinical trial of our ADXS11-001 candidate in the treatment of cervical
cancer largely underwritten by the
NCI;
|
|
·
|
Continue
to focus on our collaboration with the CRUK to carry out our Phase II
clinical trial of our ADXS11-001 candidate in the treatment of head and
neck cancer largely underwritten by the
CRUK;
|
|
·
|
Continue
to work with our strategic and development collaborations with academic
laboratories;
|
|
·
|
Continue
the development work necessary to bring ADXS31-142 in the therapeutic
treatment of prostate cancer into clinical trials, and initiate that trial
provided that funding is available;
|
|
·
|
Continue
the development work necessary to bring ADXS31-164 in the therapeutic
treatment of breast cancer into clinical trials, and initiate that trial
when and if funding is available;
and
|
|
·
|
Continue
the pre-clinical development of other product candidates, as well as
continue research to expand our technology
platform.
|
Our
projected annual staff, overhead and preclinical expenses are estimated to be
approximately $4.1 million starting in fiscal year beginning November 1,
2009. The cost of our Phase II clinical studies in therapeutic
treatment of CIN and late stage cancer of the cervix is estimated to be
approximately $8.0 million over the estimated 30 month period of the
trial. Therefore we must raise additional funds in order to fund the
entire Phase II trials. Our Phase II ADXS11-001 clinical studies are
anticipated to commence in February 2010. If we can raise additional
funds we intend to commence the clinical work in prostate cancer by late 2010 or
beyond and breast cancer by 2011 or beyond. The timing and
estimated costs of these projects are difficult to predict and depends on
factors such as our ability to raise funds and enter into a corporate
partnership.
Overall,
given the development stage of our business, our financial needs are driven, in
large part, by the progress of our clinical trials and those of the GOG and CRUK
as well as preclinical programs. The cost of these clinical trial
projects is significant. As a result, we will are currently
attempting to raise additional debt or equity now and in the
future. If the clinical progress continues to be successful and the
value of our company increases, we may attempt to accelerate the timing of the
required financing and, conversely if the trial or trials are not successful we
may slow our spending and the timing of additional financing will be
deferred. While we will attempt to attract a corporate partnership
and grants, we have not assumed the receipt of any additional financial
resources in our cash planning.
We
anticipate that our research and development expenses will increase
significantly as a result of our expanded development and commercialization
efforts related to clinical trials, product development, and development of
strategic and other relationships required ultimately for the licensing,
manufacture and distribution of our product candidates. We regard
three of our product candidates as major research and development
projects. The timing, costs and uncertainties of those projects are
as follows:
ADXS11-001 - Phase II CIN
Trial Summary Information (U.S. 80 Patients)
|
·
|
Cost
incurred to date: approximately $1.1
million
|
|
·
|
Estimated
future clinical costs: $5.7 million to $6.0
million
|
|
·
|
Anticipated
Timing: start February 2010; completion August 2012 or
beyond
|
Uncertainties:
|
·
|
The
FDA (or relevant foreign regulatory authority) may place the project on
clinical hold or stop the project;
|
|
·
|
One
or more serious adverse events in otherwise healthy patients enrolled in
the trial;
|
|
·
|
Difficulty
in recruiting patients;
|
|
·
|
Delays
in the program;
|
|
·
|
Material
cash flows; and
|
32
|
·
|
Anticipated
Timing: Unknown at this stage and dependent upon successful trials,
adequate fund raising, entering a licensing deal or pursuant to a
marketing collaboration subject to regulatory approval to market and sell
the product.
|
ADXS11-001 - Phase II Cancer
of the Cervix Trial Summary Information (India: 110
Patients)
|
·
|
Cost
incurred to date: approximately
$101,650
|
|
·
|
Estimated
future clinical costs: $2.1 million to $2.3
million
|
|
·
|
Anticipated
Timing: start February 2010; completion August 2012 or
beyond
|
Additional
Uncertainties:
|
·
|
One
or more serious adverse events in these late stage cancer patients
enrolled in the trial; and
|
|
·
|
Difficulty
in recruiting patients especially in a new
country.
|
ADXS11-001 - Phase II Cancer
of the Cervix Trial Summary Information (U.S. GOG/NCI: 63
Patients)
|
·
|
Cost
incurred to date: less than $10,000
|
|
·
|
Estimated
future clinical costs: $500,000 (Government absorbed cost $2.5 million to
$3.0 million)
|
|
·
|
Anticipated
Timing: to be determined
|
Additional
Uncertainties:
|
·
|
Unknown
timing in recruiting patients and conducting the study based on GOG/NCI
controlled study;
|
|
·
|
Delays
in the program; and
|
|
·
|
Given
the economic environment the trial may not get
funded.
|
ADXS11-001 - Phase II Cancer
of the Head and Neck Trial Summary Information (U.K. CRUK: approximately
45 Patients)
|
·
|
Cost
incurred to date: less than $25,000
|
|
·
|
Estimated
future clinical costs: $500,000 (CRUK to absorb cost $2.5 million to $3.0
million)
|
|
·
|
Anticipated
Timing: to be determined
|
Additional
Uncertainties:
|
·
|
Unknown
timing in recruiting patients and conducting the study based on CRUK
controlled study;
|
|
·
|
Delays
in the program; and
|
|
·
|
Given
the economic environment the trial may not get
funded.
|
ADXS31-142 - Pre Clinical
and Phase I Trial Summary Information (TBD Prostate Cancer 30
Patients)
|
·
|
Cost
incurred to date: approximately
$200,000
|
|
·
|
Estimated
future costs: $3.0 million to $3.5
million
|
|
·
|
Anticipated
Timing: to be determined
|
Additional
Uncertainties:
|
·
|
New
agent; and
|
33
|
·
|
FDA
(or foreign regulatory authority) may not approve the
study.
|
ADXS31-164 - Phase I trial
Summary Information (TBD Breast Cancer 24 Patients)
|
·
|
Cost
incurred to date: $450,000
|
|
·
|
Estimated
future costs: $3.0 million to $3.5
million
|
|
·
|
Anticipated
Timing: to be determined
|
Results
of Operations
Fiscal
Year 2009 Compared to Fiscal Year 2008
Revenue. Our revenue
decreased by $36,046, or 55%, to $29,690 for the year ended October 31, 2009
(“Fiscal 2009 Period”) as compared with $65,736 for the year ended October 31,
2008 (“Fiscal 2008 Period”) due to a grant from the State of New Jersey
received in the Fiscal 2008 Period not being repeated in Fiscal 2009 Period in
addition to the State’s request to refund $5,769 in Fiscal 2009 Period in
residual grant money received in the prior fiscal year. These decreases were
partially offset in the Fiscal 2009 Period by $35,059 revenue received for a NIH
grant.
Research and Development
Expenses. Research and development expenses decreased by $166,283 or 7%,
to $2,315,557 for the Fiscal 2009 Period as compared with $2,481,840 for the
Fiscal 2008 Period, principally attributable to the following:
|
·
|
Clinical
trial expenses increased by $866,111, or 304%, to $1,150,880 from $284,769
primarily due to the close out of our Phase I trial in the Fiscal
2008 Period which was offset by the start-up costs of our phase II
cervical cancer study in India and CIN study in the US both in the Fiscal
2009 Period.
|
|
·
|
Wages,
options and lab costs decreased by $215,180 or 18% to $969,639 from
$1,184,819 principally due to the recording of the full year’s bonus
accrual in Fiscal 2008 Period that was reversed in Fiscal 2009 Period or
$279,558. No bonus accrual was recorded nor paid in Fiscal 2009 Period.
Overall the lab costs were lower by $80,387due to the priority given to
the lower cost of grant and publication writing. These lower costs were
partially offset by $120,182 in higher option expense relating to new
grants in Fiscal 2009 Period and $24,583 in wages primarily due to the new
hire of the Executive Director, Product Development in March
2008.
|
|
·
|
Consulting
expenses decreased by $25,195, or 18%, to $114,970 from $140,165,
principally due to higher option expense of $54,903 recorded in Fiscal
2009 Period relating to the true-up of unvested options at higher stock
prices compared to a credit to option expense of $42,307 due to the true
up of unvested option expense recorded in prior fiscal periods at lower
stock prices. This increase of option expense which was offset in part by
the lower effort required to prepare the Investigational New Drug filing
for the FDA or $80,098 in the Fiscal 2009 Period compared to the same
period last year.
|
|
·
|
Subcontracted
research expenses decreased by $172,473, or 100%, to $0 from $172,473
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.
|
|
·
|
Manufacturing
expenses decreased by $592,907, to $80,067 from $672,974, or 88% resulting
from the completion of our clinical supply program for the upcoming phase
II trials prior to Fiscal 2009 Period compared to the manufacturing
program in the Fiscal 2008 Period.
|
|
·
|
Toxicology
study expenses decreased by $26,640, to $0 or 100% due the completion in
Fiscal 2008 Period of our toxicology study by Pharm Olam in connection
with our ADXS111-001 product candidates in anticipation of clinical
studies in 2008.
|
General and Administrative
Expenses. General and administrative expenses decreased by $334,547, or
11%, to $2,701,133 for the Fiscal 2009 Period as compared with $3,035,680 for
the Fiscal 2008 Period primarily attributable to the following:
|
·
|
Wages,
Options and benefit expenses decreased by $40,953, or 3% to $1,169,227
from $1,210,180 principally due to the reversal of a twelve month bonus
accrual in Fiscal 2009 Period or $89,877 that was recorded as expense in
Fiscal 2008 Period (no bonus accrual was recorded nor paid in Fiscal 2009
Period) and less stock was issued in Fiscal 2009 Period compared to
$43,030 worth of stock was issued primarily to the CEO per his employment
agreement in Fiscal 2008 Period. These lower expenses were
partially offset by higher option expense of $77,949 primarily due to new
stock options granted in Fiscal 2009 Period and $14,005 in overall higher
wages and related fees in the Fiscal 2009 Period than Fiscal 2008
Period.
|
34
|
·
|
Consulting
fees decreased by $350,136, or 82%, to $77,783 from $427,919. This
decrease was primarily attributed to a one-time payment in settlement of
Mr. Appel’s (our previous President & CEO) employment agreement of
$144,615 recorded in the Fiscal 2008 Period. In addition, consulting
expenses were sharply down by $255,521 due to no financial advisor fees in
Fiscal 2009 Period compared to $256,571 recorded in the Fiscal 2008 Period
attributed to the close of the October 17, 2007 offering. These lower fees
were partially offset by $50,000 fees recorded for the Sage Group
(Business Development Consultants) in Fiscal 2009 Period for seeking
corporate partnerships that didn’t occur in Fiscal 2008
Period.
|
|
·
|
Offering
expenses increased by $396,128 to $449,646 from $53,518. The $396,128
increase in offering expenses recorded in Fiscal 2009 Period 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.
|
|
·
|
Increases
in legal, accounting, professional and public relations expenses of
$77,389, or 14%, to $643,032 from $565,643, primarily as a result of a
higher overall legal, patent expenses and filing fees of $107,870
partially offset by lower public relations and tax preparation fees in
Fiscal 2009 Period than in the Fiscal 2008 Period.
|
|
·
|
Amortization
of intangibles and depreciation of fixed assets decreased by $86,189, or
44%, to $111,156 from $197,345 primarily due to a $91,453 write-off of our
trademarks in the Fiscal 2008 Period partially offset by an increase in
fixed assets and intangibles in the Fiscal 2009 Period compared to the
Fiscal 2008 Period.
|
|
·
|
Analysis
Research cost decreased by $101,949 or 100%, to $0 from $101,949 due to a
one time report and business analysis report in the Fiscal 2008 Period not
repeated in Fiscal 2009 Period.
|
|
·
|
Recruiting
fees for the Executive Director of Product Development in Fiscal 2008
Period was $63,395 and there was no such expense in Fiscal 2009
Period.
|
|
·
|
Overall
occupancy and conference related expenses decreased by $165,442 or 40% to
$250,290 from $415,732. Conference and dues and subscription expenses have
decreased by $145,396 in the Fiscal 2009 Period due to lower participation
in cancer conferences. In addition lower travel related to the reduced
conferences attendance, taxes and other miscellaneous expenses amounted to
a decrease of $20,046 in the Fiscal 2009 Period than incurred
in Fiscal 2008 Period.
|
Other Income
(expense). The change in the fair value of common stock
warrant liability and embedded derivative liability was $5,845,229 compared to
zero in the prior year resulting from improvements in the share price, the
anticipated pay down of our June 2009 bridge notes, and the
sale of preferred stock authorized during September 2009 would lead to a
qualified equity financing thereby reducing risk associated with the
establishment of these liability accounts during June 2009. Interest expense
increased to $851,008 compared to $11,263 in the prior year resulting from
interest accrued on our outstanding notes including accreted interest 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
$46,629, respectively. See also Fair Value of Warrants , Warrant
Liability and Embedded Conversion Feature below.
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 sale 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
Our
limited capital resources and operations to date have been funded primarily with
the proceeds from public and private equity and debt financings, NOL tax sale
and income earned on investments and grants. We have sustained losses
from operations in each fiscal year since our inception, and we expect losses to
continue for the indefinite future, due to the substantial investment in
research and development. As of October 31, 2009 and 2008, we had an
accumulated deficit of $16,603,800 and $17,533,044, respectively, and
shareholders’ deficiency of $15,733,328 and $839,311, respectively. Based on our
available cash of approximately $660,000 on October 31, 2009, we do not have
adequate cash on hand to cover our anticipated expenses for the next 12 months.
If we fail to raise a significant amount of capital, we may need to
significantly curtail or cease operations in the near future. These
conditions have caused our auditors to 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, 2009 included a going concern
explanatory paragraph.
35
Our
business will require substantial additional investment that we have not yet
secured, and our failure to raise capital and/or pursue partnering opportunities
will materially adversely affect our business, financial condition and results
of operations. We expect to spend substantial additional sums on the continued
administration and research and development of proprietary products and
technologies, including conducting clinical trials for our product candidates,
with no certainty that our products will become commercially viable or
profitable as a result of these expenditures. Further, we will not
have sufficient resources to develop fully any new products or technologies
unless we are able to raise substantial additional financing on acceptable terms
or secure funds from new partners. We cannot be assured that financing will be
available at all. Any additional investments or resources required would be
approached, to the extent appropriate in the circumstances, in an incremental
fashion to attempt to cause minimal disruption or dilution. Any
additional capital raised through the sale of equity or convertible debt
securities will result in dilution to our existing stockholders. No
assurances can be given, however, that we will be able to achieve these goals or
that we will be able to continue as a going concern.
From
November 1, 2009 through February 16, 2010, we issued to certain accredited
investors (i) junior unsecured convertible promissory notes in the aggregate
principal face amount of $673,529, for an aggregate net purchase price of
$572,500 and (ii) warrants to purchase1,431,250 shares of our common stock at an
exercise price of $0.20 (prior to anti-dilution adjustments) per share, subject
to adjustments upon the occurrence of certain events. Each of these bridge notes
were issued with an original issue discount of 15% (OID) and are convertible
into shares of our common stock. The maturity dates of these
notes range between April 16 and July 30, 2010. The indebtedness
represented by the bridge notes is expressly subordinate to our currently
outstanding senior secured indebtedness (including the June 2009 bridge notes),
as well as any future senior indebtedness of any kind. We will not
make any payments to the holders of these bridge notes until the earlier of the
repayment in full or conversion of the senior indebtedness.
During
January 2010 the Company repaid $834,852 of the $1,131,353 in face value of our
June 2009 bridge notes. In addition, holders of the remaining
$296,501 of our June Bridge Notes agreed to extend the maturity dates from
December 31, 2009 to periods into February and March 2010. The Company has
agreed to issue additional consideration, including warrants, to June 2009
bridge note holders, all of which have agreed to extend the maturity period
beyond December 31, 2009.
Pursuant
to the Optimus purchase agreement, Optimus has agreed to purchase, upon the
terms and subject to the conditions set forth therein and described below, up to
$5.0 million of non-convertible, redeemable Series A preferred stock at a price
of $10,000 per share. Under the terms of the purchase agreement, from time to
time until September 24, 2012, in our sole discretion, we may present Optimus
with a notice to purchase a specified amount of Series A preferred stock, which
Optimus is obligated to purchase on the 10th trading day after the date of the
notice, subject to satisfaction of certain closing conditions (including our
ability to effect and maintain an effective registration statement for the
shares underlying the warrant, issued to an affiliate of Optimus in connection
with the transaction). We will determine, in our sole discretion, the timing and
amount of Series A preferred stock to be purchased by Optimus, and may sell such
shares in multiple tranches. Optimus will not be obligated to purchase the
Series A preferred stock upon our notice (i) in the event the closing price of
our common stock during the nine trading days following delivery of our notice
falls below 75% of the closing price on the trading day prior to the date such
notice is delivered to Optimus or (ii) to the extent such purchase would result
in Optimus and its affiliates beneficially owning more than 9.99% of our
outstanding common stock. During January 2010, (i) Optimus purchased 145 shares
and remains obligated to purchase up to an additional 355 shares (subject to the
foregoing conditions) and (ii) the affiliate of Optimus has exercised warrants
to purchase 11,563,000 shares of common stock at an adjusted exercise price of
$0.17 per share.
On June
18, 2009, we completed the June 2009 bridge financing. The June 2009
bridge financing was a private placement with certain accredited investors
pursuant to which we issued (i) senior convertible promissory notes in the
aggregate principal face amount of $1,131,353, for an aggregate net purchase
price of $961,650 and (ii) warrants to purchase 2,404,125 shares of our common
stock at an exercise price of $0.20 (prior to anti-dilution adjustments) per
share, subject to adjustments upon the occurrence of certain
events.
During
October, 2009, we completed the sale of additional bridge notes. This
bridge financing was a private placement with certain accredited investors
pursuant to which we issued (i) junior convertible promissory notes in the
aggregate principal face amount of $2,147,059 for an aggregate net purchase
price of $1,825,000 and (ii) warrants to purchase 4,562,500 shares of our common
stock at an exercise price of $0.20 (prior to anti-dilution adjustments) per
share, subject to adjustments upon the occurrence of certain
events.
Each of
the bridge notes were issued with an original issue discount of 15% and are
convertible into shares of our common stock as described below.
In the
event we consummate an equity financing with aggregate gross proceeds of not
less than $2.0 million, which we refer to as a qualified equity financing, prior
to the second business day immediately preceding the maturity date of our bridge
notes, as the case may be, then prior to the respective maturity date, the
holders will have the option to convert all or a portion of the respective notes
into the same securities sold in such qualified equity financing at an effective
per share conversion price equal to 90% of the per share purchase price of the
securities issued in the qualified equity financing. In the event we
do not consummate a qualified equity financing prior to the second business day
immediately preceding the respective maturity date, then the holders shall have
the option to convert all or a portion of the June 2009 bridge notes or October
2009 bridge notes, as the case may be, into shares of common stock, at an
effective per share conversion price equal to 50% of the volume-weighted average
price per share of our common stock over the five consecutive trading days
immediately preceding the third business day prior to the maturity
date. To the extent a holder does not elect to convert its bridge
notes as described above, the principal amount of the bridge notes not so
converted shall be payable in cash on the respective maturity
date.
36
In
connection with the June 2009 bridge financing, we entered into a Security
Agreement, dated as of June 18, 2009 with the investors in the June 2009 bridge
financing. The Security Agreement grants the investors a security
interest in all of our tangible and intangible assets, as further described on
Exhibit A to the Security Agreement. We also entered into a
Subordination Agreement, dated as of June 18, 2009 with the investors in the
June 2009 bridge financing 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 June 2009 bridge 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
September 22, 2008, we entered into a note purchase agreement with our Chief
Executive Officer, Thomas A. Moore, pursuant to which we agreed to sell to Mr.
Moore, from time to time, Moore Notes. On June 15, 2009, we amended
the terms of the Moore Notes to increase the amounts available from $800,000 to
$950,000 and to change the maturity date of the Moore Notes from June 15, 2009
to the earlier of January 1, 2010 or our next equity financing resulting in
gross proceeds to us of at least $6.0 million. On February 15, 2010, we agreed
to amend the terms of the Moore Notes such that (i) Mr. Moore may elect, at his
option, to receive accumulated interest thereon on March 17, 2010 (which we
expect will amount to approximately $130,000), (ii) we will begin to make
monthly installment payments of $100,000 on the outstanding principal amount
beginning on April 15, 2010; provided, however, that the balance of the
principal will be repaid in full on consummation of our next equity financing
resulting in gross proceeds to us of at least $6.0 million and (iii) we will
retain $200,000 of the repayment amount for investment in our next equity
financing.
The Moore
Notes bear interest at a rate of 12% per annum, compounded quarterly, and may be
prepaid in whole or in part at our option without penalty at any time prior to
maturity. In consideration of Mr. Moore’s agreement to purchase the
Moore Notes, we agreed that concurrently with an equity financing resulting in
gross proceeds to us of at least $6.0 million, we will issue to Mr. Moore a
warrant to purchase our common stock, which will entitle Mr. Moore to purchase a
number of shares of our common stock equal to one share per $1.00 invested by
Mr. Moore in the purchase of the Moore Notes. The terms of these
warrants were subsequently modified by our board of directors based on the terms
of the June 2009 bridge financing increasing the number of shares underlying the
warrant from one share per $1.00 invested to two and one-half
shares. The terms of these warrants were further modified by our
board of directors in connection with the February 2010 amendment based on the
terms of certain amendments to the June 2009 bridge notes increasing the number
of warrants from two and one-half warrants per $1.00 invested to three
warrants. The final terms are anticipated to contain the same terms
and conditions as warrants issued to investors in the subsequent financing
(which are currently exercisable at $0.17 per share). As of October
31, 2009, $947,985 in notes were outstanding and payable to Mr.
Moore.
The
Company received $278,978 from the New Jersey Economic Development
Authority. Under the State of New Jersey Program for small business
we received this cash amount on January 15, 2010 from the sale of our State Net
Operating Losses (“NOL”) through December 31, 2008 and our research tax credit
for fiscal years 2007 and 2008.
Off-Balance
Sheet Arrangements
As of
October 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 year ended October 31, 2009.
Critical
Accounting Estimates
The
preparation of financial statements in accordance with GAAP accepted in the U.S.
requires management to make estimates and assumptions that affect the reported
amounts and related disclosures in the financial statements. Management
considers an accounting estimate to be critical if:
|
|
·
|
It
requires assumption to be made that were uncertain at the time the
estimate was made, and
|
|
|
·
|
Changes
in the estimate of difference estimates that could have been selected
could have material impact in our results of operations or financial
condition.
|
Actual
results could differ from those estimates and the differences could be material.
The most significant estimates impact the following transactions or account
balances: stock compensation, warrant valuation, impairment of intangibles,
dilution caused by ratchets in the warrants and other agreements.
Share-Based
Payment. We record compensation expense associated with stock
options in accordance with SFAS No. 123R, “Share Based Payment,” which
is a revision of SFAS No. 123. We 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.
37
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.
Fair
Value of Warrants , Warrant Liability and Embedded Conversion
Feature
Warrants
were issued in connection with various financings throughout our history. We
estimate 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 our determination that all of the outstanding warrants were
reclassified as liabilities due to the fact that the conversion feature on the
June 2009 bridge notes could require us 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 valuation model and the following assumptions: First we
estimated the probability of three different outcomes (i) that we would be able
to meet the QEF at the current warrant price of $0.20 (prior to anti-dilution
adjustments) 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. We estimated that there was
an 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 $12,785,695 at June 18, 2009.
