File
No. 333-168298
As
filed with the Securities and Exchange Commission on February 16,
2011
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
ADVAXIS,
INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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2836
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02-0563870
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(State
or other jurisdiction
of
incorporation or organization)
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(Primary
Standard Industrial
Classification
Code Number)
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(I.R.S.
Employer
Identification
No.)
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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.
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Large
accelerated filer ¨
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Accelerated
filer ¨
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Non-accelerated
filer ¨ (Do
not check if smaller reporting company)
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Smaller
reporting company x
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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 FEBRUARY 16, 2011
ADVAXIS,
INC.
7,510,038
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
and (ii) 4,010,038 shares of our common stock underlying a warrant issued to an
affiliate of Optimus Capital Partners, LLC, which we refer to as 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 warrant 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 February 9, 2011, the last
reported sale price per share for our common stock as reported by the OTC
Bulletin Board was $0.13.
Investing
in our common stock involves a high degree of risk. We urge you to
carefully consider the ‘‘Risk Factors’’ beginning on page 5.
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 ____________, 2011.
TABLE
OF CONTENTS
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ii
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PROSPECTUS
SUMMARY
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1
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THE
OFFERING
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4
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RISK
FACTORS
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5
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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18
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USE
OF PROCEEDS
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19
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MARKET
PRICE OF AND DIVIDENDS ON OUR COMMON STOCK
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AND
RELATED STOCKHOLDER MATTERS
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19
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
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FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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21
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DESCRIPTION
OF BUSINESS
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30
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MANAGEMENT
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49
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EXECUTIVE
COMPENSATION
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53
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STOCK
OWNERSHIP
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61
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SELLING
STOCKHOLDERS
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63
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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64
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DESCRIPTION
OF OUR CAPITAL STOCK
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64
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SHARES
ELIGIBLE FOR FUTURE SALE
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69
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PLAN
OF DISTRIBUTION
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70
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LEGAL
MATTERS
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72
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EXPERTS
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72
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INTERESTS
OF NAMED EXPERTS AND COUNSEL
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72
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WHERE
YOU CAN FIND ADDITIONAL INFORMATION
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72
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INDEX
TO FINANCIAL STATEMENTS
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F-1
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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
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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 the University of Pennsylvania, which we
refer to as 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 immune system to induce antigen-specific anti-tumor immune response
involving both innate and adaptive arms of the immune
system. In addition, this technology facilitates the immune
response by altering tumors to make them more susceptible to immune
attack, and increasing the number and maturation of development of
specific 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:
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Indication
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Stage
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ADXS11-001
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Cervical
Cancer
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Phase I Company
sponsored & completed in 2007.
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Cervical
Intraepithelial Neoplasia
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Phase II Company
sponsored study, commenced in March 2010 (with patient dosing commencing
in June 2010).
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Cervical
Cancer
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Phase II Company
sponsored study initiated in November 2010 in India. 110 Patients with
advanced cervical cancer.
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Cervical
Cancer
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Phase II The Gynecologic
Oncology Group of the National Cancer Institute has agreed to conduct a
study which we expect will commence in early 2011.
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Head
& Neck Cancer
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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 early 2011.
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ADXS31-142
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Prostate
Cancer
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Phase I Company
sponsored (timing to be determined).
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ADXS31-164
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Breast
Cancer
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Phase I Company
sponsored (timing to be determined).
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ADXS31-164
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Canine
Osteosarcoma
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Phase I Company
sponsored (timing to be determined).
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During
November 2010 the Company repaid four junior bridge notes issued during
fiscal 2010 in the aggregate principal amount of $187,582. With respect to
all the senior bridge notes and all of the junior unsecured convertible
promissory notes issued from June 2009 through January 27, 2011, each of
which we refer to as a junior bridge note and collectively as the junior
bridge notes, an aggregate principal amount of $1,874,100 remains
outstanding.
During
January and February 2011, we issued to certain accredited investors,
junior bridge notes in the aggregate principal face amount of $452,941,
for an aggregate net purchase price of $395,000 and (ii) warrants to
purchase an aggregate of 1,642,500 shares of our common stock, each at an
exercise price of $0.15 per share, subject to adjustments upon the
occurrence of certain events. These junior bridge notes were issued with
original issue discounts ranging from 5% to 15% and are convertible into
shares of our common stock. These junior bridge notes have maturity dates
ranging from 90 days to nine months from their date of
issue.
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
became our wholly-owned subsidiary and our sole operating company. On
December 23, 2004, we amended and restated our articles of incorporation
and changed our name to Advaxis, Inc. On June 6, 2006, our shareholders
approved the reincorporation of our company from Colorado to Delaware by
merging the Colorado entity into our wholly-owned Delaware
subsidiary.
