Attached files
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EX-5.1 - Advaxis, Inc. | v191063_ex5-1.htm |
EX-23.2 - Advaxis, Inc. | v191063_ex23-2.htm |
EX-23.1 - Advaxis, Inc. | v191063_ex23-1.htm |
File
No. 333-•
As
filed with the Securities and Exchange Commission on July 23, 2010
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
ADVAXIS,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
2836
|
02-0563870
|
||
(State
or other jurisdiction
of
incorporation or organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S.
Employer
Identification
No.)
|
Technology
Centre of New Jersey
675
US Highway One
North
Brunswick, New Jersey 08902
(732)
545-1590
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive office)
Mr.
Thomas A. Moore
Chief
Executive Officer
Technology
Centre of New Jersey
675
US Highway One
North
Brunswick, New Jersey 08902
(732)
545-1590
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
Copies
to:
Robert
H. Cohen, Esq.
Greenberg
Traurig, LLP
The
MetLife Building
200
Park Avenue
New
York, New York 10166
Phone:
(212) 801-9200
Fax:
(212) 801-6400
Approximate date of commencement of
proposed sale to the public. From time to time after
this Registration Statement becomes effective, as determined by the selling
stockholders named in the prospectus contained herein.
If any of
the Securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, as
amended, check the following box: x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act Registration Statement number of the earlier effective
Registration Statement for the same offering: ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, please check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering: ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act Registration
Statement number of the earlier effective Registration Statement for the same
offering: ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨ (Do
not check if smaller reporting company)
|
Smaller
reporting company x
|
CALCULATION
OF REGISTRATION FEE
Title of each
class of securities
to be registered
|
Amount
to be
registered(1)
|
Proposed
maximum
offering price
per share
|
Proposed
maximum
aggregate
offering price
|
Amount of
registration fee
|
|||||||||||
Common
Stock, par value $0.001 per share
|
3,500,000
shares
|
(2) | $ | 0.175 | (3) | $ | 612,500 | $ | 43.68 | (3) | |||||
Common
Stock, par value $0.001 per share
|
2,818,000
shares
|
(4) | $ | 0.18 | (5) | $ | 507,240 | $ | 36.17 | (5) | |||||
Common
Stock, par value $0.001 per share
|
40,500,000
shares
|
(6) | $ | 0.25 | (5) | $ | 10,125,500 | $ | 721.95 | (5) | |||||
Total
|
46,818,000
shares
|
— | — | $ | 801.80 |
|
(1)
|
Pursuant
to Rule 416 under the Securities Act of 1933, as amended, this
Registration Statement shall be deemed to cover the additional securities
(i) to be offered or issued in connection with any provision of any
securities purported to be registered hereby to be offered pursuant to
terms which provide for a change in the amount of securities being offered
or issued to prevent dilution resulting from stock splits, stock dividends
or similar transactions and (ii) of the same class as the securities
covered by this Registration Statement issued or issuable prior to
completion of the distribution of the securities covered by this
Registration Statement as a result of a split of, or a stock dividend on,
the registered securities.
|
|
(2)
|
Represents
shares of the registrant’s issued and outstanding common stock being
registered for resale.
|
|
(3)
|
Estimated
solely for purposes of calculating the registration fee pursuant to Rule
457(c) of the Securities Act of 1933, as amended, based on the average of
the high and low prices of the common stock of the registrant as reported
on the OTC Bulletin Board on July 19,
2010.
|
|
(4)
|
Represents
shares of the registrant’s common stock issuable upon exercise of a
warrant at an exercise price of $0.18 per
share.
|
|
(5)
|
Calculated
pursuant to rule 457(g).
|
|
(6)
|
Represents
shares of the registrant’s common stock issuable upon exercise of a
warrant at an exercise price of $0.25 per
share.
|
The
registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the commission, acting pursuant to section 8(a) may
determine.
The
information in this prospectus is not complete and may be
changed. The selling stockholders may not sell these securities until
the registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities,
and it is not soliciting offers to buy these securities, in any state where the
offer or sale of these securities is not permitted.
PROSPECTUS,
SUBJECT TO COMPLETION, DATED JULY 23, 2010
ADVAXIS,
INC.
46,818,000
Shares
Common
Stock
This
prospectus relates to the resale of up to (i) 3,500,000 shares of our common
stock issued to Numoda Capital Innovations, LLC, which we refer to as Numoda
Capital, as payment for certain services rendered by one of its affiliates to
us, (ii) 2,818,000 shares of our common stock underlying a warrant issued to an
affiliate of Optimus Capital Partners, LLC, which we refer to as Optimus, in
connection with a tranche closing of our Series A preferred equity financing and
(iii) 40,500,000 shares of our common stock underlying a warrant issued to an
affiliate of Optimus in our Series B preferred equity financing. The
shares covered by this prospectus may be sold by the selling stockholders from
time to time in the over-the-counter market or other national securities
exchange or automated interdealer quotation system on which our common stock is
then listed or quoted, through negotiated transactions at negotiated prices or
otherwise at market prices prevailing at the time of sale.
Pursuant
to registration rights granted by us to the selling stockholders, we are
obligated to register the shares held by Numoda Capital and the shares to be
acquired upon exercise of the warrants held by the affiliate of
Optimus. The distribution of the shares by the selling stockholders
is not subject to any underwriting agreement. We will receive none of
the proceeds from the sale of shares by the selling stockholders. The
selling stockholders identified in this prospectus will receive the proceeds
from the sale of the shares. However, we may receive the proceeds
from the exercise of the warrants held by the affiliate of Optimus in certain
circumstances. We will bear all expenses of registration incurred in
connection with this offering, but all selling and other expenses incurred by
the selling stockholders will be borne by them.
Our
common stock is quoted on the Over-The-Counter Bulletin Board, or OTC Bulletin
Board, under the symbol ADXS.OB. On July 19, 2010, the last reported
sale price per share for our common stock as reported by the OTC Bulletin Board
was $0.18.
Investing
in our common stock involves a high degree of risk. We urge you to
carefully consider the ‘‘Risk Factors’’ beginning on page 6.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of the prospectus. Any representation to the contrary is a
criminal offense.
The date
of this prospectus is ____________, 2010.
TABLE
OF CONTENTS
ABOUT
THIS PROSPECTUS
|
ii
|
|||
PROSPECTUS
SUMMARY
|
1 | |||
THE
OFFERING
|
5 | |||
RISK
FACTORS
|
6 | |||
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
|
19 | |||
USE
OF PROCEEDS
|
21 | |||
MARKET
PRICE OF AND DIVIDENDS ON OUR COMMON STOCK
|
||||
AND
RELATED STOCKHOLDER MATTERS
|
21 | |||
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
|
||||
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|
22 | |||
DESCRIPTION
OF BUSINESS
|
36 | |||
MANAGEMENT
|
56 | |||
EXECUTIVE
COMPENSATION
|
60 | |||
STOCK
OWNERSHIP
|
68 | |||
SELLING
STOCKHOLDERS
|
70 | |||
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
71 | |||
DESCRIPTION
OF OUR CAPITAL STOCK
|
71 | |||
SHARES
ELIGIBLE FOR FUTURE SALE
|
76 | |||
PLAN
OF DISTRIBUTION
|
77 | |||
LEGAL
MATTERS
|
79 | |||
EXPERTS
|
79 | |||
INTERESTS
OF NAMED EXPERTS AND COUNSEL
|
79 | |||
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
|
79 | |||
INDEX
TO FINANCIAL STATEMENTS
|
F-1 |
ABOUT
THIS PROSPECTUS
You
should only rely on the information contained in this prospectus. We
have not authorized anyone to give any information or make any representation
about this offering that differs from, or adds to, the information in this
prospectus or in its documents that are publicly filed with the
SEC. Therefore, if anyone does give you different or additional
information, you should not rely on it. The delivery of this
prospectus does not mean that there have not been any changes in our condition
since the date of this prospectus. If you are in a jurisdiction where
it is unlawful to offer the securities offered by this prospectus, or if you are
a person to whom it is unlawful to direct such activities, then the offer
presented by this prospectus does not extend to you. This prospectus
speaks only as of its date except where it indicates that another date
applies.
Market
data and certain industry forecasts used in this prospectus were obtained from
market research, publicly available information and industry publications. We
believe that these sources are generally reliable, but the accuracy and
completeness of such information is not guaranteed. We have not independently
verified this information, and we do not make any representation as to the
accuracy of such information.
In this
prospectus, the terms “we”, “us”, “our” and “our company” refer to Advaxis,
Inc., a Delaware corporation, resulting from the reincorporation of our company
from Colorado to Delaware described elsewhere in this prospectus (unless the
context references such entity prior to the June 20, 2006 reincorporation from
Colorado to Delaware, in which case it refers to the Colorado
entity).
The name
Advaxis is our trademark. Other trademarks and product names appearing in this
prospectus are the property of their respective owners.
ii
PROSPECTUS
SUMMARY
This
summary highlights some important information from this prospectus, and it may
not contain all of the information that is important to you. You
should read the following summary together with the more detailed information
regarding us and our common stock being sold in this offering, including “Risk
Factors” and our financial statements and related notes, included elsewhere in
this prospectus.
Our
Company
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 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, cervical intraepithelial
neoplasia, which we refer to as 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; commenced in March 2010 (with patient dosing commencing
in June 2010).
|
|||
Cervical
Cancer
|
Phase II Company
sponsored study anticipated to commence in July-August 2010 in India. 110
Patients with advanced cervical cancer.
|
|||
Cervical
Cancer
|
Phase II The Gynecologic
Oncology Group of the National Cancer Institute has agreed to conduct a
study which we expect will commence in late 2010.
|
|||
Head
& Neck Cancer
|
Phase I The Cancer
Research UK (CRUK) is funding a study of up to 45 patients at 3 UK
facilities that we expect will commence in October
2010.
|
|||
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 and April 30, 2010, we had an accumulated deficit of $16,603,800 and
$29,795,519, respectively, and shareholders’ deficiency of $15,733,328 and
$21,962,320, respectively.
1
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 United States Food and Drug
Administration, which we refer to as 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 receive FDA approval, become commercially viable or profitable as a result
of these expenditures.
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. Specifically, we intend to conduct research relating to
developing our Listeria
technology using new tumor antigens, and to develop new strains of Listeria, which may lead to
additional cancer and infectious disease products, to improve the Listeria platform by
developing new Listeria
strains that are more suitable as live vaccine vectors, and to continue to
develop the use of the Listeria virulence factor LLO
as a component of a fusion protein based vaccine. 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.
Recent
Developments
Series
B Preferred Equity Financing
On July
19, 2010, we entered into a Preferred Stock Purchase Agreement with Optimus,
which we refer to as the Series B purchase agreement, pursuant to which Optimus
agreed to purchase, upon the terms and subject to the conditions set forth
therein and described below, up to $7.5 million of our newly authorized,
non-convertible, redeemable Series B preferred stock, which we refer to as our
Series B preferred stock, at a price of $10,000 per share. The conditions
necessary to effect the commitment closing under the Series B purchase
agreement, which we refer to as the Commitment Closing, were also satisfied on
July 19, 2010.
Under the
terms of the Series B purchase agreement, and after the SEC has declared
effective the registration statement of which this prospectus is a part, we may
from time to time until July 19, 2013, present Optimus with a notice to purchase
a specified amount of Series B preferred stock. Subject to
satisfaction of certain closing conditions, Optimus is obligated to purchase
such shares of Series B preferred stock on the 10th trading day after the date
of the notice. We will determine, in our sole discretion, the timing and amount
of Series B preferred stock to be purchased by Optimus, and may sell such shares
in multiple tranches. Optimus will not be obligated to purchase the Series B
preferred stock upon our notice (i) in the event the average closing sale price
of our common stock during the nine trading days following delivery of our
notice falls below 75% of the closing sale price of our common stock 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.
Holders
of Series B preferred stock will be entitled to receive dividends, which will
accrue in shares of Series B 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 B preferred stock or upon the liquidation, dissolution
or winding up of our company. The Series B preferred stock ranks, with respect
to dividend rights and rights upon liquidation:
|
·
|
senior
to our common stock and any other class or series of preferred stock
(other than Series A preferred stock or any class or series of preferred
stock that we intend to cause to be listed for trading or quoted on
Nasdaq, NYSE Amex or the New York Stock
Exchange);
|
|
·
|
pari passu with any
outstanding shares of our Series A preferred stock (none of which are
issued and outstanding as of the date hereof);
and
|
|
·
|
junior
to all of our existing and future indebtedness and any class or series of
preferred stock that we intend to cause to be listed for trading or quoted
on Nasdaq, NYSE Amex or the New York Stock
Exchange.
|
2
The
Series B preferred stock has a liquidation preference per share equal to the
original price per share thereof plus all accrued dividends thereon, and is
subject to repurchase following the consummation of certain fundamental
transactions by us. Upon or after the fourth anniversary of the
applicable issuance date, we have the right, at our option, to redeem all or a
portion of the shares of Series B preferred stock, at their liquidation
value. We also have the right, at our option, to redeem all or a
portion of the shares of Series B preferred stock, at a price per share equal
to: (i) 136% of their liquidation value if redeemed on or after the applicable
issuance date but prior to the first anniversary of the applicable issuance
date, (ii) 127% of their liquidation value if redeemed on or after the first
anniversary but prior to the second anniversary of the applicable issuance date,
(iii) 118% of their liquidation value if redeemed on or after the second
anniversary but prior to the third anniversary of the applicable issuance date,
and (iv) 109% of their liquidation value if redeemed on or after the third
anniversary but prior to the fourth anniversary of the applicable issuance
date.
The
Series B purchase agreement provides that we will pay to Optimus a
non-refundable fee of $195,000 on the earlier of (x) the closing date of the
first tranche (by offset from the gross proceeds from such tranche) or (y) the
six-month anniversary of the date of the Commitment Closing.
In
addition, on the date of the Commitment Closing, we issued to Optimus a
three-year warrant to purchase up to 40,500,000 shares of our common stock, at
an initial exercise price of $0.25 per share, subject to adjustment as described
below. The warrant will become exercisable on the earlier of (i) the date on
which a registration statement registering for resale the shares of our common
stock issuable upon exercise of the warrant becomes effective and (ii) the first
date on which such warrant shares are eligible for resale without limitation
under Rule 144 (assuming a cashless exercise of the warrant).
The
warrant consists of and is exercisable in tranches, with a separate tranche
being created upon each delivery of a tranche notice under the Series B purchase
agreement. On each tranche notice date, that portion of the warrant
equal to 135% of the tranche amount will vest and become exercisable, and such
vested portion may be exercised at any time during the exercise period on or
after such tranche notice date. On and after the first tranche notice
date and each subsequent tranche notice date, the exercise price of the warrant
will be adjusted to the closing sale price of a share of our common stock on the
applicable tranche notice date. The exercise price of the warrant may
be paid (at the option of Optimus) in cash or by Optimus’s issuance of a
four-year, full-recourse promissory note, bearing interest at 2% per annum, and
secured by a specified portfolio of assets. However, such promissory
note is not due or payable at any time that (a) we are in default of any
preferred stock purchase agreement for Series B preferred stock or any warrant
issued pursuant thereto, any loan agreement or other material agreement or (b)
there are any shares of the Series B preferred stock issued or
outstanding. The warrant also provides for cashless exercise in
certain circumstances. If Optimus fails to acquire and pay for the Series B
preferred stock upon delivery of our notice in accordance with the terms of the
Series B purchase agreement (assuming the timely and full satisfaction of all of
the conditions set forth therein) and the warrant has not previously been
exercised in full, we have the right to demand surrender of the warrant (or any
remaining portion thereof) without compensation, and the warrant will
automatically be cancelled.
Our right
to deliver a notice to Optimus and the obligation of Optimus to accept a notice
and to acquire and pay for the Series B preferred stock subject to such notice
at a tranche closing are subject to the satisfaction of certain conditions,
which include, among others:
|
·
|
our
common stock must be listed for trading or quoted on the OTC Bulletin
Board (or another eligible trading market), and we must be in compliance
with all requirements under the Securities Exchange Act of 1934, as
amended, in order to maintain such
listing;
|
|
·
|
either
(i) we have a current, valid and effective registration statement covering
the resale of all warrant shares or (ii) all warrant shares are eligible
for resale without limitation under Rule 144 (assuming cashless exercise
of the warrant);
|
|
·
|
there
must not be any material adverse effect with respect to our company since
the date of the Series B purchase agreement, other than losses incurred in
the ordinary course of business;
|
|
·
|
we
must not be in default under any material
agreement;
|
|
·
|
certain
lock-up agreements with our senior officers and directors and certain
beneficial owners of 10% or more of our outstanding common stock must be
effective;
|
3
|
·
|
there
must not be any legal restraint prohibiting the transactions contemplated
by the Series B purchase agreement;
and
|
|
·
|
the
aggregate of all shares of our common stock beneficially owned by Optimus
and its affiliates must not exceed 9.99% of our outstanding common
stock.
|
On the
date of the Commitment Closing, we issued 500 shares of Series B preferred stock
to Optimus, which we refer to as the Series B exchange shares, in exchange for
the 500 shares of Series A preferred stock that was held by Optimus on such date
so that all shares of our preferred stock held or subsequently purchased by
Optimus under the Series B purchase agreement would be redeemable upon
substantially identical terms. Any accrued and unpaid dividends on
the Series A preferred stock were deemed cancelled and such amount of accrued
and unpaid dividends were reflected as accrued and unpaid dividends of the
Series B preferred stock issued to Optimus. In addition, on the date
of the Commitment Closing, the security and collateral provisions of each of the
outstanding promissory notes that an affiliate of Optimus gave to us in lieu of
the payment of the exercise price of certain warrants previously issued by us to
such affiliate of Optimus was amended and restated and such affiliate of Optimus
entered into a Security Agreement with us in connection with such
amendments.
Our
History
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 on June 18, 1998 under the name Great
Expectations and Associates, Inc. In 1999, we became a reporting
company under the Securities Exchange Act of 1934, as amended. 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, which we
refer to as the Share Exchange, by and among Advaxis, the stockholders of
Advaxis and us. As a result of the Share Exchange, 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 our company from Colorado to Delaware by merging the Colorado
entity into our wholly-owned Delaware subsidiary.
Principal
Executive Offices
Our
principal executive offices are located at Technology Centre of New Jersey, 675
US Highway One, North Brunswick, New Jersey 08902 and our telephone number is
(732) 545-1590. We maintain a website at www.advaxis.com which
contains descriptions of our technology, our drugs and the trial status of each
drug. The information on our website is not incorporated into this
prospectus.
4
THE
OFFERING
Shares
of common stock offered by us
|
None
|
|
Shares
of common stock which may be sold by the selling
stockholders
|
A
total of 46,818,000 shares of our common stock (1)
consisting of:
|
|
|
·
3,500,000 shares of our common stock issued to Numoda Capital as
payment for certain services rendered by one of its affiliates to
us;
|
|
|
||
·
2,818,000 shares of our common stock underlying a warrant issued to
an affiliate of Optimus in connection with a tranche closing of our Series
A preferred equity financing; and
|
||
·
40,500,000 shares of our common stock underlying a warrant issued
to an affiliate of Optimus in our Series B preferred equity
financing.
|
||
Use
of proceeds
|
We
will not receive any proceeds from the resale of the shares of common
stock offered by the selling stockholders as all of such proceeds will be
paid to the selling stockholders. Furthermore, we will not
receive cash proceeds from the exercise of the warrants held by the
affiliate of Optimus to the extent they are exercised by a promissory
note, as permitted by the terms of such warrants.
|
|
Risk
factors
|
The
purchase of our common stock involves a high degree of
risk. You should carefully review and consider the “Risk
Factors” section of this prospectus for a discussion of factors to
consider before deciding to invest in shares of our common
stock.
|
|
OTC
Bulletin Board market symbol
|
ADXS.OB
|
(1) These
shares represent approximately 15.1% of our currently outstanding shares of
common stock (based on 309,559,255 shares of common stock outstanding as of July
1, 2010 on a fully diluted basis (assuming the warrant to purchase 40,500,000
shares of our common stock was issued and outstanding on the date
thereof)).
5
RISK
FACTORS
An
investment in our common stock is highly speculative, involves a high degree of
risk and should be made only by investors who can afford a complete loss of
their investment. You should carefully consider, together with the
other matters referred to in this prospectus, the following risk factors before
you decide whether to buy our common stock.
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 and
April 30, 2010, we had an accumulated deficit of $16,603,800 and $29,795,519,
respectively, and shareholders’ deficiency of $15,733,328 and $21,962,320,
respectively. 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 funding from Optimus in connection with
the Series B preferred equity financing.
We have
entered into the Series B purchase agreement, pursuant to which Optimus has
agreed to purchase up to $7.5 million of our Series B preferred stock from time
to time, subject to our ability to effect and maintain an effective registration
statement for the shares underlying the warrant issued to an affiliate of
Optimus to purchase up to 40,500,000 shares of common stock, issued in
connection with the transaction. Additionally, the Series B purchase
agreement provides that in order to require Optimus to purchase our Series B
preferred stock at any time: (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 July 19, 2010, other than losses incurred
in the ordinary course of business, (iv) we must not be in default under any
material agreement, (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 Series B purchase agreement. If we fail
to comply with any of these requirements, Optimus will not be obligated to
purchase our Series B preferred stock and we will not receive any funding from
Optimus. Moreover, if we exercise our option to require Optimus to purchase our
Series B preferred stock, and our common stock has a closing price of less than
$0.17 per share on the trading day immediately preceding our delivery of the
exercise notice, we will trigger at closing certain anti-dilution protection
provisions in certain outstanding warrants that would result in an adjustment to
the number and price of certain outstanding warrants.
6
If
the average closing sale price of our common stock on each tranche notice date
is less than $0.25 per share, we may not be able to require Optimus to purchase
the entire $7.5 million of Series B preferred stock issuable under the Series B
purchase agreement.
In
connection with our Series B preferred equity financing, we issued to an
affiliate of Optimus a three-year warrant to purchase up to 40,500,000 shares of
our common stock, at an initial exercise price of $0.25 per
share. The warrant provides that on each tranche notice date under
the Series B purchase agreement, (i) that portion of the warrant equal to 135%
of the tranche amount will vest and become exercisable (and such vested portion
may be exercised at any time during the exercise period on or after such tranche
notice date) and (ii) the exercise price will be adjusted to the closing sale
price of a share of our common stock on such tranche notice date. We
are not permitted to deliver a tranche notice under the Series B purchase
agreement if the number of registered shares underlying the warrant is
insufficient to cover the portion of the warrant that will vest and become
exercisable in connection with such tranche notice. If the average
closing sale price on each tranche notice date is less than $0.25 per share, we
will not have a sufficient number of registered shares available under this
prospectus to require Optimus to purchase the entire $7.5 million without
issuing an additional warrant, and effecting an additional registration
statement relating to the shares of our common stock issuable upon exercise of
such additional warrant. In such an event, we cannot assure you that
we will be able to timely effect and maintain a registration statement so as to
permit us to require Optimus to purchase the entire $7.5 million of Series B
preferred stock under the Series B purchase agreement.
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
Series B 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
April 30, 2010, our total outstanding indebtedness was approximately $4.3
million, which included the face value of our outstanding bridge notes in the
amount of approximately $3.4 million and the note outstanding to our chief
executive officer in the amount of approximately $0.9 million. The total
face value of the notes outstanding as of April 30, 2010 is due on or before
November 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. In addition, our failure to timely repay
(or extend) amounts due and owing under our outstanding senior and junior bridge
notes, may trigger the anti-dilution protection provisions in substantially all
of our warrants (other than the warrants issued to the affiliate of Optimus), in
which case holders of our common stock will experience significant additional
dilution. As of July 1, 2010, approximately 80 million warrants would
be subject to these anti-dilution protection provisions.