In
accounting for the 2009 bridge notes’ embedded conversion feature and warrants
described above, we 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 .” We determined that the conversion
feature in the June 2009 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 us 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
October 31, 2009, we had outstanding warrants to purchase 127,456,301 shares of
our common stock (adjusted for anti-dilution provision to-date) with exercise
prices ranges from $0.187 to $0.287 per share. These warrants include
2,404,125 warrants issued to holders of 2009 bridge notes at an exercise price
of $0.20 per warrant (prior to anti-dilution adjustments).
New
Accounting Pronouncements
In June
2008, the Financial Accounting Standards Board, or 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 us contain a strike price adjustment feature,
which upon adoption of EITF 07-5, may result in the instruments no longer being
considered indexed to our 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 we now record
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.” We determined that the conversion
feature in the June 2009 bridge notes represented an embedded derivative since
the debenture is convertible into a variable number of shares based upon a
conversion formula. 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. We
are currently evaluating the impact the adoption of EITF 07-5 may have on our
financial position, results of operation, or cash flows.
38
In
May 2009, FASB issued Statement of Financial Accounting Standards 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. We have adopted the provisions of SFAS 165.
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
7A. Quantitative Qualitative Disclosures About Market Risk.
Not
Required
Item
8: Financial Statements and Supplementary Data.
The index
to Financial Statements appears on page F-1, the Report of the Independent
Registered Public Accounting Firm appears on page F-2, and the
Financial Statements and Notes to Financial Statements appear on pages F-3 to
F-22.
Item
9: Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures.
None
Item
9A(T): Controls and Procedures.
As of the
end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of our chief executive officer and chief
financial officer of our disclosure controls and procedures (as defined in Rule
13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation,
our chief executive officer and chief financial officer concluded that our
disclosure controls and procedures were not effective to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is: (1) accumulated and communicated to our management, including
our chief executive officer and chief financial officer, as appropriate to allow
timely decisions regarding required disclosure; and (2) recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules
and forms.
Changes
in Internal Control Over Financial Reporting
During
the year ended October 31, 2009, there were no changes in our internal control
over financial reporting that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
Assessment
of the Effectiveness of Internal Controls over Financial Reporting
Our chief
executive officer and chief financial officer, after evaluating the
effectiveness of our “disclosure controls and procedures”, as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e), as of the end of
the twelve month period ended October 31, 2009, concluded that as of October 31,
2009, our internal controls over financial reporting 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 is made known
to management, including 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.
In
addition, our management assessed the effectiveness of our internal control over
financial reporting as of October 31, 2009 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 October 31, 2009, there were material weaknesses in our internal control
over financial reporting. For example, during the review of the
financial statements for the three month period ended July 31, 2009, it was
determined that our initial presentation and accounting of certain of our
convertible debt and warrants in our financial statements was not correct. In
light of this material weakness, we concluded that we did not maintain effective
internal control over financial reporting as of July 31, 2009. Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting for us. 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 revised our financial
statements for the three month period ended July 31, 2009, prior to filing our
quarterly report on Form 10-Q for the period ended July 31, 2009, but cannot
offer assurances that we will not have additional material
weaknesses. While we have taken steps to improve our internal
controls and procedures, there may continue to be material weaknesses or
deficiencies in our internal controls or ineffectiveness of our disclosure
controls and procedures.
39
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 October 31, 2010. 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.
Attestation
Report of our Registered Public Accounting Firm
This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Our management's report was not subject to attestation by our
independent registered public accounting firm pursuant to rules of the SEC that
permit us to provide only management's report in this annual
report.
Item
9B: Other Information.
On
February 15, 2010, we agreed to amend the terms of the Moore Notes such that (i)
Mr. Moore may elect, at his option, to receive accumulated interest thereon on
or after March 17, 2010 (which we expect will amount to approximately $130,000),
(ii) we will begin to make monthly installments payments of $100,000 on the
outstanding principal amount beginning on April 15, 2010; provided, however,
that the balance of the principal will be repaid in full on consummation of our
next equity financing resulting in gross proceeds to us of at least $6.0 million
and (iii) we will retain $200,000 of the repayment amount for investment in our
next equity financing.
In
consideration of Mr. Moore’s initial agreement to purchase the Moore Notes, we
agreed that concurrently with an equity financing resulting in gross proceeds to
us of at least $6.0 million, we will issue to Mr. Moore a warrant to purchase
our common stock, which will entitle Mr. Moore to purchase a number of shares of
our common stock equal to one share per $1.00 invested by Mr. Moore in the
purchase of the Moore Notes. The terms of these warrants were
subsequently modified by our board of directors based on the terms of the June
2009 bridge financing increasing the number of shares underlying the warrant
from one share per $1.00 invested to two and one-half shares. The
terms of these warrants were further modified by our board of directors to
increase the number of warrants from two and one-half warrants per $1.00
invested to three warrants. The final terms are anticipated to
contain the same terms and conditions as warrants issued to investors in the
subsequent financing (which are currently exercisable at $0.17 per
share).
PART
III
Item
10: Directors, Executive Officers, Corporate Governance.
Executive
Officers, Directors and Key Employees
The
following are our executive officers and directors and their respective ages and
positions as of January 20, 2010:
|
Name
|
Age
|
Position
|
||
|
Thomas
A. Moore
|
59
|
Chief
Executive Officer and Chairman of our Board of
Directors
|
||
|
James
Patton, MD
|
51
|
Director
|
||
|
Roni
A. Appel
|
42
|
Director
|
||
|
Thomas
McKearn, MD, Ph.D.
|
60
|
Director
|
||
|
Richard
Berman
|
67
|
Director
|
||
|
John
Rothman, Ph.D.
|
61
|
Executive
Vice President of Clinical and Scientific Operations
|
||
|
Mark
J. Rosenblum
|
56
|
Chief
Financial Officer, Senior Vice President and
Secretary
|
Thomas A.
Moore. Effective December 15, 2006, Mr. Moore was appointed
our Chairman and Chief Executive Officer. He is currently also a
director of MD Offices, an electronic medical records provider, and Opt-e-scrip,
Inc., which markets a clinical system to compare multiple drugs in the same
patient. He also serves as Chairman of the board of directors of
Mayan Pigments, Inc., which has developed and patented Mayan pigment
technology. Previously, from June 2002 to June 2004 Mr. Moore was
President and Chief Executive Officer of Biopure Corporation, a developer of
oxygen therapeutics that are intravenously administered to deliver oxygen to the
body’s tissues. From 1996 to November 2000 he was President and Chief
Executive Officer of Nelson Communications. Prior to 1996, Mr. Moore
had a 23-year career with the Procter & Gamble Company in multiple
managerial positions, including President of Health Care Products where he was
responsible for prescription and over-the-counter medications worldwide, and
Group Vice President of the Procter & Gamble Company.
40
Mr. Moore
is subject to a five year injunction, which came about because of a civil action
captioned Securities &
Exchange Commission v. Biopure Corp. et al., No. 05-11853-PBS (D. Mass.),
filed on September 14, 2005, which alleged that Mr. Moore made and approved
misleading public statements about the status of FDA regulatory proceedings
concerning a product manufactured by his former employer, Biopure
Corp. Mr. Moore vigorously defended the action. On
December 11, 2006, the SEC and Mr. Moore jointly sought a continuance of all
proceedings based upon a tentative agreement in principle to settle the SEC
action. The SEC’s Commissioners approved the terms of the settlement,
and the court formally adopted the settlement.
Dr. James
Patton. Dr. Patton has served as a member of our board of
directors since February 2002, as Chairman of our board of directors from
November 2004 until December 31, 2005 and as Advaxis’ Chief Executive Officer
from February 2002 to November 2002. Since February 1999, Dr. Patton
has been the Vice President of Millennium Oncology Management, Inc., which
provides management services for radiation oncology care to four
sites. Dr. Patton has been a trustee of Dundee Wealth US, a mutual
fund family since October 2006. In addition, was the President of Comprehensive
Oncology Care, LLC since 1999, a company which owned and operated a cancer
treatment facility in Exton, Pennsylvania until its sale in
2008. From February 1999 to September 2003, Dr. Patton also served as
a consultant to LibertyView Equity Partners SBIC, LP, a venture capital fund
based in Jersey City, New Jersey. Dr. Patton served as a director of
Pinpoint Data Corp. From February 2000 to November 2000, Dr. Patton served as a
director of Healthware Solutions. From June 2000 to June 2003, Dr.
Patton served as a director of LifeStar Response. He earned his B.S.
from the University of Michigan, his Medical Doctorate from Medical College of
Pennsylvania, and his M.B.A. from Penn’s Wharton School. Dr. Patton
was also a Robert Wood Johnson Foundation Clinical Scholar. He has
published papers regarding scientific research in human genetics, diagnostic
test performance and medical economic analysis.
Roni A.
Appel. Mr. Appel has served as a member of our board of
directors since November 2004. He was President and Chief Executive
Officer from January 1, 2006 and Secretary and Chief Financial Officer from
November 2004, until he resigned as our Chief Financial Officer on September 7,
2006 and as our President, Chief Executive Officer and Secretary on December 15,
2006. From 1999 to 2004, he has been a partner and managing director of LV
Equity Partners (f/k/a LibertyView Equity Partners). From 1998 until
1999, he was a director of business development at Americana Financial Services,
Inc. From 1994 to 1998 he was an attorney and completed his MBA at
Columbia University.
Dr. Thomas
McKearn. Dr. McKearn has served as a member of our board of
directors since July 2002. He brings to us a 25 plus year experience
in the translation of biotechnology science into oncology
products. First as one of the founders of Cytogen Corporation, then
as an Executive Director of Strategic Science and Medicine at Bristol-Myers
Squibb and now as the VP of Strategic Medical Affairs at Agennix, Inc. (formerly
GPC-Biotech), he has worked at bringing the most innovative laboratory findings
into the clinic and through the FDA regulatory process for the benefit of cancer
patients who need better ways to cope with their afflictions. Prior
to entering the biotechnology industry in 1981, Dr. McKearn did his medical,
graduate and post-graduate training at the University of Chicago and served on
the faculty of the Medical School at the University of
Pennsylvania.
Richard
Berman. Mr. Berman has served as a member of our board of
directors since September 1, 2005. In the last five years, he served
as a professional director and/or officer of about a dozen public and private
companies. He is currently Chairman of NexMed, Inc., a public biotech
company, and National Investment Managers. Mr. Berman is a director
of six public companies: Broadcaster, Inc., Easy Link Services International,
Inc., NexMed, Inc., National Investment Managers, Advaxis, Inc., and NeoStem,
Inc. Previously, Mr. Berman worked at Goldman Sachs and was Senior
Vice President of Bankers Trust Company, where he started the M&A and
Leverage Buyout Departments. He is a past Director of the Stern
School of Business of New York University, where he earned a B.S. and an M.B.A.
He also has law degrees from Boston College and The Hague Academy of
International Law.
John Rothman,
Ph.D. Dr. Rothman joined our company in March 2005 as Vice
President of Clinical Development and as of December 12, 2008 he was appointed
to Executive Vice President of Clinical and Scientific
Operations. From 2002 to 2005, Dr. Rothman was Vice President and
Chief Technology Officer of Princeton Technology Partners. Prior to
that he was involved in the development of the first interferon at Schering
Inc., was director of a variety of clinical development sections at Hoffman
LaRoche, and the Senior Director of Clinical Data Management at
Roche. While at Roche his work in Kaposi’s Sarcoma became the
clinical basis for the first filed BLA which involved the treatment of AIDS
patients with interferon. Dr. Rothman completed his doctorate at California
University Los Angeles.
Mark J.
Rosenblum. Effective as of January 5, 2010, Mr. Rosenblum joined our
company as our Chief Financial Officer, Senior Vice President and Secretary. Mr.
Rosenblum was the Chief Financial Officer of HemobioTech, Inc., a public company
primarily engaged in the commercialization of human blood substitute technology
licensed from Texas Tech University, from April 1, 2005 until December 31, 2009.
From August 1985 through June 2003, Mr. Rosenblum was employed by Wellman, Inc.,
a public chemical manufacturing company. Between 1996 and 2003, Mr.
Rosenblum was the Chief Accounting Officer, Vice President and Controller at
Wellman, Inc. Mr. Rosenblum holds both Masters in Accountancy and a B.S. degree
from the University of South Carolina. Mr. Rosenblum is a certified public
accountant.
41
Board
of Directors
Board of
Directors
Each
director is elected for a period of one year and serves until the next annual
meeting of stockholders, or until his or her successor is duly elected and
qualified. Officers are elected by, and serve at the discretion of, our board of
directors. The board of directors may also appoint additional directors up to
the maximum number permitted under our by-laws, which is currently
nine.
Committees
of the Board of Directors
Our board
of directors has three standing committees: the audit committee, the
compensation committee, and the nominating and corporate governance
committee.
Audit
Committee
The audit
committee of our board of directors consists of Mr. Berman and Dr. Patton with
Mr. Berman serving as the audit committee’s financial expert as defined under
Item 407 of Regulation S-K of the Securities Act of 1933, as amended, which we
refer to as the Securities Act. Our board of directors has determined that the
audit committee financial expert is independent as defined in (i) Rule
10A-3(b)(i)(ii) under the Exchange Act and (ii) under Section 121 B(2)(a) of the
NYSE Amex Equities Company Guide (although our securities are not listed on the
NYSE Amex Equities but are quoted on the OTC Bulletin Board).
The audit
committee is responsible for the following:
|
|
·
|
reviewing
the results of the audit engagement with the independent registered public
accounting firm;
|
|
|
·
|
identifying
irregularities in the management of our business in consultation with our
independent accountants, and suggesting an appropriate course of
action;
|
|
|
·
|
reviewing
the adequacy, scope, and results of the internal accounting controls and
procedures;
|
|
|
·
|
reviewing
the degree of independence of the auditors, as well as the nature and
scope of our relationship with our independent registered public
accounting firm;
|
|
|
·
|
reviewing
the auditors’ fees; and
|
|
|
·
|
recommending
the engagement of auditors to the full board of
directors.
|
Compensation
Committee
The
compensation committee of our board of directors consists of Mr. Berman and Dr.
McKearn. The compensation committee determines the salaries and
incentive compensation of our officers subject to applicable employment
agreements, and provides recommendations for the salaries and incentive
compensation of our other employees and consultants.
Nominating
and Corporate Governance Committee
The
nominating and corporate governance committee of our board of directors consists
of Mr. Berman and Mr. Moore. The functions of the nominating and corporate
governance committee include the following:
|
|
·
|
identifying
and recommending to the board of directors individuals qualified to serve
as members of our board of directors and on the committees of the
board;
|
|
|
·
|
advising
the board with respect to matters of board composition, procedures and
committees;
|
42
|
|
·
|
developing
and recommending to the board a set of corporate governance principles
applicable to us and overseeing corporate governance matters generally
including review of possible conflicts and transactions with persons
affiliated with directors or members of management;
and
|
|
|
·
|
overseeing
the annual evaluation of the board and our
management.
|
The
nominating and corporate governance committee will be governed by a charter,
which we intend to adopt.
Compliance
with Section 16(a) of the Securities Exchange Act of 1934
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our directors
and executive officers and each person who owns more than ten percent of a
registered class of our equity securities (collectively, “Reporting Persons”) to
file with the SEC initial reports of ownership and reports of changes in
ownership of our common stock and our other equity securities. Reporting Persons
are required by SEC regulation to furnish us with copies of all Section 16(a)
forms that they file. Based solely on the Company’s review of the copies of the
forms received by it during the fiscal year ended October 31, 2009 and written
representations that no other reports were required, the Company believes that
each person who, at any time during such fiscal year, was a director, officer or
beneficial owner of more than ten percent of the Company’s common stock complied
with all Section 16(a) filing requirements during such fiscal year.
Code
of Ethics
We have
adopted a code of ethics that applies to our officers, employees and directors,
including our principal executive officers, principal financial officer and
principal accounting officer. The code of ethics sets forth written standards
that are designated to deter wrongdoing and to promote:
|
|
·
|
Honest and ethical conduct,
including the ethical handling of actual or apparent conflicts of interest
between personal and professional
relationships;
|
|
|
·
|
full, fair, accurate, timely and
understandable disclosure in reports and documents that a we file with, or
submit to, the SEC and in other public communications made by
us;
|
|
|
·
|
compliance with applicable
governmental laws, rules and
regulations;
|
|
|
·
|
the prompt internal reporting of
violations of the code to an appropriate person or persons identified in
our code of ethics; and
|
|
|
·
|
accountability for adherence to
our code of
ethics.
|
A copy of
our code of ethics has been filed with the SEC as an exhibit to our Form 8K
dated November 12, 2004 and a copy of our code is posted on our website at
www.advaxis.com.
Item
11: Executive Compensation
Summary Compensation
Table
The
following table sets forth the information as to compensation paid to or earned
by our Chief Executive Officer and our two other most highly compensated
executive officers during the fiscal years ended October 31, 2009 and
2008. These individuals are referred to in this report as our named
executive officers. As none of our named executive officers received
non-equity incentive plan compensation or nonqualified deferred compensation
earnings during the fiscal years ended October 31, 2009 and 2008, we have
omitted those columns from the table.
|
Name and
Principal
Position
|
Fiscal Year
|
Salary ($)
|
Bonus ($)
|
Stock
Award(s)
(1) ($)
|
Option
Award(s)
(1)
|
All Other
Compensation($)
|
Total ($)
|
|||||||||||||||||||
|
Thomas A.
Moore,
|
2009
|
350,000
|
—
|
71,250
|
(2)
|
115,089
|
17,582
|
(3)
|
553,919
|
|||||||||||||||||
|
CEO
and Chairman
|
2008
|
352,692
|
—
|
—
|
156,364
|
27,626
|
(4)
|
536.682
|
||||||||||||||||||
|
Dr.
John Rothman,
|
2009
|
250,000
|
-
|
11,550
|
(5)
|
82,911
|
23,797
|
(6)
|
368,258
|
|||||||||||||||||
|
Executive
VP of
Science
&
Operations
|
2008
|
255,000
|
55,000
|
23,378
|
(5)
|
25,092
|
27,862
|
(6)
|
386,332
|
|||||||||||||||||
|
Fredrick
D. Cobb,
|
2009
|
180,000
|
-
|
29,167
|
(7)
|
55,117
|
7,685
|
(6)
|
271,968
|
|||||||||||||||||
|
VP
Finance
|
2008
|
182,923
|
40,000
|
15,585
|
(8)
|
19,977
|
7,136
|
(6)
|
265,621
|
|||||||||||||||||
43
|
|
(1)
|
The
amounts shown in this column represent the compensation expense incurred
by us for the fiscal year in accordance with FAS 123(R) using the
assumptions described under “ Share-Based Compensation
Expense ” in Note 2 to our financial statements included elsewhere
in this report.
|
|
|
(2)
|
Represents
750,000 shares of the Company’s common stock granted to him based on the
financial raise milestone in his employment agreement valued at the market
close price on April 4, 2008.
|
|
|
(3)
|
Based
on our cost of Mr. Moore’s coverage for health
care.
|
|
|
(4)
|
Based
on our cost of Mr. Moore’s coverage for health care and interest received
for the Moore Notes.
|
|
|
(5)
|
Represents:
(i) $30,000 of base salary paid in shares of our common stock in lieu of
cash, based on the average monthly stock price, with the minimum set at
$0.20 per share, and (ii) the compensation expense incurred in connection
with 150,000 shares earned but not issued in 2009 and 196,339 shares
earned, but not issued in 2008.
|
|
|
(6)
|
Based
on our cost of his coverage for health care and the 401K company match he
received.
|
|
|
(7)
|
Represents:
(i) $20,000 of base salary paid in shares of our common stock in lieu of
cash, based on the daily average closing stock price per month
retrospectively to January 1, 2008, and (ii) the compensation expense
incurred in connection with 704,342 shares earned, but not
issued.
|
|
|
(8)
|
Represents:
(i) $20,000 of base salary paid in shares of our common stock in lieu of
cash, based on the average monthly stock price, with the minimum set at
$0.20 per share, and (ii) the compensation expense incurred in connection
with 130,893 shares earned, but not
issued.
|
Discussion
of Summary Compensation Table
We are
party to an employment agreement with each of our named executive officers who
is presently employed by us. Each employment agreement sets forth the
terms of that officer’s employment, including among other things, salary, bonus,
non-equity incentive plan and other compensation, and its material terms are
described below. In fiscal 2008 and fiscal 2009, we granted stock
options to our named executive officers to purchase shares of our common stock
and issued stock to our Chief Executive Officer. The material terms
of these grants are also described below.
Moore Employment Agreement and
Option Agreements. We are party to an employment agreement
with Mr. Moore, dated as of August 21, 2007 (memorializing an oral agreement
dated December 15, 2006), that provides that he will serve as our Chairman of
the Board and Chief Executive Officer for an initial term of two
years. For so long as Mr. Moore is employed by us, Mr. Moore is also
entitled to nominate one additional person to serve on our board of
directors. Following the initial term of employment, the agreement
was renewed for a one year term, and is automatically renewable for additional
successive one year terms, subject to our right and Mr. Moore’s right not to
renew the agreement upon at least 90 days’ written notice prior to the
expiration of any one year term.
Under the terms of the
agreement, Mr. Moore was entitled to receive a base salary of $250,000 per year,
subject to increase to $350,000 per year upon our successful raise of at least
$4.0 million (which condition was satisfied on November 1, 2007) and subject to
annual review for increases by our board of directors in its sole
discretion. The agreement also provides that Mr. Moore is entitled to
receive family health insurance at no cost to him. Mr. Moore’s
employment agreement does not provide for the payment of a bonus.
In
connection with our hiring of Mr. Moore, we agreed to grant Mr. Moore up to
1,500,000 shares of our common stock, of which 750,000 shares were issuable on
November 1, 2007 upon our successful raise of $4.0 million and 750,000 shares
are issuable upon our successful raise of an additional $6.0 million (which
condition was satisfied in January 2010). In addition, on December
15, 2006, we granted Mr. Moore options to purchase 2,400,000 shares of our
common stock. Each option is exercisable at $0.143 per share (which
was equal to the closing sale price of our common stock on December 15, 2006)
and expires on December 15, 2016. The options vest in 24 equal
monthly installments. On July 21, 2009, we granted Mr. Moore options to
purchase 2,500,000 shares of our common stock. Each option is exercisable
at $0.10 per share (which was equal to the closing sale price of our common
stock on July 21, 2009) and expires on July 21, 2019. One-third of these
options vested on the grant date, and the remaining vest in one-third
installments on the first and second anniversary of the
grant.
44
We
have also agreed to grant Mr. Moore options to purchase an additional 1,500,000
shares of our common stock if the price of common stock (adjusted for any
splits) is equal to or greater than $0.40 for 40 consecutive business
days. Pursuant to the terms of his employment agreement, all options
will be awarded and vested upon a merger of the company which is a change of
control or a sale of the company while Mr. Moore is employed. In
addition, if Mr. Moore’s employment is terminated by us, Mr. Moore is entitled
to receive severance payments equal to one year’s salary at the then current
compensation level.
Mr. Moore
has agreed to refrain from engaging in certain activities that are competitive
with us and our business during his employment and for a period of 12
months thereafter under certain circumstances. In addition, Mr. Moore
is subject to a non-solicitation provision for 12 months after termination of
his employment.