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.
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Shares
of common stock offered by us
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None
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Shares
of common stock which may be sold by the selling
stockholders
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A
total of 7,510,038 shares of our common stock (1)
consisting of:
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·
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;
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·
4,010,038 shares of our common stock underlying a warrant
issued to an affiliate of Optimus in our Series B preferred equity
financing.
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Use
of proceeds
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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.
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Risk
factors
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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.
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OTC
Bulletin Board market symbol
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ADXS.OB
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(1)
These shares represent approximately 3.6% of our currently outstanding
shares of common stock (based on 210,645,862 shares of common stock
outstanding as of January 27, 2011). These shares also
represent approximately 2.3% of our currently outstanding shares of common
stock (based on 333,202,511 shares of common stock outstanding as of
January 27, 2011 on a fully diluted basis).
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4
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,
2010, we had an accumulated deficit of $27,416,000 and shareholders’ deficiency
of $14,802,631. 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, 2010 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. As of January 27, 2011, Optimus had
purchased an aggregate of 422 shares of Series B preferred stock and remains
obligated, from time to time until July 19, 2013, to purchase up to an
additional 328 shares of Series B preferred stock, for an aggregate purchase
price of $3,280,000, upon notice from us to Optimus, if certain conditions set
forth in the Series B purchase agreement are satisfied, including among things
that: (i) we must be in compliance with our SEC reporting obligations, (ii) our
common stock must be quoted on the OTC Bulletin Board or another eligible
trading market, (iii) a material adverse effect relating to, among other things,
our results of operations, assets, business or financial condition must not have
occurred since 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 $0.15 per share on
the trading day immediately preceding our delivery of the exercise notice, we
may 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.
5
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 and require Optimus to
purchase shares of Series B preferred stock 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. We
currently have 4,010,038 registered shares underlying the warrant available
under our prospectus and will likely need to register additional warrants shares
in order to require Optimus to purchase the remaining 328 shares of Series B
preferred stock. We cannot assure you that we will be able to timely effect and
maintain a registration statement for any such additional warrant shares so as
to permit us to require Optimus to purchase the remaining $3,280,000 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
December 31, 2010, our total outstanding indebtedness was approximately $2.1
million, which included the face value of all our outstanding senior bridge
notes and junior bridge notes in the amount of approximately $1.5 million, a
note outstanding to BioAdvance in the amount of $40,000 and the note outstanding
to our chief executive officer in the amount of approximately $0.6 million. The
total face value of these notes outstanding as of December 31, 2010 is due on or
before August 31, 2011. 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 bridge notes and the junior bridge
notes issued in October 2009 may trigger the anti-dilution protection provisions
in substantially all of our warrants (other than the warrants issued to the
affiliate of Optimus and to certain bridge note holders), in which case holders
of our common stock will experience significant additional
dilution.
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.
6
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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·
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competition
from companies that have substantially greater assets and financial
resources than we have;
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·
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need
for acceptance of products;
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·
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ability
to anticipate and adapt to a competitive market and rapid technological
developments;
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·
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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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·
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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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·
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competition
from companies that have substantially greater assets and financial
resources than we have;
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·
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need
for acceptance of products;
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·
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ability
to anticipate and adapt to a competitive market and rapid technological
developments;
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·
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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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·
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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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7
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·
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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 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.
8
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 in those
countries of ADXS11-001, our Listeria -based cancer
vaccine that targets cervical cancer in women. 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 whom we have entered into licensing
agreements.
As of
January 27, 2011 we have 32 patents that have been issued and licenses for 33
patent applications that are pending (including the 23 patent applications
obtained in May 2010). 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.
9
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 cannot 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 Second Amendment Agreement with Penn, as amended, we have
acquired exclusive licenses for an additional 23 patent applications related to
our proprietary Listeria vaccine technology.
However, as of January 27, 2011, we still owed Penn approximately $212,000 in
patent expenses and $0 in sponsored research agreement fees.
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, which we refer to as GSK, 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 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.
10
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 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.
As of
January 27, 2011, we had 11 employees, all of which were full time
employees. We do not intend to significantly expand our operations
and staff unless we get adequate financing. If we receive such
funding 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.
12
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. The
biotechnology and biopharmaceutical industries are highly competitive, and this
competition comes from both biotechnology firms and from major pharmaceutical
and chemical companies, including Aduro Biotech, Antigenics Inc., Avi BioPharma,
Inc., Biomura 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.
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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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.”
14
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.
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.