As of
April 30, 2010, $150,000 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.
7
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:
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competition
from companies that have substantially greater assets and financial
resources than we have;
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need
for acceptance of products;
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ability
to anticipate and adapt to a competitive market and rapid technological
developments;
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amount
and timing of operating costs and capital expenditures relating to
expansion of our business, operations and
infrastructure;
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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
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dependence
upon key personnel including key independent consultants and
advisors.
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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.
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:
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competition
from companies that have substantially greater assets and financial
resources than we have;
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need
for acceptance of products;
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ability
to anticipate and adapt to a competitive market and rapid technological
developments;
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amount
and timing of operating costs and capital expenditures relating to
expansion of our business, operations and
infrastructure;
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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
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8
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dependence
upon key personnel including key independent consultants and
advisors.
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We
are subject to numerous risks inherent in conducting clinical
trials.
We
outsource the management of our clinical trials to third
parties. 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.
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:
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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;
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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;
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Manufacturing
costs, formulation issues, pricing or reimbursement issues, or other
factors that make the product uneconomical;
and
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The
proprietary rights of others and their competing products and technologies
that may prevent the product from being
commercialized.
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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.
9
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.
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
June 15, 2010 we have 27 patents that have been issued and licenses for 45
patent applications that are pending. We have licensed most of these
patents and applications from Penn and we have obtained the rights to all future
patent applications originating in the laboratories of Dr. Yvonne Paterson and
Dr. Fred Frankel. 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.
10
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 are also aware of Aduro Biotech, a company comprised in
part of former Cerus and Anza employees that has recently formed to investigate
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, Aduro 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.
Pursuant
to the terms of our license agreement with Penn, as amended, we have acquired
exclusive licenses for an additional 27 patent applications related to our
proprietary Listeria
vaccine technology. However, as of April 30, 2010, we owed Penn
approximately $249,000 in patent expenses and $130,000 in sponsored research
agreement fees and we have agreed to satisfy these obligations in five monthly
payments of $65,000 beginning in May, 2010 plus a payment of approximately
$54,000 before September 30, 2010. We can provide no assurance that
we will be able to make all payments due and owing thereunder, 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.
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.
11
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:
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significant
time and effort from our management
team;
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coordination
of our research and development programs with the research and development
priorities of our collaborators;
and
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effective
allocation of our resources to multiple
projects.
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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:
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decreased
demand for our product candidates;
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damage
to our reputation;
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withdrawal
of clinical trial participants;
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costs
of related litigation;
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substantial
monetary awards to patients or other
claimants;
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loss
of revenues;
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the
inability to commercialize product candidates;
and
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increased
difficulty in raising required additional funds in the private and public
capital markets.
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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
July 1, 2010, we had ten 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.
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. In addition, from time to time, we are unable to
make payroll due to our lack of cash.
13
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:
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price
and volume fluctuations in the overall stock market from time to
time;
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14
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fluctuations
in stock market prices and trading volumes of similar
companies;
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actual
or anticipated changes in our net loss or fluctuations in our operating
results or in the expectations of securities
analysts;
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the
issuance of new equity securities pursuant to a future offering, including
issuances of preferred stock pursuant to the Series B purchase
agreement;
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general
economic conditions and trends;
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major
catastrophic events;
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sales
of large blocks of our stock;
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significant
dilution caused by the anti-dilutive clauses in our financial
agreements;
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departures
of key personnel;
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changes
in the regulatory status of our product candidates, including results of
our clinical trials;
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events
affecting Penn or any future
collaborators;
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announcements
of new products or technologies, commercial relationships or other events
by us or our competitors;
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regulatory
developments in the U.S. and other
countries;
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failure
of our common stock to be listed or quoted on the Nasdaq Stock Market,
NYSE Amex Equities or other national market
system;
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changes
in accounting principles; and
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discussion
of us or our stock price by the financial and scientific press and in
online investor communities.
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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:
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with
a price of less than $5.00 per
share;
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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
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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.
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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.”
15
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:
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obtain
from the investor information about his or her financial situation,
investment experience and investment
objectives;
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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;
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provide
the investor with a written statement setting forth the basis on which the
broker-dealer made his or her determination;
and
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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.
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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:
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the
issuance of new equity securities pursuant to a future offering, including
issuances of preferred stock pursuant to the Series B purchase
agreement;
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changes
in interest rates;
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significant
dilution caused by the anti-dilutive clauses in our financial
agreements;
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competitive
developments, including announcements by competitors of new products or
services or significant contracts, acquisitions, strategic partnerships,
joint ventures or capital
commitments;
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variations
in quarterly operating results;
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change
in financial estimates by securities
analysts;
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the
depth and liquidity of the market for our common
stock;
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investor
perceptions of our company and the technologies industries generally;
and
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general
economic and other national
conditions.
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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 and fiscal year ended
October 31, 2009, we were unable to file our respective quarterly report on Form
10-Q and annual report on Form 10-K in a timely manner, but we were able to make
the filings and cure our compliance deficiencies 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.
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, and as of April 30, 2010, our chief executive officer
and chief financial officer concluded that our disclosure controls and
procedures were effective, there may continue to be material weaknesses or
deficiencies in our internal controls or ineffectiveness of our disclosure
controls and procedures. However, as a result of these historical material
weaknesses in our internal controls and the ineffectiveness of our disclosure
controls and procedures, current and potential stockholders could lose
confidence in our financial reporting, which would harm our business and the
trading price of our stock.
17
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.
As of
July 1, 2010, our officers and directors and their affiliates, in the aggregate,
beneficially own approximately 14.1% 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.
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 July 1, 2010,
we had 170,585,758 shares of our common stock issued and outstanding, excluding
shares issuable upon exercise of our outstanding warrants and options. As of
July 1, 2010, we had outstanding options to purchase 18,219,090 shares of our
common stock at a weighted average exercise price of approximately $0.16 per
share and outstanding warrants to purchase 80,254,407 shares of our common
stock, with exercise prices ranging from $0.17 to $0.29 per share. Pursuant to
our 2004, 2005 and 2009 Stock Option Plans, we have 2,381,525, 5,600,000 and
20,000,000 shares of common stock reserved respectively, for issuance under the
plans. In addition, as of July 1, 2010, we have 400,000, 263,833 and 9,098,602
of these options available for issuance. 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, the above-mentioned warrants to purchase 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).
18
Shares
eligible for future sale may adversely affect the market.
Sales of
a significant number of shares of our common stock in the public market could
harm the market price of our common stock This prospectus covers 3,500,000
shares of common stock and 43,318,000 shares of common stock issuable upon
exercise of our outstanding warrants, which represents approximately 15.1% of
our outstanding shares of our common stock as of July 1, 2010 on a fully diluted
basis (assuming the warrant to purchase 40,500,000 shares of our common stock
was issued and outstanding on the date thereof). As additional shares of our
common stock become available for resale in the public market pursuant to this
offering, and otherwise, the supply of our common stock will increase, which
could decrease its price. Some or all of the shares of common stock may be
offered from time to time in the open market pursuant to Rule 144, and these
sales may have a depressive effect on the market for our shares of common stock.
In general, under Rule 144 as currently in effect, a non-affiliate of ours who
has beneficially owned shares of our common stock for at least six months is
entitled to sell his or her shares without any volume limitations, and an
affiliate of ours can sell such number of shares within any three-month period
as does not exceed the greater of 1% of the number of shares of our common stock
then outstanding, which equaled approximately 1,705,858 shares as of July 1,
2010, or the average weekly trading volume of our common stock on the OTC
Bulletin Board during the four calendar weeks preceding the filing of a notice
on Form 144 with respect to that sale. Sales under Rule 144 by our affiliates
are also subject to manner-of-sale provisions, notice requirements and the
availability of current public information about us.
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
Amended and Restated Certification of Incorporation provides for the
authorization of 5,000,000 shares of “blank check” preferred stock. Pursuant to
our Amended and Restated 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.
We
do not intend to pay cash dividends.
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. Any
future determination as to the payment of cash 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.
This
prospectus contains forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These statements include, but are not limited to:
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statements
as to the anticipated timing of clinical studies and other business
developments;
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statements
as to the development of new
products;
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expectations
as to the adequacy of our cash balances to support our operations for
specified periods of time and as to the nature and level of cash
expenditures; and
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expectations
as to the market opportunities for our products, as well as our ability to
take advantage of those
opportunities.
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19
These
statements may be found in the sections of this prospectus titled “Prospectus
Summary,” “Risk Factors,” “Management’s Discussion and Analysis and Results of
Operations,” and “Description of our Business,” as well as in this prospectus
generally. Actual results could differ materially from those anticipated in
these forward-looking statements as a result of various factors, including all
the risks discussed in “Risk Factors” and elsewhere in this
prospectus.
In
addition, statements that use the terms “can,” “continue,” “could,” “may,”
“potential,” “predicts,” “should,” “will,” “believe,” “expect,” “plan,”
“intend,” “estimate,” “anticipate,” “scheduled” and similar expressions are
intended to identify forward-looking statements. All forward-looking statements
in this prospectus reflect our current views about future events and are based
on assumptions and are subject to risks and uncertainties that could cause our
actual results to differ materially from future results expressed or implied by
the forward-looking statements. Many of these factors are beyond our ability to
control or predict. Forward-looking statements do not guarantee future
performance and involve risks and uncertainties. Actual results will differ, and
may differ materially, from projected results as a result of certain risks and
uncertainties. The risks and uncertainties include, without limitation, those
described under “Risk Factors” and those detailed from time to time in our
filings with the SEC, and include, among others, the following:
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Our
limited operating history and ability to continue as a going
concern;
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Our
ability to successfully develop and commercialize products based on our
therapies and the Listeria System;
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A
lengthy approval process and the uncertainty of FDA and other government
regulatory requirements may have a material adverse effect on our ability
to commercialize our applications;
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Clinical
trials may fail to demonstrate the safety and effectiveness of our
applications or therapies, which could have a material adverse effect on
our ability to obtain government regulatory
approval;
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The
degree and nature of our
competition;
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Our
ability to employ and retain qualified employees;
and
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The
other factors referenced in this prospectus, including, without
limitation, under the sections titled “Risk Factors,” “Management’s
Discussion and Analysis and Results of Operations,” and “Description of
our Business.”
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We will
not receive any proceeds from the resale of the shares of common stock offered
by the selling stockholders as all of such proceeds will be paid to the selling
stockholders. Furthermore, we will not receive cash proceeds from the exercise
of the warrants held by the affiliate of Optimus to the extent they are
exercised by a promissory note, as permitted by the terms of such warrants. No
assurance can be given, however, as to when, if ever, any or all of such
warrants will be exercised.
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.
Fiscal 2010
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Fiscal 2009
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Fiscal 2008
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High
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Low
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High
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Low
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High
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Low
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First
Quarter (November 1-January 31)
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$ | 0.18 | $ | 0.11 | $ | 0.06 | $ | 0.01 | $ | 0.20 | $ | 0.13 | ||||||||||||
Second
Quarter (February 1- April 30)
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$ | 0.23 | $ | 0.14 | $ | 0.05 | $ | 0.02 | $ | 0.15 | $ | 0.09 | ||||||||||||
Third
Quarter (May 1 - July 31)
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$ | 0.17 |
(1)
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$ | 0.24 |
(1)
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$ | 0.21 | $ | 0.04 | $ | 0.135 | $ | 0.058 | ||||||||||
Fourth
Quarter (August 1 - October 31)
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$ | - | $ | - | $ | 0.19 | $ | 0.06 | $ | 0.07 | $ | 0.03 |
(1) Through
July 19, 2010.
As of
July 1, 2010, there were approximately 88 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 2,000 beneficial owners of our shares of our
common stock in addition to the stockholders of record. On July 19, 2010, the
last reported sale price per share for our common stock as reported by the OTC
Bulletin Board was $0.18.
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 cash 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 B preferred stock will be entitled to receive dividends, which will
accrue in shares of Series B 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 B preferred stock or upon the liquidation, dissolution
or winding up of our company. The Series B preferred stock ranks, with respect
to dividend rights and rights upon liquidation:
|
senior
to our common stock and any other class or series of preferred stock
(other than Series A preferred stock or any class or series of preferred
stock that we intend to cause to be listed for trading or quoted on
Nasdaq, NYSE Amex or the New York Stock
Exchange);
|
|
·
|
pari passu with any
outstanding shares of our Series A preferred stock (none of which are
issued and outstanding as of the date hereof);
and
|
|
·
|
junior
to all of our existing and future indebtedness and any class or series of
preferred stock that we intend to cause to be listed for trading or quoted
on Nasdaq, NYSE Amex or the New York Stock
Exchange.
|
21
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 prospectus 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 prospectus 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 prospectus.
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 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. In
August 2009, we received an NIH grant for $210,739 for the development of a dual
vector capable of attacking two immunologic targets simultaneously.
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.
22
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;
|
|
·
|
Continue
to work on our grant from the NIH awarded in August 2009 for $210,000 to
develop a single bioengineered Lm vaccine to deliver
two different antigen-adjuvant
proteins.
|
|
·
|
Continue
to focus on our collaboration with the Gynecologic Oncology Group, which
we refer to as 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 National Cancer Institute, which we refer to as 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 $9.0 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. If we can raise
additional funds we intend to commence the clinical work in prostate cancer by
late 2010 or beyond and breast and brain 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.
23
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: $7.7 million to $8.0
million
|
|
·
|
Anticipated
Timing: commenced in March 2010 (with patient dosing commencing in June
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
|
|
·
|
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: $2.7 million to $3.3
million
|
|
·
|
Anticipated
Timing: start July-August; 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.
|
|
·
|
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: The GOG of the NCI has agreed to conduct a study which we expect
will commence in late 2010
|
24
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 $15,000
|
|
·
|
Estimated
future clinical costs: expected to be greater than $50,000 (CRUK to
absorbe cost $2.5 million to $3.0
million)
|
|
·
|
Anticipated
Timing: The CRUK is funding a study of up to 45 patients at 3 UK
facilities that we expect will commence in October
2010.
|
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
|
|
·
|
FDA
(or foreign regulatory authority) may not approve the
study.
|
ADXS31-164 - Phase I trial
Summary Information (TBD Breast or Brain Cancer 24 Patients)
|
·
|
Cost
incurred to date: $450,000
|
|
·
|
Estimated
future costs: $3.0 million to $3.5
million
|
|
·
|
Anticipated
Timing: to be determined
|
25
Results
of Operations
Three
months ended April 30, 2010 period compared to the three months ended April 30,
2009
Revenue. Revenue increased in
the three month period ended April 30, 2010 (the “Current Three-Month Period”)
by approximately $87,000 representing grant revenue received compared to zero in
the three month period ended April 30, 2009 (the “Prior Three-Month
Period”).
Research and Development Expenses.
Research and development expenses increased by $800,891 to $1,084,703 for
the Current Three-Month Period as compared with $283,812 for the Prior
Three-Month Period, principally attributable to the following:
|
·
|
Clinical
trial expenses increased by $750,511, to $751,242 from $731, due to our
clinical trial activity initiated during the first fiscal quarter of
2010.
|
|
·
|
Wages,
including stock-based compensation approximately $64,000, or 28% to
$291,649 from $227,456, primarily as a result of increased salaries
(including an executive bonus) and increased stock-based compensation
resulting from the 2009 stock option
plan.
|
|
·
|
Legal
expenses increased approximately $16,000, which was more than offset by
consulting costs which decreased by about
$27,000.
|
We
anticipate a significant increase in research and development expenses as a
result of expanded development and commercialization efforts primarily related
to clinical trials, and product development, and expenses to be incurred in the
development of strategic and other relationships required to license,
manufacture and distribute of our product candidates.
General and Administrative
Expenses. General and administrative expenses increased by $290,995 or
60%, to $779,463 for the Current Three-Month Period as compared with $488,468
for the Prior Three-Month Period, resulting from the following:
|
·
|
Salaries
and employee benefits increased by approximately $170,000, or 90% to
$357,785 from $188,094 a year ago, due to higher salaries and health
insurance premiums.
|
|
·
|
Stock-based
compensation increased by $40,629, to $50,028 from $9,399 a year ago, due
to the issuance of new options under the 2009 stock option
plan.
|
|
·
|
Legal
and accounting fees increased by $125,226, to $180,675 from $55,449,
primarily as a result of increased legal fees of $83,634 and increased
accounting fees of $41,492, which were more than offset by a decrease in
offering expenses of $47,393 due to the application of financing costs to
additional paid-in capital.
|
Other Income (Expense). Other
Income (expense) increased by $7,332,775 to $7,353,433 in expense for the
Current Three-Month Period from expense of $20,658 for the Prior Three-Month
Period resulting from the following:
|
·
|
Interest Expense. For
the Current Three-Month Period, interest expense increased by $1,626,411,
to $1,647,069 from $20,658 in the Prior Three-Month Period primarily due
to the sale of senior and junior bridge notes during the third and fourth
fiscal quarters of 2009 and the six months ended April 30, 2010.
Additionally warrant liabilities and embedded derivatives related to the
senior and junior bridge notes are recorded as a liability on the balance
sheet and are amortized to interest expense over the life of the senior
and junior bridge notes.
|
|
·
|
Changes in Fair Values.
The change in fair value of the common stock warrant liability and
embedded derivative liability increased expense by approximately $5.8
million in the Current Three-Month Period, compared to $0 in the Prior
Three-Month Period. Of the $5.8 million in expense, $5.4 million related
to the change in fair value of the warrant liability and $0.4 million
related to the change in fair value of the embedded derivative liability.
This change in fair value, using the BSM model, measures the value of the
warrant liability and embedded derivative liability at each reporting
period. Any change in fair value of the liability from the prior period is
recorded in the statement of operations as income if the value of the
liability decreases and expense if the value of the liability
increases.
|
26
For the
Current Three-Month Period, the BSM warrant value associated with the
approximately 65 million warrants issued in 2007 (“2007 warrants”) increased by
$0.06 per warrant due to the increase in the price of our common stock, from
$0.135 at January 31, 2010 to over $0.21 at April 30, 2010, resulting in
approximately $4.0 million of the $5.4 million change in fair value of warrant
liability on the statement of operations. Approximately all of the $0.4 million
related to the change in fair value of the embedded derivative liability was the
result of the increase in the price of our common stock over the Current
Three-Month Period.
Potential
future increases in our stock price will result in increased warrant and
embedded derivative liabilities on our balance sheet and therefore increased
expenses being recognized in our statement of operations in future
periods.
In the
Current Three-Month Period other income increased by $78,893 from $0 in the
Prior Three-Month Period, due to the non-cash gain on retirement earned on the
payoff of certain senior and junior bridge notes and interest earned on notes
receivable from Optimus.
Six
months ended April 30, 2010 period compared to the six months ended April 30,
2009
Revenue. Revenue increased in
the six month period ended April 30, 2010 (the “Current Six-Month Period”) by
approximately $87,000 representing grant revenue received compared to zero in
the six month period ended April 30, 2009 (the “Prior Six-Month
Period”).
Research and Development
Expenses. Research and development expenses increased by $1,619,052 to
$2,082,038 for the Current Six-Month Period as compared with $462,986 for the
Prior Six-Month Period, principally attributable to the following:
|
·
|
Clinical
trial expenses increased by $1,482,907, to $1,484,676 from $1,769,
primarily due to our clinical trial activity initiated during the first
fiscal quarter of 2010.
|
|
·
|
Salaries,
including stock-based compensation, increased by approximately $70,000,
primarily as a result of increased stock-based compensation expense and
salaries. Additionally, in the Current Six-Month Period, a bonus accrual
was reversed, lowering expenses by approximately $122,000 in that
period.
|
|
·
|
Consulting
expenses decreased by $49,960, or 92%, to $4,500 in the Current Six-Month
Period from $54,460, due to a decline in the number of consultants we used
and no stock-based compensation in the Prior Six-Month
Period.
|
We
anticipate a significant increase in research and development expenses as a
result of expanded development and commercialization efforts primarily related
to clinical trials, and product development, and expenses to be incurred in the
development of strategic and other relationships required to license manufacture
and distribute of our product candidates.
General and Administrative
Expenses. General and administrative expenses increased by $334,556, or
32%, to $1,368,478 for the Current Six-Month Period as compared to $1,033,922
for the Prior Six-Month Period, primarily attributable to the
following:
|
·
|
Salaries
and related expenses increased by approximately $144,000, or 35% to
$556,123 from $411,653 due to wages and benefits increasing by
approximately $119,000 from higher salaries and increased health insurance
premiums partially offset by lower 401K expenses of approximately $9,000.
Additionally, in the Current Six-Month Period, a bonus accrual was
reversed, lowering expenses by approximately $36,000 in that
period.
|
|
·
|
Stock-based
compensation increased $112,181, to $157,873 from $45,692 a year ago, due
to the issuance of new options under the 2009 stock option
plan.
|
27
|
·
|
Legal
and accounting fees increased by approximately $190,000, primarily as a
result of higher legal fees of approximately $148,000 and higher
accounting fees of approximately $43,000 due to increased utilization of
temporary professionals and outside auditor fees in the Current Six-Month
Period, which were more than offset by a decrease in offering expenses of
approximately $142,000 due to the application of financing costs to
additional paid-in capital.
|
|
·
|
Patent
expenses decreased approximately $77,000 due to lower amounts paid to Penn
under our licensing agreement, offset by higher regulatory costs of
approximately $10,000.
|
Other Income (Expense). Other
Income (expense) increased by $10,071,363 to $10,107,415 in expense for the
Current Six-Month Period compared to $36,052 for the Prior Six-Month Period,
resulting from the following:
|
·
|
Interest Expense. In
the Current Six-Month Period interest expense increased by $3,277,156 to
$3,313,208 from $36,052 in the Prior Six-Month Period primarily due to the
sale of senior and junior bridge notes during the third and fourth fiscal
quarters of 2009 and the six months ended April 30, 2010. Additionally,
the debt discount on warrant liabilities and embedded derivatives related
to the senior and junior bridge notes are recorded as a liability on the
balance sheet and are amortized to interest expense over the life of the
senior and junior bridge notes.
|
|
·
|
Changes in Fair Values.
The change in fair value of the common stock warrant liability and
embedded derivative liability increased expense by $6,875,371 in the
Current Six-Month Period, compared to $0 in the Prior Six-Month Period. Of
the $6.9 million in expense, $7.3 million related to the change in fair
value of the warrant liability and ($0.4) million related to the change in
fair value of the embedded derivative liability. This change in fair
value, using the BSM model, measures the value of the warrant liability
and embedded derivative liability at each reporting period. Any change in
fair value of the liability from the prior period is recorded in the
statement of operations as income if the value of the liability decreases
and expense if the value of the liability
increases.
|
For the
Current Six-Month Period, the BSM warrant value associated with the 2007
warrants increased by about $0.07 per warrant due to the increase in the price
of our common stock, from $0.13 at October 31, 2010 to over $0.21 at April 30,
2010, resulting in approximately $4.7 million of the $7.3 million change in fair
value of warrant liability on the statement of operations. Approximately all of
the ($0.4) million related to the reduction in the embedded derivative liability
was the result of the increase in the price of our common stock over the Current
Six-Month Period more than off set by changed BSM assumptions in the price in
which the senior and junior bridge notes would be converted into
equity.
Potential
future increases in our stock price will result in increased warrant and
embedded derivative liabilities on our balance sheet and therefore increased
expenses being recognized in our statement of operations in future
periods.
In the
Current Six-Month Period other income increased by $78,893 from $0 in the Prior
Six-Month Period, due to the non-cash gain on retirement earned on the payoff of
the senior and junior bridge notes and interest earned on notes receivable from
Optimus.