Rothman Employment Agreement and
Option Agreements. We previously entered into an employment
agreement with Dr. Rothman, Ph.D., dated as of March 7, 2005, that provided that
he would serve as our Vice President of Clinical Development for an initial
term of one year. Dr. Rothman’s current salary is $280,000,
consisting of $250,000 in cash and $30,000 in stock, payable in our common
stock, issued on a semi-annual basis, based on the average closing stock price
for such six month period, with a minimum price of $0.20. While the
employment agreement has expired and has not been formally renewed in accordance
with the agreement, Dr. Rothman remains employed by us and is currently our
Executive V.P. of Clinical and Scientific Operations.
In
addition, on March 1, 2005, we granted Dr. Rothman options to purchase 360,000
shares of our common stock. Each option is exercisable at $0.287 per
share (which was equal to the closing sale price of our common stock on March 1,
2005) and expires on March 1, 2015. All of these options have
vested. On March 29, 2006, we granted Dr. Rothman options to purchase
150,000 shares of our common stock. Each option is exercisable at
$0.26 per share (which was equal to the closing sale price of our common stock
on March 29, 2006) and expires on March 29, 2016. One-fourth of
these options vested on the first anniversary of the grant date, and the
remaining vest in 12 equal quarterly installments. On February 15,
2007, we granted Dr. Rothman options to purchase 300,000 shares of our common
stock. Each option is exercisable at $0.165 per share (which was
equal to the closing sale price of our common stock on February 15, 2007) and
expires on February 15, 2017. One-fourth of these options vested on
the first anniversary of the grant date, and the remaining vest in 12 equal
quarterly installments. Pursuant to the terms of the 2005 plan, at
least 75% of Dr. Rothman’s options will be vested upon a merger of the company
which is a change of control or a sale of the company while Dr. Rothman is
employed, unless the administrator of the plan otherwise allows for all options
to become vested. On July 21, 2009, we granted Mr. Rothman options to
purchase 1,750,000 shares of our common stock. Each option is exercisable at
$0.10 per share (which was equal to the closing sale price of our common stock
on July 21, 2009) and expires on July 21, 2019. One-third of these options
vested on the grant date, and the remaining vest in one-third
installments on the first and second anniversary of the grant.
Dr. Rothman has agreed to
refrain from engaging in certain activities that are competitive with us and our
business during his employment and for a period of 18 months thereafter
under certain circumstances. In addition, Dr. Rothman is subject to a
non-solicitation provision for 18 months after termination of his
employment.
Cobb Employment Agreement and Option
Agreements. We entered into an employment agreement
with Mr. Cobb, dated as of February 20, 2006, that provided that he would serve
as our Vice President of Finance. Mr. Cobb’s current salary is
$200,000, consisting of $180,000 in cash and $20,000 in stock, payable in our
common stock, issued on a semi-annual basis, based on the average closing stock
price for such six month period, with a minimum price of $0.20. Mr.
Cobb has resigned as an officer of the Company, but has agreed to continue as an
employee of ours on a part-time basis for a three month period in order to
assist with the transition of our newly hired Chief Financial
Officer. During the transition period, Mr. Cobb will continue to
receive the base salary and health care benefits that he was receiving prior to
his resignation. Mr. Cobb also received eight weeks of accrued
vacation pay and 752,142 shares of common stock that were previously earned but
not yet issued. In addition, we agreed to extend the expiration date
of all his options that will be vested on his last day as an employee of ours to
the date that is five years from his last day of employment (provided that such
date is not more than 10 years after the date of grant).
In
addition, on February 20, 2006, we granted Mr. Cobb options to purchase 150,000
shares of our common stock. Each option is exercisable at $0.26 per share (which
was equal to the closing sale price of our common stock on February 20, 2006)
and expires on February 20, 2016. One-fourth of these options vest on the first
anniversary of the grant date, and the remaining vest in 12 equal quarterly
installments. On September 21, 2006, we granted Mr. Cobb options to purchase
150,000 shares of our common stock. Each option is exercisable at $0.16 per
share (which was equal to the closing sale price of our common stock on
September 21, 2006) and expires on September 21, 2016. One-fourth of these
options vest on the first anniversary of the grant date, and the remaining vest
in 12 equal quarterly installments. On February 15, 2007, we granted Mr. Cobb
options to purchase 150,000 shares of our common stock. Each option is
exercisable at $0.165 per share (which was equal to the closing sale price of
our common stock on February 15, 2007) and expires on February 15, 2017.
One-fourth of these options vest on the first anniversary of the grant date, and
the remaining vest in 12 equal quarterly installments. Pursuant to the
terms of the 2005 plan, at least 75% of Mr. Cobb’s options will be vested upon a
merger of the company which is a change of control or a sale of the company
while Mr. Cobb is employed, unless the administrator of the plan otherwise
allows for all options to become vested. On July 21, 2009, we granted Mr. Cobb
options to purchase 1,000,000 shares of our common stock. Each option is
exercisable at $0.10 per share (which was equal to the closing sale price of our
common stock on July 21, 2009) and expires on July 21, 2019. One-third of
these options vested on the grant date, and the remaining vest in one-third
installments on the first and second anniversary of the
grant.
45
Mr. Cobb
has agreed to refrain from engaging in certain activities that are competitive
with us and our business during his employment and for a period of 18 months
thereafter under certain circumstances. In addition, Mr. Cobb is subject to a
non-solicitation provision for 18 months after termination of his
employment.
Outstanding
Equity Awards at Fiscal Year-End
The
following table provides information about the number of outstanding equity
awards held by our named executive officers at October 31,
2009.
|
Option Awards
|
Stock Awards
|
||||||||||||||||||||||||||||||
|
Name
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
Option
Exercise
Price ($)
|
Option
Expiration
Date
|
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
|
Market Value
of Shares or
Units of Stock
That Have
Not Vested ($)
|
Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested (#)
|
Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares,
Units or Other Rights
That Have
Not Vested ($)
|
||||||||||||||||||||||
|
Thomas
A. Moore
|
833,333
|
1,666,667
|
(1)
|
-
|
0.100
|
7/21/19
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||
|
2,400,000
|
-
|
-
|
0.143
|
12/15/16
|
750,000
|
(2)
|
97,500
|
(3)
|
-
|
|
-
|
||||||||||||||||||||
|
Dr.
John Rothman
|
583,333
|
1,166,667
|
(4)
|
-
|
0.100
|
7/21/19
|
-
|
-
|
|
-
|
|
-
|
|||||||||||||||||||
|
360,000
|
-
|
—
|
0.287
|
3/1/15
|
—
|
—
|
|
—
|
—
|
||||||||||||||||||||||
|
131,250
|
18,750
|
(5)
|
—
|
0.260
|
3/29/16
|
—
|
—
|
|
—
|
—
|
|||||||||||||||||||||
|
187,500
|
131,250
|
(6)
|
—
|
0.165
|
2/15/17
|
—
|
—
|
|
—
|
|
—
|
||||||||||||||||||||
|
Fredrick
D. Cobb
|
333,333
|
666,667
|
(7)
|
-
|
0.100
|
7/21/19
|
-
|
-
|
|
-
|
-
|
||||||||||||||||||||
|
131,250
|
18,750
|
(8)
|
—
|
0.260
|
2/20/16
|
—
|
—
|
|
—
|
—
|
|||||||||||||||||||||
|
112,500
|
37,500
|
(9)
|
—
|
0.160
|
9/21/16
|
—
|
—
|
|
—
|
—
|
|||||||||||||||||||||
|
93,750
|
56,250
|
(10)
|
—
|
0.165
|
2/15/17
|
—
|
—
|
—
|
—
|
||||||||||||||||||||||
|
|
(1)
|
Of these options, approximately
833,333 will become exercisable on each anniversary date of July 21, 2010
and 2011.
|
|
|
(2)
|
In connection with our hiring of
Mr. Moore, we agreed to grant Mr. Moore up to 1,500,000 shares of our
common stock, of which 750,000 shares were issued on April 4, 2008 upon
our successful raise of $4.0 million and 750,000 shares are issuable upon
our successful raise of an additional $6.0
million.
|
|
|
(3)
|
Based on the closing sale price
of $0.13 per share of common stock on October 31, 2009 (the last day of
our fiscal year).
|
|
|
(4)
|
Of these options, approximately
583,333 will become exercisable on each anniversary date of July 21, 2010
and 2011.
|
|
|
(5)
|
Of these options, 9,375 became
exercisable on December 29, 2009 and will become exercisable on March 29,
2010.
|
|
|
(6)
|
Of these options, 18,750 became
exercisable on November 15, 2009 and will become exercisable February 15,
May 15, August 15 and November 15 of each year until February 15,
2011.
|
|
|
(7)
|
Of these options, approximately
333,333 will become exercisable on each anniversary date of July 21, 2010
and 2011.
|
|
|
(8)
|
Of these options, 9,375 became
exercisable on November 20, 2009 and will become exercisable on February
20, 2010.
|
|
|
(9)
|
Of these options, 9,375 became
exercisable on December 21, 2009 and will become exercisable on March 21,
2010, June 21, 2010 and September 21,
2010.
|
|
|
(10)
|
Of these options, 9,375 became
exercisable on November 15, 2009 and will become exercisable on February
15, May 15 and August 15 and November 15, of each year until February 15,
2011.
|
Director
Compensation
With the
exception of Mr. Berman, who receives $2,000 a month in shares of our common
stock based on the average closing price of our common stock for the preceding
month, none of our directors received any compensation for his services as a
director other than options to purchase shares of our common stock and
reimbursement of expenses. Each director is granted options to
purchase shares of our common stock upon joining our board of directors and as
the compensation committee so directs. In addition, each non-employee director
earned compensation in shares of the company's common stock and cash for the
twelve months ended October 31, 2009 but none were paid or
issued.
46
All of
our other non-employee directors receive a combination of cash compensation and
awards of share of our common stock. Each non-employee directors
receives $2,000 for each board meeting attended in person and $750 for each
telephonic board meeting. In addition, each member of a committee of
our board of directors receives $2,000 per meeting attended in person held on
days other than board meeting days and $750 for each telephonic committee
meeting. This plan is contingent upon stockholder approval at our
next annual meeting.
The table
below summarizes the compensation that was earned by our non-employee directors
for the fiscal year ended October 31, 2009. As none of our
non-employee directors received non-equity incentive plan compensation or
nonqualified deferred compensation earnings during the fiscal year ended October
31, 2009, we have omitted those columns from the table.
|
Name
|
Fees
Earned
or Paid
in Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)(1)
|
All other
Compensation
($)
|
Total
($)
|
|||||||||||||||
|
Roni
A. Appel
|
$
|
7,500
|
$
|
1,848
|
(2)
|
$
|
12,464
|
(3)
|
—
|
$
|
21,812
|
|||||||||
|
Dr.
James Patton
|
11,250
|
1,848
|
(2)
|
12,464
|
(3)
|
—
|
25,562
|
|||||||||||||
|
Dr.
Thomas McKearn
|
10,500
|
1,848
|
(2)
|
23,518
|
(4)
|
—
|
35,866
|
|||||||||||||
|
Richard
Berman
|
3,750
|
31,840
|
(5)
|
21,972
|
(6)
|
—
|
57,563
|
|||||||||||||
|
|
(1)
|
The amounts shown in this column
represents the compensation expense incurred by us for the fiscal year in
accordance with FAS 123(R) using the assumptions described
under “Share –Based Compensation Expense” in Note 2 to our financial
statements included elsewhere in this
10-K.
|
|
|
(2)
|
Based on the board of directors’
compensation plan subject to approval by stockholders paying 6,000 shares
a quarter if the member attends at least 75% of the meetings
annually.
|
|
|
(3)
|
Based
on the vesting of 350,000 options of our common stock granted on July 21,
2009 at a market price of $0.10 share. Vests at a rate of one-third on the
anniversary date of grant and one-third over the next two years at a fair
value of $0.09 share value (Black Scholes Model) at grant
date.
|
|
|
(4)
|
Based on the vesting of 500,000
options of our common stock granted on July 21, 2009 at a market price of
$0.10 share. Vests at a rate of one-third on the anniversary date of grant
and one-third over the next two years at a fair value of $0.09 share value
(Black Scholes Model) at grant date. Based on the vesting of 150,000
options of our common stock granted on March 29, 2006 at a market price of
$0.261 share. Vests quarterly over a three year period at a
fair value of $0.1434 share value Black Scholes Model at grant
date.
|
|
|
(5)
|
Based on the average monthly
closing prices of our common stock for the $2,000 monthly
compensation. The total shares earned but not issued in fiscal year
2009 was 325,765.
|
|
|
(6)
|
Based on the vesting of 500,000
options of our common stock granted on July 23, 2009 at a market price of
$0.10 share. Vests at a rate of one-third on the anniversary date of grant
and one-third over the next two years at a fair value of $0.09 share value
(Black Scholes Model) at grant date. Based on the vesting of
400,000 options of our common stock granted at $0.287 per share on
February 1, 2005. These options vested quarterly over the next
four years.
|
In
November 2004, our board of directors adopted and stockholders approved the 2004
Stock Option Plan (“2004 Plan”). The 2004 Plan provides for the grant of
options to purchase up to 2,381,525 shares of our common stock to employees,
officers, directors and consultants. Options may be either “incentive stock
options” or non-qualified options under the Federal tax laws. Incentive stock
options may be granted only to our employees, while non-qualified options may be
issued, in addition to employees, to non-employee directors, and
consultants.
The 2004
Plan is administered by “disinterested members” of the board of directors or the
Compensation Committee, who determine, among other things, the individuals who
shall receive options, the time period during which the options may be partially
or fully exercised, the number of shares of common stock issuable upon the
exercise of each option and the option exercise price.
47
Subject
to a number of exceptions, the exercise price per share of common stock subject
to an incentive option may not be less than the fair market value per share of
common stock on the date the option is granted. The per share exercise price of
the common stock subject to a non-qualified option may be established by the
board of directors, but shall not, however, be less than 85% of the fair market
value per share of common stock on the date the option is granted. The aggregate
fair market value of common stock for which any person may be granted incentive
stock options which first become exercisable in any calendar year may not exceed
$100,000 on the date of grant.
No stock
option may be transferred by an optionee other than by will or the laws of
descent and distribution, and, during the lifetime of an optionee, the option
will be exercisable only by the optionee. In the event of termination of
employment or engagement other than by death or disability, the optionee will
have no more than three months after such termination during which the optionee
shall be entitled to exercise the option to the extent vested at termination,
unless otherwise determined by the board of directors. Upon termination of
employment or engagement of an optionee by reason of death or permanent and
total disability, the optionee’s options remain exercisable for one year to the
extent the options were exercisable on the date of such termination. No similar
limitation applies to non-qualified options.
We must
grant options under the 2004 Plan within ten years from the effective date of
the 2004 Plan. The effective date of the Plan was November 12, 2004. Subject to
a number of exceptions, holders of incentive stock options granted under the
Plan cannot exercise these options more than ten years from the date of grant.
Options granted under the 2004 Plan generally provide for the payment of the
exercise price in cash and may provide for the payment of the exercise price by
delivery to us of shares of common stock already owned by the optionee having a
fair market value equal to the exercise price of the options being exercised, or
by a combination of these methods. Therefore, if it is provided in an optionee’s
options, the optionee may be able to tender shares of common stock to purchase
additional shares of common stock and may theoretically exercise all of his
stock options with no additional investment other than the purchase of his
original shares.
Any
unexercised options that expire or that terminate upon an employee’s ceasing to
be employed by us become available again for issuance under the 2004
Plan.
2005
Stock Option Plan
In June
2006, our board of directors adopted and stockholders approved on June 6, 2006,
the 2005 Stock Option Plan (“2005 Plan”).
The 2005
Plan provides for the grant of options to purchase up to 5,600,000 shares of our
common stock to employees, officers, directors and consultants. Options may be
either “incentive stock options” or non-qualified options under the Federal tax
laws. Incentive stock options may be granted only to our employees, while
non-qualified options may be issued to non-employee directors, consultants and
others, as well as to our employees.
The 2005
Plan is administered by “disinterested members” of the board of directors or the
compensation committee, who determine, among other things, the individuals who
shall receive options, the time period during which the options may be partially
or fully exercised, the number of shares of common stock issuable upon the
exercise of each option and the option exercise price.
Subject
to a number of exceptions, the exercise price per share of common stock subject
to an incentive option may not be less than the fair market value per share of
common stock on the date the option is granted. The per share exercise price of
the common stock subject to a non-qualified option may be established by the
board of directors, but shall not, however, be less than 85% of the fair market
value per share of common stock on the date the option is granted. The aggregate
fair market value of common stock for which any person may be granted incentive
stock options which first become exercisable in any calendar year may not exceed
$100,000 on the date of grant.
Except
when agreed to by the board or the administrator of the 2005 Plan, no stock
option may be transferred by an optionee other than by will or the laws of
descent and distribution, and, during the lifetime of an optionee, the option
will be exercisable only by the optionee. In the event of termination of
employment or engagement other than by death or disability, the optionee will
have no more than three months after such termination during which the optionee
shall be entitled to exercise the option, unless otherwise determined by the
board of directors. Upon termination of employment or engagement of an optionee
by reason of death or permanent and total disability, the optionee’s options
remain exercisable for one year to the extent the options were exercisable on
the date of such termination. No similar limitation applies to non-qualified
options.
We must
grant options under the 2005 Plan within ten years from the effective date of
the 2005 Plan. The effective date of the Plan was January 1, 2005. Subject to a
number of exceptions, holders of incentive stock options granted under the 2005
Plan cannot exercise these options more than ten years from the date of grant.
Options granted under the 2005 Plan generally provide for the payment of the
exercise price in cash and may provide for the payment of the exercise price by
delivery to us of shares of common stock already owned by the optionee having a
fair market value equal to the exercise price of the options being exercised, or
by a combination of these methods. Therefore, if it is provided in an optionee’s
options, the optionee may be able to tender shares of common stock to purchase
additional shares of common stock and may theoretically exercise all of his
stock options with no additional investment other than the purchase of his
original shares.
Any
unexercised options that expire or that terminate upon an employee’s ceasing to
be employed by us become available again for issuance under the 2005
Plan.
48
2009
Stock Option Plan
Our board
of directors adopted the 2009 Stock Option Plan (the “2009 Plan”), effective
July 21, 2009, and recommended that it be submitted to our shareholders for
their approval at the next annual meeting. As of October 31, 2009,
options to purchase 10,150,000 shares of our common stock have been granted
under the 2009 Plan. Shareholder approval of the 2009 Plan is
required, among other things, (i) to comply with certain exclusions from the
limitations of Section 162(m) of the Internal Revenue Code of 1986, which we
refer to as the Code and (ii) to comply with the incentive stock
options rules under Section 422 of the Code.
The 2009
Plan is to be administered by the compensation committee of our board of
directors; provided, however, that except as otherwise expressly provided in the
2009 Plan, our board of directors may exercise any power or authority granted to
the compensation committee under the 2009 Plan. Subject to the terms of the 2009
Plan, the compensation committee is authorized to select eligible persons to
receive options, determine the type, number and other terms and conditions of,
and all other matters relating to, options, prescribe option agreements (which
need not be identical for each participant), and the rules and regulations for
the administration of the 2009 Plan, construe and interpret the 2009 Plan and
option agreements, correct defects, supply omissions or reconcile
inconsistencies therein, and make all other decisions and determinations as the
compensation committee may deem necessary or advisable for the administration of
the 2009 Plan.
An
aggregate of 14,001,399 shares of our common stock (subject to adjustment by the
compensation committee) are reserved for issuance upon the exercise of options
granted under the 2009 Plan. The maximum number of shares of common stock to
which options may be granted to any one individual under the 2009 Plan is
4,200,420 (subject to adjustment by the compensation committee). The
shares acquired upon exercise of options granted under the 2009 Plan will be
authorized and issued shares of our common stock. Our shareholders
will not have any preemptive rights to purchase or subscribe for any common
stock by reason of the reservation and issuance of common stock under the 2009
Plan. If any option granted under the 2009 Plan should expire or
terminate for any reason other than having been exercised in full, the
unpurchased shares subject to that option will again be available for purposes
of the 2009 Plan.
The
persons eligible to receive awards under the 2009 Plan are the officers,
directors, employees, consultants and other persons who provide services to us
or any related entity. An employee on leave of absence may be
considered as still in our or a related entity’s employ for purposes of
eligibility for participation in the 2009 Plan. All options granted
under the 2009 Plan must be evidenced by a written agreement. The
agreement will contain such terms and conditions as the compensation committee
shall prescribe, consistent with the 2009 Plan, including, without limitation,
the exercise price, term and any restrictions on the exercisability of the
options granted. For any option granted under the 2009 Plan, the
exercise price per share of common stock may be any price determined by the
compensation committee; however, the exercise price per share of any incentive
stock option may not be less than the fair market value of the common stock on
the date such incentive stock option is granted.
The
compensation committee may permit the exercise price of an option to be paid for
in cash, by certified or official bank check or personal check, by money order,
with already owned shares of common stock that have been held by the optionee
for at least six (6) months (or such other shares as we determine will not cause
us to recognize for financial accounting purposes a charge for compensation
expense), the withholding of shares of common stock issuable upon exercise of
the option, by delivery of a properly executed exercise notice together with
such documentation as shall be required by the compensation committee (or, if
applicable, the broker) to effect a cashless exercise, or a combination of the
above. If paid in whole or in part with shares of already owned
common stock, the value of the shares surrendered is deemed to be their fair
market value on the date the option is exercised.
No
incentive stock option, and unless the prior written consent of our compensation
committee is obtained (which consent may be withheld for any reason) and the
transaction does not violate the requirements of Rule 16b-3 of the Exchange Act,
no non-qualified stock option granted under the 2009 Plan is assignable or
transferable, other than by will or by the laws of descent and
distribution. During the lifetime of an optionee, an option is
exercisable only by him or her, or in the case of a non-qualified stock option,
by his or her permitted assignee.
The
expiration date of an option under the 2009 Plan will be determined by our
compensation committee at the time of grant, but in no event may such an option
be exercisable after 10 years from the date of grant. An option may
be exercised at any time or from time to time or only after a period of time in
installments, as determined by our compensation committee. Our
compensation committee may in its sole discretion accelerate the date on which
any option may be exercised. Each outstanding option granted under the 2009 Plan
may become immediately fully exercisable in the event of certain transactions,
including certain changes in control of us, certain mergers and reorganizations,
and certain dispositions of substantially all our assets.
Unless
otherwise provided in the option agreement, the unexercised portion of any
option granted under the 2009 Plan shall automatically be terminated (a) three
months after the date on which the optionee’s employment is terminated for any
reason other than (i) cause (as defined in the 2009 Plan), (ii) mental or
physical disability, or (iii) death; (b) immediately upon the termination of the
optionee’s employment for cause; (c) one year after the date on which the
optionee’s employment is terminated by reason of mental or physical disability;
or (d) one year after the date on which the optionee’s employment is terminated
by reason of optionee’s death, or if later, three months after the date of
optionee’s death if death occurs during the one year period following the
termination of the optionee’s employment by reason of mental or physical
disability.
49
Unless
earlier terminated by our board, the 2009 Plan will terminate at the earliest of
(a) such time as no shares of common stock remain available for issuance under
the 2009 Plan, (b) termination of the 2009 Plan by our board, or (c) the tenth
anniversary of the effective date of the 2009 Plan. Options
outstanding upon expiration of the 2009 Plan shall remain in effect until they
have been exercised or terminated, or have expired.
Item 12: Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters.