Income Tax Benefit. In the
Current Six-Month Period income tax benefit decreased by $643,044, to
$278,978 income from $922,022 in the Prior Six-Month Period primarily due to a
gain recorded from the receipt of a NOL tax credit and research tax credit
received from the State of New Jersey tax program in the Current Six-Month
Period of $278,978 compared to the $922,020 received in the Prior Six-Month
Period. The decrease in the income from the program received in the Current
Six-Month Period compared to the Prior Six-Month Period was attributed to the
Prior Six-Month Period NOL which was the first time we received money from the
program and it covered all prior years NOL’s from our inception whereas the
Current Six-Month Period covered only the current year’s NOL and prior two years
of the research tax credit.
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.
28
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 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 $80,387 due 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 IND 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.
|
|
·
|
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.
|
|
·
|
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.
|
29
|
·
|
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 in the Fiscal 2009 Period compared to zero
in the Fiscal 2008 Period resulting from improvements in the share price, the
anticipated pay down of our senior 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 in the Fiscal
2009 Period compared to $11,263 in the Fiscal 2008 Period 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.
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.
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 April 30, 2010, we had an
accumulated deficit of $16,603,800 and $29,795,519, respectively, and
shareholders’ deficiency of $15,733,328 and $21,962,320, respectively. Based on
our available cash of approximately $227,000 on April 30, 2010, we do not have
adequate cash on hand to cover our anticipated expenses for the next 12 months.
If we fail to raise a significant amount of capital, we may need to
significantly curtail 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.
30
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.
Pursuant
to the Series B purchase agreement, Optimus has agreed to purchase, upon the
terms and subject to the conditions set forth therein and described below, up to
$7.5 million of our newly authorized, non-convertible, redeemable Series B
preferred stock at a price of $10,000 per share. Under the terms of the Series B
purchase agreement, and after the SEC has declared effective the registration
statement of which this prospectus is a part, we may from time to time until
July 19, 2013, present Optimus with a notice to purchase a specified amount of
Series B preferred stock. Subject to satisfaction of certain closing conditions,
Optimus is obligated to purchase such shares of Series B preferred stock on the
10th trading day after the date of the notice. We will determine, in our sole
discretion, the timing and amount of Series B preferred stock to be purchased by
Optimus, and may sell such shares in multiple tranches. Optimus will not be
obligated to purchase the Series B 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.
On
September 24, 2009, we entered into a preferred stock purchase agreement with
Optimus, which we refer to as the Series A purchase agreement, pursuant to which
Optimus agreed to purchase, upon the terms and subject to the conditions set
forth therein, up to $5.0 million of Series A preferred stock at a price of
$10,000 per share. As of May 13, 2010, all 500 shares of Series A preferred
stock were issued and sold to Optimus. On July 19, 2010, we issued 500 shares of
Series B preferred stock to Optimus, which we refer to as the Series B exchange
shares, in exchange for the 500 shares of Series A preferred stock so that all
shares of our preferred stock held or subsequently purchased by Optimus under
the Series B purchase agreement would be redeemable upon substantially identical
terms. In connection with the Series A preferred equity financing, an affiliate
of Optimus was granted on September 24, 2009 a warrant to purchase up to
33,750,000 shares of our common stock at an exercise price of $0.20 to be
adjusted in connection with the draw down of each tranche. On January 11, 2010,
the draw down date of the first tranche, the affiliate of Optimus exercised a
portion of the warrant to purchase 11,563,000 shares of common stock at an
adjusted exercise price of $0.17 per share. On March 29, 2010, the draw down
date of the second tranche, the affiliate of Optimus exercised a portion of the
warrant to purchase 14,580,000 shares of common stock at an exercise price of
$0.20 per share. On May 13, 2010, the draw down date of the final tranche, the
affiliate of Optimus exercised the remainder of the warrant to
purchase 7,607,000 shares of common stock at an adjusted exercise price of $0.18
per share. In each case, we agreed with Optimus and its affiliate to waive
certain terms and conditions in the Series A purchase agreement and the warrant
in order to permit the affiliate of Optimus to exercise the warrant at such
adjusted exercise prices prior to the closing of the purchase of the Series A
preferred stock and acquire beneficial ownership of more than 4.99% of our
common stock on the date of each exercise. As permitted by the terms of such
warrant, the aggregate exercise prices of $1,965,710, $2,916,000 and $1,369,260
for the first tranche, second tranche and final tranche, respectively, received
by us is payable pursuant to three separate four year full recourse promissory
notes each bearing interest at the rate of 2% per year. In addition, in
connection with the draw down of the final tranche, we issued an additional
warrant to an affiliate of Optimus to purchase up to 2,818,000 shares of common
stock at an exercise price of $0.18 per share, subject to customary
anti-dilution adjustments (the exercise price of which may also be paid at the
option of the affiliate of Optimus in cash or by its issuance of a promissory
note on the same terms as the foregoing promissory notes). The foregoing
promissory notes are not due or payable at any time that (a) we are in default
of under the Series A preferred stock purchase agreement, any loan agreement or
other material agreement or (b) there are any Series B exchange shares issued or
outstanding.
31
On June
18, 2009, we completed the senior bridge financing. The senior bridge financing
was a private placement with certain accredited investors pursuant to which we
issued (i) senior bridge notes in the aggregate principal face amount of
$1,131,353, for an aggregate net purchase price of $961,650 and (ii) senior
bridge warrants to purchase 2,404,125 shares of our common stock at an exercise
price of $0.20 per share (prior to giving effect to anti-dilution adjustments
which have subsequently reduced the exercise price to $0.17 per share), subject
to adjustments upon the occurrence of certain events. Each of the senior bridge
notes were issued with an original issue discount of 15% and were convertible
into shares of our common stock in certain circumstances. The senior bridge
notes had an initial maturity date of December 31, 2009. During January and
February 2010, we repaid $834,852 of the $1,131,353 in face value of our senior
bridge notes. In addition, holders of the remaining $296,501 of our senior
bridge notes agreed to extend the maturity dates from December 31, 2009 to
periods into February and March 2010. We have agreed to issue additional
consideration, including warrants to senior bridge note holders, all of whom
agreed to extend the maturity period beyond December 31, 2009. As of April 30,
2010, $150,000 remained outstanding under the senior bridge notes.
As of
April 30, 2010, we issued in private placements to certain accredited investors
(i) junior bridge notes in the aggregate principal face amount of $3,343,249,
for an aggregate net purchase price of $2,840,000 and (ii) junior bridge
warrants to purchase 5,743,750 shares of our common stock at an exercise price
of $0.20 per share (prior to giving effect to anti-dilution adjustments which
have subsequently reduced the exercise price to $0.17 per share), subject to
adjustments upon the occurrence of certain events. Each of these junior bridge
notes were issued with an original issue discount of 15% and are convertible
into equity securities 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. The maturity dates of these junior bridge notes range between June 30
and November 30, 2010. With respect to the junior bridge notes, $58,824 of the
face amount matures on the later of (i) March 31, 2010 and (ii) the repayment in
full or conversion of the senior bridge notes (and any other senior
indebtedness), and $2,029,412 of the face amount matures on the later of (i)
April 30, 2010 and (ii) the repayment in full or conversion of the senior bridge
notes (and any other senior indebtedness). The indebtedness represented by the
junior bridge notes is expressly subordinate to our currently outstanding senior
secured indebtedness (including the senior bridge notes), as well as any future
senior indebtedness of any kind. We will not make any payments to the holders of
these junior bridge notes until the earlier of the repayment in full or
conversion of the senior indebtedness.
We may
prepay the senior bridge notes and junior bridge notes, in whole or in part,
without penalty at any time prior to the respective maturity date.
In
connection with the senior bridge financing, we entered into a Security
Agreement, dated as of June 18, 2009 with the investors in the senior 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 senior bridge financing 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 and
in cash of all amounts owed to the investors pursuant to the senior bridge
notes; provided, however, that principal and interest of the Moore Notes may be
repaid prior to the full payment of the investors in certain
circumstances.
As a
result of anti-dilution protection provisions contained in certain of our
outstanding warrants, we have (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 63.0 million warrant shares to purchase our 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.
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. 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. 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
had the option to elect to receive accumulated interest thereon on or after
March 17, 2010 (which amounted to approximately $130,000), (ii) we were to begin
to make monthly installment payments of $100,000 on the outstanding principal
amount 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. As of April
30, 2010, approximately $850,000 in Moore Notes were outstanding and payable to
Mr. Moore. In May 2010, we issued 1,176,471 shares of common stock to Mr. Moore
(based on a price of $0.17 per share) in satisfaction of $200,000 of Moore
Notes.
32
On July
1, 2002 (effective date) we entered into a 20-year exclusive worldwide license,
with Penn with respect to the innovative work of Yvonne Paterson, Ph.D.,
Professor of Microbiology in the area of innate immunity, or the immune response
attributable to immune cells, including dendritic cells, macrophages and natural
killer cells that respond to pathogens non-specifically. This agreement has been
amended from time to time and was amended and restated on February 13, 2007. We
have acquired and paid for the First Amended and Restated Patent License
Agreement. During May 2010, we entered into the Second Amendment Agreement with
Penn whereby we agreed to pay certain outstanding amounts due for patent
expenses and costs related to our Sponsored Research Agreement with Penn. The
contingent liability related to the licensing of additional patent dockets of
$580,764 was settled for $70,000 for which we will pay a portion in our common
stock.
Off-Balance
Sheet Arrangements
As of
April 30, 2010, we had no off-balance sheet arrangements, other than our lease
for space. There were no changes in significant contractual obligations during
the three months ended April 30, 2010.
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 ASC
718-10-25 (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.
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.
33
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
senior 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 senior 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 senior 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
April 30, 2010, we had outstanding warrants to purchase 85,043,407 shares of our
common stock (adjusted for anti-dilution provision to-date) with exercise prices
ranges from $0.17 to $0.287 per share. These warrants include 2,404,125 warrants
issued to holders of senior bridge notes and 5,743,750 warrants issued to
holders of junior bridge notes, both 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 ASC 815-40-15
(formerly Emerging Issues Task Force (EITF) Issue No 07-5), “Determining Whether an Instrument
(or Embedded Feature) is Indexed to an Entity’s Own Stock” (EITF 07-5).
EITF 07-5 mandates a two-step process for evaluating whether an equity-linked
financial instrument or embedded feature indexed to the entities own stock. It
is effective for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years, which is our first quarter of fiscal 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 senior 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.
34
In April
2010, FASB issued Accounting Standards Update (ASU) 2010-17, Revenue Recognition—Milestone Method
(Topic 605) - Milestone Method of Revenue Recognition - a consensus of the FASB
Emerging Issues Task Force. This ASU provides guidance to vendors on the
criteria that should be met for determining whether the milestone method of
revenue recognition is appropriate. This guidance is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption is permitted.
Management
does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
35
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 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:
Indication
|
Stage
|
|||
ADXS11-001
|
Cervical
Cancer
|
Phase I Company
sponsored & completed in 2007.
|
||
Cervical
Intraepithelial Neoplasia
|
Phase II Company
sponsored study; commenced in March 2010 (with patient dosing commencing
in June 2010).
|
|||
Cervical
Cancer
|
Phase II Company
sponsored study anticipated to commence in July-August 2010 in India. 110
Patients with advanced cervical cancer.
|
|||
Cervical
Cancer
|
Phase II The Gynecologic
Oncology Group of the National Cancer Institute has agreed to conduct a
study which we expect will commence in late 2010.
|
|||
Head
& Neck Cancer
|
Phase I The Cancer
Research UK (CRUK) is funding a study of up to 45 patients at 3 UK
facilities that we expect will commence in October
2010.
|
|||
ADXS31-142
|
Prostate
Cancer
|
Phase I Company
sponsored (timing to be determined).
|
||
ADXS31-164
|
|
Breast
Cancer
|
|
Phase I Company
sponsored (timing to be
determined).
|
On March
10, 2010 the survival of the patients in our 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 1,252 and 1,121 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.
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 and
April 30, 2010, we had an accumulated deficit of $16,603,800 and $29,795,519,
respectively, and shareholders’ deficiency of $15,733,328 and $21,962,320,
respectively.
36
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.
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 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 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.
Cancer
Cancer is
the second largest cause of death in the U.S., exceeded only by heart disease.
The cost of treating cancer patients in 2007 was 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 American Cancer Society’s most recent estimates for newly
diagnosed cervical cancer in the U.S. in 2009 was 11,270 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). Overall predicted incidence
and mortality rates for 2009 are set forth below:
37
US Cancer
Rates (2009 Estimated)
38
Percent
of US deaths due to cancer in 2006
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 response by the immune system results in the release of various
soluble mediators of immune response such as cytokines, chemokines and other
molecules.
Exogenous
pathway of Adaptive Immunity (Class II pathway):
Proteins
and foreign molecules ingested by Antigen Processing Cells, or APCs, 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+) called helper T-cells that
produce induce a proliferation of 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.)
39
Endogenous
pathway of Adaptive Immunity (Class I pathway):
There
exists another adaptive immune pathway, called the endogenous
pathway. In this system, unusual proteins created within the
cytoplasm of the APC (as opposed to within he digestive phagosome), are 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 needed for elimination of
virus-infected or cancerous cells.
Mechanism
of Action
Listeria monocytogenes (Lm) 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. As Lm is in the soil and thus
found on leafy vegetables, in meat and dairy products, and is a common microbe
in our environment we are exposed to it constantly. 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. This is rare, and fortunately, many common
antibiotics can kill and sterilize Listeria .
40
Live
Listeria is one of the
strongest known stimulators of 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 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.
APCs 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. Because Listeria infects APC, and our
vaccines secrete biologically active molecules from within APC, our live
attenuated Lm vaccines
have the ability to direct an immune attack in a way no other therapy
can.
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.
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.
41
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.
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. Further, because LLO enables
Lm to avoid digestion
within the APC phagosome and enter the cytosol where it can reproduce, LLO is
the primary virulence factor for Lm and as such is a molecule
to which humans have evolved a strong immune response. Using a
non-hemolytic fragment of LLO (which is thus safe) fused to an antigen, Advaxis
vaccines secrete an antigen and an adjuvant in a single molecule from within
precisely those cells where therapeutic intervention is required, such as
APC.
42
Other
mechanisms that Advaxis vaccines employ include Listeria’s ability to increase the
synthesis of myeloid cells such as APCs, 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 are created that support and
facilitate a therapeutic response. In a manner that we believe to be
unique to Advaxis vaccines, our proprietary antigen-LLO fusion proteins, when
delivered by Listeria
reduce the number of cells within tumors called regulatory T cells, or 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, but does occur when Lm secretes the antigen-LLO
fusion protein discussed above. 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.
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.
43
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. The strains of Listeria that we use are
cleared by animals such as SCID mice or IFN-gamma knock out mice that lack
adaptive immune responses and are thus profoundly
immuno-compromised.
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
|
|
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, ADXS11-001, uses a HPV derived antigen that
is present in cervical cancers. ADXS31-164 uses Her2/neu, an antigen
found in many breast and other cancers, to induce an immune response that should
be useful in treating these conditions. ADXS31-142 is directed
against PSA, and antigen of importance in prostate cancer.
44
Partnerships
and Agreements
University
of Pennsylvania
On July
1, 2002 we entered into a 20-year exclusive worldwide license agreement, with
Penn with respect to the innovative work of Yvonne Paterson, Ph.D., Professor of
Microbiology in the area of innate immunity, or the immune response attributable
to immune cells, including dendritic cells, macrophages and natural killer
cells, that respond to pathogens non-specifically. This agreement has
been amended from time to time and was amended and restated on February 13,
2007. We have acquired and paid for the First Amended and Restated Patent
License Agreement. During May 2010, we entered into the Second
Amendment Agreement with Penn whereby we agreed to pay certain outstanding
amounts due for patent expenses and costs related to our Sponsored Research
Agreement with Penn.
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 0.2% 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 of $100,000 on December 31, 2010,
2011 and 2012 and each December 31st thereafter for the remainder of the term of
the agreement 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.
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.
On May
10, 2010, we entered into a second amendment to the Penn license agreement
pursuant to which we acquired exclusive licenses for an additional 27 patent
applications related to our proprietary Listeria vaccine
technology. As per the terms of the second amendment, we acknowledged
that we owed Penn approximately $249,000 in patent expenses and $130,000 in
sponsored research agreement fees and we agreed to satisfy these obligations in
five monthly payments of $65,000 beginning in May, 2010 plus a payment of
approximately $54,000 before September 30, 2010. As part of this
amendment we exercised our option for the rights to seven additional patent
dockets at an option exercise fee payable in the form of $35,000 in cash and
$70,000 in our common stock (approximately 388,889 shares of our common stock
based on a price of $0.18 per share). After giving effect to the
foregoing payments and stock issuances to Penn, we will have completed our
acquisition of available patents previously reported as an unrecorded contingent
liability of approximately $589,000.
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.
45
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.
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.
Cancer
Research UK
On
February 9, 2010, we announced that Cancer Research UK (CRUK), the UK
philanthropy dedicated to cancer research, has agreed to fund the cost of a
clinical trial to investigate the use of ADXS11-001, our lead vaccine candidate,
for the treatment of head and neck cancer. This sponsored clinical trial will
investigate the safety and efficacy of ADXS11-001 in head and neck cancer
patients who have previously failed treatment with surgery, radiotherapy and
chemotherapy – alone or in combination. We will provide the vaccines with all
other associated costs to be funded by CRUK. The study is to be conducted at
Aintree Hospital at the University of Liverpool, The 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.
National
Cancer Institute Gynecologic Oncology Group
On
December 15, 2009, we announced our Phase II Trial Collaboration with the
National Cancer Institute Gynecologic Oncology Group to Study ADXS11-001 in a
study of up to 63 patients. We will collaborate with GOG, a collaborative
research group of the National Cancer Institute, which we refer to as the NCI,
in a multicenter, Phase II clinical trial of our 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 our Phase I
trial of ADXS11-001. Under this agreement we are responsible for covering the
costs of translational research and have agreed to pay a total of $8,003 per
patient, with the bulk of the costs of this study underwritten by
NCI.
46
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 $41,000 through April 30, 2010.
Dr.
David Filer
On
January 7, 2005 we entered into a consulting agreement with Dr. David Filer, a
biotech consultant. The Agreement provides that Dr. Filer spends
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 (prior to anti-dilution adjustments) per
warrant 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.
On March
14, 2004 we entered into a nonexclusive license and bailment agreement with the
Regents of the 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. We paid UCLA
an initial licensee fee and continue to pay an annual maintenance fee of $1,000
for the 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.
Recipharm
AB (formerly Cobra Biomanufacturing PLC)
In July
2003, we entered into an agreement with Cobra Biomanufacturing PLC, which has
recently been purchased by Recipharm AB, for the purpose of
manufacturing our cervical cancer vaccine ADXS11-001. Recipharm has
extensive experience in manufacturing gene therapy products for investigational
studies. Recipharm 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, or GMP, manufacturing of DNA, recombinant protein, viruses, mammalian
cell products and cell banking. Recipharm’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. Recipharm has agreed to
surrender the right to $300,000 of its outstanding fees for manufacturing in
exchange for future royalties from the sales of ADXS11-001 at the rate of 1.5%
of net sales, with royalty payments not to exceed $2.0 million.
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.
47
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
We
entered into a consulting agreement with LVEP Management, LLC, which we refer to
as LVEP, dated as of January 19, 2005, and amended on April 15, 2005, and
October 31, 2005, pursuant to which Mr. Appel served as our Chief Executive
Officer, Chief Financial Officer and Secretary and was compensated by consulting
fees paid to LVEP. Pursuant to an amendment dated December 15, 2006,
Mr. Appel resigned as our President and Chief Executive Officer and Secretary as
of December 15, 2006, but remains as a member of our board of directors and as a
consultant to us.
Pharm-Olam
International Ltd.
In April
2005, we entered into a consulting agreement with Pharm-Olam International Ltd.,
which we refer to as 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 April 30, 2010 we have an outstanding balance due to
POI of $219,131.
Biologics
Consulting Group, Inc.
On June
1, 2006 we entered into an agreement with Biologics Consulting Group, Inc.,
which we refer to as BCG, and on June 11, 2007, we entered into an amendment No.
1 to provide biologics regulatory consulting services to us, on an as needed
basis, in support of the IND submission to the FDA. The tasks to be performed
under this Agreement will be agreed to in advance by us and BCG. The
term of the amendment No. 1 was from June 1, 2007 to June 1, 2008. 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. In
May 2010, we issued 3,500,000 shares of common stock to Numoda Capital at a
price per share of $0.17 in satisfaction of $595,000 of services rendered to us
by the Numoda Corporation.
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 April 30, 2010 Penn has 27 issued and 44
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 believe that these patents will allow us to take a lead
in the U.S. in the field of Listeria -based
therapy.
48
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.
On May
10, 2010, we entered into a second amendment to the 20-year exclusive worldwide
license agreement with Penn, which we refer to as the Second Amendment
Agreement. Pursuant to the Second Amendment Agreement, we acquired exclusive
licenses for an additional 27 patent applications related to our proprietary
Listeria vaccine
technology. As per the terms of the Second Amendment Agreement, we
acknowledged that we owe Penn approximately $249,000 in patent expenses and
$130,000 in sponsored research agreement fees. We have agreed to satisfy these
obligations in five monthly payments of $65,000 beginning in May, 2010 plus a
payment of approximately $54,000 before September 30, 2010. As part
of this amendment we exercised our option for the rights to seven additional
patent dockets at an option exercise fee payable in the form of $35,000 in cash
and $70,000 in our common stock (approximately 388,889 shares of our common
stock based on a price of $0.18 per share). After giving effect to
the foregoing payments and stock issuances to Penn, we will have completed our
acquisition of available patents previously reported as an unrecorded contingent
liability of approximately $589,000.
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 are also aware of Aduro Biotech, a company comprised in
part of former Cerus and Anza employees that has recently formed to investigate
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, Aduro 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
February 10, 2009 the 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.
49
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 Listeria monocytogenes, which
we refer to as Lm,
appears to be more immunogenic and less virulent that prior vaccine
strains.
Between
January and March of 2010, the USPTO issued two patents to Penn (each of which
are covered by the Penn license agreement) that cover the composition of matter,
uses and methods using the Lm protein Act A in antigen
fusion proteins. We are currently holding patents relating to two
families of antigen-adjuvant fusion proteins; one based on LLO and one based on
Act A.
Governmental
Regulation
The
Drug Development Process
The 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.
50
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.
Biologic License
Application. The results of the clinical trials using
biologics are submitted to the FDA as part of 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 a 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.
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.
51
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 an agreement with Cobra Biomanufactuirng (now Recipharm) 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.
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.
52
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.; 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.”
53
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.
54
As of
July 1, 2010, we had ten full time employees. We believe our
relations with employees are good.
We do not
anticipate any significant increase in the number of employees in the clinical
area and the research and development area to support clinical requirements, and
in the general and administrative and business development areas over the next
two years.
Description
of Property
Our
corporate offices are currently located at a biotech industrial park located at
675 U.S. Highway One, North Brunswick, NJ 08902. Our current Lease
Amendment Agreement dated as of March 1, 2008 with the New Jersey Economic
Development Authority will continue on a monthly basis 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.
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.
55
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
|
||
Dr.
James Patton
|
51
|
Director
|
||
Roni
A. Appel
|
42
|
Director
|
||
Dr.
Thomas McKearn
|
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. Mr. Moore joined our Board as an independent director
in September 2006. 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. Mr. Moore
is a graduate of Princeton University. Mr. Moore’s extensive business,
managerial, executive and leadership experience in the healthcare industry make
him particularly qualified to serve on our Board.
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
was the 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, he has been 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. From July 2000 to December 2002,
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. Dr. Patton’s experience as a trustee and
consultant to funds that invest in life science companies provide him with the
perspective from which we benefit. Additionally, Dr. Patton’s medical experience
and service as a principal and director of other life science companies makes
Dr. Patton particularly qualified to serve as our director.
56
Dr. Thomas
McKearn . Dr. McKearn has served as a member of our board of
directors since July 2002. He brings more than 25 years of 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 received 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.
Dr. McKearn’s experience in managing life science companies, his knowledge of
medicine and his commercialization of biotech products particularly qualify him
to serve as our director.
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. Mr. Berman’s extensive knowledge of our industry, his role in
the governance of publically held companies and his directorships in other life
science companies qualify him to serve as our director.
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 City
University of 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 a Masters in Accountancy and a B.S.
degree from the University of South Carolina. Mr. Rosenblum is a certified
public accountant.
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.
57
Audit
Committee
The audit
committee of our board of directors is currently composed of two directors, both
of whom satisfy the independence standards for audit committee members under the
NASDAQ rules (although our securities are not listed on the NASDAQ stock market
but are quoted on the OTCBB). The audit committee operates under a written
charter, which is available to stockholders on our website. For fiscal 2009, the
audit committee was composed 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) Rule 5605(c)(2)(A) of the NASDAQ rules (although
our securities are not listed on the NASDAQ but are quoted on the
OTCBB).
The audit
committee is responsible for the following:
|
·
|
recommending
the engagement of auditors to the full board of
directors;
|
|
·
|
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;
|
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·
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reviewing
the adequacy, scope, and results of the internal accounting controls and
procedures;
|
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·
|
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;
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|
·
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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. In determining
the compensation of our officers, the compensation committee receives guidance
from the Radford Global Life Sciences Survey that provides compensation
information for the region in which we operate (Northeast U.S.) and for
companies with less than 50 employees. The compensation committee operates under
a written charter, which is available to stockholders on our
website.
Nominating
and Corporate Governance Committee
The
nominating and corporate governance committee of our board of directors
currently consists of Mr. Berman and Mr. Moore. The nominating and corporate
governance committee operates under a written charter, which is available to
stockholders on our website. The nominating and corporate governance committee
did not meet in fiscal 2009. The functions of the nominating and
corporate governance committee include the following:
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·
|
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;
|
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·
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advising
the board with respect to matters of board composition, procedures and
committees;
|
|
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.
|
58
The
nominating and corporate governance committee will consider director candidates
recommended by eligible stockholders. Stockholders may recommend director
nominees for consideration by the nominating and corporate governance committee
by writing to the Nominating and Corporate Governance, Attention: Chairman,
Advaxis, Inc., Technology Centre of New Jersey, 675 US Highway One, New
Brunswick, New Jersey, 08902. Any recommendations for director made to the
nominating and corporate governance committee should include the nominee’s name
and qualifications for membership on our board of directors, and should include
the following information for each person being recommended or nominated for
election as a director:
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·
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The
name, age, business address and residence address of the
person;
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·
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The
principal occupation or employment of the
person;
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·
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The
number of shares of our common stock which the person owns beneficially or
of record; and
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·
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Any
other information relating to the person that must be disclosed in a proxy
statement or other filings required to be made in connection with
solicitations of proxies for election of directors under Section 14 of the
Exchange Act and its rules and
regulations.
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In
addition, the stockholder’s notice must include the following information about
such stockholder:
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·
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The
stockholder’s name and record
address;
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·
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The
number of shares of our common stock that the stockholder owns
beneficially or of record;
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·
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A
description of all arrangements or understandings between the stockholder
and each proposed nominee and any other person or persons, including their
names, pursuant to which the nomination is to be
made;
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·
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A
representation that the stockholder intends to appear in person
or by proxy at the annual meeting to nominate the person or persons named
in such stockholder’s notice; and
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|
·
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Any
other information about the stockholder that must be disclosed in a proxy
statement or other filings required to be made in connection with
solicitations of proxies for election of directors under Section 14 of the
Exchange Act and its rules and
regulations.
|
The
notice must include a written consent by each proposed nominee to being named as
a nominee and to serve as a director if elected. No person will be eligible for
election as a director of ours unless recommended by the nominating and
corporate governance committee and nominated by our board of directors or
nominated in accordance with the procedures set forth above. Candidates proposed
by stockholders for nomination are evaluated using the same criteria as
candidates initially proposed by the nominating and corporate governance
committee.
We must
receive the written nomination for an annual meeting not less than 90 days and
not more than 120 days prior to the first anniversary of the previous year’s
annual meeting of stockholders, or, if no annual meeting was held the previous
year or the date of the annual meeting is advanced more than 30 days before or
delayed more than 60 days after the anniversary date, we must receive the
written nomination not more than 120 days prior to the annual meeting and not
less than the later of 90 days prior to the annual meeting or ten days following
the day on which public announcement of the date of the annual meeting is first
made. For a special meeting, we must receive the written nomination not less
than the later of 90 days prior to the special meeting or ten days following the
day on which public announcement of the date of the special meeting is first
made.
The
nominating and corporate governance committee expects, as minimum
qualifications, that nominees to our board of directors (including incumbent
directors) will enhance our board of director’s management, finance and/or
scientific expertise, will not have a conflict of interest and will have a high
ethical standard. A director nominee’s knowledge and/or experience in areas such
as, but not limited to, the medical, biotechnology, or life sciences industry,
equity and debt capital markets and financial accounting are likely to be
considered both in relation to the individual’s qualification to serve on our
board of directors and the needs of our board of directors as a whole. Other
characteristics, including but not limited to, the director nominee’s material
relationships with us, time availability, service on other boards of directors
and their committees, or any other characteristics which may prove relevant at
any given time as determined by the nominating and corporate governance
committee shall be reviewed for purposes of determining a director nominee’s
qualification.
59
Candidates
for director nominees are evaluated by the nominating and corporate governance
committee in the context of the current composition of our board of directors,
our operating requirements and the long-term interests of our stockholders. The
nominating and corporate governance committee then uses its network of contacts
to compile a list of potential candidates, but may also engage, if it deems
appropriate, a professional search firm. The nominating and corporate governance
committee conducts any appropriate and necessary inquiries into the backgrounds
and qualifications of possible candidates after considering the function and
needs of our board of directors. In the case of incumbent directors whose terms
of office are set to expire, the nominating and corporate governance committee
reviews such directors’ overall service to us during their term, including the
number of meetings attended, level of participation, quality of performance, and
any other relationships and transactions that might impair such directors’
independence. The nominating and corporate governance committee meets to discuss
and consider such candidates’ qualifications and then selects a nominee for
recommendation to our board of directors by majority vote. To date, the
nominating and corporate governance committee has not paid a fee to any third
party to assist in the process of identifying or evaluating director
candidates.
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 prospectus 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 |
(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 prospectus.
|
(2)
|
Represents
750,000 shares of our common stock granted to Mr. Moore 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.
|
60
(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 issued on
November 1, 2007 upon our successful raise of $4.0 million and 750,000 shares
were issued on June 29, 2010 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 vested 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, one-third
of these options vested on the first anniversary of the grant and the remaining
one-third will vest on the 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.
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.
61
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, one-third
of these options vested on the first anniversary of the grant and the remaining
one-third will vest on the 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 ours, but continued as an employee of ours on a
part-time basis in order to assist with the transition of our newly hired Chief
Financial Officer. During the transition period, Mr. Cobb continued
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 extended the expiration date of all
his options that were vested on his last day as an employee of ours to August 2,
2015.
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).
One-fourth of these options vested 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). 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 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). 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 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
$0.10 per share (which was equal to the closing sale price of our common stock
on July 21, 2009). One-third of these options, or 333,334 options,
vested on the grant date.
62
Mr. Cobb
has agreed to refrain from engaging in certain activities that are competitive
with us and our business during his employment and for a period of 18 months
thereafter under certain circumstances. In addition, Mr. Cobb is subject to a
non-solicitation provision for 18 months after termination of his
employment.
Outstanding
Equity Awards at Fiscal Year-End
The
following table provides information about the number of outstanding equity
awards held by our named executive officers at October 31, 2009.
Option
Awards
|
Stock
Awards
|
|||||||||||||||||||||||||||
Name
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
Option
Exercise
Price ($)
|
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)
|
—
|
0.265
|
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 became exercisable on July 21, 2010
and approximately 833,333 will become exercisable on July 21,
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 were issued on June 29, 2010 upon our successful raise of
an additional $6.0 million (which condition was satisfied in January
2010).
|
(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 became exercisable on July 21, 2010
and approximately 583,333 will become exercisable on July 21,
2011.
|
(5)
|
Of
these options, 9,375 became exercisable on each of December 29, 2009 and
March 29, 2010.
|
(6)
|
Of
these options, 18,750 became exercisable on each of November 15, 2009,
February 15, 2010 and May 15, 2010, and 18,750 will become exercisable on
August 15, 2010, November 15, 2010 and February 15,
2011.
|
(7)
|
Of
these options, none will become exercisable as Mr. Cobb is no longer
employed by our company.
|
(8)
|
Of
these options, 9,375 became exercisable on each of November 20, 2009 and
February 20, 2010.
|
(9)
|
Of
these options, 9,375 became exercisable on each of December 21, 2009 and
March 21, 2010. The remaining 18,750 options will not be exercisable as
Mr. Cobb is no longer employed by our
company.
|
(10)
|
Of
these options, 9,375 became exercisable on each of November 15, 2009 and
February 15, 2010. The remaining 37,500 options will not be exercisable as
Mr. Cobb is no longer employed by our
company.
|
63
Director
Compensation
All of
our non-employee directors earn a combination of cash compensation and awards of
shares of our common stock. Each non-employee director (other than
Mr. Berman) earns 6,000 shares of our common stock per quarter. Additionally,
each non-employee director earns $2,000 for each board meeting attended in
person and $750 for each telephonic board meeting. In addition, each member of a
committee of the Board earns $2,000 per meeting attended in person held on days
other than board meeting days and $750 for each telephonic committee meeting. In
addition, Mr. Berman, earns $2,000 a month in shares of our common stock based
on the average closing price of our common stock for the preceding
month. The non-employee director compensation that was earned for the
twelve months ended October 31, 2009, was not paid or issued, except for 422,786
shares of our common stock issued to Mr. Berman for the period June 2008 through
January 2009. Our employee director does not receive any compensation for his
services as a director.
The table
below summarizes the compensation that was earned by our non-employee directors
for fiscal 2009. As none of our non-employee directors received non-equity
incentive plan compensation or nonqualified deferred compensation earnings
during fiscal 2009, we have omitted those columns from the table.
Name
|
Fees
Earned
or Paid
in Cash
($)
|
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 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
prospectus.
|
(2)
|
Represents
6,000 shares a quarter earned (but not paid or issued) 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.
|
64
2004
Stock Option Plan
In
November 2004, our board of directors adopted and our stockholders approved the
2004 Stock Option Plan, which we refer to as the 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 our board of directors or the
compensation committee, who determine, among other things, the individuals who
will 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 our common stock subject to a non-qualified option may be
established by our board of directors, but will 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
will be entitled to exercise the option to the extent vested at termination,
unless otherwise determined by our 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 2004 plan was November 12,
2004. Subject to a number of exceptions, holders of incentive stock
options granted under the 2004 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 on June 6, 2006 our stockholders
approved, the 2005 Stock Option Plan, which we refer to as the 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 our board of directors or the
compensation committee, who determine, among other things, the individuals who
will 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 our common stock subject to a non-qualified option may be
established by our board of directors, but will 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.
65
Except
when agreed to by our board of directors 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
will be entitled to exercise the option, unless otherwise determined by our
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 2005 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.
2009
Stock Option Plan
Our board
of directors adopted the 2009 Stock Option Plan effective July 21, 2009, and
recommended that it be submitted to our shareholders for their approval at the
next annual meeting. On April 23, 2010, our board of directors
approved and adopted, and on June 1, 2010 our stockholders approved, the amended
and restated 2009 Stock Option Plan, which we refer to as the 2009
plan. As of July 1, 2010, options to purchase 10,901,398 shares of
our common stock have been granted under the 2009 plan.
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 20,000,000 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
6,000,000 (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.
66
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.
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.
67
STOCK
OWNERSHIP
The
following table sets forth certain information with respect to the beneficial
ownership of our common stock as of July 1, 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 prospectus, 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 July 1,
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
170,585,758 shares of common stock outstanding as of July 1, 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 U.S. Highway 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
|
||||||
Thomas
A. Moore
|
9,418,838 | (1) | 5.4 | % | ||||
Roni
A. Appel
|
6,784,558 | (2) | 3.9 | % | ||||
Richard
Berman
|
1,890,078 | (3) | 1.1 | % | ||||
Dr.
James Patton
|
3,211,163 | (4) | 1.9 | % | ||||
Dr.
Thomas McKearn
|
829,387 | (5) | * | |||||
Dr.
John Rothman
|
3,411,987 | (6) | 2.0 | % | ||||
Fredrick
Cobb**
|
1,569,561 | (7) | * | |||||
Mark
J. Rosenblum
|
333,333 | (8) | * | |||||
All
Current Directors and Executive Officers as a Group (7
people)
|
25,879,344 | (9) | 14.1 | % |
* Less
than 1%.
** Mr.
Cobb has resigned as one of our officers.
(1)
|
Represents
5,352,171 issued shares of our common stock and options to purchase
4,066,667 shares of our common stock exercisable within 60
days. However, it excludes 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).
|
(2)
|
Represents
4,130,134 issued shares of our common stock, options to purchase 2,612,424
shares of our common stock exercisable within 60 days and 42,000 shares of
our common stock earned but not yet
issued.
|
68
(3)
|
Represents
760,624 issued shares of our common stock, options to purchase 733,334
shares of our common stock exercisable within 60 days and 396,120 shares
of our common stock earned but not yet
issued.
|
(4)
|
Represents
2,820,576 issued shares of our common stock, options to purchase 306,587
shares of our common stock exercisable within 60 days and 84,000 shares
earned but not yet issued.
|
(5)
|
Represents
179,290 issued shares of our common stock, options to purchase 566,097
shares of our common stock exercisable within 60 days and 84,000 shares of
our common stock earned but not yet
issued.
|
(6)
|
Represents
275,775 issued shares of our common stock, options to purchase 1,920,416
shares of our common stock exercisable within 60 days and 1,215,796 shares
of our common stock earned but not yet
issued.
|
(7)
|
Represents
90,336 issued shares of our common stock, options to purchase 727,083
shares of our common stock exercisable within 60 days and
752,142 shares of our common stock earned but not yet
issued.
|
(8)
|
Represents
options to purchase 333,333 shares of our common stock exercisable within
60 days.
|
(9)
|
Represents
an aggregate of 13,518,570 shares of our common stock, options to purchase
10,538,858 shares of our common stock exercisable within 60 days, and
1,821,916 shares of our common stock earned but not yet
issued.
|
69
SELLING
STOCKHOLDERS
The
selling stockholders may offer and sell, from time to time, any or all of the
shares of common stock covered by this prospectus. The following table provides,
as of July 1, 2010, information regarding the beneficial ownership of our common
stock held by each selling stockholder (including holders of warrants for shares
being registered), the shares that may be sold by each selling stockholder under
this prospectus and the number of shares of common stock that each selling
stockholder will beneficially own after this offering.
The
information set forth in the table and related footnotes are prepared based on
our transfer agent’s records as of July 1, 2010 and information provided to us
by or on behalf of the selling stockholders. Applicable percentages are based on
170,585,758 shares of common stock outstanding as of July 1, 2010, adjusted as
required by the rules promulgated by the SEC. Because the selling stockholders
may dispose of all, none or some portion of the shares, no estimate can be given
as to the number of shares that will be beneficially owned by the selling
stockholders upon termination of this offering. For purposes of the table below,
however, we have assumed that after termination of this offering none of the
shares covered by this prospectus will be beneficially owned by the selling
stockholders and further assumed that the selling stockholders will not acquire
beneficial ownership of any additional shares during the offering. In addition,
the selling stockholders may have sold, transferred or otherwise disposed of, or
may sell, transfer or otherwise dispose of, at any time and from time to time,
the shares of our common stock in transactions exempt from the registration
requirements of the Securities Act of 1933 after the date on which the
information in the table is presented.
We may
amend or supplement this prospectus from time to time in the future to update or
change this list of selling stockholders and shares that may be
resold.
Selling Stockholder
|
Shares
Beneficially
Owned
Before
Offering (1)
|
Shares
Being
Offered (2)
|
Shares to be
Beneficially
Owned After
Offering
|
Percentage
to be
Beneficially
Owned After
Offering
|
||||||||||||
Numoda
Capital Innovations, LLC (3)
|
3,500,000 | 3,500,000 | — | — | ||||||||||||
Optimus
CG II, Ltd. (4)
|
2,818,000 | 43,318,000 | — | — |
* Less
than 1%.
(1)
|
Except
as otherwise indicated in the footnotes to this table, the number and
percentage of shares beneficially owned is determined in accordance with
Rule 13d-3 of the Exchange Act, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rule,
beneficial ownership includes any shares as to which the selling
stockholder has sole or shared voting power or investment power and also
any shares, which the selling stockholder has the right to acquire within
60 days.
|
(2)
|
Except
as otherwise described herein, shares being offered consists of shares of
our common stock underlying warrants issued in connection with our 2007
private placement (including additional shares of common stock issuable
upon those warrants as a result of certain anti dilution protection
provisions contained therein).
|
(3)
|
Numoda
Capital Innovations, LLC is an affiliate of the Numoda
Corporation. Voting and dispositive power with respect to these
securities is exercised by Mary Schaheen, the Chairman of Numoda Capital
Innovations, LLC and the chief executive officer of the Numoda
Corporation. For a description of our relationship with the
Numoda Corporation, please see, “Description of Business — Partnerships
and Agreements — Numoda
Corporation.”
|
(4)
|
Consists
of warrants to purchase 2,818,000 shares of our common
stock. 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. On July 19, 2010, we issued to Optimus
CG II, Ltd., pursuant to the Series B purchase agreement, a
three-year warrant to purchase up to 40,500,000 shares of our common
stock, at an initial exercise price of $0.25 per share, subject to
adjustment as provided elsewhere in this prospectus. The warrant will
become exercisable upon the effectiveness of the registration statement of
which this prospectus forms a part. For a description of our
relationship with Optimus, please see, “Management’s Discussion and
Analysis and Results of Operations — Liquidity and Capital Resources,”
“Description of Our Capital Stock — Preferred Stock” and “Description of
Our Capital Stock — Warrants.”
|
70
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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.
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, one or more senior promissory notes, which we refer to
as the 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 had the option to elect to
receive accumulated interest thereon on or after March 17, 2010 (which amounted
to approximately $130,000), (ii) we were to begin to make monthly installment
payments of $100,000 on the outstanding principal amount 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. As of April 30, 2010,
approximately $850,000 in Moore Notes were outstanding and payable to Mr.
Moore. In May 2010, we issued 1,176,471 shares of common stock to Mr.
Moore (based on a price of $0.17 per share) in satisfaction of $200,000 of Moore
Notes.
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 original 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 senior 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 shares underlying the warrant from
two and one-half shares per $1.00 invested to three shares. 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).
DESCRIPTION
OF OUR CAPITAL STOCK
General
At the
date hereof, we are authorized by our articles of incorporation to issue an
aggregate of 500,000,000 shares of common stock, par value $0.001 per share, and
5,000,000 shares of “blank check” preferred stock, par value $0.001 per
share. As of July 1, 2010, there were 170,585,758 shares of common
stock, no shares of Series A preferred stock and 500 shares of Series B
preferred stock outstanding.
Common
Stock
Holders
of our common stock are entitled to one vote for each share held of record on
each matter submitted to a vote of stockholders. There is no
cumulative voting for the election of directors. Subject to the prior
rights of any class or series of preferred stock which may from time to time be
outstanding, if any, holders of our common stock are entitled to receive
ratably, dividends when, as, and if declared by our board of directors out of
funds legally available for that purpose and, upon our liquidation, dissolution,
or winding up, are entitled to share ratably in all assets remaining after
payment of liabilities and payment of accrued dividends and liquidation
preferences on the preferred stock, if any. Holders of our common
stock have no preemptive rights and have no rights to convert their common stock
into any other securities. The outstanding common stock is validly
authorized and issued, fully-paid and nonassessable.
71
The
3,500,000 shares of common stock offered in this prospectus have been fully paid
and are not liable for further call or assessment. The 43,318,000
shares of common stock offered in this prospectus when issued and paid for in
accordance with the terms of the warrants will be fully paid and are not liable
for further call or assessment. Holders of our common stock do not
have cumulative voting rights, which means that the holders of more than one
half of the outstanding shares of common stock, subject to the rights of the
holders of the preferred stock, if any, can elect all of our directors, if they
choose to do so. In this event, the holders of the remaining shares
of common stock would not be able to elect any directors. Except as
otherwise required by Delaware law, and subject to the rights of the holders of
preferred stock, if any, all stockholder action is taken by the vote of a
majority of the outstanding shares of common stock voting as a single class
present at a meeting of stockholders at which a quorum consisting of a majority
of the outstanding shares of common stock is present in person or
proxy.
Preferred
Stock
We are
authorized to issue up to 5,000,000 shares of “blank check” preferred
stock. Preferred stock may be issued in one or more series and having
the rights, privileges and limitations, including voting rights, conversion
privileges and redemption rights, as may, from time to time, be determined by
our board of directors. Preferred stock may be issued in the future
in connection with acquisitions, financings, or other matters as our board of
directors deems appropriate. In the event that any shares of
preferred stock are to be issued, a certificate of designation containing the
rights, privileges and limitations of such series of preferred stock will be
filed with the Secretary of State of the State of Delaware. The
effect of such preferred stock is that, subject to Federal securities laws and
Delaware law, our board of directors alone, may be able to authorize the
issuance of preferred stock which could have the effect of delaying, deferring,
or preventing a change in control of us without further action by the
stockholders, and may adversely affect the voting and other rights of the
holders of our common stock. The issuance of preferred stock with
voting and conversion rights may also adversely affect the voting power of
holders of our common stock, including the loss of voting control to
others. Our board of directors has authorized the issuance of up to
1,000 shares of Series A Preferred Stock, $0.001 par value per share, none of
which are outstanding as of the date hereof, and up to 2,500 shares of Series B
Preferred Stock, $0.001 par value per share, 500 shares of which are outstanding
as of the date hereof.
Pursuant
to the Series A purchase agreement, Optimus 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. As of May 13, 2010, we issued and sold an
aggregate of 500 shares of Series A preferred stock to Optimus. The
aggregate purchase price for the Series A preferred stock was $5.0
million. No more shares of Series A preferred stock remain available
for sale under the Series A purchase agreement. On July 19, 2010, we
issued 500 shares of Series B preferred stock to Optimus, which we refer to as
the Series B exchange shares, in exchange for the 500 shares of Series A
preferred stock so that all shares of our preferred stock held or subsequently
purchased by Optimus under the Series B purchase agreement would be redeemable
upon substantially identical terms. Any accrued and unpaid dividends
on the Series A preferred stock were deemed cancelled and such amount of accrued
and unpaid dividends were reflected as accrued and unpaid dividends of the
Series B preferred stock issued to Optimus.
Pursuant
to the Series B purchase agreement, Optimus agreed to purchase, upon the terms
and subject to the conditions set forth therein and described below, up to $7.5
million of our Series B preferred stock, at a price of $10,000 per
share. Under the terms of the Series B purchase agreement, and after
the SEC has declared effective the registration statement of which this
prospectus is a part, we may from time to time until July 19, 2013, present
Optimus with a notice to purchase a specified amount of Series B preferred
stock. Subject to satisfaction of certain closing conditions, Optimus
is obligated to purchase such shares of Series B preferred stock on the 10th
trading day after the date of the notice. We will determine, in our
sole discretion, the timing and amount of Series B preferred stock to be
purchased by Optimus, and may sell such shares in multiple tranches. Optimus
will not be obligated to purchase the Series B preferred stock upon our notice
(i) in the event the average closing sale price of our common stock during the
nine trading days following delivery of our notice falls below 75% of the
closing sale price of our common stock 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.