The
following table sets forth certain information with respect to the beneficial
ownership of our common stock as of January 27, 2010 of:
|
|
·
|
each
person who is known by us to be the beneficial owner of more than 5% of
our outstanding common stock;
|
|
|
·
|
each
of our directors;
|
|
|
·
|
each
of our named executive officers;
and
|
|
|
·
|
all
of our directors and executive officers as a
group.
|
As used
in the table below and elsewhere in this report, the term beneficial ownership
with respect to our common stock consists of sole or shared voting power (which
includes the power to vote, or to direct the voting of shares of our common
stock) or sole or shared investment power (which includes the power to dispose,
or direct the disposition of, shares of our common stock) through any contract,
arrangement, understanding, relationship or otherwise, including a right to
acquire such power(s) during the 60 days following January 27,
2010.
Unless
otherwise indicated in the footnotes to this table, and subject to community
property laws where applicable, we believe each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
127,201,243 shares of common stock outstanding as of January 27, 2010, adjusted
as required by the rules promulgated by the SEC. Unless otherwise
indicated, the address for each of the individuals and entities listed in this
table is the Technology Centre of New Jersey, 675 Route One, North Brunswick,
New Jersey 08902.
|
Name and Address of Beneficial Owner
|
Number of
Shares of our
Common Stock
Beneficially Owned
|
Percentage
of Class
Beneficially Owned
|
||||||
| Optimus CG II Ltd. |
12,592,923
|
(1) |
9.0
|
% | ||||
|
Thomas
A. Moore
|
7,409,034 | (2) | 5.6 | % | ||||
|
Roni
A. Appel
|
6,655,891 | (3) | 5.1 | % | ||||
|
Richard
Berman
|
1,653,056 | (4) | 1.3 | % | ||||
|
Dr.
James Patton
|
3,082,496 | (5) | 2.4 | % | ||||
|
Dr.
Thomas McKearn
|
650,720 | (6) | * | |||||
|
Dr.
John Rothman
|
2,712,585 | (7) | 2.1 | % | ||||
|
Fredrick
Cobb**
|
1,569,320 | (8) | 1.2 | % | ||||
|
All
Directors and Executive Officers as a Group (7 people)
|
24,066,435 | (9) | 17.2 | % | ||||
* Less
than 1%.
** Mr.
Cobb has resigned as an Officer of the Company.
50
|
(1)
|
Represents
approximately 9.9% of our outstanding shares of common stock as of January
27, 2010 that may be acquired by the holder under a warrant exercisable
for up to 22,187,000 shares of common stock within 60 days of January 27,
2010. Such warrant is not fully exercisable within 60 days thereof due to
contractual limitations and a 9.9% ownership limitation contained in the
warrant for the holder and its affiliates. The sole stockholder of the
holder is Optimus Capital Partners, LLC, d/b/a Optimus Life Sciences
Capital Partners, LLC. Voting and dispositive power with respect to these
securities is exercised by Terry Peizer, the Managing Director of Optimus
Life Sciences Capital Partners, LLC, who acts as investment advisor to the
holder. The holder is not a registered broker-dealer or an affiliate of a
registered broker-dealer. The address of the principal business office of
the holder is Cricket Square, Hutchins Drive, Grand Cayman, KY1-1111
Cayman Islands and the address of the principal business office of Optimus
Life Sciences Capital Partners, LLC is 11150 Santa Monica Boulevard, Suite
1500, Los Angeles, CA 90025.
|
|
(2)
|
Represents
3,425,700 issued shares of our common stock and options to purchase
3,233,334 shares of our common stock exercisable within 60
days. In addition, Mr. Moore owns warrants to purchase
4,889,760 shares of our common stock, limited by a 4.99% beneficial
ownership provision in the warrants that would prohibit him from
exercising any of such warrants to the extent that upon such exercise he,
together with his affiliates, would beneficially own more than
4.99% of the total number of shares of our common stock then issued and
outstanding (unless Mr. Moore provides us with 61 days' notice of the
holders waiver of such provisions). In addition, Mr. Moore
beneficially owns 750,000 shares of our common stock earned, but not
issued.
|
|
(3)
|
Represents
4,130,134 issued shares of our common stock, options to purchase 2,495,757
shares of our common stock exercisable within 60 days and 30,000 shares of
our common stock earned but not yet
issued.
|
|
(4)
|
Represents
760,624 issued shares of our common stock, options to purchase 566,667
shares of our common stock exercisable within 60 days and 325,765 shares
of our common stock earned but not yet
issued.
|
|
(5)
|
Represents
2,820,576 issued shares of our common stock, options to purchase 189,920
shares of our common stock exercisable within 60 days and 72,000 shares
earned but not yet issued.
|
|
(6)
|
Represents
179,290 issued shares of our common stock, options to purchase 399,430
shares of our common stock exercisable within 60 days and 72,000 shares of
our common stock earned but not yet
issued.
|
|
(7)
|
Represents
275,775 issued shares of our common stock, options to purchase 1,308,958
shares of our common stock exercisable within 60 days and 1,127,852
shares of our common stock earned but not yet
issued.
|
|
(8)
|
Represents
90,336 issued shares of our common stock, options to purchase 727,083
shares of our common stock exercisable within 60 days
and 751,901 shares of our common stock earned but not yet
issued.
|
|
(9)
|
Represents
an aggregate of 11,682,435 shares of our common stock, options to purchase
9,254,482 shares of our common stock exercisable within 60 days,
and 3,129,518 shares of our common stock earned but not yet
issued.
|
Our
policy is to enter into transactions with related parties on terms that, on the
whole, are no more favorable, or no less favorable, than those available from
unaffiliated third parties. Based on our experience in the business
sectors in which we operate and the terms of our transactions with unaffiliated
third parties, we believe that all of the transactions described below met this
policy standard at the time they occurred.
In
connection with the June 2009 bridge financing, we entered into a Security
Agreement, dated as of June 18, 2009 with the investors in the June 2009 bridge
financing. The Security Agreement grants the investors a security
interest in all of our tangible and intangible assets, as further described on
Exhibit A to the Security Agreement. We also entered into a
Subordination Agreement, dated as of June 18, 2009 with the investors in the
June 2009 bridge financing 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 June 2009 bridge 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.
51
On
September 22, 2008, we entered into a note purchase agreement with our Chief
Executive Officer, Thomas A. Moore, pursuant to which we agreed to sell to Mr.
Moore, from time to time, Moore Notes. On June 15, 2009, we amended
the terms of the Moore Notes to increase the amounts available from $800,000 to
$950,000 and to change the maturity date of the Moore Notes from June 15, 2009
to the earlier of January 1, 2010 or our next equity financing resulting in
gross proceeds to us of at least $6.0 million. On February 15, 2010, we agreed
to amend the terms of the Moore Notes such that (i) Mr. Moore may elect, at his
option, to receive accumulated interest thereon on or after March 17, 2010
(which we expect will amount to approximately $130,000), (ii) we will begin to
make monthly installment payments of $100,000 on the outstanding principal
amount beginning on April 15, 2010; provided, however, that the balance of the
principal will be repaid in full on consummation of our next equity financing
resulting in gross proceeds to us of at least $6.0 million and (iii) we will
retain $200,000 of the repayment amount for investment in our next equity
financing.
Director Independence
In
accordance with the disclosure requirements of the Securities and Exchange
Commission, and since the Over-The-Counter Bulletin Board (OTC:BB) does not have
its own rules for director independence, the Company has adopted the director
independence definitions as set forth in the NYSE AMEX Rules. Although we are
not presently listed on any national securities exchange, each of our directors,
other than Mr. Thomas A. Moore and Roni Appel, is independent in accordance with
the definition set forth in the NYSE AMEX Rules. Mr. Moore was an
independent director of the Company during the fiscal year ended October 31,
2006 and continued to be an independent director until he became Chief Executive
Officer on December 15, 2006. Each current member of the Audit Committee and
Compensation Committee was an independent director under the NYSE AMEX
standards. The Board considered the information included in transactions with
related parties as outlined above along with other information the Board of
Directors considered relevant, when considering the independence of each
director.
Item 14: Principal Accountant Fees
and Services.
McGladrey
& Pullen, LLP (“M&P”) have billed or anticipate billing the Company as
follows for the year ended October 31, 2009 and 2008.
The
following table sets forth the fees billed by our independent accountants for
each of our last two fiscal years for the categories of services
indicated.
|
Fiscal Year
2009
|
Fiscal Year
2008
|
|||||||
|
Audit
Fees-McGladrey and Pullen LLP
|
$
|
94,500
|
$
|
87,704
|
||||
|
Audit
Related Fees-McGladrey and Pullen LLP
|
10,000
|
10,000
|
||||||
|
Tax
Fees-RSM McGladrey, Inc. (1)
|
|
13,000
|
16,622
|
|||||
|
Total
|
$
|
117,500
|
$
|
114,326
|
||||
(1)
Consists of professional services rendered by a Company aligned without
principal accountant for tax compliance and tax advice.
Audit Fees: The Company recorded fees of
$94,500 and $87,704, respectively, in connection with its audit of the Company’s
financial statements for the fiscal years ended October 31, 2009 and 2008 and
its review of the Company’s interim financial statements included in the
Company’s Quarterly Reports on Form 10-Q for the periods ended January 31, April
30, and July 31.
Audit-Related Fees: The Company recorded fees
of $10,000 to perform audit-related services for the fiscal years ended October
31, 2009 and 2008, primarily for review of comments to the Securities and
Exchange Commission in its review of securities registration documents and the
Company’s replies and for assistance with private placement memorandums and
other document reviews.
Tax Fees: The Company fees of
$13,000 and $16,622 respectively for RSM McGladrey, Inc. to amend and prepare
the Company’s tax returns. Starting in fiscal year ended October 31, 2008 the
Company engaged RSM McGladrey, Inc. to amend and prepare the Company’s 2008 tax
returns and amend years 2008, and 2007.
All Other Fees: No fees were classified
outside the recorded Audit and Audit Related fees.
The Audit
Committee will pre-approve all auditing services and the terms thereof (which
may include providing comfort letters in connection with securities
underwriting) and non-audit services (other than non-audit services prohibited
under Section 10A(g) of the Exchange Act or the applicable rules of the SEC or
the Public Company Accounting Oversight Board) to be provided to us by the
independent auditor; provided, however, the pre-approval requirement is waived
with respect to the provisions of non-audit services for us if the "de minimus"
provisions of Section 10A(i)(1)(B) of the Exchange Act are satisfied. This
authority to pre-approve non-audit services may be delegated to one or more
members of the Audit Committee, who shall present all decisions to pre-approve
an activity to the full Audit Committee at its first meeting following such
decision. The Audit Committee may review and approve the scope and staffing of
the independent auditors' annual audit plan.
52
Item
15: Exhibits, Financial Statements Schedules.
See Index
of Exhibits below. The Exhibits are filed with or incorporated by reference in
this report.
** Filed
herewith
(a) Exhibits. The following
exhibits are included herein or incorporated herein by reference.
|
Exhibit
Number
|
Description
of Exhibit
|
|
|
2.1
|
Agreement
Plan and Merger of Advaxis, Inc. (a Colorado corporation) and Advaxis,
Inc. (a Delaware corporation). Incorporated by reference to
Annex B to DEF 14A Proxy Statement filed with the SEC on May 15,
2006.
|
|
|
3.1(i)
|
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.
|
|
|
3.1(ii)
|
Amended
and Restated Bylaws. Incorporated by reference to Exhibit 10.4
to Quarterly Report on Form 10-QSB filed with the SEC on September 13,
2006.
|
|
|
4.1
|
Form
of common stock certificate. Incorporated by reference to
Exhibit 4.1 to Current Report on Form 8-K filed with the SEC on October
23, 2007.
|
|
|
4.2
|
Form
of warrant to purchase shares of the registrant’s common stock at the
price of $0.20 (prior to anti-dilution adjustments) per share (the “$0.20
Warrant”). Incorporated by reference to Exhibit 4.2 to Current
Report on Form 8-K filed with the SEC on October 23,
2007.
|
|
|
4.3
|
Form
of warrant to purchase shares of the registrant’s common stock at the
price of $0.001 per share (the “$.001 Warrant”). Incorporated
by reference to Exhibit 4.3 to Current Report on Form 8-K filed with the
SEC on October 23, 2007.
|
|
|
4.4
|
Form
of warrant issued in the August 2007 financing. Incorporated by
reference to Exhibit 10.1 to Current Report on Form 8-K filed with the SEC
on August 27, 2007.
|
|
|
4.5
|
Form
of note issued in the August 2007 financing. Incorporated by
reference to Exhibit 10.2 to Current Report on Form 8-K filed with the SEC
on August 27, 2007.
|
|
|
4.6
|
Form
of Common Stock Purchase Warrant. Incorporated by reference to Exhibit 4.1
to Current Report on Form 8-K filed with the SEC on June 19,
2009.
|
|
|
4.7
|
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.
|
|
|
4.8
|
Form
of Senior Promissory Note as amended, between the registrant 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.
|
|
|
4.9
|
Certificate
of Designations of Preferences, Rights and Limitations of Series A
Preferred Stock of the registrant, dated September 24, 2009. Incorporated
by reference to Exhibit 4.1 to Current Report on Form 8-K filed with the
SEC on September 25, 2009.
|
|
|
4.10
|
Promissory
Note issued to Biotechnology Greenhouse Corporation of Southeastern
Pennsylvania, dated November 10, 2003. Incorporated by
reference to Exhibit 10.53 to Annual Report on Form 10-KSB filed with the
SEC on January 29, 2009.
|
|
|
4.11
|
Promissory
Note issued to Biotechnology Greenhouse Corporation of Southeastern
Pennsylvania, dated December 17, 2003. Incorporated by
reference to Exhibit 10.54 to Annual Report on Form 10-KSB filed with the
SEC on January 29, 2009.
|
|
|
4.12
|
Form
of Common Stock Purchase Warrant, issued in the October 2009 bridge
financing. Incorporated by reference to Exhibit 4.12 to
Registration Statement on Form S-1 (File No. 333-162632) filed with the
SEC on October 22,
2009.
|
53
|
4.13
|
Form
of Convertible Promissory Note, issued in the October 2009 bridge
financing. Incorporated by reference to Exhibit 4.13 to
Registration Statement on Form S-1 (File No. 333-162632) filed with the
SEC on October 22, 2009.
|
|
|
4.14
|
Amendment
to Senior Promissory Note. Incorporated by reference to Exhibit
4.1 to Current Report on Form 8-K/A filed with the SEC on February 11,
2010.
|
|
|
4.15
|
Form
of Amended and Restated Common Stock Purchase
Warrant. Incorporated by reference to Exhibit 4.2 to Current
Report on Form 8-K/A filed with the SEC on February 11,
2010.
|
|
|
4.16
|
Form
of Common Stock Purchase Warrant. Incorporated by reference to
Exhibit 4.3 to Current Report on Form 8-K/A filed with the SEC on February
11, 2010.
|
|
|
4.17**
|
Form
of Amended and Restated Senior Promissory Note, between the registrant and
Thomas Moore.
|
|
|
10.1
|
Securities
Purchase Agreement between the registrant and the purchasers in the
private placement (the “SPA”), dated as of October 17, 2007, and
Disclosure Schedules thereto. Incorporated by reference to
Exhibit 10.1 to Current Report on Form 8-K filed with the SEC on October
23, 2007.
|
|
|
10.2
|
Securities
Purchase Agreement dated February 2, 2006 between the registrant and
Cornell Capital Partners, LP. Incorporated by reference to
Exhibit 10.01 to Report on Form 8-K filed with the SEC on February 8,
2006.
|
|
|
10.3
|
Registration
Rights Agreement between the registrant and the parties to the SPA, dated
as of October 17, 2007. Incorporated by reference to Exhibit
10.2 to Current Report on Form 8-K filed with the SEC on October 23,
2007.
|
|
|
10.4
|
Placement
Agency Agreement between the registrant and Carter Securities, LLC, dated
as of October 17, 2007. Incorporated by reference to Exhibit
10.3 to Current Report on Form 8-K filed with the SEC on October 23,
2007.
|
|
|
10.5
|
Engagement
Letter between the registrant and Carter Securities, LLC, dated August 15,
2007. Incorporated by reference to Exhibit 10.3(a) to Current
Report on Form 8-K filed with the SEC on October 23,
2007.
|
|
|
10.6
|
Agreement
between the registrant and YA Global Investments, L.P. f/k/a Cornell
Capital Partners, L.P., dated August 23, 2007. Incorporated by
reference to Exhibit 10.4 to Current Report on Form 8-K filed with the SEC
on October 23, 2007.
|
|
|
10.7
|
Memorandum
of Agreement between the registrant and CAMHZN Master LDC and CAMOFI
Master LDC, purchasers of the Units consisting of common stock, $0.20
(prior to anti-dilution adjustments) warrants, and $0.001 warrants, dated
October 17, 2007. Incorporated by reference to Exhibit 10.5 to
Current Report on Form 8-K filed with the SEC on October 23,
2007.
|
|
|
10.8
|
Advisory
Agreement between the registrant and Centrecourt Asset Management LLC,
dated August 1, 2007. Incorporated by reference to Exhibit 10.6
to Current Report on Form 8-K filed with the SEC on October 23,
2007.
|
|
|
10.9
|
Share
Exchange and Reorganization Agreement, dated as of August 25, 2004, by and
among the registrant, Advaxis and the shareholders of
Advaxis. Incorporated by reference to Exhibit 10.1 to Current
Report on Form 8-K filed with the SEC on November 18,
2004.
|
|
|
10.10
|
Security
Agreement dated February 2, 2006 between the registrant and Cornell
Capital Partners, L.P. Incorporated by reference to Exhibit
10.06 to Current Report on Form 8-K filed with the SEC on February 8,
2006.
|
|
|
10.11
|
Investor
Registration Rights Agreement dated February 2, 2006 between the
registrant and Cornell Capital Partners, LP. Incorporated by
reference to Exhibit 10.05 to Current Report on Form 8-K filed with the
SEC on February 8, 2006.
|
|
|
10.12
|
2004
Stock Option Plan of the registrant. Incorporated by reference
to Exhibit 4.1 to Report on Form S-8 filed with the SEC on December 1,
2005.
|
|
|
10.13
|
2005
Stock Option Plan of the registrant. Incorporated by reference
to Annex A to DEF 14A Proxy Statement filed with the SEC on May 15,
2006.
|
|
|
10.14
|
License
Agreement, between University of Pennsylvania and the registrant dated as
of June 17, 2002, as Amended and Restated on February 13,
2007. Incorporated by reference to Exhibit 10.11 to Annual
Report on Form 10-KSB filed with the SEC on February 13,
2007.
|
|
|
10.15
|
Sponsored
Research Agreement dated November 1, 2006 by and between University of
Pennsylvania (Dr. Paterson Principal Investigator) and the
registrant. Incorporated by reference to Exhibit 10.44 to
Annual Report on 10-KSB filed with the SEC on February 13,
2007.
|
54
|
10.16
|
Non-Exclusive
License and Bailment, dated as of March 17, 2004, between The Regents of
the University of California and Advaxis, Inc. Incorporated by
reference to Exhibit 10.8 to Pre-Effective Amendment No. 2 filed on April
28, 2005 to Registration Statement on Form SB-2 (File No.
333-122504).
|
|
|
10.17
|
Consultancy
Agreement, dated as of January 19, 2005, by and between LVEP Management,
LLC. and the registrant. Incorporated by reference
to Exhibit 10.9 to Pre-Effective Amendment No. 2 filed on April 28, 2005
to Registration Statement on Form SB-2 (File No.
333-122504).
|
|
|
10.18
|
Amendment
to Consultancy Agreement, dated as of April 4, 2005, between LVEP
Management LLC and the registrant. Incorporated by reference to
Exhibit 10.27 to Annual Report on Form 10-KSB filed with the SEC on
January 25, 2006.
|
|
|
10.19
|
Second
Amendment dated October 31, 2005 to Consultancy Agreement between LVEP
Management LLC and the registrant. Incorporated by reference to
Exhibit 10.2 to Current Report on Form 8-K filed with the SEC on November
9, 2005.
|
|
|
10.20
|
Third
Amendment dated December 15, 2006 to Consultancy Agreement between LVEP
Management LLC and the registrant. Incorporated by reference to
Exhibit 9.01 to Current Report on Form 8-K filed with the SEC on December
15, 2006.
|
|
|
10.21
|
Consultancy
Agreement, dated as of January 22, 2005, by and between Dr. Yvonne
Paterson and Advaxis, Inc. Incorporated by reference to Exhibit
10.12 to Pre-Effective Amendment No. 2 filed on April 28, 2005 to
Registration Statement on Form SB-2 (File No.
333-122504).
|
|
|
10.22
|
Consultancy
Agreement, dated as of March 15, 2003, by and between Dr. Joy A. Cavagnaro
and Advaxis, Inc. Incorporated by reference to Exhibit 10.13 to
Pre-Effective Amendment No. 2 filed on April 28, 2005 to Registration
Statement on Form SB-2 (File No. 333-122504).
|
|
|
10.23
|
Consulting
Agreement, dated as of July 2, 2004, by and between Sentinel Consulting
Corporation and Advaxis, Inc. Incorporated by reference to
Exhibit 10.15 to Pre-Effective Amendment No. 2 filed on April 28, 2005 to
Registration Statement on Form SB-2 (File No.
333-122504).
|
|
|
10.24
|
Agreement,
dated July 7, 2003, by and between Cobra Biomanufacturing PLC and Advaxis,
Inc. Incorporated by reference to Exhibit 10.16 to
Pre-Effective Amendment No. 4 filed on June 9, 2005 to Registration
Statement on Form SB-2 (File No. 333-122504).
|
|
|
10.25
|
Securities
Purchase Agreement, dated as of January 12, 2005, by and between the
registrant and Harvest Advaxis LLC. Incorporated by reference
to Exhibit 10.1 to Current Report on Form 8-K filed with the SEC on
January 18, 2005.
|
|
|
10.26
|
Registration
Rights Agreement, dated as of January 12, 2005, by and between the
registrant and Harvest Advaxis LLC. Incorporated by reference
to Exhibit 10.2 to Current Report on Form 8-K filed with the SEC on
January 18, 2005.
|
|
|
10.27
|
Letter
Agreement, dated as of January 12, 2005 by and between the registrant and
Robert T. Harvey. Incorporated by reference to
Exhibit 10.3 to Current Report on Form 8-K filed with the SEC on January
18, 2005.
|
|
|
10.28
|
Consultancy
Agreement, dated as of January 15, 2005, by and between Dr. David Filer
and the registrant. Incorporated by reference to Exhibit 10.20
to Pre-Effective Amendment No. 2 filed on April 28, 2005 to Registration
Statement on Form SB-2 (File No. 333-122504).
|
|
|
10.29
|
Consulting
Agreement, dated as of January 15, 2005, by and between Pharm-Olam
International Ltd. and the registrant. Incorporated by
reference to Exhibit 10.21 to Pre-Effective Amendment No. 2 filed on April
28, 2005 to Registration Statement on Form SB-2 (File No.
333-122504).
|
|
|
10.30
|
Letter
Agreement, dated February 10, 2005, by and between Richard Berman and the
registrant. Incorporated by reference to Exhibit 10.23 to
Pre-Effective Amendment No. 2 filed on April 28, 2005 to Registration
Statement on Form SB-2 (File No. 333-122504).
|
|
|
10.31
|
Employment
Agreement, dated February 8, 2005, by and between Vafa Shahabi and the
registrant. Incorporated by reference to Exhibit 10.24 to
Pre-Effective Amendment No. 2 filed on April 28, 2005 to Registration
Statement on Form SB-2 (File No.