Holders
of Series B preferred stock will be entitled to receive dividends, which will
accrue in shares of Series B 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 B preferred stock or upon the liquidation, dissolution
or winding up of our company. The Series B preferred stock ranks, with respect
to dividend rights and rights upon liquidation:
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senior
to our common stock and any other class or series of preferred stock
(other than Series A preferred stock or any class or series of preferred
stock that we intend to cause to be listed for trading or quoted on
Nasdaq, NYSE Amex or the New York Stock
Exchange);
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pari passu with any
outstanding shares of our Series A preferred stock (none of which are
issued and outstanding as of the date hereof);
and
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junior
to all of our existing and future indebtedness and any class or series of
preferred stock that we intend to cause to be listed for trading or quoted
on Nasdaq, NYSE Amex or the New York Stock
Exchange.
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The
Series B preferred stock has a liquidation preference per share equal to the
original price per share thereof plus all accrued dividends thereon, and is
subject to repurchase following the consummation of certain fundamental
transactions by us. Upon or after the fourth anniversary of the
applicable issuance date, we have the right, at our option, to redeem all or a
portion of the shares of Series B preferred stock, at their liquidation
value. We also have the right, at our option, to redeem all or a
portion of the shares of Series B preferred stock, at a price per share equal
to: (i) 136% of their liquidation value if redeemed on or after the applicable
issuance date but prior to the first anniversary of the applicable issuance
date, (ii) 127% of their liquidation value if redeemed on or after the first
anniversary but prior to the second anniversary of the applicable issuance date,
(iii) 118% of their liquidation value if redeemed on or after the second
anniversary but prior to the third anniversary of the applicable issuance date,
and (iv) 109% of their liquidation value if redeemed on or after the third
anniversary but prior to the fourth anniversary of the applicable issuance
date.
Our right
to deliver a notice to Optimus and the obligation of Optimus to accept a notice
and to acquire and pay for the Series B preferred stock subject to such notice
at a tranche closing are subject to the satisfaction of certain conditions,
which include, among others:
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our
common stock must be listed for trading or quoted on the OTC Bulletin
Board (or another eligible trading market), and we must be in compliance
with all requirements under the Securities Exchange Act of 1934, as
amended, in order to maintain such
listing;
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either
(i) we have a current, valid and effective registration statement covering
the resale of all warrant shares or (ii) all warrant shares are eligible
for resale without limitation under Rule 144 (assuming cashless exercise
of the warrant);
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there
must not be any material adverse effect with respect to our company since
the date of the Series B purchase agreement, other than losses incurred in
the ordinary course of business;
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we
must not be in default under any material
agreement;
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certain
lock-up agreements with our senior officers and directors and certain
beneficial owners of 10% or more of our outstanding common stock must be
effective;
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there
must not be any legal restraint prohibiting the transactions contemplated
by the Series B purchase agreement;
and
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the
aggregate of all shares of our common stock beneficially owned by Optimus
and its affiliates must not exceed 9.99% of our outstanding common
stock.
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Stock
Symbol
Our
common stock is quoted on the OTC Bulletin Board under the symbol
ADXS.OB. On July 19, 2010, the last reported sale price per share for
our common stock as reported by the OTC Bulletin Board was $0.18.
73
Warrants
At the
time of execution of the Series A purchase agreement, an affiliate of Optimus
was granted on September 24, 2009 a warrant to purchase up to 33,750,000 shares
of our common stock at an exercise price of $0.20 to be adjusted in connection
with the draw down of each tranche. On January 11, 2010, the draw
down date of the first tranche, the affiliate of Optimus exercised a portion of
the warrant to purchase 11,563,000 shares of common stock at an adjusted
exercise price of $0.17 per share. On March 29, 2010, the draw down
date of the second tranche, the affiliate of Optimus exercised a portion of
the warrant to purchase 14,580,000 shares of common stock at an exercise price
of $0.20 per share. On May 13, 2010, the draw down date of the final
tranche, the affiliate of Optimus exercised the remainder of the
warrant to purchase 7,607,000 shares of common stock at an adjusted exercise
price of $0.18 per share. In each case, we agreed with Optimus and
its affiliate to waive certain terms and conditions in the Series A purchase
agreement and the warrant in order to permit the affiliate of Optimus to
exercise the warrant at such adjusted exercise prices prior to the closing of
the purchase of the Series A preferred stock and acquire beneficial ownership of
more than 4.99% of our common stock on the date of each exercise. As
permitted by the terms of such warrant, the aggregate exercise prices of
$1,965,710, $2,916,000 and $1,369,260 for the first tranche, second tranche and
final tranche, respectively, received by us is payable pursuant to three
separate four year full recourse promissory notes each bearing interest at the
rate of 2% per year. In addition, in connection with the draw down of
the final tranche, we issued an additional warrant to an affiliate of Optimus to
purchase up to 2,818,000 shares of common stock at an exercise price of $0.18
per share, subject to customary anti-dilution adjustments (the exercise price of
which may also be paid at the option of the affiliate of Optimus in cash or by
its issuance of a promissory note on the same terms as the foregoing promissory
notes). The foregoing promissory notes are not due or payable at any
time that (a) we are in default of under the Series A purchase agreement, any
loan agreement or other material agreement or (b) there are any Series B
exchange shares issued or outstanding.
On the
date of the Commitment Closing, we issued to Optimus a three-year warrant to
purchase up to 40,500,000 shares of our common stock, at an initial exercise
price of $0.25 per share, subject to adjustment as described below. The warrant
will become exercisable on the earlier of (i) the date on which a registration
statement registering for resale the shares of our common stock issuable upon
exercise of the warrant becomes effective and (ii) the first date on which such
warrant shares are eligible for resale without limitation under Rule 144
(assuming a cashless exercise of the warrant).
The
warrant consists of and is exercisable in tranches, with a separate tranche
being created upon each delivery of a tranche notice under the Series B purchase
agreement. On each tranche notice date, that portion of the warrant
equal to 135% of the tranche amount will vest and become exercisable, and such
vested portion may be exercised at any time during the exercise period on or
after such tranche notice date. On and after the first tranche notice
date and each subsequent tranche notice date, the exercise price of the warrant
will be adjusted to the closing sale price of a share of our common stock on the
applicable tranche notice date. The exercise price of the warrant may
be paid (at the option of the affiliate of Optimus) in cash or by issuance of a
four-year, full-recourse promissory note, bearing interest at 2% per annum, and
secured by a specified portfolio of assets. However, such promissory
note is not due or payable at any time that (a) we are in default of any
preferred stock purchase agreement for Series B preferred stock or any warrant
issued pursuant thereto, any loan agreement or other material agreement or (b)
there are any shares of the Series B preferred stock issued or
outstanding. The warrant also provides for cashless exercise in
certain circumstances. If Optimus fails to acquire and pay for the Series B
preferred stock upon delivery of our notice in accordance with the terms of the
Series B purchase agreement (assuming the timely and full satisfaction of all of
the conditions set forth therein) and the warrant has not previously been
exercised in full, we have the right to demand surrender of the warrant (or any
remaining portion thereof) without compensation, and the warrant will
automatically be cancelled.
As part
of the October 17, 2007 private placement, investors were issued units
consisting of one share of common stock and ¾ of a five-year warrant to purchase
one share of common stock at an exercise price of $0.20 per share (prior to
anti-dilution adjustments). The October 2007 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 (full ratchet), 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.” The October 2007 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 our outstanding shares of
common stock.
In
connection with the senior bridge financing and junior bridge financing, we
issued five-year warrants to purchase an aggregate of 8,147,875 shares of our
common stock at an exercise price of $0.20 per share (prior to anti-dilution
adjustments). The senior bridge warrants and junior bridge 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 (full ratchet), 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. Each of the senior bridge warrants and
junior bridge warrants may be exercised on a cashless basis under certain
circumstances. Each of the senior bridge warrants and junior bridge
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 our
outstanding shares of common stock.
74
As a
result of anti-dilution protection provisions contained in certain of our
outstanding warrants (including the October 2007 warrants, the senior bridge
warrants and the junior bridge warrants), we have (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 63.0 million warrant shares to
purchase our 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.
Registration
Rights
In
connection with our October 2007 private placement, we entered into a
registration rights agreement with the investors in that offering pursuant to
which we agreed to file a registration statement with the SEC within 45 days
after the final closing of the offering covering all of the shares of common
stock sold to the investors in the October 2007 private placement and all of the
shares of common stock underlying the warrants that were sold to the investors
in that offering. Accordingly, we initially filed a registration
statement on Form SB-2 with the SEC on November 30, 2007 to register all of such
shares of common stock. The Form SB-2 registration statement was
declared effective by the SEC on January 22, 2008. Under the terms of the
registration rights agreement, we agreed to keep the registration statement
effective until the earlier of (i) the date on which all of those shares of
common stock may be resold without registration under the Securities Act without
regard to any volume limitations under Rule 144 under the Securities Act or (ii)
the date on which all of those shares of common stock have been resold pursuant
to the registration statement or Rule 144 under the Securities Act.
The
registration rights agreement provides that if, among other things, the
registration statement ceases for any reason to remain continuously effective,
or the selling stockholders are otherwise not permitted to use it to resell
their shares of common stock for more than 10 consecutive calendar days or more
than a total of twenty calendar days (which need not be consecutive calendar
days) during any 12-month period, then we are required to pay as partial
liquidated damages an amount equal to 1.5% of the aggregate purchase price paid
by the selling stockholder for such common stock, up to a maximum of 15% of such
purchase price. If we fail to pay any required partial liquidated
damages in full within seven days after the date payable, we are then required
to pay interest thereon at a rate of 15% per annum (or such lesser maximum
amount that is permitted to be paid by applicable law) to the selling
stockholder, accruing daily from the date such partial liquidated damages are
due until such amounts, plus all such interest thereon, are paid in
full.
We filed
a post-effective amendment on Form S-1 to our original registration statement on
Form SB-2 to, among other things, update the information included in the
original registration statement, convert the original registration statement to
a registration statement on Form S-1, and to deregister shares of our common
stock which were covered by the original registration statement, but are no
longer required to be registered under the terms of our registration rights
agreement.
Pursuant
to the terms of the additional warrant issued to Optimus, we agreed to file a
registration statement with the SEC covering the public resale of the
2,818,000 shares issuable upon exercise of the additional warrant no later
than June 24, 2010 and use commercially reasonable efforts to cause such
registration statement to become effective as soon as possible
thereafter. Optimus has agreed to extend such filing deadline to July
23, 2010.
Pursuant
to the terms of a Stock Purchase Agreement dated as of May 10, 2010 between us
and Numoda Capital we have agreed to register 3,500,000 shares of common stock
issued to NCI thereunder within 120 days of May 10, 2010.
Pursuant
to the terms of the Series B purchase agreement, our rights to deliver a notice
to Optimus requiring Optimus to acquire and pay for the Series B preferred stock
are subject to having a current, valid and effective registration statement
covering the resale of all shares underlying the warrant unless all shares
underlying the warrant are eligible for resale without limitation under Rule 144
(assuming cashless exercise of the warrant).
75
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Securities Transfer
Corporation, 2591 Dallas Parkway, Suite 102, Frisco, TX 75034.
SHARES
ELIGIBLE FOR FUTURE SALE
As of
July 1, 2010, we had 170,585,758 shares of common stock outstanding, not
including shares issuable upon conversion of certain of our notes or shares
issuable upon exercise of our options or warrants. All shares sold in
this offering will be freely tradable without restriction or further
registration under the Securities Act, unless they are purchased by our
“affiliates,” as that term is defined in Rule 144 promulgated under the
Securities Act.
The
outstanding shares of our common stock not included in this prospectus will be
available for sale in the public market as follows:
Public
Float
Of our
outstanding shares, approximately 13,518,570 shares are beneficially owned by
executive officers, directors and affiliates (excluding shares of our common
stock which (i) have been earned but not yet issued and (ii) may be acquired
upon exercise of stock options and warrants which are currently exercisable or
which become exercisable within 60 days of July 1, 2010). The
approximately 157,067,188 remaining shares constitute our public
float.
Rule
144
In
general, under Rule 144, as currently in effect, a person who has beneficially
owned shares of our common stock for at least six months, including the holding
period of prior owners other than affiliates, is entitled to sell his or her
shares without any volume limitations; an affiliate, however, can sell such
number of shares within any three-month period as does not exceed the greater
of:
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1%
of the number of shares of our common stock then outstanding, which
equaled 1,705,858 shares as of July 1, 2010,
or
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the
average weekly trading volume of our common stock on the OTC Bulletin
Board during the four calendar weeks preceding the filing of a notice on
Form 144 with respect to that sale.
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Sales
under Rule 144 are also subject to manner-of-sale provisions, notice
requirements and the availability of current public information about
us. In order to effect a Rule 144 sale of our common stock, our
transfer agent will require an opinion from legal counsel. We may
charge a fee to persons requesting sales under Rule 144 to obtain the necessary
legal opinions.
As of
July 1, 2010, approximately 104,046,144 shares of our common stock were
available for sale by non-affiliates of ours under Rule 144.
Rule
701
Rule 701
permits our employees, officers or directors who purchased shares of our common
stock pursuant to a written compensatory plan or contract to resell such shares
in reliance upon Rule 144 but without compliance with specific
restrictions. Rule 701 provides that affiliates may sell their Rule
701 shares of common stock under Rule 144 without complying with the holding
period requirement and that non-affiliates may sell such shares in reliance on
Rule 144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144.
Stock
Options
We have
registered, by means of a registration statement on Form S-8 under the
Securities Act of 1933, 2,381,525 shares of common stock reserved for issuance
under our 2004 plan. As of June 2010, options to purchase 1,981,525
shares of common stock remain outstanding under our 2004 plan, all of which
options to purchase shares of common stock have vested and have not been
exercised. Shares of common stock issued upon exercise of a share
option and registered under registration statement on Form S-8 will, subject to
vesting provisions and Rule 144 volume limitations applicable to our affiliates,
be available for sale in the open market immediately.
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Our 2005
plan was approved by the stockholders on June 6, 2006, for 5,600,000 shares of
common stock reserved for issuance. As of June 2010, options to
purchase 5,336,167 shares of common stock remain outstanding under our 2005 plan
of which options to purchase approximately 5,336,167 shares of common stock have
vested and have not been exercised. Shares of common stock issued
upon exercise of a share option may be eligible for sale, subject to vesting
provisions, volume limitations and other limitations of Rule 144.
Our 2009
plan was approved by the stockholders on June 1, 2010, has 20,000,000 shares of
common stock reserved for issuance. As of July 1, 2010, options to
purchase 10,901,398 shares of common stock remain outstanding under our 2009
plan of which options to purchase approximately 4,333,779 shares of common stock
have vested and have not been exercised. Shares of common stock
issued upon exercise of a share option may be eligible for sale, subject to
vesting provisions, volume limitations and other limitations of Rule
144.
Lock
Up of Shares
In order
to induce Optimus to enter into the Series B purchase agreement, our executive
officers, directors and beneficial owners of 10% or more of our common stock
agreed that, for a period of ten trading days beginning on each date we deliver
a notice exercising the put described in the Series B purchase agreement to
Optimus and ending on the closing date of the put exercise, they will not,
without the prior written consent of Optimus, (a) sell, offer to sell, contract
or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise
dispose of or agree to dispose of, directly or indirectly, in respect of, or
establish or increase a put equivalent position or liquidate or decrease a call
equivalent position with respect to, any of our common stock or any securities
convertible into or exercisable or exchangeable for our common stock, or
warrants or other rights to purchase our common stock or any such securities, or
any securities substantially similar to our common stock, (b) enter into any
swap or other arrangement that transfers to another, in whole or in part, any of
the economic consequences of ownership of our common stock or any securities
convertible into or exercisable or exchangeable for our common stock or any such
securities, or warrants or other rights to purchase our common stock, whether
any such transaction is to be settled by delivery of our common stock or such
other securities, in cash or otherwise or (c) publicly announce an intention to
effect any transaction specified in clause (a) or (b).
PLAN
OF DISTRIBUTION
Each
selling stockholder of our common stock and any of their donees, pledgees,
transferees, assignees and other successors-in-interest may, from time to time,
sell, transfer or otherwise dispose of any or all of their shares of common
stock on the OTC Bulletin Board or any other stock exchange, market or trading
facility on which the shares are traded or in private
transactions. These sales may be at fixed or negotiated prices. A
selling stockholder may use any one or more of the following methods when
selling shares:
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ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
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block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
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purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
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an
exchange distribution in accordance with the rules of the applicable
exchange;
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privately
negotiated transactions;
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settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a
part;
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broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per
share;
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through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
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a
combination of any such methods of sale;
or
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any
other method permitted pursuant to applicable
law.
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The
selling stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Broker-dealers
engaged by any selling stockholder may arrange for other broker-dealers to
participate in sales. Broker-dealers may receive commissions or
discounts from the selling stockholders (or, if any broker-dealer acts as agent
for the purchaser of shares, from the purchaser) in amounts to be negotiated,
but, except as set forth in a supplement to this prospectus, in the case of an
agency transaction not in excess of a customary brokerage commission in
compliance with FINRA NASD Rule 2440; and in the case of a principal transaction
a markup or markdown in compliance with FINRA IM-2440.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of our common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions and to return borrowed shares in
connection with such short sales, or loan or pledge our common stock to
broker-dealers that in turn may sell these securities. The selling stockholders
may also enter into option or other transactions with broker-dealers or other
financial institutions or the creation of one or more derivative securities
which require the delivery to such broker-dealer or other financial institution
of shares offered by this prospectus, which shares such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or
amended to reflect such transaction).
The
selling stockholders and any underwriters, broker-dealers or agents that
participate in the sale of our common stock or interests therein may be
considered “underwriters” within the meaning of Section 2(11) of the Securities
Act. In such event, any discounts, commissions, concessions or profit
they earn on any resale of the shares may be deemed to be underwriting discounts
and commissions under the Securities Act. Selling stockholders who
are “underwriters” within the meaning of Section 2(11) of the Securities Act
will be subject to the prospectus delivery requirements of the Securities
Act. In no event shall any broker-dealer receive fees, commissions
and markups which, in the aggregate, would exceed eight percent
(8%).
We are
required to pay certain fees and expenses incurred by us incident to the
registration of the shares. We have agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
The
selling stockholders may be subject to the prospectus delivery requirements of
the Securities Act including Rule 172 thereunder. In addition, any
securities covered by this prospectus which qualify for sale pursuant to Rule
144 under the Securities Act may be sold under Rule 144 rather than this
prospectus. There is no underwriter or coordinating broker-dealer
acting in connection with the proposed sale of the resale shares by the selling
stockholders.
The
resale shares will be sold only through registered or licensed broker-dealers if
required under applicable state securities laws. In addition, in certain states,
the resale shares may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with. As of
the date of this prospectus, we have not filed for registration or qualification
in any state.
Under
applicable rules and regulations under the Exchange Act, any person engaged in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to our common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the selling stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and
sales of shares of our common stock by the selling stockholders or any other
person. We will make copies of this prospectus available to the selling
stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including by
compliance with Rule 172 under the Securities Act).
78
LEGAL
MATTERS
The
validity of the shares of common stock offered by the selling stockholders will
be passed upon for us by our counsel, Greenberg Traurig, LLP, New York, New
York. A shareholder of Greenberg Traurig, LLP owns 3,546,324 shares
of our common stock and warrants to purchase 1,900,061 shares of our common
stock.
EXPERTS
The
financial statements of Advaxis, Inc. as of October 31, 2009 and 2008, and for
the years then ended, and for the two years ended October 31, 2009 in the
cumulative period from March 1, 2002 (inception) to October 31, 2009, appearing
in this prospectus and registration statement have been audited by McGladrey
& Pullen, LLP, independent accountants (whose opinion includes a going
concern explanatory paragraph), to the extent and for the periods indicated in
their report appearing elsewhere herein, and are included in reliance upon such
report and upon the authority of such firms as experts in accounting and
auditing.
The
financial statements of Advaxis, Inc. included in the cumulative column for the
period March 1, 2002 (inception) to October 31, 2006 appearing in this
prospectus and registration statement have been audited by Goldstein Golub
Kessler LLP, independent accountants, to the extent and for the periods
indicated in their report appearing elsewhere herein, and are included in
reliance upon such report and upon the authority of such firms as experts in
accounting and auditing.
On
October 31, 2007, we were notified that certain of the partners of Goldstein
Golub Kessler LLP became partners of McGladrey & Pullen, LLP in a limited
asset purchase agreement and that Goldstein Golub Kessler LLP resigned as our
independent registered public accounting firm. At that time, McGladrey &
Pullen, LLP was appointed as our new independent registered public accounting
firm.
INTERESTS
OF NAMED EXPERTS AND COUNSEL
Except as
set forth above under the caption “Legal Matters,” no expert or counsel named in
this prospectus as having prepared or certified any part of this prospectus or
having given an opinion upon the validity of the securities being registered or
upon other legal matters in connection with the registration or offering of our
common stock was employed on a contingency basis or had, or is to receive, in
connection with the offering, a substantial interest, directly or indirectly, in
the registrant or any of its parents or subsidiaries. Nor was any such person
connected with the registrant or any of its parents, subsidiaries as a promoter,
managing or principal underwriter, voting trustee, director, officer or
employee.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
This
prospectus is part of a registration statement we have filed with the SEC. We
have not included in this prospectus all of the information contained in the
registration statement, and you should refer to the registration statement and
its exhibits for further information.
We file
annual, quarterly, and current reports, proxy statements, and other information
with the SEC. You may read and copy any materials we file at the SEC’s Public
Reference Room at 100 F Street, NE., Washington, DC 20549, on official business
days during the hours of 10 a.m. to 3 p.m. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC at http://www.sec.gov.
Our Web
site address is www.advaxis.com. The information on our web site is not
incorporated into this prospectus.
79
INDEX
TO FINANCIAL STATEMENTS
Page
|
|
Audited
Financial Statements
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Report
of Independent Registered Public Accounting Firm
|
F-3
|
Balance
Sheets as of October 31, 2009 and 2008
|
F-4
|
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-5
|
Statements
of Stockholders’ Equity (Deficiency) for the Period from March 1, 2002
(Inception) to October 31, 2009
|
F-6
|
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 Financial Statements
|
F-9
|
Unaudited
Interim Financial Statements
|
|
Balance
Sheets as of April 30, 2010 (unaudited) and October 31,
2009
|
F-30
|
Statements
of Operations for the three and six month periods ended April 30, 2010 and
2009 and the period from March 1, 2002 (Inception) to April 30, 2010
(unaudited)
|
F-31
|
Statements
of Cash Flow for the six month periods ended April 30, 2010 and 2009 and
the period from March 1, 2002 (Inception) to April 30, 2010
(unaudited)
|
F-32
|
Supplemental
Schedule of Noncash Investing and Financing Schedules
|
F-33
|
Notes
to Unaudited Financial Statements
|
F-34
|
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 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.
/S/ MCGLADREY & PULLEN,
LLP
New York,
New York
February 19,
2010
F-2
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Advaxis,
Inc.
We have
audited the accompanying statements of shareholders' equity (deficiency) of
Advaxis, Inc. (a development stage company) for the period from March 1, 2002
(inception) to October 31, 2006 and the amounts included in the cumulative
columns in the statements of operations and cash flows for the period from March
1, 2002 (inception) to October 31, 2006. 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.
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, the financial statements referred to above present fairly, in all
material respects, the shareholders’ equity (deficiency) of Advaxis, Inc. for
the period from March 1, 2002 (inception) to October 31, 2006 and the results of
its operations and its cash flows for the cumulative period from March 31, 2002
(inception) to October 31, 2006 in conformity with United States generally
accepted accounting principles.
/s/
Goldstein Golub Kessler LLP
GOLDSTEIN
GOLUB KESSLER LLP
New York,
New York
December
11, 2006
F-3
(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 reports of independent registered public accounting
firms should be read in conjunction with the financial statements.
F-4
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 reports of independent registered public accounting
firms should be read in conjunction with the financial
statements.
F-5
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 reports of independent registered public accounting
firms should be read in conjunction with the financial statements.
F-6
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 reports of independent registered public accounting
firms should be read in conjunction with the financial
statements.
F-7
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 reports of independent registered public accounting
firms should be read in conjunction with the financial
statements.
F-8
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-9
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-10
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-11
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-12
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-13
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-14
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-15
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-16
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-17
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-18
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-19
·
|
$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-20
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-21
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-22
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-23
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-24
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-25
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-26
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-27
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-28
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 63.0 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-29
ADVAXIS, INC.
(A
Development Stage Company)
BALANCE
SHEETS
April 30,
2010
|
October 31,
2009
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
|
$ | 227,245 | $ | 659,822 | ||||
Prepaid
expenses
|
65,003 | 36,445 | ||||||
Total
Current Assets
|
292,248 | 696,267 | ||||||
Deferred
expenses
|
206,528 | 288,544 | ||||||
Property
and Equipment (net of accumulated depreciation)
|
45,439 | 54,499 | ||||||
Intangible
Assets (net of accumulated amortization)
|
1,486,336 | 1,371,638 | ||||||
Deferred
Financing Cost
|
- | 299,493 | ||||||
Other
Assets
|
20,685 | 3,876 | ||||||
Total
Assets
|
$ | 2,051,236 | $ | 2,714,317 | ||||
LIABILITIES
AND SHAREHOLDERS’ DEFICIENCY
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable
|
$ | 1,782,895 | $ | 2,368,716 | ||||
Accrued
expenses
|
748,492 | 917,250 | ||||||
Convertible
Bridge Notes and fair value of embedded derivative
|
4,073,716 | 2,078,851 | ||||||
Notes
payable – including interest payable
|
940,653 | 1,121,094 | ||||||
Total
Current Liabilities
|
7,545,756 | 6,485,911 | ||||||
Common
Stock Warrant
|
16,467,800 | 11,961,734 | ||||||
Total
Liabilities
|
$ | 24,013,556 | $ | 18,447,645 | ||||
Shareholders’
Deficiency:
|
||||||||
Preferred
stock, $0.001 par value; 5,000,000 shares authorized; issued and
outstanding 361 at April 30, 2010 and 0 at October 31,
2009
|
||||||||
Common
Stock - $0.001 par value; authorized 500,000,000 shares, issued and
outstanding 142,781,243 at April 30, 2010 and 115,638,243 at October 31,
2009
|
142,780 | 115,638 | ||||||
Additional
Paid-In Capital
|
12,572,129 | 754,834 | ||||||
Stock
subscription receivable
|
(4,881,710 | ) | - | |||||
Deficit
accumulated during the development stage
|
(29,795,519 | ) | (16,603,800 | ) | ||||
Total
Shareholders' Deficiency
|
$ | (21,962,320 | ) | $ | (15,733,328 | ) | ||
Total
Liabilities and stockholders’ deficiency
|
$ | 2,051,236 | $ | 2,714,317 |
The
accompanying notes are an integral part of these financial
statements.
F-30
ADVAXIS,
INC.
(A
Development Stage Company)
STATEMENTS
OF OPERATIONS
(unaudited)
Three Months Ended
April 30,
|
Six Months Ended
April 30,
|
Period from
March 1, 2002
(Inception) to
April 30,
|
||||||||||||||||||
2010
|
2009
|
2010
|
2009
|
2010
|
||||||||||||||||
Revenue
|
$
|
87,234
|
$
|
$
|
87,234
|
$
|
$
|
1,442,096
|
||||||||||||
Research
& Development Expenses
|
1,084,703
|
283,812
|
2,082,038
|
462,986
|
12,255,579
|
|||||||||||||||
General
& Administrative Expenses
|
779,463
|
488,468
|
1,368,478
|
1,033,922
|
14,078,178
|
|||||||||||||||
Total
Operating expenses
|
1,864,166
|
772,280
|
3,450,516
|
1,496,908
|
26,333,757
|
|||||||||||||||
Loss
from Operations
|
(1,776,932
|
)
|
(772,280
|
)
|
(3,363,282
|
)
|
(1,496,908
|
)
|
(24,891,661
|
)
|
||||||||||
Other
Income (expense):
|
||||||||||||||||||||
Interest
expense
|
(1,647,069
|
)
|
(20,658
|
)
|
(3,313,208
|
)
|
(36,052
|
)
|
(5,248,699
|
)
|
||||||||||
Other
Income
|
14,539
|
-
|
16,810
|
-
|
263,267
|
|||||||||||||||
Gain
on note retirement
|
64,354
|
-
|
64,354
|
-
|
1,596,831
|
|||||||||||||||
Net
changes in fair value of common stock warrant liability and embedded
derivative liability
|
(5,785,257
|
)
|
-
|
(6,875,371
|
)
|
-
|
(2,672,374
|
)
|
||||||||||||
Net
(Loss) before benefit for income taxes
|
(9,130,365
|
)
|
(792,938
|
)
|
(13,470,697
|
)
|
(1,532,960
|
)
|
(30,952,636
|
)
|
||||||||||
Income
tax benefit
|
-
|
-
|
278,978
|
922,020
|
1,201,001
|
|||||||||||||||
Net
(Loss)
|
(9,130,365
|
)
|
(792,938
|
)
|
(13,191,719
|
)
|
(610,940
|
)
|
(29,751,635
|
)
|
||||||||||
Dividends
attributable to preferred shares
|
-
|
-
|
-
|
-
|
(43,884
|
)
|
||||||||||||||
Net
(Loss) applicable to Common Stock
|
$
|
(9,130,365
|
)
|
$
|
(792,938
|
)
|
$
|
(13,191,719
|
)
|
$
|
(610,940
|
)
|
$
|
(29,795,519
|
)
|
|||||
Net
(Loss) per share, basic
|
$
|
(.07
|
)
|
$
|
(0.01
|
)
|
$
|
(.11
|
)
|
$
|
(0.01
|
)
|
||||||||
Net
(Loss) per share, diluted
|
$
|
(.07
|
)
|
$
|
(0.01
|
)
|
$
|
(.11
|
)
|
$
|
(0.01
|
)
|
||||||||
Weighted
average number of shares outstanding, basic
|
133,124,164
|
112,319,454
|
125,577,856
|
111,255,809
|
||||||||||||||||
Weighted
average number of shares, diluted
|
133,124,164
|
112,319,454
|
125,577,856
|
111,255,809
|
The
accompanying notes are an integral part of these financial
statements.
F-31
ADVAXIS,
INC.
(A
Development Stage Company)
STATEMENTS
OF CASH FLOWS
(unaudited)
Six Months Ended
April 30,
|
Period from
March 1, 2002
(Inception) to
April 30,
|
|||||||||||
2010
|
2009
|
2010
|
||||||||||
OPERATING
ACTIVITIES
|
||||||||||||
Net
loss
|
$
|
(13,191,719
|
)
|
$
|
(610,940
|
)
|
$
|
(29,751,635
|
)
|
|||
Adjustments
to reconcile net loss to net cash used in
|
||||||||||||
operating
activities:
|
||||||||||||
Non-cash
charges to consultants and employees for options and
stock
|
268,696
|
94,943
|
2,693,451
|
|||||||||
Amortization
of deferred financing costs
|
-
|
-
|
260,000
|
|||||||||
Amortization
of deferred expenses
|
82,016
|
-
|
143,472
|
|||||||||
Amortization
of discount on Bridge Loans
|
480,730
|
604,576
|
||||||||||
Impairment
of intangible assets
|
-
|
26,087
|
||||||||||
Non-cash
interest expense
|
2,818,711
|
31,676
|
4,035,547
|
|||||||||
Loss
(Gain) on change in value of warrants and embedded
derivative
|
6,875,371
|
-
|
2,672,374
|
|||||||||
Value
of penalty shares issued
|
-
|
-
|
149,276
|
|||||||||
Depreciation
expense
|
19,075
|
18,324
|
147,813
|
|||||||||
Amortization
expense of intangibles
|
43,522
|
35,434
|
405,454
|
|||||||||
Gain
on note retirement
|
(64,354
|
)
|
(1,596,831
|
)
|
||||||||
Decrease
(Increase) in prepaid expenses
|
(28,558
|
) |
(13,520
|
)
|
(65,002
|
)
|
||||||
Increase
in other assets
|
(14,538
|
)
|
-
|
(18,415
|
)
|
|||||||
(Decrease)
increase in accounts payable
|
(460,987
|
)
|
107,250
|
2,396,912
|
||||||||
(Decrease)
Increase in accrued expenses
|
(168,758
|
)
|
(18,825
|
308,860
|
||||||||
(Decrease)
in interest payable
|
(161,200
|
)
|
-
|
(142,909
|
)
|
|||||||
Net
cash used in operating activities
|
(3,501,993
|
)
|
(355,658
|
)
|
(17,730,970
|
)
|
||||||
INVESTING ACTIVITIES
|
||||||||||||
Cash
paid on acquisition of Great Expectations
|
-
|
(44,940
|
)
|
|||||||||
Purchase
of property and equipment
|
(10,014
|
)
|
-
|
(147,671
|
)
|
|||||||
Cost
of intangible assets
|
(158,220
|
)
|
(117,764
|
)
|
(1,992,829
|
)
|
||||||
Net
cash used in Investing Activities
|
(168,234
|
)
|
(117,764
|
)
|
(2,185,440
|
)
|
||||||
FINANCING ACTIVITIES
|
||||||||||||
Proceeds
from convertible secured debenture
|
-
|
960,000
|
||||||||||
Cash
paid for deferred financing costs
|
-
|
-
|
(559,493
|
)
|
||||||||
Principal
payment on notes payable
|
(1,150,177
|
)
|
(4,813
|
)
|
(1,273,768
|
)
|
||||||
Proceeds
from notes payable
|
1,015,000
|
-
|
6,020,859
|
|||||||||
Payment
on notes payable
|
-
|
449,985
|
||||||||||
Net
proceeds of issuance of Preferred Stock
|
3,202,827
|
-
|
3,437,827
|
|||||||||
Cancellation
of warrants
|
-
|
-
|
(600,000
|
)
|
||||||||
Proceeds
from exercise of warrants
|
170,000
|
170,000
|
||||||||||
Proceeds
from issuance of common stock
|
-
|
-
|
11,988,230
|
|||||||||
Net
cash provided by financing Activities
|
3,237,650
|
445,172
|
20,143,655
|
|||||||||
Net
(Decrease) increase in cash
|
(432,577
|
)
|
(28,250
|
)
|
227,245
|
|||||||
Cash
at beginning of period
|
659,822
|
59,738
|
-
|
|||||||||
Cash
at end of period
|
$
|
227,245
|
$
|
31,488
|
$
|
227,245
|
The
accompanying notes are an integral part of these financial
statements.
F-32
Supplemental
Schedule of Noncash Investing and Financing Activities
Six Months Ended
April 30,
|
Period from
March 1, 2002
(Inception) to April
30,
|
|||||||||||
2010
|
2009
|
2010
|
||||||||||
Equipment
acquired under capital lease
|
- | - | $ | 45,580 | ||||||||
Common
Stock issued to Founders
|
- | - | $ | 40 | ||||||||
Notes
payable and accrued interest converted to Preferred Stock
|
- | - | $ | 15,969 | ||||||||
Stock
dividend on Preferred Stock
|
- | - | $ | 43,884 | ||||||||
Accounts
payable from consultants settled with Common Stock
|
- | $ | 51,978 | $ | 51,978 | |||||||
Notes
payable and accrued interest converted to Common Stock
|
- | - | $ | 2,513,158 | ||||||||
Intangible
assets acquired with notes payable
|
- | - | $ | 360,000 | ||||||||
Debt
discount in connection with recording the original value of the embedded
derivative liability
|
$ | 539,354 | - | $ | 2,621,796 | |||||||
Allocation
of the original secured convertible debentures to warrants
|
- | - | $ | 214,950 | ||||||||
Allocation
of the warrants on Bridge Notes as debt discount
|
$ | 639,735 | - | $ | 1,580,246 | |||||||
Note
receivable in connection with exercise of warrants
|
$ | 4,881,710 | - | $ | 4,881,710 | |||||||
Warrants
Issued in connection with issuance of Common Stock
|
- | - | $ | 1,505,550 | ||||||||
Warrants
issued in connection with issuances of Preferred stock
|
- | - | $ | 3,587,625 |
The
accompanying notes are an integral part of these financial
statements.
F-33
ADVAXIS,
INC.
NOTES
TO THE FINANCIAL STATEMENTS
(unaudited)
1.
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature
of Operations
Advaxis,
Inc. (the “Company”) is a development stage biotechnology company with the
intent to develop safe and effective cancer vaccines that utilize multiple
mechanisms of immunity. The Company is developing a live Listeria vaccine technology
under license from the University of Pennsylvania (“Penn”) which secretes a
protein sequence containing a tumor-specific antigen. The Company believes this
vaccine technology is capable of stimulating the body’s immune system to process
and recognize the antigen as if it were foreign, generating an immune response
able to attack the cancer. The Company believes this to be a broadly enabling
platform technology that can be applied to the treatment of many types of
cancers, infectious diseases and auto-immune disorders.
The
discoveries that underlie this innovative technology are based upon the work of
Yvonne Paterson, Ph.D., Professor of Microbiology at Penn. This technology
involves the creation of genetically engineered Listeria that stimulate the
innate immune system and induce an antigen-specific immune response involving
both arms of the adaptive immune system. In addition, this technology
supports, among other things, the immune response by altering tumors to make
them more susceptible to immune attack, stimulating the development of specific
blood cells that underlie a strong therapeutic immune response.
Since the
Company’s inception in 2002, it has focused its initial development efforts upon
therapeutic cancer vaccines targeting cervical cancer, its predecessor
condition, cervical intraepithelial neoplasia, head and neck cancer, breast
cancer, prostate cancer, and other cancers. Although no products have
been commercialized to date, research and development and investment continues
to be placed behind the pipeline and the advancement of this technology.
Pipeline development and the further exploration of the technology for
advancement entail risk and expense. It is anticipated that ongoing operational
costs for the Company will increase significantly as it expects to begin several
clinical trials starting this fiscal year.
Basis
of Presentation
The
accompanying unaudited interim financial statements include all adjustments
(consisting only of those of a normal recurring nature) necessary for a fair
statement of the results of the interim period. The October 31, 2009 balance
sheet is derived from the audited balance sheet included on Form 10-K. These
interim financial statements should be read in conjunction with the Company’s
Financial Statements and Notes for the fiscal year ended October 31, 2009 filed
on Form 10-K. The Company believes these financial statements reflect all
adjustments (consisting only of normal, recurring adjustments) that are
necessary for a fair presentation of its financial position and results of
operations for the periods presented. Management’s plans are to continue to
raise additional funds through the sales of debt or equity securities. Results
of operations for the interim periods presented are not necessarily indicative
of results to be expected for the year.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. There is a working capital deficiency, a
shareholders’ deficiency and recurring losses from operations that raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments to the carrying amount and
classification of recorded assets and liabilities should the Company be unable
to continue operations.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles required management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and the differences could be
material. The most significant estimates impact the following transactions or
account balances: stock compensation, liabilities (including the embedded
derivative liability), warrant valuation, impairment of intangibles and fixed
assets and projected operating results.
F-34
Net
Loss Per Share
Basic net
income or basic net loss per common share is computed by dividing net income
available to common shareholders by the weighted average number of common shares
outstanding during the periods. Diluted earnings per share gives effect to
dilutive options, warrants, convertible debt and other potential common
stock outstanding during the period. Therefore, in the case of a net loss the
impact of the potential common stock resulting from warrants, outstanding stock
options and convertible debt are not included in the computation of diluted
loss per share, as the effect would be anti-dilutive. In the case of net income
the impact of the potential common stock resulting from these instruments that
have intrinsic value are included in the diluted earnings per share. The table
sets forth the number of potential shares of common stock that have been
excluded from diluted net loss per share. The warrants include anti-dilutive
provisions to adjust the number and price of the warrants based on certain types
of equity transactions.
As of April 30,
|
||||||||
2010
|
2009
|
|||||||
Warrants
|
85,043,407 | 89,417,733 | ||||||
Stock
Options
|
18,119,090 | 8,812,841 | ||||||
Total
|
103,162,497 | 98,230,574 |
Research
and Development Expenses
Research
and development expenses include, but are not limited to, payroll and personnel
expenses, lab expenses, clinical trial and related clinical manufacturing costs,
facilities and related overhead costs.
Accounting
for Stock-Based Compensation
Stock-based
compensation is estimated at the grant date based on the award’s fair value as
calculated by the Black-Scholes-Merton option-pricing model (hereinafter
referred to as the “BSM model”) and is recognized as expense over the requisite
service period. The BSM model requires various assumptions including volatility,
forfeiture rates and expected option life. If any of the assumptions used in the
BSM model change significantly, stock-based compensation expense may differ
materially in the future from that recorded in the current period. See Note 5
for information on stock-based compensation expense incurred in the three months
ending April 30, 2010.
Warrant
Liability/Embedded Derivative Liability
The
Company has outstanding Warrants and convertible features (Embedded Derivatives)
in its outstanding Senior and Junior Subordinated Promissory Notes. The Warrants
and Embedded Derivatives are recorded at their relative fair values at issuance
and will continue to be recorded at fair value each subsequent balance sheet
date. Any change in value between reporting periods will be recorded as other
income (expense) at each reporting date. The Warrants will continue to be
reported as liabilities until such time as they are exercised or are otherwise
modified to remove the provisions that require this treatment, at which time the
Warrants will be adjusted to fair value and reclassified from liabilities to
stockholders’ equity.
In June
2008, the FASB ratified ASC 815-40-15 (formerly Emerging Issues Task Force
(EITF) Issue No 07-5), “Determining Whether an Instrument (or Embedded Feature)
is Indexed to an Entity’s Own Stock” (EITF 07-5). EITF 07-5 mandates a two-step
process for evaluating whether an equity-linked financial instrument or embedded
feature indexed to the entities own stock. It is effective for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years, which is our first quarter of fiscal year 2010. EITF 07-5 did not have an
effect on the financial statements as the Company is already accounting for all
convertible instruments as liabilities.
In April
2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2010-17, Revenue Recognition—Milestone Method
(Topic 605) - Milestone Method of Revenue Recognition - a consensus of the FASB
Emerging Issues Task Force. This ASU provides guidance to vendors on the
criteria that should be met for determining whether the milestone method of
revenue recognition is appropriate. This guidance is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption is permitted.
Management
does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
F-35
3.
INTANGIBLE ASSETS
Intangible
assets primarily consist of legal and filing costs associated with obtaining
patents and licenses. The license and patent costs capitalized primarily
represent the value assigned to the Company’s 20-year exclusive worldwide
license agreement with Penn which are amortized on a straight-line basis over
their remaining useful lives which are estimated to be twenty years from the
effective date of Penn Agreement dated July 1, 2002. The value of the license
and patents are based on management’s assessment regarding the ultimate
recoverability of the amounts paid and the potential for alternative future
uses. This license now includes the exclusive right to exploit 25 patents issued
and 44 patents pending and applied for in most of the largest markets in the
world.
As of
April 30, 2010, all gross capitalized costs associated with the licenses and
patents filed and granted as well as costs associated with patents pending are
$1,809,794 (excluding the Second Amendment costs) as shown under license and
patents on the table below. The expirations of the existing patents range from
2014 to 2023 but the expirations can be extended based on market approval if
granted and/or based on existing laws and regulations. Capitalized costs
associated with patent applications that are abandoned without future value are
charged to expense when the determination is made not to pursue the application.
No other patent applications with future value were abandoned and charged to
expense in the current or prior year. Amortization expense for licensed
technology and capitalized patent cost is included in general and administrative
expenses.
Under the
amended and restated agreement we are billed actual patent expenses as they are
passed through from Penn and or billed directly from our patent attorney. The
following is a summary of intangible assets as of the end of the following
fiscal periods:
April 30,
2010
|
October 31,
2009
|
|||||||
License
|
$
|
651,992
|
$
|
571,275
|
||||
Patents
|
1,157,802
|
1,080,299
|
||||||
Total
intangibles
|
1,809,794
|
1,651,574
|
||||||
Accumulated
Amortization
|
(323,458
|
)
|
(279,936
|
)
|
||||
Intangible
Assets
|
$
|
1,486,336
|
$
|
1,371,638
|
The
Company reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An asset is considered to be impaired when the sum of the
undiscounted future net cash flows expected to result from the use of the asset
and its eventual disposition exceeds its carrying amount. The amount of
impairment loss, if any, is measured as the difference between the net book
value of the asset and its estimated fair value.
4.
NOTES PAYABLE AND DERIVATIVE INSTRUMENTS
Moore
Notes
On
September 22, 2008, Advaxis entered into an agreement (the “Moore Agreement”)
with the Company’s Chief Executive Officer, Thomas Moore, pursuant to which the
Company agreed to sell senior promissory notes to Mr. Moore, from time to
time,(“the Moore Notes”). On June 15, 2009, Mr. Moore and the Company amended
the Moore Notes to increase the amounts available pursuant to the Moore
Agreement from $800,000 to $950,000 and change the maturity date of the Moore
Notes from June 15, 2009 to the earlier of January 1, 2010 or the Company’s next
equity financing resulting in gross proceeds to the Company of at least $6
million. The Moore Agreement was amended per the terms of the June 18, 2009 Note
Purchase Agreement (described below) retroactively to include the same warrant
provision provided to Investors in the Note Purchase Agreement.
On
February 15, 2010, we agreed to amend the terms of the Moore Notes such that (i)
Mr. Moore may elect, at his option, to receive accumulated interest thereon on
or after March 17, 2010 (which we paid during the period in the amount of
$130,000), (ii) we will begin to make monthly installment payments of $100,000
on the outstanding principal amount beginning on April 15, 2010 ( which we paid
$100,000 on April 19, 2010); provided, however, that the balance of the
principal will be repaid in full on consummation of our next equity financing
resulting in gross proceeds to us of at least $6.0 million and (iii) we will
retain $200,000 of the repayment amount for investment in our next equity
financing. The balance on outstanding Moore Notes , including accrued interest,
approximates $875,000 as of April 30, 2010. See also Note 8 - Subsequent
Events.
Senior
Convertible Promissory Notes
Effective
June 18, 2009, the Company entered into a Note Purchase Agreement with certain
accredited and/or sophisticated investors, pursuant to which the Investors
acquired senior convertible promissory notes of the Company in the aggregate
principal face amount of $1,131,353, for an aggregate net purchase price of
$961,650. At April 30, 2010, the Company had repaid $981,353 of these notes and
$150,000 principal value remained outstanding. See Note 8 – Subsequent
Events.
F-36
Junior
Subordinated Convertible Promissory Notes
Additionally,
on October 26, and October 30, 2009 the Company entered into Bridge Note
agreements whereby Investors acquired junior subordinated convertible promissory
notes of the Company in the aggregate face amounts of $1,617,647 and $529,412
for aggregate net purchase prices of $1,375,000 and $450,000 respectively. At
April 30, 2010 of the $1,617,647 the company had repaid $58,824, leaving
$1,558,824 outstanding. All $529,412 of the October 30, 2009 notes remains
outstanding.