333-122504).
|
55
|
10.32
|
Employment
Agreement, dated March 1, 2005, by and between John Rothman and the
registrant. Incorporated by reference to Exhibit 10.25 to
Pre-Effective Amendment No. 2 filed on April 8, 2005 to Registration
Statement on Form SB-2/A (File No. 333-122504).
|
|
|
10.33
|
Clinical
Research Services Agreement, dated April 6, 2005, between Pharm-Olam
International Ltd. and the registrant. Incorporated by
reference to Exhibit 10.26 to Pre-Effective Amendment No. 4 filed on June
9, 2005 to Registration Statement on Form SB-2 (File No.
333-122504).
|
|
|
10.34
|
Royalty
Agreement, dated as of May 11, 2003, by and between Cobra
Bio-Manufacturing PLC and the registrant. Incorporated by
reference to Exhibit 10.28 to Pre-Effective Amendment No. 4 filed on June
9, 2005 to Registration Statement on Form SB-2 (File No.
333-122504).
|
|
|
10.35
|
Letter
Agreement between the registrant and Investors Relations Group Inc., dated
September 27, 2005. Incorporated by reference to Exhibit 10.31
to Post-Effective Amendment filed on January 5, 2006 to Registration
Statement on Form SB-2 (File No. 333-122504).
|
|
|
10.36
|
Consultancy
Agreement between the registrant and Freemind Group LLC, dated October 17,
2005. Incorporated by reference to Exhibit 10.32 to
Post-Effective Amendment filed on January 5, 2006 to Registration
Statement on Form SB-2 (File No. 333-122504).
|
|
|
10.37
|
Employment
Agreement dated August 21, 2007 between the registrant and Thomas
Moore. Incorporated by reference to Exhibit 10.3 to Current
Report on Form 8-K filed with the SEC on August 27,
2007.
|
|
|
10.38
|
Employment
Agreement dated February 9, 2006 between the registrant and Fred
Cobb. Incorporated by reference to Exhibit 10.35 to the
Registration Statement on Form SB-2 (File No. 333-132298) filed with the
SEC on March 9, 2006.
|
|
|
10.39
|
Termination
of Employment Agreement between J. Todd Derbin and the registrant dated
October 31, 2005. Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed with the SEC on November 9,
2005.
|
|
|
10.40
|
Consulting
Agreement dated June 1, 2006 between the registrant and Biologics
Consulting Group Inc. Incorporated by reference to Exhibit
10.40 to Annual Report on Form 10-KSB field with the SEC on February 13,
2007.
|
|
|
10.41
|
Consulting
Agreement dated June 1, 2006 between the registrant and Biologics
Consulting Group Inc., as amended on June 1, 2007. Incorporated
by reference to Exhibit 10.42(i) to Annual Report on Form 10-KSB filed
with the SEC on January 16, 2008.
|
|
|
10.42
|
Master
Contract Service Agreement between the registrant and MediVector, Inc.
dated May 20, 2007. Incorporated by reference to Exhibit 10.44 to Annual
Report on Form 10-KSB filed with the SEC on January 16,
2008.
|
|
|
10.43
|
Letter
of Agreement, dated November 21, 2007, between Crystal Research
Associates, LLC and the registrant. Incorporated by reference to Exhibit
10.45 to Annual Report on Form 10-KSB filed with the SEC on January 16,
2008.
|
|
|
10.44
|
Service
Proposal O781, dated May 14, 2007, to the Strategic Collaboration and
Long Term Vaccine Supply Agreement, dated October 31, 2005, between the
registrant and Cobra Biomanufacturing Plc. Incorporated by reference to
Exhibit 10.46 to Annual Report on Form 10-KSB filed with the SEC on
January 16, 2008.
|
|
|
10.45
|
Service
Proposal, dated September 20, 2007, to the Strategic Collaboration
and Long Term Vaccine Supply Agreement, dated October 31, 2005, between
the registrant and Cobra Biomanufacturing Plc. Incorporated by reference
to Exhibit 10.47 to Annual Report on Form 10-KSB filed with the SEC on
January 16, 2008.
|
|
10.46
|
Consulting
Agreement, dated May 1, 2007 between the registrant and Bridge Ventures,
Inc. Incorporated by reference to Exhibit 10.48 to Annual Report on Form
10-KSB filed with the SEC on January 16, 2008.
|
|
|
10.47
|
Consulting
Agreement, dated August 1, 2007 between the Company and Dr. David Filer.
Incorporated by reference to Exhibit 10.49 to Annual Report on Form 10-KSB
filed with the SEC on January 16, 2008.
|
|
|
10.48
|
Employment
Agreement dated February 29, 2008 between the registrant and Christine
Chansky. Incorporated by reference to Exhibit 10.50 to Annual Report on
Form 10-KSB filed with the SEC on January 29, 2009.
|
|
|
10.49
|
Note
Purchase Agreement, dated September 22, 2008 by and between Thomas A.
Moore and the registrant. Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed with the SEC on September 30,
2008.
|
56
|
10.50
|
Lease
Extension Agreement dated June 1, 2008 by and between New Jersey Economic
Development Authority and the registrant. Incorporated by reference to
Exhibit 10.55 to Annual Report on Form 10-KSB filed with the SEC on
January 29, 2009.
|
|
|
10.51
|
Technical/Quality
Agreement dated May 6, 2008 by and between Vibalogics GmbH and the
registrant. Incorporated by reference to Exhibit 10.57 to Annual Report on
Form 10-KSB filed with the SEC on January 29, 2009.
|
|
|
10.52
|
Master
Service Agreement dated April 7, 2008 by and between Vibalogics GmbH and
the registrant. Incorporated by reference to Exhibit 10.58 to Annual
Report on Form 10-KSB filed with the SEC on January 29,
2009.
|
|
|
10.53
|
Agreement,
dated as of December 8, 2008, by and between The Sage Group and the
registrant. Incorporated by reference to Exhibit 10.59 to Annual Report on
Form 10-KSB filed with the SEC on January 29, 2009.
|
|
|
10.54
|
Service
Agreement dated January 1, 2009 by and between AlphaStaff, Inc. and the
registrant. Incorporated by reference to Exhibit 10.60 to Annual Report on
Form 10-KSB filed with the SEC on January 29, 2009.
|
|
|
10.55
|
Letter
of Intent dated November 20, 2008 by and between Numoda Corporation and
the registrant. Incorporated by reference to Exhibit 10.61 to Annual
Report on Form 10-KSB filed with the SEC on January 29,
2009.
|
|
|
10.56
|
Consulting
Agreement dated December 1, 2008 by and between Conrad Mir and the
registrant. Incorporated by reference to Exhibit 10.62 to Annual Report on
Form 10-KSB filed with the SEC on January 29, 2009.
|
|
|
10.57
|
Form
of Note Purchase Agreement. Incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K filed with the SEC on June 19,
2009.
|
|
|
10.58
|
Form
of Security Agreement. Incorporated by reference to Exhibit 10.2 to
Current Report on Form 8-K filed with the SEC on June 19,
2009.
|
|
|
10.59
|
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.
|
|
|
10.60
|
Preferred
Stock Purchase Agreement dated September 24, 2009 by and between Optimus
Capital Partners, LLC and the registrant. Incorporated by reference to
Exhibit 10.1 to Current Report on Form 8-K filed with the SEC on September
25, 2009.
|
|
|
10.61
|
Form
of Note Purchase Agreement, entered into in connection with the October
2009 bridge financing. Incorporated by reference to Exhibit 10.61 to
Registration Statement on Form S-1 (File No. 333-162632) filed with the
SEC on October 22, 2009.
|
|
|
10.62**
|
2009
Stock Option Plan of the registrant.
|
|
|
14.1
|
Code
of Business Conduct and Ethics dated November 12,
2004. Incorporated by reference to Exhibit 14.1 to Current
Report on Form 8-K filed with the SEC on November 18,
2004.
|
|
|
23.1
|
Consent
of McGladrey & Pullen, LLP.
|
|
|
24.1
|
|
Power
of Attorney (Included in the signature page of this annual
report).
|
57
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this Annual Report to be signed on its behalf by the undersigned,
thereunto duly authorized, in North Brunswick, Middlesex County, State of New
Jersey, on this 19th day of February, 2010.
|
|
ADVAXIS,
INC.
|
|
|
By:
|
/s/ Thomas Moore
|
|
|
Thomas Moore, Chief Executive Officer and Chairman
of the Board
|
||
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas Moore and Mark J. Rosenblum (with full power to
act alone), as his true and lawful attorneys-in-fact and agents, with full
powers of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Annual
Report on Form 10-K and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, lawfully do or
cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
|
SIGNATURE
|
TITLE
|
DATE
|
||
|
/s/ Thomas Moore
|
Chief
Executive Officer and Chairman of the Board
|
February
19, 2010
|
||
|
Thomas
Moore
|
(Principal
Executive Officer)
|
|||
|
/s/ Mark J. Rosenblum
|
Chief
Financial Officer, Senior Vice President and Secretary
|
February
19, 2010
|
||
|
Mark
J. Rosenblum
|
(Principal
Financial and Accounting Officer)
|
|||
|
/s/ John M. Rothman
|
Executive
Vice President of Science and Operations
|
February
19, 2010
|
||
|
John
M. Rothman
|
(Chief
Operating Officer)
|
|||
|
Roni Appel
|
Director
|
February
19, 2010
|
||
|
Roni
Appel
|
||||
|
/s/ Thomas McKearn
|
Director
|
February
19, 2010
|
||
|
Thomas
McKearn
|
||||
|
/s/ James Patton
|
Director
|
February
19, 2010
|
||
|
James
Patton
|
||||
|
/s/ Richard Berman
|
Director
|
February
19, 2010
|
||
|
Richard
Berman
|
58
ADVAXIS,
INC.
FINANCIAL
STATEMENTS
INDEX
|
Page
|
||
|
Advaxis,
Inc.
|
F-1
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Balance
Sheets as of October 31,
2009 and 2008
|
F-3
|
|
|
Statements
of Operations for the years ended October 31, 2009 and 2008 and the period
from
|
||
|
March
1, 2002 (Inception) to October 31, 2009
|
F-4
|
|
|
Statements
of Stockholders’ Equity (Deficiency) for the Period from March 1, 2002
(Inception) to
|
||
|
October
31, 2009
|
F-5
|
|
|
Statements
of Cash Flows for the years ended October 31, 2009 and 2008 and the period
from
|
||
|
March
1, 2002 (Inception) to October 31, 2009
|
F-7
|
|
|
Notes
to the Financial Statements
|
F-8
|
F-1
To the
Board of Directors and Shareholders
Advaxis,
Inc.
North
Brunswick, New Jersey
We have
audited the balance sheets of Advaxis, Inc. (a development stage company) as of
October 31, 2009 and 2008, and the related statements of operations,
shareholders’ equity (deficiency) and cash flows for the years then ended and
for the cumulative period from March 1, 2002 (inception) to October 31,
2009.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. The financial statements for the period from March 1,
2002 (inception) to October 31, 2006 were audited by other auditors and our
opinion, insofar as it relates to cumulative amounts included for such prior
periods, is based solely on the reports of such other auditors.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, based on our audits and the reports of other auditors, the financial
statements referred to above present fairly, in all material respects, the
financial position of Advaxis, Inc. as of October 31, 2009 and 2008 and the
results of its operations and its cash flows for the years then ended and the
cumulative period from March 1, 2002 (inception) to October 31, 2009 in
conformity with accounting principles generally accepted in the United
States.
We were
not engaged to examine management’s assertion about the effectiveness of Advaxis
Inc.’s internal control over financial reporting as of October 31, 2009 included
in the accompanying “Management’s Report on Internal Control over Financial
Reporting” and, accordingly, we do not express an opinion thereon.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company’s products are being developed and have not generated
significant revenues. As a result, the Company has suffered recurring losses and
its liabilities exceed its assets. This raises substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
MCGLADREY & PULLEN LLP
New York,
New York
February 19,
2010
F-2
(A
Development Stage Company)
Balance
Sheet
|
October 31,
2009
|
October 31,
2008
|
|||||||
|
ASSETS
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
|
$ | 659,822 | $ | 59,738 | ||||
|
Prepaid
expenses
|
36,445 | 38,862 | ||||||
|
Total
Current Assets
|
696,267 | 98,600 | ||||||
|
Deferred
expenses
|
288,544 | - | ||||||
|
Property
and Equipment (net of accumulated depreciation)
|
54,499 | 91,147 | ||||||
|
Intangible
Assets (net of accumulated amortization)
|
1,371,638 | 1,137,397 | ||||||
|
Deferred
Financing Cost
|
299,493 | |||||||
|
Other
Assets
|
3,876 | 3,876 | ||||||
|
TOTAL
ASSETS
|
$ | 2,714,317 | $ | 1,331,020 | ||||
|
LIABILITIES
AND SHAREHOLDERS’ DEFICIENCY
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Accounts
payable
|
$ | 2,368,716 | $ | 998,856 | ||||
|
Accrued
expenses
|
917,250 | 603,345 | ||||||
|
Convertible
Bridge Notes and fair value of embedded derivative
|
2,078,851 | - | ||||||
|
Notes
payable – current portion, including interest payable
|
1,121,094 | 563,317 | ||||||
|
Total
Current Liabilities
|
6,485,911 | 2,165,518 | ||||||
|
Common
Stock Warrant
|
11,961,734 | - | ||||||
|
Notes
payable - net of current portion
|
- | 4,813 | ||||||
|
Total
Liabilities
|
$ | 18,447,645 | $ | 2,170,331 | ||||
|
Shareholders’
Deficiency:
|
||||||||
|
Preferred
stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and
outstanding
|
- | - | ||||||
|
Common
Stock - $0.001 par value; authorized 500,000,000 shares, issued and
outstanding 115,638,243 in 2009 and 109,319,520 in 2008
|
115,638 | 109,319 | ||||||
|
Additional
Paid-In Capital
|
754,834 | 16,584,414 | ||||||
|
Deficit
accumulated during the development stage
|
(16,603,800 | ) | (17,533,044 | ) | ||||
|
Total
Shareholders' Deficiency
|
(15,733,328 | ) | (839,311 | ) | ||||
|
TOTAL
LIABILITIES & SHAREHOLDERS’ DEFICIENCY
|
$ | 2,714,317 | $ | 1,331,020 | ||||
The
accompanying notes and the report of independent registered public accounting
firm should be read in conjunction with the financial statements.
F-3
ADVAXIS,
INC.
(A
Development Stage Company)
Statement
of Operations
|
Year Ended
October 31,
|
Year Ended
October 31,
|
Period from
March 1, 2002
(Inception) to
October 31,
|
||||||||||
|
2009
|
2008
|
2009
|
||||||||||
|
Revenue
|
$ | 29,690 | $ | 65,736 | $ | 1,354,862 | ||||||
|
Research
& Development Expenses
|
2,315,557 | 2,481,840 | 10,173,541 | |||||||||
|
General
& Administrative Expenses
|
2,701,133 | 3,035,680 | 12,709,700 | |||||||||
|
Total
Operating expenses
|
5,016,690 | 5,517,520 | 22,883,243 | |||||||||
|
Loss
from Operations
|
(4,987,000 | ) | (5,451,784 | ) | (21,528,379 | ) | ||||||
|
Other
Income (expense):
|
||||||||||||
|
Interest
expense
|
(851,008 | ) | (11,263 | ) | (1,935,491 | ) | ||||||
|
Other
Income
|
46,629 | 246,457 | ||||||||||
|
Gain
on note retirement
|
- | - | 1,532,477 | |||||||||
|
Net
changes in fair value of common stock warrant liability and embedded
derivative liability
|
5,845,229 | - | 4,202,997 | |||||||||
|
Net
Income/( Loss) before income tax benefit
|
7,221 | (5,416,418 | ) | (17,481,939 | ) | |||||||
|
Income
Tax Benefit
|
922,023 | - | 922,023 | |||||||||
|
Net
Income/( Loss)
|
929,244 | (5,416,418 | ) | (16,559,916 | ) | |||||||
|
Dividends
attributable to preferred shares
|
- | - | 43,884 | |||||||||
|
Net
Income/( Loss) applicable to Common Stock
|
$ | 929,244 | $ | (5,416,418 | ) | $ | (16,603,800 | ) | ||||
|
Net
Income/(Loss) per share, basic
|
$ | 0.01 | $ | (0.05 | ) | |||||||
|
Net
Income/(Loss) per share, diluted
|
$ | 0.01 | (0.05 | ) | ||||||||
|
Weighted
average number of shares outstanding, basic
|
113,365,584 | 108,715,875 | ||||||||||
|
Weighted
average number of shares outstanding, diluted
|
118,264,246 | 108,715,875 | ||||||||||
The
accompanying notes and the report of independent registered public accounting
firm should be read in conjunction with the financial
statements.
F-4
ADVAXIS,
INC.
(a
development stage company)
STATEMENT
OF SHAREHOLDERS’ EQUITY (DEFICIENCY)
Period
from March 1, 2002 (inception) to October 31, 2009
|
Preferred Stock
|
Common Stock
|
Deficit
|
||||||||||||||||||||||||||
|
Number of
Shares of
Outstanding
|
Amount
|
Number of shares
of outstanding
|
Amount
|
Additional Paid-in Capital
|
Accumulated
During the
Development Stage
|
Shareholders’
Equity (Deficiency)
|
||||||||||||||||||||||
|
Preferred
stock issued
|
3,418
|
$
|
235,000
|
$
|
235,000
|
|||||||||||||||||||||||
|
Common
Stock Issued
|
40,000
|
$
|
40
|
$
|
(40
|
)
|
||||||||||||||||||||||
|
Options
granted to consultants & professionals
|
10,493
|
$
|
10,493
|
|||||||||||||||||||||||||
|
Net
Loss
|
(166,936
|
)
|
$
|
(166,936
|
)
|
|||||||||||||||||||||||
|
Retroactive
restatement to reflect re-capitalization on Nov. 12, 2004
|
(3,481
|
)
|
(235,000
|
)
|
15,557,723
|
15,558
|
219,442
|
|||||||||||||||||||||
|
Balance
at December 31, 2002
|
15,597,723
|
$
|
15,598
|
$
|
229,895
|
$
|
(166,936
|
)
|
$
|
78,557
|
||||||||||||||||||
|
Note
payable converted into preferred stock
|
232
|
15,969
|
$
|
15,969
|
||||||||||||||||||||||||
|
Options
granted to consultants and professionals
|
8,484
|
$
|
8,484
|
|||||||||||||||||||||||||
|
Net
loss
|
(909,745
|
)
|
$
|
(909,745
|
)
|
|||||||||||||||||||||||
|
Retroactive
restatement to reflect re-capitalization on Nov. 12, 2004
|
(232
|
)
|
(15,969
|
)
|
15,969
|
|||||||||||||||||||||||
|
Balance
at December 31, 2003
|
15,597,723
|
$
|
15,598
|
$
|
254,348
|
$
|
(1,076,681
|
)
|
$
|
(806,735
|
)
|
|||||||||||||||||
|
Stock
dividend on preferred stock
|
638
|
43,884
|
(43,884
|
)
|
||||||||||||||||||||||||
|
Net
loss
|
(538,076
|
)
|
$
|
(538,076
|
)
|
|||||||||||||||||||||||
|
Options
granted to consultants and professionals
|
5,315
|
5,315
|
||||||||||||||||||||||||||
|
Retroactive
restatement to reflect re-capitalization on Nov. 12, 2004
|
(638
|
)
|
(43,884
|
)
|
43,884
|
|||||||||||||||||||||||
|
Balance
at October 31, 2004
|
15,597,723
|
$
|
15,598
|
$
|
303,547
|
$
|
(1,658,641
|
)
|
$
|
(1,339,496
|
)
|
|||||||||||||||||
|
Common
Stock issued to Placement Agent on re-capitalization
|
752,600
|
753
|
(753
|
)
|
||||||||||||||||||||||||
|
Effect
of re-capitalization
|
752,600
|
753
|
(753
|
)
|
||||||||||||||||||||||||
|
Options
granted to consultants and professionals
|
64,924
|
64,924
|
||||||||||||||||||||||||||
|
Conversion
of Note payable to Common Stock
|
2,136,441
|
2,136
|
611,022
|
613,158
|
||||||||||||||||||||||||
|
Issuance
of Common Stock for cash, net of shares to Placement Agent
|
17,450,693
|
17,451
|
4,335,549
|
4,353,000
|
||||||||||||||||||||||||
|
Issuance
of common stock to consultants
|
586,970
|
587
|
166,190
|
166,777
|
||||||||||||||||||||||||
|
Issuance
of common stock in connection with the registration
statement
|
409,401
|
408
|
117,090
|
117,498
|
||||||||||||||||||||||||
|
Issuance
costs
|
(329,673
|
)
|
(329,673
|
)
|
||||||||||||||||||||||||
|
Net
loss
|
(1,805,789
|
)
|
(1,805,789
|
)
|
||||||||||||||||||||||||
|
Restatement
to reflect re- capitalization on Nov. 12, 2004 including cash paid of
$44,940
|
(88,824
|
)
|
(88,824
|
)
|
||||||||||||||||||||||||
|
Balance
at October 31, 2005
|
37,686,428
|
$
|
37,686
|
$
|
5,178,319
|
$
|
(3,464,430
|
)
|
$
|
1,751,575
|
||||||||||||||||||
|
Options
granted to consultants and professionals
|
172,831
|
172,831
|
||||||||||||||||||||||||||
|
Options
granted to employees and directors
|
71,667
|
71,667
|
||||||||||||||||||||||||||
|
Conversion
of debenture to Common Stock
|
1,766,902
|
1,767
|
298,233
|
300,000
|
||||||||||||||||||||||||
|
Issuance
of Common Stock to employees and directors
|
229,422
|
229
|
54,629
|
54,858
|
||||||||||||||||||||||||
|
Issuance
of common stock to consultants
|
556,240
|
557
|
139,114
|
139,674
|
||||||||||||||||||||||||
|
Net
loss
|
(6,197,744
|
)
|
(6,197,744
|
)
|
||||||||||||||||||||||||
|
Balance
at October 31, 2006
|
40,238,992
|
40,239
|
5,914,793
|
(9,662,173
|
)
|
(3,707,141
|
)
|
|||||||||||||||||||||
|
Common
Stock issued
|
59,228,334
|
59,228
|
9,321,674
|
9,380,902
|
||||||||||||||||||||||||
|
Offering
Expenses
|
(2,243,535
|
)
|
(2,243,535
|
)
|
||||||||||||||||||||||||
|
Options
granted to consultants and professionals
|
268,577
|
268,577
|
||||||||||||||||||||||||||
|
Options
granted to employees and directors
|
222,501
|
222,501
|
||||||||||||||||||||||||||
|
Conversion
of debenture to Common Stock
|
6,974,202
|
6,974
|
993,026
|
1,000,010
|
||||||||||||||||||||||||
|
Issuance
of Common Stock to employees and directors
|
416,448
|
416
|
73,384
|
73,800
|
||||||||||||||||||||||||
|
Issuance
of common stock to consultants
|
1,100,001
|
1,100
|
220,678
|
221,778
|
||||||||||||||||||||||||
|
Warrants
issued on conjunction with issuance of common stock
|
1,505,550
|
1,505,550
|
||||||||||||||||||||||||||
|
Net
loss
|
(2,454,453
|
)
|
(2,454,453
|
)
|
||||||||||||||||||||||||
|
Balance
at October 31, 2007
|
107,957,977
|
$
|
107,957
|
$
|
16,276,648
|
$
|
(12,116,626
|
)
|
$
|
4,267,979
|
||||||||||||||||||
|
Common
Stock Penalty Shares
|
211,853
|
212
|
31,566
|
-
|
31,778
|
|||||||||||||||||||||||
|
Offering
Expenses
|
(78,013
|
)
|
(78,013
|
)
|
||||||||||||||||||||||||
|
Options
granted to consultants and professionals
|
(42,306
|
)
|
(42,306
|
)
|
||||||||||||||||||||||||
|
Options
granted to employees and directors
|
257,854
|
257,854
|
||||||||||||||||||||||||||
|
Issuance
of Common Stock to employees and directors
|
995,844
|
996
|
85,005
|
86,001
|
||||||||||||||||||||||||
|
Issuance
of common stock to consultants
|
153,846
|
154
|
14,462
|
14,616
|
||||||||||||||||||||||||
|
Warrants
issued to consultant
|
39,198
|
39,198
|
||||||||||||||||||||||||||
|
Net
loss
|
(5,416,418
|
)
|
(5,416,418
|
)
|
||||||||||||||||||||||||
|
Balance
at October 31, 2008
|
109,319,520
|
$
|
109,319
|
$
|
16,584,414
|
$
|
(17,533,044
|
)
|
$
|
(839,311
|
)
|
|||||||||||||||||
|
Common
stock issued upon exercise of warrants
|
3,299,999
|
3,300
|
(3,300
|
)
|
0
|
|||||||||||||||||||||||
|
Warrants
classified as a liability
|
(12,785,695
|
)
|
(12,785,695
|
)
|
||||||||||||||||||||||||
|
Issuance
of common Stock Warrants
|
(3,587,625
|
) |
(3,587,625)
|
|||||||||||||||||||||||||
|
Options
granted to professionals and consultants
|
12,596
|
12,596
|
||||||||||||||||||||||||||
|
Options
granted to employees and directors
|
0
|
467,304
|
467,304
|
|||||||||||||||||||||||||
|
Issuance
of common stock to employees and directors
|
422,780
|
423
|
17,757
|
18,180
|
||||||||||||||||||||||||
|
Issuance
of common stock to consultants
|
2,595,944
|
2,596
|
49,383
|
51,979
|
||||||||||||||||||||||||
|
Net
Income/ (Loss)
|
|
|
929,244
|
929,244
|
||||||||||||||||||||||||
|
Balance
at October 31, 2009
|
115,638,243
|
$
|
115,638
|
$
|
754,834
|
$
|
(16,603,800
|
)
|
$
|
(15,733,328
|
)
|
|||||||||||||||||
The
accompanying notes and the report of independent registered public accounting
firm should be read in conjunction with the financial statements.