During
the three months ended January 31, 2010 the Company entered into Bridge Note
agreements whereby Investors acquired junior subordinated convertible promissory
notes of the Company in the aggregate face amounts of $555,882 for aggregate net
purchase prices of $472,500. These junior subordinated convertible promissory
notes mature on dates ranging from March 16, 2010 through July 30, 2010 subject
to certain provisions in the note agreement. At April 30, 2010, all $555,882
remains outstanding.
During
the three months ended April 30, 2010 the company entered into Junior
Subordinated Convertible Promissory Notes in the aggregate principal value of
$640,307 for an aggregate net purchase price of $542,500. These notes mature on
dates ranging from July 30, 2010 to November 30, 2010. At April 30, 2010, the
entire $640,307, remain outstanding.
As of
April 30, 2010, all Bridge Notes were originally issued with an original issue
discounts ranging from 10% to 18%. Each Investor paid between $0.82 and $.90 for
each $1.00 of principal amount of notes purchased at the closing. The bridge
notes are convertible into shares of the Company’s common stock at an exercise
price contingent on the completion of an equity financing as described below.
For every dollar invested, each Investor received warrants to purchase 2 ½
shares of common stock (the “Bridge Warrants”) subject to adjustments upon the
occurrence of certain events as more particularly described below and in the
form of Warrant. As of April 30, 2010 all Bridge Note warrants have an exercise
price of $.17 per share. The Bridge Notes may be prepaid in whole or in part at
the option of the Company without penalty at any time prior to the Maturity
Date. The warrants may be exercised on a cashless basis under certain
circumstances.
We
refer to all Senior Convertible Promissory Notes and Junior Subordinated
Convertible Promissory Notes as “Bridge Notes”.
Activity
related to the Bridge Notes from issuance is as follows:
Bridge
Note – Principal Value - Issued
|
$ |
4,474,601
|
||
Principal
payments on Bridge Notes
|
(1,040,177
|
)
|
||
Original
Issue Discount, net of accreted interest
|
(68,375
|
)
|
||
Fair
Value of Attached Warrants at issuance
|
(1,580,248)
|
|||
Fair
Value of Embedded Derivatives at issuance
|
(2,430,858
|
)
|
||
Accreted
interest on embedded derivative and warrant liabilities
|
3,641,114
|
|||
Convertible
Bridge Notes- as of April 30, 2010
|
$
|
2,996,057
|
||
Embedded
Derivatives Liability at April 30, 2010
|
1,077,659
|
|||
Convertible Bridge
Notes and fair value of embedded derivative
|
$
|
4,073,716
|
BioAdvance
Note
BioAdvance
Biotechnology Greenhouse of Southeastern Pennsylvania Notes (“BioAdvance”)
received notes from the Company for $10,000 dated November 13, 2003 and $40,000
dated December 17, 2003 that were each due on the fifth anniversary date
thereof. During November 2009 , the Company paid $14,788 in full payment of the
November, 13, 2003 note and BioAdvance agreed to extend the remaining note until
the Company drew down its equity line of credit with Optimus. The terms of the
outstanding note calls for accrual of 8% interest per annum on the unpaid
principal.
Derivative
Instruments
The table
below lists the Company’s derivative instruments as of April 30,
2010:
Description
|
Principal
|
Original
Issue
Discount
|
Warrant
Liability
|
Embedded
Derivative
Liability
|
||||||||||||
Bridge
Note I-June 18, 2009
|
$
|
1,131,353
|
$
|
169,703
|
$
|
250,392
|
$
|
711,258
|
||||||||
Bridge
Note II & III-October 26 & 30, 2009
|
2,147,059
|
322,059
|
690,119
|
868,388
|
||||||||||||
Optimus
September 24, 2009
|
-
|
-
|
3,587,625
|
-
|
||||||||||||
Other
outstanding warrants
|
-
|
-
|
12,785,695
|
-
|
||||||||||||
Total
Valuation at Origination
|
$
|
3,278,412
|
$
|
491,762
|
$
|
17,313,831
|
$
|
1,579,646
|
||||||||
Change
in fair value
|
-
|
-
|
(5,352,097
|
)
|
(493,132
|
)
|
||||||||||
Accreted
interest
|
-
|
(123,846
|
)
|
-
|
-
|
|||||||||||
Total
Valuation as of October 31, 2009
|
$
|
3,278,412
|
$
|
367,916
|
$
|
11,961,734
|
$
|
1,086,514
|
||||||||
Bridge
Notes IV – December 1, 2009 through January 31, 2010
|
555,882
|
83,382
|
207,617
|
164,400
|
||||||||||||
Bridge
Note I- Extension of Maturity Date
|
202,500
|
103,400
|
||||||||||||||
Change
in fair value
|
1,995,372
|
(905,259)
|
||||||||||||||
Accreted interest
|
(225,321)
|
|||||||||||||||
Exercise
of Common Stock Warrants
|
(1,702,073)
|
|||||||||||||||
Total Valuation
as of January 31, 2010
|
$
|
3,834,294
|
$
|
225,977
|
$
|
12,665,150
|
$
|
449,055
|
||||||||
Bridge
Note V
|
640,307
|
97,807
|
229,619
|
271,554
|
||||||||||||
Change
in fair value
|
5,363,854
|
421,404
|
||||||||||||||
Accreted
interest
|
(251,188
|
)
|
||||||||||||||
Exercise
of common stock warrants
|
(1,790,823
|
)
|
||||||||||||||
Note
Payoffs
|
(1,040,177
|
)
|
(4,222
|
)
|
(64,354
|
)
|
||||||||||
Total
Valuation as of April 30, 2010
|
$
|
3,434,424
|
$
|
68,374
|
$
|
16,467,800
|
$
|
1,077,659
|
F-37
Warrants
As of
April 30, 2010, there were outstanding warrants to purchase 85,043,407 shares of
our common stock with exercise prices ranging from $0.17 to $0.287 per
share.
These
warrants include 12,387,210 warrants issued to Bridge Notes holders at an
exercise price of $0.17 (subject to adjustment) per warrant and 7,607,000 issued
to Optimus at an exercise price of $0.20 per warrant and approximately
65,049,137 warrants issued by the Company in connection with our private
placements consummated on October 17, 2007 (the “2007 Warrants”) at an exercise
price of $.17 (subject to adjustment) and expire in October 2012.
During
January 2010 Optimus exercised 11,563,000 (of the previously issued 33,750,000)
warrants at a price of $.17 in exchange for a note with a principal amount of
$1,965,710.
During
March 2010 Optimus exercised 14,580,000 warrants at a price of $.20 in exchange
for a note with the principal amount of $2,916,000. The notes bear interest at
2% and are due in four years. The notes have been recorded as subscriptions
receivable.
Accordingly,
the Company issued 11,563,000 shares and 14,580,000 shares, respectively, of its
Common Stock. While the 7,607,000 warrants remaining at April 30,
2010 contain a repricing provision they do not contain a ratchet provisions that
would increase the number of warrants. See Note 8 - Subsequent
Events.
During
March 2010, 1,000,000 of our 2007 Warrants were exercised at a price of $.17.
The company received $170,000 in cash and issued 1,000,000 shares of its common
stock.
Warrant
Liability/Embedded Derivative Liability
The fair
value of the Warrants and Embedded Derivatives are estimated using the BSM
model. As of April 30, 2010, the fair value of the Warrants and Embedded
Derivatives were determined to be $16.5 million and $1.1 million, respectively.
We recorded approximately $6.9 million in other loss for the six months ended
April 30, 2010.
5.
ACCOUNTING FOR STOCK BASED COMPENSATION PLANS
The
Company records compensation expense associated with stock options based on the
estimated fair value of each option award that was granted using the
Black-Scholes option valuation model.
The table
below summarizes compensation expenses from share-based payment
awards:
As of April 30,
|
||||||||
2010
|
2009
|
|||||||
Research
and development
|
$
|
29,042
|
$
|
31,074
|
||||
General
and Administrative
|
61,225
|
45,692
|
||||||
Total
stock compensation expense recognized
|
$
|
90,267
|
$
|
76,766
|
F-38
Total
unrecognized estimated compensation expense related to non-vested stock options
granted and outstanding as of April 30, 2010 was $488,000 which are expected to
be recognized over a weighted-average period of one year and three
months.
No
options were exercised over the six months ended April 30, 2010 and 2009. For
the six months ended April 30, 2010, the Company granted 1,750,000 options at a
weighted average Black Scholes value and exercise price of approximately $0.12.
No options were granted for the three months ended April 30, 2009.
6.
COMMITMENTS AND CONTINGENCIES
University
of Pennsylvania
Pursuant
to multiple consulting agreements and a licensing agreement, the Company is
contingently liable for the following:
Under an
amended and restated 20-year exclusive worldwide (July 1, 2002 effective date)
license agreement, the Company is obligated to pay (a) $525,000 in aggregate,
divided over a three-year period as a minimum royalty after the first commercial
sale of a product. Such payments are not anticipated within the next five years.
(b) On December 31, 2008 the Company was also obligated to pay annual license
maintenance fees of $50,000 increasing to a maximum of $100,000 per year until
the first commercial sale of a licensed product. As of the date of this filing
the Company has not paid this fee. (c) Upon the initiation of a phase III
clinical trial and the regulatory approval for the first Licensor
product the Company is obligated to pay milestone payments of $400,000 and
$600,000, respectively. (d) Upon the achievement of the first sale of a product
in certain fields, the Company shall be obligated to pay certain milestone
payments, as follows: $2,500,000 shall be due for first commercial sale of the
first product in the cancer field (of which $1,000,000 shall be paid within
forty-five (45) days of the date of the first commercial sale, $1,000,000 shall
be paid on the first anniversary of the first commercial sale; and $500,000
shall be paid on the second anniversary of the date of the first commercial
sale). In addition, $1,000,000 shall be due and payable within forty-five (45)
days following the date of the first commercial sale of a product in each
of the following fields (a) infectious disease, (b) allergy, (c) autoimmune
disease, and (d) any other therapeutic indications for which licensed products
are developed. Therefore, the maximum total potential amount of milestone
payments is $3,500,000 in a cancer field. The milestone payments related to
first sales are not expected prior to obtaining a regulatory approval to market
and sell the Company’s vaccines, and such regulatory approval is not expected
within the next 5 years. In addition, the Licensor is entitled to receive a
non-refundable $157,134 payment of historical license costs. Under a licensing
agreement, the Licensor is also entitled to receive royalties of 1.5% on net
sales in all countries. In addition, we are obligated to reimburse the
Licensor for all attorneys fees, expenses, official fees and other charges
incurred in the preparation, prosecution and maintenance of the
patents licensed from the Licensor.
This
license agreement has been amended, from time to time, and was amended and
restated on February 13, 2007. We have acquired and paid for the First
Amended and Restated Patent License Agreement. However, the Second
Amendment that we mutually agreed to enter into on March 26, 2007 to exercise
our option to license an additional 12 other dockets or approximately 27 or more
additional patent applications for Listeria and LLO-based vaccine dockets was
not finalized until May 20, 2010.. See Note 8 - Subsequent Events.
During
the first and second quarters of 2010, the Company paid $50,000 and $203,615
respectively for Sponsored Research Agreement and Technology Transfer
services.
Dr.
Yvonne Patterson
Under a
consulting agreement with the Company’s scientific inventor, the Company is
obligated to pay $3,000 per month until the Company closes a $3,000,000 equity
financing, $5,000 per month pursuant to a $3,000,000 equity financing, $7,000
per month pursuant to a $6,000,000 equity financing, and $9,000 per month
pursuant to a $9,000,000 equity financing. Currently the scientific inventor is
earning $7,000 per month based on the agreement and milestones
achieved.
Other
Pursuant
to a Clinical Research Service Agreement, the Company is obligated to pay
Pharm–Olam International for service fees related to our Phase I clinical trial.
As of April 30, 2010, the Company has an outstanding balance of $219,131 on this
agreement.
We are
party to a consulting agreement with The Sage Group, a health-care strategy
consultant assisting us with a program to commercialize our
vaccines. The initial agreement was entered into in January 2009 and
subsequently amended on July 22, 2009. Pursuant to the terms of
agreement, as amended, we have agreed to pay Sage (i) $5,000 per month until an
aggregate of $120,000 has been paid to Sage under the consulting agreement and
(ii) a 5% commission for certain transaction if completed in the first 24 months
of the term of the agreement, reduced to 2% if completed in the 12 months
thereafter. The Sage Group has been paid approximately $40,600 through April 30,
2010.
F-39
On June
19, 2009 we entered into a Master Agreement and on July 8, 2009 we entered into
a Project Agreement with Numoda, a leading clinical trial and logistics
management company, to oversee Phase II clinical activity with ADXS11-001 for
the treatment of invasive cervical cancer and CIN. Numoda will be
responsible globally for integrating oversight and logistical functions with the
clinical research organizations, contract laboratories, academic laboratories
and statistical groups involved. The scope of this agreement covers
over three years and is estimated to cost approximately $8.3 million for both
trials. The Company is permitted to pay a portion of outstanding charges to
Numoda in the form of the Company’s common stock for which the company has
recorded deferred expenses on the balance sheet of approximately $200,000. At
April 30, 2010 the Company owed Numoda approximately $566,000. See Note 8 -
Subsequent Events.
The
Company operates under a month to month lease for its laboratory and office
space. There are no aggregate future minimum payments due as of April 30,
2010.
7.
SHAREHOLDERS’ EQUITY
Preferred
Equity Financing
On
January 11, 2010, the Company issued and sold 145 shares of non-convertible,
redeemable Series A preferred stock to Optimus Life Sciences Capital Partners,
LLC (“Optimus”) pursuant to the terms of a Preferred Stock Purchase Agreement
between the Company and Optimus dated September 24, 2009 (the “ Purchase
Agreement ”). The Company received net proceeds of $1,166,000 from this
transaction. The aggregate purchase price for the Series A preferred stock was
$1.45 million (less $285,000 representing an administrative fee and the balance
of a commitment fee due and owing to Optimus under the Purchase Agreement and
legal fees).
On March
29 and April 1, 2010, the Company issued and sold a total of 216 shares of
non-convertible, redeemable Series A preferred stock to Optimus Life Sciences
Capital Partners, LLC (“Optimus”) pursuant to the terms of a Preferred Stock
Purchase Agreement between the Company and Optimus dated September 24, 2009 (the
“ Purchase Agreement ”). The Company received net proceeds of $2,036,827 from
this transaction. The aggregate purchase price for the Series A preferred stock
was $2.16 million (less $123,173 representing administrative and legal
fees).
Under the
terms of the Purchase Agreement, Optimus remains obligated, from time to time
until September 24, 2012, to purchase up to an additional 139 shares of Series A
preferred stock at a purchase price of $10,000 per share upon notice from the
Company to Optimus, and subject to the satisfaction of certain conditions, as
set forth in the Purchase Agreement. See Note 8 - Subsequent
Events.
In
connection with the foregoing transactions, an affiliate of Optimus was granted
33,750,000 warrants on September 24, 2009 at an exercise price of $0.20 to be
exercised and priced upon the draw down date of each tranche, if lower than
$0.20.
On
January 11, 2010, the draw down date of the first tranche, Optimus exercised
warrants to purchase 11,563,000 shares of common stock at an adjusted exercise
price of $0.17 per share. As permitted by the terms of such
warrants, the aggregate exercise price of $1,965,710 received by the Company is
payable pursuant to a four year full recourse promissory note bearing interest
at the rate of 2% per year and has been recorded as a stock subscription
receivable on the balance sheet as of April 30, 2010.
On March
29, 2010, the draw down date of the second tranche, Optimus exercised warrants
to purchase 14,580,000 shares of common stock at an adjusted exercise price of
$0.20 per share. As permitted by the terms of such warrants, the
aggregate exercise price of $2,916,000 received by the Company is payable
pursuant to a four year full recourse promissory note bearing interest at the
rate of 2% per year and has been recorded as a stock subscription receivable on
the balance sheet as of April 30, 2010.
The
Company and Optimus agreed to waive certain terms and conditions in the Purchase
Agreement and the warrant in order to permit the affiliate of Optimus to
exercise the warrants at such adjusted exercise price prior to the closing of
the purchase of the Preferred Stock and acquire beneficial ownership of more
than 4.99% of the Company’s common stock on the date of exercise.
Warrants
Almost
all of our warrants (except the Optimus warrants) contain “full-ratchet”
anti-dilution provisions originally set at $0.20 with a term of five
years. The Optimus exercise of warrants on January 11, 2010 triggered the
anti dilution provisions of the warrant agreements requiring a reset of both the
price of these warrants (from $.20 to $.17) and an increase in amount of
warrants. Therefore, any future financial offering or instrument issuance
below $0.17 per share of the Company’s common stock or warrants (subject to
certain exceptions) will cause further anti-dilution and/or repricing
provisions in the above mentioned 85.0 million outstanding
warrants. Additionally, the Company had approximately 31.4 million warrants
expire during November and December 2009.
F-40
8.
SUBSEQUENT EVENTS
Issuance
of Capital Stock
Numoda
On May
10, 2010, Advaxis, Inc. (the “ Company ”) entered into a Stock Purchase
Agreement (the “ Numoda Purchase Agreement ”) with Numoda Capital Innovations,
LLC (“ NCI ”) pursuant to which the Company agreed to issue 3,500,000 shares of
its common stock to NCI, at a price per share of $0.17, in satisfaction of
$595,000 of services rendered to the Company by Numoda Corporation. The
Company has agreed to register such shares of common stock within 120 days of
May 10, 2010.
Optimus
Transaction
On May
13, 2010, the Company issued and sold 139 shares of non-convertible, redeemable
Series A preferred stock (“Series A Preferred Stock ”) to Optimus Life Sciences
Capital Partners LLC (the “ Investor ”) pursuant to the terms of a Preferred
Stock Purchase Agreement between the Company and the Investor dated September
24, 2009 (the “ Series A Purchase Agreement ”). The aggregate
purchase price for the shares of Series A Preferred Stock was $1.39
million (of which the Company received $1.285 million, net of $.1 million
in legal costs). No more shares of Series A Preferred Stock remain
available for sale under the Series A Purchase Agreement.
In
connection with the issuance by the Company of the Series A Preferred Stock
described above, an affiliate of the Investor exercised a warrant to purchase
7,607,000 shares of the Company’s common stock at an exercise price of $0.18 per
share. The Company, the affiliate and the Investor also agreed to
waive certain terms and conditions in the Series A Purchase Agreement and such
warrant in order to permit the affiliate of the Investor to exercise such
warrant and acquire beneficial ownership of more than 4.99% of the Company’s
common stock on the date of exercise. As permitted by the terms of
such warrant, the aggregate exercise price of $1,369,260 received by the Company
is payable pursuant to a 4 year full recourse promissory note bearing interest
at the rate of 2% per year. In addition, in connection with the
foregoing issuance by the Company of the Series A Preferred Stock, the Company
issued an additional warrant to an affiliate of the Investor (the “ Additional Warrant ”)
to purchase up to 2,818,000 shares of the Company’s common stock at an exercise
price of $0.18 per share, subject to customary anti-dilution adjustments as
provided in the Additional Warrant. The exercise price of the
Additional Warrant may be paid (at the option of the Investor) in cash or by the
Investor’s issuance of a four-year, full-recourse promissory note, bearing
interest at 2% per annum, and secured by a specified portfolio of assets owned
by the Investor. The Company has agreed to file a registration
statement with the Securities and Exchange Commission covering the public resale
of shares issuable upon exercise of the Additional Warrant no later than July
23, 2010 (as extended by the Investor) and use commercially reasonable
efforts to cause such registration statement to become effective as soon as
possible thereafter. The Additional Warrant is exercisable through
the third anniversary of the effective date of such registration
statement.
On July
19, 2010, the Company entered into a Series B Preferred Stock Purchase Agreement
with the Investor (the “Series B Purchase Agreement”), pursuant to which the
Investor agreed to purchase, upon the terms and subject to the conditions set
forth therein and described below, up to $7.5 million of the Company’s newly
authorized, non-convertible, redeemable Series B preferred stock (“Series B
Preferred Stock”) at a price of $10,000 per share. Under the terms of
the Series B Purchase Agreement, and after the SEC has declared effective a
registration statement relating to the Warrant Shares (as defined below), the
Company may from time to time until July 19, 2013, present the Investor with a
notice to purchase a specified amount of Series B Preferred Stock. Subject to
satisfaction of certain closing conditions, the Investor is obligated to
purchase such shares of Series B Preferred Stock on the 10th trading day after
the date of the notice. The Company will determine, in its sole discretion, the
timing and amount of Series B Preferred Stock to be purchased by the Investor,
and may sell such shares in multiple tranches. The Investor will not be
obligated to purchase the Series B Preferred Stock upon the Company’s notice (i)
in the event the average closing sale price of the Company’s common stock during
the nine trading days following delivery of such notice falls below 75% of the
closing sale price of the Company’s common stock on the trading day prior to the
date such notice is delivered to the Investor, or (ii) to the extent such
purchase would result in the Company and its affiliates beneficially owning more
than 9.99% of the Company’s outstanding common stock.
On July
19, 2010, the Company issued 500 shares of Series B Preferred Stock to the
Investor (the (“Series B Exchange Shares”) in exchange for the 500 shares of
Series A Preferred Stock issued under the Series A Purchase Agreement so that
all shares of the Company’s preferred stock held or subsequently purchased by
the Investor under the Series B Purchase Agreement would be redeemable upon
substantially identical terms.
Pursuant
to the Series B Purchase Agreement, on July 19, 2010, the Company issued to the
Investor a three-year warrant to purchase up to 40,500,000 shares of the
Company’s common stock (the “Warrant Shares”), at an initial exercise price of
$0.25 per share, subject to adjustment as described below. The warrant will
become exercisable on the earlier of (i) the date on which a registration
statement registering for resale the shares of common stock issuable upon
exercise of the warrant becomes effective and (ii) the first date on which such
Warrant Shares are eligible for resale without limitation under Rule 144
(assuming a cashless exercise of the warrant). The warrant consists
of and is exercisable in tranches, with a separate tranche being created upon
each delivery of a tranche notice under the Series B Purchase Agreement. On each
tranche notice date, that portion of the warrant equal to 135% of the tranche
amount will vest and become exercisable, and such vested portion may be
exercised at any time during the exercise period on or after such tranche notice
date. On and after the first tranche notice date and each subsequent tranche
notice date, the exercise price of the warrant will be adjusted to the closing
sale price of a share of the Company’s common stock on the applicable tranche
notice date. The exercise price of the warrant may be paid (at the option of the
Investor) in cash or by the Investor’s issuance of a four-year, full-recourse
promissory note, bearing interest at 2% per annum, and secured by a specified
portfolio of assets. However, such promissory note is not due or payable at any
time that (a) the Company is in default of any preferred stock purchase
agreement for Series B preferred stock or any warrant issued pursuant thereto,
any loan agreement or other material agreement or (b) there are any shares of
the Series B Preferred Stock issued or outstanding.
Moore
Note
During
late April 2010, the Company agreed with its Chief Executive Officer, Thomas A.
Moore, to make a payment of $200,000 due to Mr. Moore under certain of the
Company’s senior promissory notes held by Mr. Moore (the “Moore Notes”) in the
form of 1,176,471 shares of the Company’s common stock, par value $0.001 per
share (the “Common Stock”) based on a price of $0.17 per share issued in mid
May, 2010. The Company made payments under the Moore Notes in May
2010 and June 2010 in the amount of $100,000 and $50,000,
respectively. Approximately $500,000 remains outstanding under the
Moore Notes. In addition, on June 29, 2010, the Company issued
750,000 shares of Common Stock to Moore due and owing to Mr. Moore under the
terms of his employment agreement.
Bridge
Note conversions
During
late April 2010, the Company agreed with certain of the holders of the
Company’s junior unsecured convertible promissory notes (the “Junior Bridge
Notes”) to make payments of approximately $2.42 million aggregate principal
amount due to such holders under certain of the Junior Bridge Notes in the form
of 14,237,489 shares of Common Stock based on a price of $0.17 per share
issued in mid May, 2010. Additionally, in late May 2010, the Company repaid two
Junior Bridge Notes totaling approximately $88,000.