F-5
ADVAXIS,
INC.
(A
Development Stage Company)
Statement
of Cash Flows
|
|
Period from
|
|||||||||||
|
March 1
|
||||||||||||
|
2002
|
||||||||||||
|
Year ended
|
Year ended
|
(Inception) to
|
||||||||||
|
October 31,
|
October 31,
|
October 31,
|
||||||||||
|
2009
|
2008
|
2009
|
||||||||||
|
OPERATING
ACTIVITIES
|
||||||||||||
|
Net
Income (Loss)
|
$
|
929,244
|
$
|
(5,416,418
|
)
|
$
|
(16,559,916
|
)
|
||||
|
Adjustments
to reconcile net income (loss) to net cash used in operating
activities:
|
|
|||||||||||
|
Non-cash
charges to consultants and employees for options and stock
|
571,525
|
355,364
|
2,424,755
|
|||||||||
|
Amortization
of deferred financing costs
|
-
|
-
|
260,000
|
|||||||||
| Amortization of deferred expenses | 61,456 |
-
|
61,456 | |||||||||
|
Amortization
of discount on Bridge Loans
|
123,846
|
123,846
|
|
|||||||||
|
Non-cash
interest expense
|
698,650
|
7,907
|
1,216,835
|
|||||||||
|
(Gain)
Loss on change in value of warrants and embedded
derivative
|
(5,845,229
|
)
|
-
|
(4,202,997
|
) | |||||||
|
Value
of penalty shares issued
|
-
|
31,778
|
149,276
|
|||||||||
|
Depreciation
expense
|
36,648
|
36,137
|
128,738
|
|||||||||
|
Amortization
expense of intangibles
|
74,508
|
161,208
|
388,019
|
|||||||||
|
Gain
on note retirement
|
-
|
-
|
(1,532,477
|
)
|
||||||||
|
(Increase)
decrease in prepaid expenses
|
2,417
|
161,055
|
(36,445
|
)
|
||||||||
|
Decrease
(increase) in other assets
|
-
|
-
|
(3,876
|
)
|
||||||||
|
Increase
in accounts payable
|
1,421,838
|
211,559
|
2,857,900
|
|||||||||
|
(Decrease)
increase in accrued expenses
|
(109,540
|
)
|
298,322
|
477,618
|
||||||||
|
(Decrease)
increase in interest payable
|
-
|
-
|
18,291
|
|||||||||
|
Net
cash used in operating activities
|
(2,034,636
|
)
|
(4,153,088
|
)
|
(14,228,977
|
)
|
||||||
|
INVESTING
ACTIVITIES
|
||||||||||||
|
Cash
paid on acquisition of Great Expectations
|
-
|
-
|
(44,940
|
)
|
||||||||
|
Purchase
of property and equipment
|
-
|
(10,842
|
)
|
(137,657
|
)
|
|||||||
|
Cost
of intangible assets
|
(308,749
|
)
|
(200,470
|
)
|
(1,834,609
|
)
|
||||||
|
Net
cash used in Investing Activities
|
(308,749
|
)
|
(211,312
|
)
|
(2,017,206
|
)
|
||||||
|
FINANCING
ACTIVITIES
|
||||||||||||
|
Proceeds
from (repayment of) convertible secured debenture
|
-
|
-
|
960,000
|
|||||||||
|
Cash
paid for deferred financing costs
|
(299,493
|
)
|
-
|
(559,493
|
)
|
|||||||
|
Proceeds
from notes payable
|
3,259,635
|
475,000
|
5,005,860
|
|||||||||
|
Payment
on notes payable
|
(16,672
|
)
|
(14,832
|
)
|
(123,591
|
)
|
||||||
|
Net
proceeds of issuance of Preferred Stock
|
-
|
-
|
235,000
|
|||||||||
|
Payment
on cancellation of Warrants
|
-
|
-
|
(600,000
|
)
|
||||||||
|
Net
proceeds of issuance of Common Stock
|
-
|
(78,014
|
)
|
11,988,230
|
||||||||
|
Net
cash provided by Financing Activities
|
2,943,469
|
382,154
|
16,906,005
|
|||||||||
|
Net
increase in cash
|
600,084
|
(3,982,246
|
)
|
659,822
|
||||||||
|
Cash
at beginning of period
|
59,738
|
4,041,984
|
-
|
|||||||||
|
Cash
at end of period
|
$
|
659,822
|
$
|
59,738
|
$
|
659,822
|
||||||
The
accompanying notes and the report of independent registered public accounting
firm should be read in conjunction with the financial
statements.
F-6
Supplemental Schedule of
Noncash Investing and Financing Activities
|
Period from
|
||||||||||||
|
March 1, 2002
|
||||||||||||
|
Year ended
|
Year ended
|
(Inception) to
|
||||||||||
|
October 31,
|
October 31,
|
October 31,
|
||||||||||
|
2009
|
2008
|
2008
|
||||||||||
|
Equipment
acquired under notes payable
|
$
|
$
|
-
|
$
|
45,580
|
|||||||
|
Common
Stock issued to Founders
|
$
|
$
|
-
|
$
|
40
|
|||||||
|
Notes
payable and accrued interest converted to Preferred Stock
|
$
|
$
|
-
|
$
|
15,969
|
|||||||
|
Stock
dividend on Preferred Stock
|
$
|
$
|
-
|
$
|
43,884
|
|||||||
|
Accounts
payable from consultants settled with common stock
|
51,978
|
-
|
51,978
|
|||||||||
|
Notes
payable and accrued interest converted to Common
Stock
|
$
|
$
|
-
|
$
|
2,513,158
|
|||||||
|
Intangible
assets acquired with notes payable
|
$
|
$
|
-
|
$
|
360,000
|
|||||||
|
Debt
discount in connection with recording the original value of the embedded
derivative liability
|
$
|
1,579,646
|
$
|
-
|
$
|
2,082,442
|
||||||
|
Allocation
of the original secured convertible debentures to warrants
|
$
|
$
|
-
|
$
|
214,950
|
|||||||
|
Allocation
of the warrants on Bridge Notes as debt discount
|
$
|
940,511
|
-
|
$
|
940,511
|
|||||||
|
Warrants
issued in connection with issuance of Common Stock
|
$
|
$
|
-
|
$
|
1,505,550
|
|||||||
|
Warrants
issued in connection with issuance of Preferred Stock
|
$
|
3,587,625
|
$
|
-
|
$
|
3,587,625
|
||||||
The
accompanying notes and the report of independent registered public accounting
firm should be read in conjunction with the financial
statements.
F-7
ADVAXIS,
INC.
NOTES
TO FINANCIAL STATEMENTS
|
1.
|
PRINCIPAL BUSINESS ACTIVITY AND
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
|
Advaxis,
Inc. (the "Company") was incorporated in 2002 and is a biotechnology company
researching and developing new cancer-fighting techniques. The Company is in the
development stage and its operations are subject to all of the risks inherent in
an emerging business enterprise.
The
preparation of financial statements in accordance with GAAP involves the use of
estimates and assumptions that affect the recorded amounts of assets and
liabilities as of the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results may differ
substantially from these estimates. Significant estimates include the fair value
and recoverability of the carrying value of intangible assets (patents and
licenses) the fair value of options, the fair value of embedded conversion
features, warrants, and related disclosure of contingent assets and liabilities.
On an on-going basis, we evaluate our estimates, based on historical experience
and on various other assumptions that we believe to be reasonable under the
circumstances. Actual results may differ from these estimates.
The
Company’s products are being developed and not generated significant revenues.
As a result, the Company has suffered recurring losses and its liabilities
exceed its assets which raises substantial doubt about our ability to continue
as a going concern.. These losses are expected to continue for an extended
period of time. The Company plans to obtain sufficient financing so it can
develop and market its products. The Company began to aggressively raise capital
during June 2009. From June 2009 through October 31, 2009 the Company was able
to raise $2,786,650 through the sale of promissory notes with a principal amount
of $3,278,412 and with attached warrants. In addition the Company has entered
into an agreement with Optimus Capital Partners, LLC. for the sale of up to
$5,000,000 of Preferred Stock. In January 2010 the Company closed on
the sale of $1,450,000 in gross proceeds from the sale of such stock. The
Company intends to continue raising funds through the sale of both debt and
equity and expects to fund at least one arm of our Phase II CIN trial and to
assess the potential outcome of the trial. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
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 statement does not
include any adjustments to the carrying amount and classification of recorded
assets and liabilities should we be unable to continue operations.
Revenue
from license fees and grants is recognized when the following criteria are met;
persuasive evidence of an arrangement exists, services have been rendered, the
contract price is fixed or determinable, and collectability is reasonably
assured. In licensing arrangements, delivery does not occur for revenue
recognition purposes until the license term begins. Nonrefundable upfront fees
received in exchange for products delivered or services performed that do not
represent the culmination of a separate earnings process will be deferred and
recognized over the term of the agreement using the straight line method or
another method if it better represents the timing and pattern of performance.
Since its inception and through October 31, 2009 all of the Company’s revenues
have been from grants. For the years ended October 31, 2009 and 2008, all of the
Company’s revenues were received from one grant and two grants,
respectively.
For
revenue contracts that contain multiple elements, revenue arrangements with
multiple deliverables are divided into separate units of accounting if the
delivered item has value to the customer on a standalone basis and there is
objective and reliable evidence of the fair value of the undelivered
item.
F-8
The
Company maintains its cash in bank deposit accounts (money market) that at times
exceed federally insured limits.
Equipment: Equipment is stated at
cost. Depreciation and amortization are provided for on a straight-line basis
over the estimated useful life of the asset ranging from 3 to 5 years.
Expenditures for maintenance and repairs that do not materially extend the
useful lives of the respective assets are charged to expense as incurred. The
cost and accumulated depreciation or amortization of assets retired or sold are
removed from the respective accounts and any gain or loss is recognized in
operations.
Intangible
assets, which consist primarily of legal and filing costs in obtaining patents
and licenses and are being amortized on a straight-line basis over 20 years.
We review
our long-lived assets for impairment whenever events and circumstances indicate
that the carrying value of an asset might not be recoverable and its carrying
amount exceeds its fair value, which is based upon estimated undiscounted future
cash flows. Net assets recorded on the balance sheet for patents and licenses
related to ADXS11-001, ADXS31-142, ADXS31-164 and other products are in
development. However, if a competitor were to gain FDA approval for a treatment
before us or if future clinical trials fail to meet the targeted endpoints, we
would likely record an impairment related to these assets. In addition, if an
application is rejected or fails to be issued we would record an impairment of
its estimated book value. In January 2009 the company decided to discontinue its
use of the Trademark Lovaxin and write-off of its intangible assets for
trademarks resulting in an asset impairment of $91,453 as of October 31,
2008.
Basic
Income (loss) per share is computed by dividing net loss by the weighted-average
number of shares of common stock outstanding during the periods. Diluted
earnings per share gives effect to dilutive options, warrants, convertible
debt and other potential common stock outstanding during the period.
Therefore, the impact of the potential common stock resulting from warrants and
outstanding stock options are not included in the computation of diluted loss
per share, as the effect would be anti-dilutive. The Company also has
outstanding convertible debt, but the amount of shares is not a set amount due
to the contingent nature of the exercise price as further described in Note 5.
The table sets forth the number of potential shares of common stock that have
been excluded from diluted net loss per share.
|
October 31, 2009
|
October 31, 2008
|
|||||||
|
Warrants
|
127,456,301 | 97,187,400 | ||||||
|
Stock
Options
|
7,881,591 | 8,812,841 | ||||||
| Convertible Debt (using the if-converted method) | 49,749,280 | - | ||||||
|
Total
|
185,087,172 | 106,000,241 | ||||||
No
deferred income taxes are provided for the differences between the bases of
assets and liabilities for financial reporting and income tax purposes. Future
ownership changes may limit the future utilization of these net operating loss
and research and development tax credit carry-forwards as defined by the
Internal Revenue Code. The amount of any potential limitation is unknown. The
net deferred tax asset has been fully offset by a valuation allowance due to our
history of taxable losses and uncertainty regarding our ability to generate
sufficient taxable income in the future to utilize these deferred tax
assets.
The
estimated fair value of the notes payable approximates the principal amount
based on the rates available to the Company for similar debt.
Accounts
payable consists entirely of trade accounts payable.
Research
and development costs are charged to expense as incurred.
In June,
2008, The FASB ratified Emerging Issues Task Force (EITF) Issue No 07-05,
“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 entity’s own stock. It is effective for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years, which is
our first quarter of fiscal 2010. Many of the warrants issued by the Company
contain a strike price adjustment feature, which upon adoption of EITF 07-5,
will result in the instruments no longer being considered indexed to the
Company’s own stock. The Company is currently evaluating the impact the
adoption of EITF 07-5 will have on its financial position, results of operation,
or cash flows.
F-9
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.
The
Company has evaluated the financial statements for subsequent events through the
date of filing of this annual report on Form 10-K on February 19,
2010.
2. SHARE-BASED
COMPENSATION EXPENSE
The
Company adopted SFAS 123(R) and uses the modified prospective transition
method, which requires the application of the accounting standard as of November
1, 2005, the first day of the Company’s fiscal year 2006. In accordance with the
modified prospective transition method, the Company’s Financial Statements for
prior periods were not restated to reflect, and do not include the impact of
SFAS 123(R). The Company began recognizing expense in an amount equal to
the fair value of share-based payments (stock option awards) on their date of
grant, over the requisite service period of the awards (usually the vesting
period). Under the modified prospective method, compensation expense for the
Company is recognized for all share based payments granted and vested on or
after November 1, 2005 and all awards granted to employees prior to
November 1, 2005 that were unvested on that date but vested in the period over
the requisite service periods in the Company’s Statement of Operations. Prior to
the adoption of the fair value method, the Company accounted for stock-based
compensation to employees under the intrinsic value method of accounting set
forth in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees , and related interpretations. Therefore, compensation expense
related to employee stock options was not reflected in operating expenses in any
period prior to the fiscal year of 2006 and prior period results have not been
restated. Since the date of inception to October 31, 2005 had the Company
adopted the fair value based method of accounting for stock-based employee
compensation under the provisions of SFAS No. 123, Stock Option Expense
would have totaled $328,176 for the period March 1, 2002 (date of inception) to
October 31, 2009, and the effect on the Company’s net loss would have been as
follows:
|
March 1, 2002
(date of
inception) to
October 31,
2009
|
||||
|
Net
Loss as reported
|
$
|
(16,559,916
|
)
|
|
|
Add:
Stock based option expense included in recorded net loss
|
89,217
|
|||
|
Deduct
stock option compensation expense determined under fair value based
method
|
(328,176
|
)
|
||
|
Adjusted
Net Loss
|
$
|
(16,798,875
|
)
|
|
The fair
value of each option granted from the Company’s stock option plans during the
years ended October 31, 2009 and 2008 was estimated on the date of grant using
the Black-Scholes option-pricing model. Using this model, fair value is
calculated based on assumptions with respect to (i) expected volatility of
the Company’s Common Stock price, (ii) the periods of time over which employees
and Board Directors are expected to hold their options prior to exercise
(expected lives), (iii) expected dividend yield on the Company’s Common
Stock, and (iv) risk-free interest rates, which are based on quoted U.S.
Treasury rates for securities with maturities approximating the options’
expected lives. Expected volatility for a development stage biotechnology
company is very difficult to estimate as such; the company considered several
factors in computing volatility. The company used their own historical
volatility in determining the volatility to be used. Expected lives are based on
contractual terms given the early stage of the business, lack of intrinsic value
and significant future dilution along typical of early stage biotech. The
expected dividend yield is zero as the Company has never paid dividends to
common shareholders and does not currently anticipate paying any in the
foreseeable future.
F-10
|
Year Ended
|
Year Ended
|
|||||||
|
October 31,
2009
|
October 31,
2008
|
|||||||
|
Expected
volatility
|
170.2
|
%
|
110.1
|
%
|
||||
|
Expected
Life
|
6.0
years
|
5.9
years
|
||||||
|
Dividend
yield
|
0
|
0
|
||||||
|
Risk-free
interest rate
|
3.5
|
%
|
3.6
|
%
|
||||
Stock-based
compensation expense recognized during the period is based on the value of the
portion of share-based payment awards that vested during the period. Stock-based
compensation expense for the twelve months ended October 31, 2009 includes
compensation expense for share-based payment awards granted prior to, but not
yet vested as of October 31, 2005 based on the grant date fair value and
compensation expense for the share-based payment awards granted subsequent to
October 31, 2005 based on the grant date fair value estimated in accordance with
the provisions of SFAS 123(R). Compensation expense for all share-based payment
awards to be recognized using the straight line method over the requisite
service period. As stock-based compensation expense for the fiscal years 2009
and 2008 is based on awards granted and vested, it has been reduced for
estimated forfeitures (4.4%). SFAS 123(R) requires forfeitures to be estimated
at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. In the Company’s pro forma information
required under SFAS 123 for the periods prior to fiscal 2006, the Company
accounted for forfeitures as they occurred.
Warrant
Expense
Pursuant
to the November 21, 2007 Letter of Agreement between Crystal Research Associates
and Advaxis, Inc. we issued 400,000 warrants expiring in four years to purchase
Advaxis stock at $0.20 per share and $40,000 for providing a fee-based research
document. The company recorded a fair value of $39,198 in Fiscal
2008.
On
October 17, 2007 (the closing date of the private placement) the following
transactions took place:
Pursuant
to the related Placement Agency Agreement with Carter Securities, LLC, the
Company paid the placement agent $354,439 in cash commissions and reimbursement
of expenses and issued to it 2,949,333 warrants exercisable at $0.20 (prior to
anti-dilution adjustments) per share. The fair value of the warrants is
estimated to be $574,235. The fair value of the warrants was calculated using
the Black-Scholes valuation model with the following assumptions: 2,949,333
warrants, market price of common stock on the date of sale of $0.23 per share
October 17, 2007, exercise price of $0.20, risk-free interest rate of 4.16%,
expected volatility of 119% and expected life of 5 years. The value of the
warrants and cash are included in APIC as a reduction to net proceeds from the
October 2007 private placement.
In
accordance with a consulting agreement, Centrecourt Asset Management was paid
$328,000 in cash commissions and issued 2,483,333 warrants exercisable at $0.20
(prior to anti-dilution adjustments) per share. The fair value of the warrants
is estimated to be $483,505. The fair value of the warrants was calculated using
the Black-Scholes valuation model with the following assumptions: 2,483,333
warrants, market price of common stock on the date of sale of $0.23 per share on
October 17, 2007, an exercise price of $0.20 (prior to anti-dilution
adjustments), risk-free interest rate of 4.16%, expected volatility of 119% and
expected life of 5 years. The value of the warrants and one half of the cash was
included in APIC as a reduction to net proceeds from the October 2007 private
placement. The other half of the cash was recorded as prepaid expense for
advisory consulting services to be amortized over the balance of the term of the
one- year agreement.
F-11
In
accordance with a consulting agreement with BridgeVentures they were paid
$51,427 in cash commissions and issued 800,000 warrants exercisable at $0.20
(prior to anti-dilution adjustments) per share. The fair value of the warrants
is estimated to be $155,760. The fair value of the warrants was calculated using
the Black-Scholes valuation model with the following assumptions: 800,000
warrants, market price of common stock on the date of sale of $0.23 per share on
October 17, 2007, an exercise price of $0.20 (prior to anti-dilution
adjustments), risk-free interest rate of 4.16%, expected volatility of 119% and
expected life of 5 years. The value of the warrants and the cash was included in
APIC as a reduction to net proceeds from the October 2007 private placement. The
future consulting payments of cash will recorded as consulting expense for
advisory consulting services over the balance of the agreement.
In
accordance with a consulting agreement with Dr. Filer, he was issued 1,500,000
warrants exercisable at $0.20 (prior to anti-dilution adjustments) per share.
The fair value of the warrants is estimated to be $292,050. The fair value of
the warrants was calculated using the Black-Scholes valuation model with the
following assumptions: 1,500,000 warrants, market price of common stock on the
date of sale of $0.23 per share on October 17, 2007, an exercise price of $0.20
(prior to anti-dilution adjustments), risk-free interest rate of 4.16%, expected
volatility of 119% and expected life of 5 years. The value of the warrants was
included in APIC as a reduction to net proceeds from the October 2007 private
placement. He receives a monthly fee of $5,000 for consulting recorded as
consulting expense for advisory consulting services over the balance of the
agreement.
The
Company accounts for nonemployee stock-based awards in which goods or services
are the consideration received for the equity instruments issued based on the
fair value of the equity instruments.
Substantially
all of the Company’s warrants are subject to anti-dilution provisions which have
the effect of adjusting the exercise price of outstanding
warrants. See also Note 6.
|
Warrants
Outstanding – October 31, 2008
|
97,187,400 | |||
|
Issued
New Warrants
|
40,716,625 | |||
|
Exercised
|
-3,333,333 | |||
|
Change
in Ratchet Calculation
|
-7,114,391 | |||
|
Warrants
Outstanding – October 31, 2009
|
127,456,301 | |||
3. INTANGIBLE
ASSETS:
Intangible
assets primarily consist of legal and filing costs associated with obtaining
patents and licenses. The license and patent costs capitalized primarily
represent the value assigned to the Company’s 20-year exclusive worldwide
license agreement with Penn which are amortized on a straight-line basis over
their remaining useful lives which are estimated to be twenty years from the
effective date of 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 24
patents issued and 15 pending filed in some of the largest markets in the world
(including 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 October 31,
2009 we are contingently liable for $548,105 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 October 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
October 31, 2009, all capitalized costs associated with the licenses and patents
filed and granted as well as costs associated with patents pending are
$1,371,638 as shown under license and patents on the table below, excluding the
Second Amendment costs. Of the total $1,651,574 in intangibles
capitalized the company estimates that $875,505 and $776,069 are for granted and
in granted patent applications, respectively. 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 October 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.
F-12
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,
2009
|
October
31,
2008
|
|||||||
|
License
|
$
|
571,275
|
$
|
$529,915
|
||||
|
Patents
|
1,080,299
|
812,910
|
||||||
|
Total
intangibles
|
1,651,574
|
1,342,825
|
||||||
|
Accumulated
Amortization and impairments
|
279,936
|
205,428
|
||||||
|
Intangible
Assets
|
$
|
1,371,638
|
$
|
1,137,397
|
||||
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 estimated fair value
determined by the sum of the undiscounted future net cash flows expected to
result from the use of the asset and its eventual disposition is less than 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.
The
following table represents the major components of accrued
expenses:
|
October 31,
2009
|
October 31,
2008
|
|||||||
|
Salaries
and other compensation
|
$ | 768,552 | $ | 430,256 | ||||
|
Sponsored
Research Agreement
|
119,698 | 119,698 | ||||||
|
Consultants
|
29,000 | 24,000 | ||||||
|
Warrants
|
- | 16,340 | ||||||
|
Clinical
Research Organization
|
- | 11,166 | ||||||
|
Other
|
- | 1,885 | ||||||
| $ | 917,250 | $ | 603,345 | |||||
5. NOTES PAYABLE:
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, including accrued interest,
approximates $1,044,500 as of October 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.
F-13
On
February 15, 2010, we agreed to amend the terms of the Moore Notes such that (i)
Mr. Moore may elect, at his option, to receive accumulated interest thereon on
or after March 17, 2010 (which we expect will amount to approximately $130,000),
(ii) we will begin to make monthly installment payments of $100,000 on the
outstanding principal amount beginning on April 15, 2010; provided, however,
that the balance of the principal will be repaid in full on consummation of our
next equity financing resulting in gross proceeds to us of at least $6.0 million
and (iii) we will retain $200,000 of the repayment amount for investment in our
next equity financing.
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.
Additionally,
on October 26, and October 30, 2009 the Company entered into Bridge Note
agreements whereby Investors acquired junior subordinated convertible promissory
notes of the Company in the aggregate face amounts of $1,617,647 and $529,412
for aggregate net purchase prices of $1,375,000 and $450,000 respectively. These
junior subordinated convertible promissory notes mature on April 30, 2010
subject to certain provisions in the note agreement.
Both the
June and October 2009 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. 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. (See also Note 11, Subsequent Events.)
In
connection with the bridge transaction, the Company entered into a Security
Agreement, dated as of June 18, 2009, October 26, 2009, and October 30, 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 like dates (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.
|
Description
|
Principal
|
Purchase
Price
|
Original Issue
Discount
|
Maturity Date
|
||||||||||
|
Tranche
I-June 18, 2009
|
$ | 1,131,353 | $ | 961,650 | $ | 169,703 |
December
31, 2009
|
|||||||
|
Tranche
II-October 26, 2009
|
1,617,647 | 1,375,000 | 242,647 |
April
30, 2010
|
||||||||||
|
Tranche
III-October 30, 2009
|
529,412 | 450,000 | 79,412 |
April
30, 2010
|
||||||||||
|
Total
Bridge Notes
|
$ | 3,278,412 | $ | 2,786,650 | $ | 491,762 | ||||||||
F-14
Activity
related to the Bridge Notes is as follows:
|
Bridge
Notes – Principal Value
|
$ | 3,278,412 | ||
|
Original
Issue Discount, net of accreted interest
|
(367,916 | ) | ||
|
Fair
Value of Attached Warrants at issuance
|
(940,512 | ) | ||
|
Fair
Value of Embedded Derivatives at issuance
|
(1,579,646 | ) | ||
|
Accreted
interest on embedded derivative and warrant liabilities
|
601,999 | |||
|
Convertible
Bridge Notes- as of October 31, 2009
|
$ | 922,337 | ||
|
Embedded
Derivatives Liability at October 31, 2009
|
1,086,514 | |||
|
Convertible Bridge
Notes and fair value of embedded derivative
|
$ | 2,078,851 |
BioAdvance
Biotechnology Greenhouse of Southeastern Pennsylvania Notes (“BioAdvance”)
received notes from the company for $10,000 dated November 13, 2003
and $40,000 dated December 17, 2003 that were each due on their fifth
anniversary date hereof. During November 2009 we paid $14,788 in full payment of
the November, 13, 2003 note and BioAdvance agreed to extend the remaining Note
until we draw down from our equity line of credit from Optimus. The outstanding
balance of this note as of October 31, 2009 approximates $73,600. The terms of
the outstanding Note calls for accrual of 8% interest per annum on the unpaid
principal.
6.
DERIVATIVE INSTRUMENTS:
As of
October 31, 2009, there were outstanding warrants to purchase 127,456,301 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). The table below lists the company’s derivative
instruments as of October 31, 2009 and includes the original value of the
warrants and the embedded derivatives:
|
Description
|
Principal
|
Original
Issue
Discount
|
Warrant
Liability
|
Embedded
Derivative
Liability
|
||||||||||||
|
Bridge
Note I-June 18, 2009
|
$ | 1,131,353 | $ | 169,703 | $ | 250,392 | $ | 711,258 | ||||||||
|
Bridge
Note II & III-October 26 & 30, 2009
|
2,147,059 | 322,059 | 690,119 | 868,388 | ||||||||||||
|
Optimus
September 24, 2009
|
- | - | 3,587,625 | - | ||||||||||||
|
Other
outstanding warrants
|
- | - | 12,785,695 | - | ||||||||||||
|
Total
Valuation at Origination
|
$ | 3,278,412 | $ | 491,762 | $ | 17,313,831 | $ | 1,579,646 | ||||||||
|
Change
in fair value
|
- | - | (5,352,697 | ) | (493,132 | ) | ||||||||||
|
Accreted
interest
|
- | (123,846 | ) | - | - | |||||||||||
|
Total
Valuation as of October 31, 2009
|
$ | 3,278,412 | $ | 367,916 | $ | 11,961,734 | $ | 1,086,514 | ||||||||
The
company is required to revalue these derivative instruments at the end of each
reporting period and record the changes in values to the profit and loss
statements line item Net changes in fair value of common stock warrant liability
and embedded derivative liability.
These
warrants include 6,966,625 warrants issued to Bridge Notes holders and
33,750,000 issued to Optimus at an exercise price of $0.20 (prior to
anti-dilution and other adjustments) 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.
F-15
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”) and the warrants issued in connection with our Bridge Notes 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
(subject to certain exceptions) 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 31,685,759
warrants outstanding (the “Prior Warrants”) which 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. On November 12,
2009, 30,928,581 of the Prior Warrants expired and 447,264 expired on December
31, 2009. There are also 944,438 warrants that don’t include any anti-dilution
provision. Additionally, in September 2009 the Company issued 33,750,000
warrants as part of preferred stock purchase agreement. While these warrants
contain a repricing provision they do not contain a ratchet provisions that
would increase the number of warrants.
In May
2009 all of the 3,333,333 warrants that were purchased for $0.149 per warrant
with an exercise price of $0.001were exercised on a cashless basis and 3,299,999
common shares were issued.
Bridge
Notes
Under the
terms of the Bridge Note Agreements, the Company can repay the Notes at any time
and avoid any conversion of these Notes into its common stock. In addition, the
Note holders can convert their Note into common stock under two events. First,
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 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.
Second, 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 $491,762 over the life of the notes by increasing the note amount each
reporting period and charging the offset to interest expense. Also the Company
is amortizing the original warrant and embedded derivative values over the life
of the Notes.
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. ” The Company determined that the
conversion feature in the Bridge Notes represented an embedded derivative since
the bridge notes are potentially convertible into a variable number of shares
based upon a conversion formula. The convertible bridge notes 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:
F-16
Bridge
Notes I
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. Both events would trigger an embedded
derivative value. On the date of origination of the June 18, 2009 Bridge Note
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 $711,258 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 year ended
October 31, 2009 for the June 18, 2009 Bridge Note was $625,668. 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 October 31, 2009 stock closing price $0.13 per share, exercise price $0.135
per share, risk free interest rate .037%, volatility 143.5% and life of 61
days. This initial embedded derivative liability of $711,258,
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 October 31, 2009, the fair value of the embedded
derivative was adjusted by $804,990 resulting in a reduction of the embedded
derivative liability and a corresponding amount to other income. The
balance for the embedded derivative liability was $1,086,514 at October 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 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 (prior to anti-dilution adjustments) 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 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.
Warrant
Liability(Other Outstanding Warrants)
This
initial warrant liability triggered by the Bridge Notes of $13,036,087 was
offset by a 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 October 31, 2009, the
fair value of the warrants was calculated using the following
assumptions:
F-17
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 319.25%, 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 319.25%, 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 191.53%, 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 October 31, 2009:
|
(i)
|
$0.20
exercise price, market price $0.13, risk free interest 0.01% to 2.3%,
volatility 89.7% to 211.6%, Life 10 to 1690 days warrants outstanding
86,739,676.
|
|
(ii)
|
$0.135
exercise price, market price $0.13, risk free interest 0.01% to 2.3%,
volatility 89.7% to 211.6%, Life 10 to 1690 days, warrants outstanding
120,865,268
|
|
(iii)
|
The
third assumption used at June 18, 2009 is no longer being used
given the events that could have triggered this assumption, in managements
estimation, are no longer probable.
|
Based
on the original probability the convertible notes payable cannot 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. As of October 31, 2009 management estimation is that
the events that could have triggered a 50% share price reduction is no longer
probable given that management intends to full repay the Notes and or meet the
conditions of the QEF on or before the triggering of the event. This was the
primary cause to the $5,352,697 reduction to the warrant liabilities due to the
reduction of the fair market value that resulted in the income in the statement
of operations for the year ended October 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.
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).
|
F-18
|
·
|
$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.
For the
reporting period of July 31, 2009 this VWAP assumption was probable. For the
period ending October 31, 2009 management believes that it will no longer be
probable.
7.
STOCK OPTIONS:
2004 Stock Option
Plan
In
November 2004, our board of directors adopted and stockholders approved the 2004
Stock Option Plan (“2004 Plan”). The 2004 Plan provides for the grant of
options to purchase up to 2,381,525 shares of our common stock to employees,
officers, directors and consultants. Options may be either “incentive stock
options” or non-qualified options under the Federal tax laws. Incentive stock
options may be granted only to our employees, while non-qualified options may be
issued, in addition to employees, to non-employee directors, and consultants.
Except as determined by the Administrator at the time of the grant of the
Options, a participant Options vest over four years, twenty-five percent of the
granted amount on or after the first year anniversary of the date of the
granting of an Options and the balance to vest an additional one twelfth of the
Options granted for each additional three-month period following the first
anniversary over a next three years.
The 2004
Plan is administered by “disinterested members” of the board of directors or the
Compensation Committee, who determine, among other things, the individuals who
shall receive options, the time period during which the options may be partially
or fully exercised, the number of shares of common stock issuable upon the
exercise of each option and the option exercise price.
Subject
to a number of exceptions, the exercise price per share of common stock subject
to an incentive option may not be less than the fair market price value per
share of common stock on the date the option is granted. The per share exercise
price of the common stock subject to a non-qualified option may be established
by the board of directors, but shall not, however, be less than 85% of the fair
market value per share of common stock on the date the option is granted. The
aggregate fair market value of common stock for which any person may be granted
incentive stock options which first become exercisable in any calendar year may
not exceed $100,000 on the date of grant.
We must
grant options under the 2004 Plan within ten years from the effective date of
the 2004 Plan. The effective date of the Plan was November 12, 2004. Subject to
a number of exceptions, holders of incentive stock options granted under the
Plan cannot exercise these options more than ten years from the date of grant.
Options granted under the 2004 Plan generally provide for the payment of the
exercise price in cash and may provide for the payment of the exercise price by
delivery to us of shares of common stock already owned by the optionee having a
fair market value equal to the exercise price of the options being exercised, or
by a combination of these methods. Therefore, if it is provided in an optionee’s
options, the optionee may be able to tender shares of common stock to purchase
additional shares of common stock and may theoretically exercise all of his
stock options with no additional investment other than the purchase of his
original shares. As of October 31, 2009, 2,325,275 options were granted under
the 2004 plan.
F-19
2005 Stock Option
Plan
In June
2006, our board of directors adopted and stockholders approved on June 6, 2006,
the 2005 Stock Option Plan (“2005 Plan”).
The 2005
Plan provides for the grant of options to purchase up to 5,600,000 shares of our
common stock to employees, officers, directors and consultants. Options may be
either “incentive stock options” or non-qualified options under the Federal tax
laws. Incentive stock options may be granted only to our employees, while
non-qualified options may be issued to non-employee directors, consultants and
others, as well as to our employees.
The 2005
Plan is administered by “disinterested members” of the board of directors or the
compensation committee, who determine, among other things, the individuals who
shall receive options, the time period during which the options may be partially
or fully exercised, the number of shares of common stock issuable upon the
exercise of each option and the option exercise price.
Subject
to a number of exceptions, the exercise price per share of common stock subject
to an incentive option may not be less than the fair market value per share of
common stock on the date the option is granted. The per share exercise price of
the common stock subject to a non-qualified option may be established by the
board of directors, but shall not, however, be less than 85% of the fair market
value per share of common stock on the date the option is granted. The aggregate
fair market value of common stock for which any person may be granted incentive
stock options which first become exercisable in any calendar year may not exceed
$100,000 on the date of grant.
We must
grant options under the 2005 Plan within ten years from the effective date of
the 2005 Plan. The effective date of the Plan was January 1, 2005. Subject to a
number of exceptions, holders of incentive stock options granted under the 2005
Plan cannot exercise these options more than ten years from the date of grant.
Options granted under the 2005 Plan generally provide for the payment of the
exercise price in cash and may provide for the payment of the exercise price by
delivery to us of shares of common stock already owned by the optionee having a
fair market value equal to the exercise price of the options being exercised, or
by a combination of these methods. Therefore, if it is provided in an optionee’s
options, the optionee may be able to tender shares of common stock to purchase
additional shares of common stock and may theoretically exercise all of his
stock options with no additional investment other than the purchase of his
original shares. As of October 31, 2009 there were 5,354,917 options granted
under the 2005 plan.
2009 Stock Option
Plan
Our board
of directors adopted the 2009 Stock Option Plan (the “2009 Plan”), effective
July 21, 2009, and recommended that it be submitted to our shareholders for
their approval at the next annual meeting. As of October 31, 2009,
options to purchase 10,150,000 shares of our common stock have been granted
under the 2009 Plan. Shareholder approval of the 2009 Plan was
obtained to, among other things, (i) comply with certain exclusions from
the limitations of Section 162(m) of the Internal Revenue Code of 1986, which we
refer to as the Code, and (ii) comply with the incentive stock options rules
under Section 422 of the Code. An aggregate of 14,001,399 shares of
our common stock (subject to adjustment by the compensation committee) are
reserved for issuance upon the exercise of options granted under the 2009 Plan.
The maximum number of shares of common stock to which options may be granted to
any one individual under the 2009 Plan is 4,200,420 (subject to adjustment by
the compensation committee).
F-20
A summary
of the grants, cancellations and expirations (none were exercised) of the
Company’s outstanding options for the periods starting with October 31, 2007
through October 31, 2009 is as follows:
|
Shares
|
Weighted
Average
Exercise
Price
|
Weighted Average
Remaining
Contractual Life In
Years
|
Aggregate
Intrinsic Value
|
|||||||||||||
|
Outstanding
as of October 31, 2007
|
8,512,841 | $ | 0.22 | 7.8 | 167,572 | |||||||||||
|
Granted
|
300,000 | $ | 0.09 | - | - | |||||||||||
|
Cancelled
or Expired
|
- | $ | - | - | ||||||||||||
|
Outstanding
as of October 31, 2008
|
8,812,841 | $ | 0.22 | 6.3 | 167,572 | |||||||||||
|
Granted
|
10,150,000 | $ | 0.10 | 9.8 | 294,500 | |||||||||||
|
Exercised
|
- | - | - | - | ||||||||||||
|
Cancelled
or Expired
|
(631,250 | ) | 0.13 | 7.5 | (15,000 | ) | ||||||||||
|
Outstanding
as of October 31, 2009
|
18,331,591 | 0.16 | 6.0 | $ | 306,500 | |||||||||||
|
Vested
& Exercisable at October 31, 2009
|
11,611,174 | $ | 0.18 | 6.0 | $ | 102,667- | ||||||||||
The fair
value of options granted for the year ended October 31, 2009 amounted to
$947,210
The
following table summarizes significant ranges of outstanding and exercisable
options as of October 31, 2009 (number outstanding and exercisable in
thousands):
|
|
Options Outstanding
|
Options Exercisable
|
||||||||||||||||||||||||||||
|
Range of
Exercise
Prices
|
Number
Outstanding
(000’s)
|
Weighted-
Average
Remaining
Contractual
Life (in Years)
|
Weighted-
Average
Exercise
Price per
Share
|
Aggregate
Intrinsic
Value
|
Number
Exercisable
(000’s)
|
Weighted-
Average
Exercise
Price per
Share
|
Aggregate
Intrinsic
Value
|
|||||||||||||||||||||||
| $ | 0.09-0.11 | 9,950 | 9.3 | 0.10 | $ | 306,500 | 3,496 | $ | 0.10 | $ | 102,667 | |||||||||||||||||||
| 0.14-0.17 | 3,115 | 6.2 | $ | 0.15 | 0 | 2,906 | 0.15 | 0 | ||||||||||||||||||||||
| 0.18-0.21 | 1,739 | 4.0 | 0.21 | 0 | 1,720 | 0.21 | 0 | |||||||||||||||||||||||
| 0.22-0.25 | 296 | 4.3 | 0.24 | 0 | 213 | 0.24 | 0 | |||||||||||||||||||||||
| 0.26-0.29 | 2,992 | 5.1 | 0.28 | 0 | 2,954 | 0.28 | 0 | |||||||||||||||||||||||
| 0.30-0.43 | 322 | 3.3 | 0.37 | 322 | 0.37 | 0 | ||||||||||||||||||||||||
|
Total
|
18,332 | 6.0 | $ | 0.16 | $ | 306,500 | 11,611 | $ | 0.18 | $ | 102,667 | |||||||||||||||||||
The
aggregate intrinsic value in the preceding table represents the total pretax
intrinsic value, based on options with an exercise price less than the Company’s
closing stock price of $0.13 as of October 31, 2009 which would have been
received by the option holders had those option holders exercised their options
as of that date.
|
A summary of the status of the Company’s nonvested shares as
of October 31, 2007, and changes during the years ended
|
Number of
Shares
|
Weighted
Average
Exercise
Price at
Grant
Date
|
Weighted Average
Remaining
Contractual Term
(in years)
|
|||||||||
|
Non-vested
shares at October 31, 2007
|
3,080,305
|
$
|
0.19
|
8.5
|
||||||||
|
Options
granted
|
300,000
|
$
|
0.09
|
9.4
|
||||||||
|
Options
vested
|
(1,967,027
|
)
|
$
|
0.18
|
7.5
|
|||||||
|
Non-vested
shares at October 31, 2008
|
1,413,278
|
$
|
0.18
|
7.5
|
||||||||
|
Options
granted
|
6,766,667
|
$
|
0.10
|
9.3
|
||||||||
|
Options
vested
|
(1,459,528
|
)
|
$
|
0.19
|
6.0
|
|||||||
|
Non-vested
shares at October 31, 2009
|
6,720,417
|
$
|
0.10
|
8.7
|
||||||||
F-21
As of
October 31, 2009, there was approximately $587,606 of unrecognized compensation
cost related to non-vested stock option awards, which is expected to be
recognized over a remaining average vesting period of 1.4 years.
8. COMMITMENTS AND
CONTINGENCIES:
Pursuant
to multiple consulting agreements and a licensing agreement, the Company is
contingently liable for the following:
Under
an amended and restated 20-year exclusive worldwide (July 1, 2002 effective
date) license agreement, the Company is obligated to pay (a) $525,000 in
aggregate, divided over a three-year period as a minimum royalty after the first
commercial sale of a product. Such payments are not anticipated within the next
five years. (b) On December 31, 2008 the Company is also obligated to pay annual
license maintenance fees of $50,000 increasing to a maximum of $100,000 per year
until the first commercial sale of a licensed product. As of the date of this
filing the Company didn’t pay this fee. (c) Upon the initiation of a phase III
clinical trial and the regulatory approval for the first Licensor
product the Company is obligated to pay milestone payments of $400,000 and
$600,000, respectively. (d) Upon the achievement of the first sale of a product
in certain fields, the Company shall be obligated to pay certain milestone
payments, as follows: $2,500,000 shall be due for first commercial sale of the
first product in the cancer field (of which $1,000,000 shall be paid within
forty-five (45) days of the date of the first commercial sale, $1,000,000 shall
be paid on the first anniversary of the first commercial sale; and $500,000
shall be paid on the second anniversary of the date of the first commercial
sale). In addition, $1,000,000 shall be due and payable within forty-five (45)
days following the date of the first commercial sale of a product in each
of the following fields (a) infectious disease, (b) allergy, (c) autoimmune
disease, and (d) any other therapeutic indications for which licensed products
are developed. Therefore, the maximum total potential amount of milestone
payments is $3,500,000 in a cancer field. The milestone payments related to
first sales are not expected prior to obtaining a regulatory approval to market
and sell the Company’s vaccines, and such regulatory approval is not expected
within the next 5 years. In addition, the Licensor is entitled to receive a
non-refundable $157,134 payment of historical license costs. Under a licensing
agreement, the Licensor is also entitled to receive royalties of 1.5% on net
sales in all countries. In addition, we are obligated to reimburse the
Licensor for all attorneys fees, expenses, official fees and other charges
incurred in the preparation, prosecution and maintenance of the
patents licensed from the Licensor.
Also
pursuant to our restated and amended license agreement our option terms to
license from the Licensor any new future invention conceived by either Dr.
Paterson or Dr. Fred Frankel in the vaccine area were extended until June 17,
2009. We intend to expand our intellectual property base by exercising this
option and gaining access to such future inventions. Further, our consulting
agreement with Dr. Paterson provides, among other things, that, to the extent
that Dr. Paterson’s consulting work results in new inventions, such inventions
will be assigned to Licensor, and we will have access to those inventions under
license agreements to be negotiated. With each license (or docket and, there can
be several patents per docket) an initiation fee up to $10,000 each can be
negotiated. We exercised the option under this agreement twice resulting in
approximately 50 patent applications. The license fees, legal expense, and other
filing expenses for such applications cost approximately $376,000.