The
principal value of Bridge Notes outstanding at May 28, 2010 approximates
$926,000.
University
of Pennsylvania
On May10,
2010, the Company and Penn entered into a second amendment (the “Second Amendment
Agreement”) to the 20-year exclusive worldwide license agreement.
Pursuant to the Second Amendment Agreement, the Company acquired exclusive
licenses for an additional 27 patents related to the Company’s proprietary Listeria vaccine technology,
some of which expire as late as 2023. As per the terms of the Second Amendment
Agreement, the Company acknowledges that it owes Penn approximately $249,000 in
patent expenses and $130,000 in sponsored research agreement fees. The Company
has agreed to satisfy these obligations in five monthly payments of $65,000
beginning in May, 2010 plus a payment of approximately $54,000 before September
30, 2010.
In
addition, the Company has exercised an option for the rights to seven additional
patent dockets at an option exercise fee of $10,000 per patent docket ($70,000
in the aggregate). Pursuant to the terms of the Second Amendment Agreement, Penn
has the option to receive the option exercise fee in the form of a cash payment
in the amount of $70,000, shares of the Company common stock valued at $140,000
(based on a price per share of the Company’s most recently completed financing
round) or a combination of cash and Company common stock (provided that the
stock component is not less than 25% of the total payment). Penn has elected to
receive payment of the option exercise fee in the form of $35,000 in cash and
$70,000 in company common stock (approximately 388,889 shares of common stock
based on a price of $0.18 per share).
After
giving effect to the foregoing payments and stock issuances, the Company will
have completed its acquisition of available patents previously reported as an
unrecorded contingent liability of approximately $589,000.
F-41
PART
II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution.
The
following table sets forth the costs and expenses other than underwriting
discounts and commissions, if any, payable by the registrant relating to the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee.
SEC
registration fee
|
$
|
802
|
||
Blue
sky fees and expenses
|
1,000
|
|||
Printing
and engraving expenses
|
5,000
|
|||
Legal
fees and expenses
|
15,000
|
|||
Accounting
fees and expenses
|
5,000
|
|||
Transfer
agent and registrar’s fees and expenses
|
1,000
|
|||
Miscellaneous
expense
|
198
|
|||
Total
|
$
|
28,000
|
Item
14. Indemnification of Directors and Officers.
Delaware General Corporation
Law. Subsection (a) of Section 145 of the Delaware General Corporation
Law, or DGCL, provides that a corporation may indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys’
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 of the DGCL further provides that a corporation similarly may
indemnify any such person serving in any such capacity who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor, against expenses (including attorneys’ fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Certificate of Incorporation and
Bylaws. The registrant’s amended and restated certificate of
incorporation contains provisions which provide that the registrant will
indemnify the registrant’s directors and officers in each and every situation
where, under Section 145 of the DGCL, as amended from time to time, the
registrant is permitted or empowered to make such indemnification, and to the
fullest extent permitted by law. The registrant may, in the sole discretion of
its Board of Directors, indemnify any other person who may be indemnified
pursuant to Section 145 of the DGCL to the extent the Board of Directors deems
advisable, as permitted by Section 145 of the DGCL.
Additionally,
the registrant’s amended and restated certificate of incorporation provides that
no person shall be personally liable to the registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director; provided, however,
that such foregoing provision does not eliminate or limit the liability of a
director (i) for any breach of the director’s duty of loyalty to the registrant
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. If the DGCL is subsequently amended to
further eliminate or limit the liability of a director, then a director of the
registrant, in addition to the circumstances in which a director is not
personally liable as set forth in provision described in the preceding sentence,
will not be liable to the fullest extent permitted by the amended
DGCL.
II-1
The
registrant’s bylaws contain provisions which provide, among other things, that
the registrant shall indemnify any officer or director who was or is a party or
is threatened to be made a party to any threatened, pending or completed (i)
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the registrant) by
reason of the fact that he is or was a director, officer, employee or agent of
the registrant, or is or was serving at the request of the registrant as a
director, officer, employee or agent of another registrant, partnership, limited
liability company, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys’ fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (ii) action or suit by
or in the right of the registrant to procure a judgment in its favor by reason
of the fact that he is or was a director, officer, employee or agent of the
registrant, or is or was serving at the request of the registrant as a director,
officer, employee or agent of another registrant, partnership, limited liability
company, joint venture, trust, employee benefit plan or other enterprise against
expenses (including attorneys’ fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the registrant; except that no indemnification shall be made
in respect of any claim, issue or matters as to which such person shall have
been adjudged to be liable to the registrant unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper. Any indemnification under the provisions
in the bylaws (unless ordered by a court) shall be made by the registrant only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth above. Such
determination shall be made (i) by a majority vote of the directors who were not
parties to such action, suit or proceeding even though less than a quorum, or
(ii) if there are no such directors, or, if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders. To
the extent, however, that a director, officer, employee or agent of the
registrant has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys’
fees) actually and reasonably incurred by him in connection therewith, without
the necessity of authorization in the specific case.
Insurance Policies. The
registrant has directors and officer’s liability insurance in an amount not less
than $5 million.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers, or persons controlling the registrant
pursuant to the foregoing provisions, the registrant has been informed that in
the opinion of the Commission such indemnification is against public policy as
expressed in such Securities Act and is therefore unenforceable.
Item
15. Recent Sales of Unregistered Securities.
During
the last three years, the registrant has issued unregistered securities to the
persons, as described below. None of these transactions involved any
underwriters, underwriting discounts or commissions, except as specified below,
or any public offering, and the registrant believes that, except as set forth
below, each transaction was exempt from the registration requirements of the
Securities Act of 1933 by virtue of Section 4(2) thereof and/or Regulation D
promulgated thereunder. All recipients had adequate access, though their
relationships with the registrant, to information about the
registrant.
On August
24, 2007, the registrant 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 its common stock to three
investors including Mr. Moore, the registrant’s Chief Executive Officer. Mr.
Moore invested $400,000 and received warrants for the purchase of 100,000 shares
of its common stock. The promissory note and accrued but unpaid interest thereon
are convertible at the option of the holder into shares of the registrant’s
common stock upon the closing by the registrant of a sale of its equity
securities aggregating $3.0 million or more in gross proceeds to the registrant
at a conversion rate which will 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, the registrant has the right
to prepay the promissory notes and accrued but unpaid interest
thereon.
II-2
On
October 17, 2007, the registrant issued and sold to institutional and accredited
investors (i) 49,228,334 shares of its common stock and (ii) five-year warrants
to purchase 36,921,250 shares of its common stock exercisable at $0.20 per share
(“$0.20 Warrants”), in a private placement (the “October 2007 Private
Placement”) that resulted in gross proceeds to the registrant of $7,384,235.
Pursuant to the related placement agency agreement with Carter Securities, LLC,
the registrant paid the placement agent $354,439 in cash commissions and
reimbursement of expenses and issued to it 2,949,333 $0.20
Warrants.
Concurrently
with the closing of the October 2007 private placement, the registrant issued
and sold to CAMOFI Master LDC and CAMHZN Master LDC (i) 10,000,000 shares of its
common stock, (ii) 10,000,000 $0.20 Warrants and (iii) five-year warrants to
purchase 3,333,333 shares of its common stock exercisable at $0.001 per share
(“$0.001 Warrants”), in a private placement that resulted in gross proceeds to
the registrant of $1,996,667.
Each of
CAMOFI Master LDC and CAMHZN Master LDC are affiliates of the registrant’s
financial advisor, Centrecourt Asset Management (“Centrecourt”). Pursuant to a
consulting agreement between the registrant and Centrecourt dated August 1,
2007, the registrant paid Centrecourt $328,000 in cash and issued to it
2,483,333 $0.20 Warrants for strategic advisory services provided to the
registrant. Centrecourt transferred the $0.20 Warrants to these two
affiliates.
On
February 1, 2008, the registrant issued 211,853 shares of common stock in
connection with liquidated damages of $31,778 incurred due to the delay in
effectiveness of a registration statement required under the terms of a
registration rights agreement.
On April
4, 2008, the registrant issued 153,846 shares of common stock in connection with
a settlement of an agreement with its former chief executive officer and
president, Roni Appel, and 750,000 shares of common stock were issued to it
current chief executive officer, Thomas M. Moore based on the achievement of a
milestone in his employment agreement.
On July
2, 2008, the registrant issued 245,844 shares of common stock to a director in
connection with his board of director’s compensation agreement.
On
September 22, 2008, the registrant entered into a note purchase agreement with
its Chief Executive Officer, Thomas A. Moore, pursuant to which it agreed to
sell to Mr. Moore, from time to time, one or more Moore Notes. On June 15, 2009,
the registrant 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 its next equity
financing resulting in gross proceeds to it of at least $6.0
million.
On
December 30, 2008 the registrant issued 2,595,944 restricted shares of its
common stock to the two principals of a vendor in payment of their outstanding
invoices.
On June
18, 2009, the registrant completed a private placement with certain accredited
investors pursuant to which it 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) senior bridge warrants to purchase 2,404,125 shares
of its common stock at an exercise price of $0.20 per share (subject to
adjustment upon the occurrence of certain events). In consideration for the
agreement of the holders of the senior bridge notes to extend the maturity date
of such notes to periods into February and March 2010, the registrant issued
warrants to purchase an additional 1,228,441 shares of common stock. In
addition, as a result of the anti-dilution protection provisions in the senior
bridge warrants, the registrant reduced the exercise price of the senior bridge
warrants to $0.17 per share and issued warrants to purchase an additional
641,039 shares of common stock at an exercise price of $0.17 per
share.
On July
21, 2009, the registrant issued options to certain of its officers, directors
and employees to purchase up to an aggregate of 10,150,000 shares of common
stock pursuant to the registrant’s 2009 Stock Option Plan. The exercise price
per share was $0.10. No consideration was paid to the registrant by the
recipient of the foregoing options for the grant of stock
options.
II-3
On
September 24, 2009, the registrant entered into a preferred stock purchase
agreement (the “Optimus purchase agreement”) with Optimus Capital Partners, LLC
(“Optimus”), pursuant to which Optimus committed to purchase up to $5.0 million
shares of the Series A preferred stock at a price of $10,000 per share of Series
A preferred stock, subject to satisfaction of certain closing conditions. At the
time of execution of the Optimus purchase agreement, the registrant issued to an
affiliate of Optimus a three-year warrant to purchase up to 33,750,000 shares of
the registrant’s common stock, at an initial exercise price of $0.20 per share,
subject to adjustment as provided in the warrant.
On
January 5, 2010, the registrant issued options to one of its executive officers
to purchase up to 1,000,000 shares of common stock pursuant to the registrant’s
2009 Stock Option Plan. The exercise price per share was $0.10. No consideration
was paid to the registrant by the recipient of the foregoing options for the
grant of stock options.
On
January 11, 2010, the registrant issued and sold 145 shares of Series A
preferred stock to Optimus for an aggregate purchase price of $1.45
million.
On March
29, 2010, the registrant issued and sold 200 shares of Series A preferred stock
to Optimus pursuant to the terms of the Optimus purchase agreement. On April 1,
2010, the registrant issued and sold an additional 16 shares of Series A
preferred stock to Optimus pursuant to the terms of the Optimus purchase
agreement. The aggregate purchase price for the 216 shares of Series A preferred
stock was $2.16 million.
On April
29, 2010, the registrant agreed with its Chief Executive Officer, Thomas A.
Moore, to make a payment of $200,000 due to Mr. Moore under certain of the
registrant’s senior promissory notes held by Mr. Moore in the form of 1,176,471
shares of the registrant’s common stock based on a price of $0.17 per
share.
As of
April 30, 2010, the registrant agreed with certain of the holders of its junior
unsecured convertible promissory notes to make payments of approximately $2.42
million aggregate principal amount due to such holders under certain of such
notes in the form of 14,237,489 shares of its common stock based on a price of
$0.17 per share.
On May
10, 2010, the registrant entered into a Stock Purchase Agreement with Numoda
Capital Innovations, LLC (“Numoda”) pursuant to which the registrant agreed to
issue 3,500,000 shares of its common stock to Numoda, at a price per share of
$0.17, in satisfaction of $595,000 of services rendered to the registrant by
Numoda Corporation. The registrant has agreed to register such shares of common
stock within 120 days of May 10, 2010.
On May
10, 2010, the registrant and the University of Pennsylvania (“Penn”) entered
into a Second Amendment Agreement to their 20-year exclusive worldwide license
agreement. As part of this amendment the registrant exercised its option for the
rights to seven additional patent dockets at an option exercise fee payable in
the form of $35,000 in cash and $70,000 in shares of common stock (approximately
388,889 shares of our common stock based on a price of $0.18 per
share).
On May
13, 2010, the registrant issued and sold 139 shares of Series A preferred stock
to Optimus pursuant to the terms of the Optimus purchase agreement. The
aggregate purchase price for the shares of Series A preferred stock was $1.39
million. In connection with such issuance, the registrant issued an additional
three-year warrant to an affiliate of Optimus to purchase up to 2,818,000 shares
of common stock at an exercise price of $0.18 per share, subject to customary
anti-dilution adjustments.
As of
April 30, 2010, we issued in private placements to certain accredited investors
(i) junior bridge notes in the aggregate principal face amount of $3,343,249,
for an aggregate net purchase price of $2,840,000 and (ii) junior bridge
warrants to purchase 5,743,750 shares of our common stock at an exercise price
of $0.20 per share (prior to giving effect to anti-dilution adjustments which
have subsequently reduced the exercise price to $0.17 per share), subject to
adjustments upon the occurrence of certain events. As a result of the
anti-dilution protection provisions in the junior bridge warrant, the registrant
reduced the exercise price of the junior bridge warrants to $0.17 per share
(subject to further adjustment upon the occurrence of certain events) and issued
warrants to purchase an additional 1,013,603 shares of common stock at an
exercise price of $0.17 per share (subject to adjustment upon the occurrence of
certain events).
On June
29, 2010, the registrant issued 750,000 shares of its common stock to its chief
executive officer in satisfaction of certain conditions set forth in his
employment agreement.
II-4
On July
19, 2010, the registrant entered into a preferred stock purchase agreement with
Optimus, pursuant to which Optimus committed to purchase up to $7.5 million
shares of the Series B preferred stock at a price of $10,000 per share of Series
B preferred stock, subject to satisfaction of certain closing conditions. At the
time of the satisfaction of the conditions necessary to effect the commitment
closing under the preferred stock purchase agreement, the registrant issued to
an affiliate of Optimus a three-year warrant to purchase up to 40,500,000 shares
of the registrant’s common stock, at an initial exercise price of $0.25 per
share, subject to adjustment as provided in the warrant. The warrant will become
exercisable on the earlier of (i) the date on which this registration statement
becomes effective and (ii) the first date on which the shares of common stock
underlying the warrant are eligible for resale without limitation under Rule 144
(assuming a cashless exercise of the warrant).
On July
19, 2010, the registrant issued 500 shares of Series B preferred stock to
Optimus in exchange for 500 shares of Series A preferred stock. Such transaction
was exempt from the registration requirements of the Securities Act of 1933 by
virtue of Section 3(a)(9) thereof.
Item
16. Exhibits and Financial Statement Schedules.
(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 Certificate 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
|
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.
|
|
4.3
|
Certificate
of Designations of Preferences, Rights and Limitations of Series B
Preferred Stock of the registrant, dated July 19, 2010. Incorporated by
reference to Exhibit 4.1 to Current Report on Form 8-K filed with the SEC
on July 20, 2010.
|
|
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 warrant to purchase shares of the registrant’s common stock at the
price of $0.20 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.
|
|
4.6
|
Form
of warrant to purchase shares of the registrant’s common stock at the
price of $0.001 per share (the “$0.001 warrant”). Incorporated by
reference to Exhibit 4.3 to Current Report on Form 8-K filed with the SEC
on October 23, 2007.
|
|
4.7
|
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.
|
|
II-5
Exhibit
Number
|
Description of Exhibit
|
|
4.8
|
Form
of Warrant issued to Optimus CG II Ltd. pursuant to the Series A Preferred
Stock Purchase Agreement. Incorporated by reference to Exhibit A to the
Purchase Agreement included as Exhibit 10.1 to Current Report on Form 8-K
filed with the SEC on September 25, 2009.
|
|
4.9
|
Form
of Common Stock Purchase Warrant, issued in the junior 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.
|
|
4.10
|
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.
|
|
4.11
|
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.
|
|
4.12
|
Form
of Additional Common Stock Purchase Warrant issued to Optimus CG II Ltd.
Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K
filed with the SEC on May 14, 2010.
|
|
4.13
|
Form
of Warrant issued to Optimus CG II Ltd. pursuant to the Series B Preferred
Stock Purchase Agreement. Incorporated by reference to Exhibit A to the
Purchase Agreement included as Exhibit 10.1 to Current Report on Form 8-K
filed with the SEC on July 20, 2010.
|
|
5.1*
|
Opinion
of Greenberg Traurig, LLP.
|
|
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
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.
|
II-6
Exhibit
Number
|
Description of Exhibit
|
|
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 From 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.
|
|
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).
|
II-7
Exhibit
Number
|
Description of Exhibit
|
|
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).
|
|
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).
|
II-8
Exhibit
Number
|
Description of Exhibit
|
|
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
|
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.
|
|
10.44
|
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.
|
|
10.45
|
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.
|
|
10.46
|
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.
|
|
10.47
|
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.
|
|
10.48
|
Consulting
Agreement, dated August 1, 2007 between the registrant 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.
|
|
10.49
|
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.
|
|
10.50
|
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.
|
II-9
Exhibit
Number
|
Description of Exhibit
|
|
10.51
|
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.
|
|
10.52
|
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.
|
|
10.53
|
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.
|
|
10.54
|
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.
|
|
10.55
|
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.
|
|
10.56
|
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.
|
|
10.57
|
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.
|
|
10.58
|
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.
|
|
10.59
|
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.
|
|
10.60
|
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.
|
|
10.61
|
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.
|
|
10.62
|
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.
|
|
10.63
|
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.
|
|
10.64
|
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.
|
|
10.65
|
Series
A 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.
|
II-10
Exhibit
Number
|
Description of Exhibit
|
|
10.66
|
Form
of Note Purchase Agreement, entered into in connection with the junior
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.
|
|
10.67
|
Form
of Convertible Promissory Note, issued in the junior 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.
|
|
10.68
|
Form
of Amended and Restated Senior Promissory Note, between the registrant and
Thomas Moore. Incorporated by reference to Exhibit 4.17 to Annual Report
on Form 10-K filed with the SEC on February 19, 2010.
|
|
10.69
|
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.
|
|
10.70
|
Amended
and Restated 2009 Stock Option Plan of the registrant. Incorporated by
reference to Annex A to DEF 14A Proxy Statement filed with the SEC on
April 30, 2010.
|
|
10.71
|
Form
of Stock Purchase Agreement dated May 10, 2010 between the registrant and
Numoda Capital Innovations, LLC. Incorporated by reference to Exhibit 4.1
to Current Report on Form 8-K filed with the SEC on May 14,
2010.
|
|
10.72
|
Second
Amendment to the Amended and Restated Patent License Agreement between the
registrant and the University of Pennsylvania dated as of May 10, 2010.
Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q
filed with the SEC on June 3, 2010.
|
|
10.73
|
Series
B Preferred Stock Purchase Agreement dated July 19, 2010 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 July 20, 2010.
|
|
10.74
|
Form
of Amended and Restated Promissory Note between Optimus CG II Ltd. and the
registrant. Incorporated by reference to Exhibit G to the Purchase
Agreement included as Exhibit 10.1 to Current Report on Form 8-K filed
with the SEC on July 20, 2010.
|
|
10.75
|
Form
of Security Agreement between Optimus CG II Ltd. and the registrant.
Incorporated by reference to Exhibit H to the Purchase Agreement included
as Exhibit 10.1 to Current Report on Form 8-K filed with the SEC on July
20, 2010.
|
|
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.
|
|
23.2*
|
Consent
of Goldstein Golub Kessler LLP.
|
|
23.3
|
Consent
of Greenberg Traurig LLP (See Exhibit 5.1 above).
|
|
24.1
|
Power
of Attorney (Included in the signature pages of this Registration
Statement).
|
*Filed
herewith
(b) Financial
Statement Schedules. See page F-1.
II-11
Item
17. Undertakings.
The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933;
(ii) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a twenty percent change in the maximum
aggregate offering price set forth in the “Calculation of Registration Fee”
table in the effective registration statement; and
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.
(2) That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment, any of the
securities being registered which remain unsold at the termination of the
offering.
(4) That,
for the purpose of determining liability under the Securities Act of 1933 to any
purchaser:
(i) If
the registrant is relying on Rule 430B:
(A) Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to
be part of the registration statement as of the date the filed prospectus was
deemed part of and included in the registration statement; and
(B) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as
part of a registration statement in reliance on Rule 430B relating to an
offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of
providing the information required by section 10(a) of the Securities Act of
1933, shall be deemed to be part of and included in the registration statement
as of the earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of securities in the
offering described in the prospectus. As provided in Rule 430B, for liability
purposes of the issuer and any person that is at that date an underwriter, such
date shall be deemed to be a new effective date of the registration statement
relating to the securities in the registration statement to which that
prospectus relates, and the offering of such securities at that time shall be
deemed to be the initial bona
fide offering thereof. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such effective
date, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such effective date;
or
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(ii) If
the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than prospectuses filed in
reliance on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such date of first use.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
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SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized in the City of North Brunswick,
State of New Jersey, on July 23, 2010.
ADVAXIS,
INC.
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||
By:
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/S/ THOMAS A. MOORE
|
|
Name:
Thomas A. Moore
|
||
Title:
Chief Executive Officer and Chairman of
the
Board of Directors
|
KNOW ALL
MEN BY THESE PRESENTS, that each of the undersigned directors and officers of
Advaxis, Inc., a Delaware corporation, which is filing a registration statement
on Form S-1 with the Securities and Exchange Commission under the provisions of
the Securities Act of 1933 hereby constitutes and appoints Thomas A. Moore
and/or Mark J. Rosenblum, and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, and in
any and all capacities, to sign and file (i) any and all amendments (including
post-effective amendments) to this registration statement, with all exhibits
thereto, and other documents in connection therewith, and (ii) a registration
statement, and any and all amendments thereto, relating to the offering covered
hereby filed pursuant to Rule 462(b) under the Securities Act of 1933, with the
Securities and Exchange Commission, it being understood that said
attorneys-in-fact and agents, and each of them, shall have full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person and that each of the undersigned hereby
ratifies and confirms all that said attorneys-in-fact as agents or any of them,
or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this amendment to the
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature
|
Title
|
Date
|
||
Chief
Executive Officer and Chairman of
|
July
23, 2010
|
|||
/S/ THOMAS A. MOORE
|
the
Board of Directors
|
|||
Thomas
A. Moore
|
(Principal
Executive Officer)
|
|||
Senior
Vice President, Chief Financial Officer and
|
July
23, 2010
|
|||
/S/ MARK J. ROSENBLUM
|
Secretary
|
|||
Mark
J. Rosenblum
|
(Principal
Financial and Accounting Officer)
|
|||
/S/ RONI A. APPEL
|
Director
|
July
23, 2010
|
||
Roni
A. Appel
|
||||
/S/ DR. THOMAS MCKEARN
|
Director
|
July
23, 2010
|
||
Dr.
Thomas McKearn
|
||||
/S/ DR. JAMES PATTON
|
Director
|
July
23, 2010
|
||
Dr.
James Patton
|
||||
/S/ RICHARD BERMAN
|
Director
|
July
23, 2010
|
||
Richard
Berman
|
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