Under a
consulting agreement with the Company’s scientific inventor, the Company is
obligated to pay $3,000 per month until the Company closes a $3,000,000 equity
financing, $5,000 per month pursuant to a $3,000,000 equity financing, $7,000
per month pursuant to a $6,000,000 equity financing, and $9,000 per month
pursuant to a $9,000,000 equity financing. Currently the scientific inventor is
earning $7,000 per month based on the agreement and milestones
achieved.
Pursuant
to a Clinical Research Service Agreement, the Company is obligated to pay
service fees related to our Phase I clinical trial totaling of $697,000. As of
October 31, 2009 the company has an outstanding balance of $219,131 on this
agreement.
The
Company operates under a month to month lease for its laboratory and office
space. There are no aggregate future minimum payments due as of October 31,
2009.
F-22
We are
party to a consulting agreement with The Sage Group, a health-care strategy
consultant assisting us with a program to commercialize our
vaccines. The initial agreement was entered into in January 2009 and
subsequently amended on July 22, 2009. Pursuant to the terms of
agreement, as amended, we have agreed to pay Sage (i) $5,000 per month (which we
began paying in January 2009) until an aggregate of $120,000 has been paid to
Sage under the consulting agreement and (ii) a 5% commission for certain
transaction if completed in the first 24 months of the term of the agreement,
reduced to 2% if completed in the 12 months thereafter. The Sage Group has been
paid approximately $20,600 through October 31, 2009.
On June
19, 2009 we entered into a Master Agreement and on July 8, 2009 we entered into
a Project Agreement with Numoda, a leading clinical trial and logistics
management company, to oversee Phase II clinical activity with ADXS11-001 for
the treatment of invasive cervical cancer and CIN. Numoda will be
responsible for integrating oversight and logistical functions with the clinical
research organizations, contract laboratories, academic laboratories and
statistical groups involved. The scope of this agreement covers over
three years and is estimated to cost $8.0 million for both trials.
Moore Employment Agreement and
Option Agreements. We are party to an employment agreement
with Mr. Moore, dated as of August 21, 2007 (memorializing an oral agreement
dated December 15, 2006), that provides that he will serve as our Chairman of
the Board and Chief Executive Officer for an initial term of two
years. For so long as Mr. Moore is employed by us, Mr. Moore is also
entitled to nominate one additional person to serve on our board of
directors. Following the initial term of employment, the agreement
was renewed for a one year term, and is automatically renewable for additional
successive one year terms, subject to our right and Mr. Moore’s right not to
renew the agreement upon at least 90 days’ written notice prior to the
expiration of any one year term.
Under the
terms of the agreement, Mr. Moore was entitled to receive a base salary of
$250,000 per year, subject to increase to $350,000 per year upon our successful
raise of at least $4.0 million (which condition was satisfied on November 1,
2007) and subject to annual review for increases by our board of directors in
its sole discretion. The agreement also provides that Mr. Moore is
entitled to receive family health insurance at no cost to him. Mr.
Moore’s employment agreement does not provide for the payment of a
bonus.
In
connection with our hiring of Mr. Moore, we agreed to grant Mr. Moore up to
1,500,000 shares of our common stock, of which 750,000 shares were issuable on
November 1, 2007 upon our successful raise of $4.0 million and 750,000 shares
are issuable upon our successful raise of an additional $6.0 million (which
condition was satisfied in January 2010). In addition, on December
15, 2006, we granted Mr. Moore options to purchase 2,400,000 shares of our
common stock. Each option is exercisable at $0.143 per share (which
was equal to the closing sale price of our common stock on December 15, 2006)
and expires on December 15, 2016. The options vest in 24 equal
monthly installments. On July 21, 2009, we granted Mr. Moore options to
purchase 2,500,000 shares of our common stock. Each option is exercisable
at $0.10 per share (which was equal to the closing sale price of our common
stock on July 21, 2009) and expires on July 21, 2019. One-third of these
options vested on the grant date, and the remaining vest in one third
installments on the first and second anniversary of the grant.
We have
also agreed to grant Mr. Moore options to purchase an additional 1,500,000
shares of our common stock if the price of common stock (adjusted for any
splits) is equal to or greater than $0.40 for 40 consecutive business
days. Pursuant to the terms of his employment agreement, all options
will be awarded and vested upon a merger of the company which is a change of
control or a sale of the company while Mr. Moore is employed. In
addition, if Mr. Moore’s employment is terminated by us, Mr. Moore is entitled
to receive severance payments equal to one year’s salary at the then current
compensation level.
F-23
Mr. Moore
has agreed to refrain from engaging in certain activities that are competitive
with us and our business during his employment and for a period of 12
months thereafter under certain circumstances. In addition, Mr. Moore
is subject to a non-solicitation provision for 12 months after termination of
his employment.
Rothman Employment Agreement and
Option Agreements. We previously entered into an employment
agreement with Dr. Rothman, Ph.D., dated as of March 7, 2005, that provided that
he would serve as our Vice President of Clinical Development for an initial
term of one year. Dr. Rothman’s current salary is $280,000,
consisting of $250,000 in cash and $30,000 in stock, payable in our common
stock, issued on a semi-annual basis, based on the average closing stock price
for such six month period, with a minimum price of $0.20. While the
employment agreement has expired and has not been formally renewed in accordance
with the agreement, Dr. Rothman remains employed by us and is currently our
Executive V.P. of Clinical and Scientific Operations.
In
addition, on March 1, 2005, we granted Dr. Rothman options to purchase 360,000
shares of our common stock. Each option is exercisable at $0.287 per
share (which was equal to the closing sale price of our common stock on March 1,
2005) and expires on March 1, 2015. All of these options have
vested. On March 29, 2006, we granted Dr. Rothman options to purchase
150,000 shares of our common stock. Each option is exercisable at
$0.26 per share (which was equal to the closing sale price of our common stock
on March 29, 2006) and expires on March 29, 2016. One-fourth of
these options vested on the first anniversary of the grant date, and the
remaining vest in 12 equal quarterly installments. On February 15,
2007, we granted Dr. Rothman options to purchase 300,000 shares of our common
stock. Each option is exercisable at $0.165 per share (which was
equal to the closing sale price of our common stock on February 15, 2007) and
expires on February 15, 2017. One-fourth of these options vested on
the first anniversary of the grant date, and the remaining vest in 12 equal
quarterly installments. Pursuant to the terms of the 2005 plan, at
least 75% of Dr. Rothman’s options will be vested upon a merger of the company
which is a change of control or a sale of the company while Dr. Rothman is
employed, unless the administrator of the plan otherwise allows for all options
to become vested. On July 21, 2009, we granted Mr. Rothman options to
purchase 1,750,000 shares of our common stock. Each option is exercisable at
$0.10 per share (which was equal to the closing sale price of our common stock
on July 21, 2009) and expires on July 21, 2019. One-third of these options
vested on the grant date, and the remaining vest, in one third
installments on the first and second anniversary of the grant.
Dr.
Rothman has agreed to refrain from engaging in certain activities that are
competitive with us and our business during his employment and for a period
of 18 months thereafter under certain circumstances. In
addition, Dr. Rothman is subject to a non-solicitation provision for 18
months after termination of his employment.
9.
INCOME TAXES:
The
Company has a net operating loss carry forward of approximately $19,466,268 and
$16,130,067 at October 31, 2009 and 2008, respectively, available to offset
taxable income through 2029. Due to change in control provisions, the
Company’s utilization of these losses may be limited. The tax effects of loss
carry forwards give rise to a deferred tax asset and a related valuation
allowance at October 31, as follows:
|
2009
|
2008
|
|||||||
|
Net
operating loss carryforwards-federal
|
$
|
7,786,507
|
6,452,027
|
|||||
|
Stock
based compensation
|
990,700
|
217,334
|
||||||
|
Research
and development tax credits
|
216,134
|
|||||||
|
Less
valuation allowance
|
(8,993,341
|
)
|
(6,669,360
|
)
|
||||
|
Deferred
tax asset
|
$
|
-
|
$
|
-
|
The
difference between income taxes computed at the statutory federal rate of 34%
and the provision for income taxes relates to the following:
|
Year ended
October 31,
2009
|
Year ended
October 31,
2008
|
Period from
March 1, 2002
(inception) to
October 31,
2009
|
||||||||||
|
Provision
at federal statutory rate
|
34
|
%
|
34
|
%
|
34
|
%
|
||||||
|
Valuation
allowance
|
(34
|
)
|
(34
|
)
|
(34
|
)
|
||||||
|
-
|
%
|
-
|
%
|
-
|
%
|
|||||||
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.
We adopted Financial Interpretation Number 48,
“Accounting for Uncertain Tax Positions” (“FIN 48”) on November 1, 2007.
FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an enterprise’s financial statements in accordance with FASB Statement
No. 109,” Accounting for Income Taxes.” FIN 48 prescribes a
recognition threshold and measurement of a tax position taken or expected to be
taken in a tax return. We did not establish any additional reserves for
uncertain tax liabilities upon adoption of FIN 48. There were no adjustments for
uncertain tax positions in the current year.
F-24
We will
account for interest and penalties related to uncertain tax positions, if any,
as part of our provision for federal and state income taxes.
We
do not expect that the amounts of unrecognized benefits will change
significantly within the next 12 months.
We
are currently open to audit under the statute of limitations by the Internal
Revenue Service and state jurisdictions for 2006 through 2009.
10.
RECAPITALIZATION
On
November 12, 2004, Great Expectations and Associates, Inc. ("Great
Expectations") acquired the Company through a share exchange and reorganization
(the "Recapitalization"), pursuant to which the Company became a wholly owned
subsidiary of Great Expectations. Great Expectations acquired (i) all of the
issued and outstanding shares of common stock of the Company and the Series A
preferred stock of the Company in exchange for an aggregate of 15,597,723 shares
of authorized, but theretofore unissued, shares of common stock, no par value,
of Great Expectations; (ii) all of the issued and outstanding warrants to
purchase the Company's common stock, in exchange for warrants to purchase
584,885 shares of Great Expectations; and (iii) all of the issued and
outstanding options to purchase the Company's common stock in exchange for an
aggregate of 2,381,525 options to purchase common stock of Great Expectations,
constituting approximately 96% of the common stock of Great Expectations prior
to the issuance of shares of common stock of Great Expectations in the private
placement described below. Prior to the closing of the Recapitalization, Great
Expectations performed a 200-for-1 reverse stock split, thus reducing the issued
and outstanding shares of common stock of Great Expectations from 150,520,000
shares to 752,600 shares. Additionally, 752,600 shares of common stock of Great
Expectations were issued to the financial advisor in connection with the
Recapitalization. Pursuant to the Recapitalization, there were 17,102,923 common
shares outstanding in Great Expectations. As a result of the transaction, the
former shareholders of Advaxis are the controlling shareholders of the Company.
Additionally, prior to the transaction, Great Expectations had no substantial
assets. Accordingly, the transaction is treated as a recapitalization, rather
than a business combination. The historical financial statements of Advaxis are
now the historical financial statements of the Company. Historical shareholders'
equity (deficiency) of Advaxis has been restated to reflect the
recapitalization, and include the shares received in the
transaction.
On
November 12, 2004, the Company completed an initial closing of a private
placement offering (the “Private Placement”), whereby it sold an aggregate of
$2.925 million
worth of units to accredited investors. Each unit was sold for $25,000 (the
“Unit Price”) and consisted of (a) 87,108 shares of common stock and (b) a
warrant to purchase, at any time prior to the fifth anniversary following the
date of issuance of the warrant, to purchase 87,108 shares of common stock
included at a price equal to $0.40 per share of common stock (a “Unit”). In
consideration of the investment, the Company granted to each investor certain
registration rights and anti-dilution rights. Also, in November 2004, the
Company converted approximately $618,000 of aggregate principal promissory notes
and accrued interest outstanding into Units.
On
December 8, 2004, the Company completed a second closing of the Private
Placement, whereby it sold an aggregate of $200,000 of Units to accredited
investors.
On
January 4, 2005, the Company completed a third and final closing of the Private
Placement, whereby it sold an aggregate of $128,000 of Units to accredited
investors.
F-25
On
January 12, 2005, the Company completed a second private placement offering
whereby it sold an aggregate of $1,100,000 of units to a single investor. As
with the Private Placement, each unit issued and sold in this subsequent private
placement was sold at $25,000 per unit and is comprised of (i) 87,108 shares of
common stock, and (ii) a five-year warrant to purchase 87,108 shares of our
common stock at an exercise price of $0.40 per share. Upon the closing of this
second private placement offering the Company issued to the investor 3,832,753
shares of common stock and warrants to purchase up to an aggregate of 3,832,753
shares of common stock.
The
aggregate sale from the four private placements was $4,353,000, which was netted
against transaction costs of $329,673 for net proceeds of
$4,023,327.
Pursuant
to a Securities Purchase Agreement dated February 2, 2006 ($1,500,000 principal
amount) and March 8, 2006 ($1,500,000 principal amount) we issued to Cornell
Capital Partners, LP (“Cornell”) $3,000,000 principal amount of the Company’s
Secured Convertible Debentures due February 1, 2009 (the “Debentures”) at face
amount, and five year Warrants to purchase 4,200,000 shares of Common Stock at
the price of $0.287 per share and five year B Warrants to purchase 300,000
shares of Common Stock at a price of $0.3444 per share.
The
Debentures were convertible at a price equal to the lesser of (i) $0.287 per
share (“Fixed Conversion Price”), or (ii) 95% of the lowest volume weighted
average price of the Common Stock on the market on which the shares are listed
or traded during the 30 trading days immediately preceding the date of
conversion (“Market Conversion Price”). Interest was payable at maturity at the
rate of 6% per annum in cash or shares of Common Stock valued at the conversion
price then in effect.
Cornell
agreed that (i) it would not convert the Debenture or exercise the Warrants if
the effect of such conversion or exercise would result in its and its
affiliates’ holdings of more than 4.9% of the outstanding shares of Common
Stock, (ii) neither it nor its affiliates will maintain a short position or
effect short sales of the Common Stock while the Debentures are outstanding, and
(iii) no more than $300,000 principal amount of the Debenture could be converted
at the Market Conversion Price during a calendar month.
On August
24, 2007, we issued and sold an aggregate of $600,000 principal amount
promissory notes bearing interest at a rate of 12% per annum and warrants to
purchase an aggregate of 150,000 shares of our common stock to three investors
including Thomas Moore, our Chief Executive Officer. Mr. Moore invested $400,000
and received warrants for the purchase of 100,000 shares of Common Stock. The
promissory note and accrued but unpaid interest thereon are convertible at the
option of the holder into shares of our common stock upon the closing by the
Company of a sale of its equity securities aggregating $3,000,000 or more in
gross proceeds to the Company at a conversion rate which shall be the greater of
a price at which such equity securities were sold or the price per share of the
last reported trade of our common stock on the market on which the common stock
is then listed, as quoted by Bloomberg LP. At any time prior to conversion, we
have the right to prepay the promissory notes and accrued but unpaid interest
thereon. Mr. Moore converted his $400,000 bridge investment into 2,666,667
shares of common stock and 2,000,000 $0.20 Warrants based on the terms of the
Private Placement. He was paid $7,101 interest in cash.
On
October 17, 2007, pursuant to a Securities Purchase Agreement, we completed a
private placement resulting in $7,384,235.10 in gross proceeds, pursuant to
which we sold 49,228,334 shares of common stock at a purchase price of $0.15 per
share solely to institutional and accredited investors. Each investor received a
five-year warrant to purchase an amount of shares of common stock that equals
75% of the number of shares of common stock purchased by such investor in the
offering.
F-26
Concurrent
with the closing of the private placement, the Company sold for $1,996,700 to
CAMOFI Master LDC and CAMHZN Master LDC, affiliates of its financial advisor,
Centrecourt Asset Management (“Centrecourt”), an aggregate of
(i) 10,000,000 shares of Common Stock, (ii) 10,000,000 warrants
exercisable at $0.20 (prior to anti-dilution adjustments) per share, and (iii)
5-year warrants to purchase an additional 3,333,333 shares of Common Stock at a
purchase price of $0.001 per share (the “$0.001 Warrants”). The Company and the
two purchasers agreed that the purchasers would be bound by and entitled to the
benefits of the Securities Purchase Agreement as if they had been signatories
thereto. The $0.20 (prior to anti-dilution adjustments) Warrants and $0.001
Warrants contain the same terms, except for the exercise price. Both warrants
provide that they may not be exercised if, following the exercise, the holder
will be deemed to be the beneficial owner of more than 9.99% of the Company’s
outstanding shares of Common Stock. Pursuant to a consulting agreement dated
August 1, 2007 with Centrecourt with respect to the anticipated financing, in
which Centrecourt was engaged to act as the Company’s financial advisor,
Registrant paid Centrecourt $328,000 in cash and issued 2,483,333 warrants
exercisable at $0.20 (prior to anti-dilution adjustments) per share to
Centrecourt, which Centrecourt assigned to the two affiliates.
All of
the $0.20 (prior to anti-dilution adjustments) Warrants and $0.001 Warrants
provide for adjustment of their exercise prices upon the occurrence of certain
events, such as payment of a stock dividend, a stock split, a reverse split, a
reclassification of shares, or any subsequent equity sale, rights offering,
pro rata distribution,
or any fundamental transaction such as a merger, sale of all of its assets,
tender offer or exchange offer, or reclassification of its common stock. If at
any time after October 17, 2008 there is no effective registration statement
registering, or no current prospectus available for, the resale of the shares
underlying the warrants by the holder of such warrants, then the warrants may
also be exercised at such time by means of a “cashless exercise.”
In connection with the
private placement, we entered into a registration rights agreement with the
purchasers of the securities pursuant to which we agreed to file a registration
statement with the Securities and Exchange Commission with an effectiveness date
within 90 days after the final closing of the offering. The registration
statement was declared effective on January 22, 2008.
At the
closing of this private placement, we exercised our right under an agreement
dated August 23, 2007 with YA Global Investments, L.P. f/k/a Cornell Capital
Partners, L.P. (“Yorkville”), to redeem the outstanding $1,700,000 principal
amount of our Secured Convertible Debentures due February 1, 2009 owned by
Yorkville, and to acquire from Yorkville warrants expiring February 1, 2011 to
purchase an aggregate of 4,500,000 shares of our common stock. We paid an
aggregate of (i) $2,289,999 to redeem the debentures at the principal
amount plus a 20% premium and accrued and unpaid interest, and
(ii) $600,000 to repurchase the warrants.
On
September 22, 2008, Advaxis, Inc. (the “Company”) entered into a Note Purchase
Agreement (the “Agreement”) with the Company’s Chief Executive Officer, Thomas
Moore, pursuant to which the Company agreed to sell to Mr. Moore, from time to
time, one or more senior promissory notes (each a “Note” and collectively the
“Notes”) with an aggregate principal amount of up to $800,000.
The
Agreement was reviewed and recommended to the Company’s Board of Directors (the
“Board”) by a special committee of the Board and was approved by a majority of
the disinterested members of the Board. The Note or Notes, if and when issued,
will bear interest at a rate of 12% per annum, compounded quarterly, and will be
due and payable on the earlier of the close of the Company’s next equity
financing resulting in gross proceeds to the Company of at least $5,000,000 (the
“Subsequent Equity Raise”) or February 15, 2009 (the “Maturity Date”). The
Note(s) may be prepaid in whole or in part at the option of the Company without
penalty or any time prior to the Maturity Date.
In
consideration of Mr. Moore’s agreement to purchase the Notes, the Company agreed
that concurrently with the Subsequent Equity Raise, the Company will issue to
Mr. Moore a warrant to purchase the Company’s common stock, which will entitle
Mr. Moore to purchase a number of shares of the Company’s common stock equal to
one share per $1.00 invested by Mr. Moore in the purchase of one or more Notes.
Such warrant would contain the same terms and conditions as warrants issued to
investors in the Subsequent Equity Raise.
As of
October 31, 2008 and pursuant to the Agreement, Mr. Moore has loaned the Company
$475,000. Mr. Moore informed the Company that based on the funds generated by
the NOL received on December 12, 2008 (see Note 11) and personal considerations
that he may not make full funding. On December 15, 2008 the
Board approved an amendment of the Agreements repayment terms from February 15,
2009 to June 15, 2009. In consideration for revising the repayment term the
Company repaid Mr. Moore $50,000 from the $475,000 outstanding Notes thus
reducing the balance to $425,000.
F-27
11. SUBSEQUENT
EVENTS:
From November
1, 2009 through February 16, 2010, we issued to certain accredited investors (i)
junior unsecured convertible promissory notes in the aggregate principal face
amount of $673,529, for an aggregate net purchase price of $572,500 and (ii)
warrants to purchase1,431,250 shares of our common stock at an exercise price of
$0.20 ( prior to anti-dilution adjustments) per share, subject to adjustments
upon the occurrence of certain events. Each of these bridge notes were issued
with an original issue discount of 15% (OID) and are convertible into shares of
our common stock. The maturity dates of these notes range
between April 16, 2009 and July 30, 2010. The indebtedness
represented by the bridge notes is expressly subordinate to our currently
outstanding senior secured indebtedness (including the June 2009 bridge notes),
as well as any future senior indebtedness of any kind. We will not
make any payments to the holders of the bridge notes until the earlier of the
repayment in full or conversion of the senior indebtedness.
During
January 2010 and February, the Company repaid $834,852 of the $1,131,353 in face
value of our June 2009 bridge notes. In addition, holders of the
remaining $296,501 of our June 2009 bridge notes agreed to extend the maturity
dates from December 31, 2009 to periods into February and March 2010. The
Company has agreed to issue additional consideration, including warrants to
those note holders that extended the maturity period of their
notes.
On
February 15, 2010, we agreed to amend the terms of the Moore Notes such that (i)
Mr. Moore may elect, at his option, to receive accumulated interest thereon on
March 17, 2010 (which we expect will amount to approximately $130,000), (ii) we
will begin to make monthly installment payments of $100,000 on the outstanding
principal amount beginning on April 15, 2010; provided, however, that the
balance of the principal will be repaid in full on consummation of our next
equity financing resulting in gross proceeds to us of at least $6.0 million and
(iii) we will retain $200,000 of the repayment amount
On
January 11, 2010, the Company issued and sold 145.0 shares of non-convertible,
redeemable Series A preferred stock to Optimus Life Sciences Capital Partners
LLC (“ Optimus ”) pursuant to the terms of a Preferred Stock Purchase Agreement
between the Company and Optimus dated September 24, 2009 (the “ Purchase
Agreement ”). The aggregate purchase price for the Series A preferred
stock was $1.45 million (less $130,000 representing an administrative fee and
the balance of a commitment fee due and owing to Optimus under the Purchase
Agreement).
In
connection with the foregoing transaction, an affiliate of Optimus exercised
warrants to purchase 11,563,000 shares of common stock at an adjusted exercise
price of $0.17 per share. As permitted by the terms of such warrants,
the aggregate exercise price of $1,965,710 received by the Company is payable
pursuant to a 4 year full recourse promissory note bearing interest at the rate
of 2% per year.
As a
result of anti-dilution protection provisions contained in certain of the
Company’s outstanding warrants, the Company has (i) reduced the exercise price
from $0.20 (prior to anti-dilution adjustments) per share to $0.17 per share
with respect to an aggregate of approximately 62.0 million warrant shares to
purchase the Company’s Common Stock and (ii) correspondingly adjusted the amount
of warrant shares issuable pursuant to certain warrants such that approximately
11.0 million additional warrant shares are issuable at $0.17 per
share.
The
company received $278,978 from the New Jersey Economic Development
Authority. Under the State of New Jersey Program for small business
we received this cash amount on January 15, 2010 from the sale of our State Net
Operating Losses (“NOL”) and research tax credits through October 31,
2008.
F-28