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 in the past, and may be ineffective again in
the future, and failure to improve them at such time 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
internal control over financial reporting and our disclosure controls and
procedures have been ineffective in the past. We have taken steps to improve our
disclosure controls and procedures and our internal control over financial
reporting, and as of October 31, 2010, our chief executive officer and chief
financial officer concluded that our disclosure controls and procedures and
internal control over financial reporting were effective. However, there is no
assurance that our disclosure controls and procedures will remain effective or
that there will be no material weaknesses in our internal control over financial
reporting in the future. Additionally, as a result of the historical material
weaknesses in our internal control over financial reporting and the historical
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.
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
January 27, 2011, our officers and directors and their affiliates, in the
aggregate, beneficially own approximately 13.4% 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, any merger,
consolidation or sale of all or substantially all of our assets, an increase in
the number of shares authorized for issuance under our stock option plans, 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.
16
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
January 27, 2011, we had 210,645,862 shares of our common stock issued and
outstanding, excluding shares issuable upon exercise of our outstanding warrants
and options. As of October 31, 2010, we had outstanding options to
purchase 26,467,424 shares of our common stock at a weighted average exercise
price of approximately $0.16 per share and outstanding warrants to purchase
87,336,687 shares of our common stock (excluding Optimus warrants in the amount
of 15,802,941), with exercise prices ranging from $0.15 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 January 27, 2011,
we have 62,500, 505,333 and 590,268 of these options available for issuance
under the 2004, 2005 and 2009 Stock Option Plans, respectively. 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 $0.15 per share (as
may be further adjusted).
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 4,010,038 shares of common stock issuable
upon exercise of our outstanding warrants, which represents approximately 2.3%
of our outstanding shares of our common stock as of January 27, 2011 on a fully
diluted basis. 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 2,106,459
shares as of January 27, 2011, 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.
17
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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·
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statements
as to the anticipated timing of clinical studies and other business
developments;
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|
·
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statements
as to the development of new
products;
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·
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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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·
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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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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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·
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Our
limited operating history and ability to continue as a going
concern;
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·
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Our
ability to successfully develop and commercialize products based on our
therapies and the Listeria System;
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·
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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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·
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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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·
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The
degree and nature of our
competition;
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·
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Our
ability to employ and retain qualified employees;
and
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·
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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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18
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.
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Fiscal
2011
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Fiscal
2010
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Fiscal
2009
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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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|||||||||||||||||||
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First
Quarter (November 1-January 31)
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$ | 0.16 | $ | 0.11 | $ | 0.19 | $ | 0.02 | $ | 0.06 | $ | 0.01 | ||||||||||||
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Second
Quarter (February 1- April 30)
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$ | 0.15 | (1) | $ | 0.13 | (1) | $ | 0.26 | $ | 0.12 | $ | 0.05 | $ | 0.02 | ||||||||||
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Third
Quarter (May 1 - July 31)
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$ | - | $ | - | $ | 0.25 | $ | 0.17 | $ | 0.21 | $ | 0.04 | ||||||||||||
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Fourth
Quarter (August 1 - October 31)
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$ | - | $ | - | $ | 0.19 | $ | 0.10 | $ | 0.19 | $ | 0.06 | ||||||||||||
(1) Through
February 9, 2011
As of
January 27, 2011, there were approximately 87 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 3,500
beneficial owners of our shares of our common stock in addition to the
stockholders of record. On February 9, 2011, the last reported sale price per
share for our common stock as reported by the OTC Bulletin Board was
$0.13.
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:
19
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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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·
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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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·
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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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20
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. In October 2010, we received notice that the company
was awarded an IRS grant under the Qualified Therapeutic Discovery Program for
approximately $245,000. This amount was included in grant revenue for the year
ending October 31, 2010. We received the funds in November
2010.
On
January 15, 2010 we received $278,978 from the New Jersey Economic Development
Authority. Under the State of New Jersey NOL Transfer 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. We plan to sell our Net Operating Losses
and research tax credits for the 2009 fiscal year under the same State of New
Jersey Program for small business.
21
Plan
of Operations
If we
are successful in our financing plans we intend to use the majority of the
proceeds to complete our two Phase II trials of ADXS11-001, our initial Listeria
construct targeting diseases caused by the Human Papilloma Virus, which we refer
to as HPV. One trial is a 120 patient U.S. study in CIN, and the other trial is
a 110 patient Indian study in highly advanced cervical cancer. We also
anticipate using the funds to further our preclinical and clinical, research and
development efforts in developing product candidates in prostate cancer, breast
and brain cancer and for general and administrative activities.
During
the next 24 months, our strategic focus will be to achieve the following goals
and objectives:
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·
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Complete
our two Phase II clinical studies of ADXS11-001 in the therapeutic
treatment of CIN and late-stage cervical
cancer;
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·
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Begin
an additional Phase II clinical trial of our ADXS11-001 candidate in the
treatment of advanced cervical cancer with the Gynecologic Oncology Group,
which we refer to as the GOG, largely underwritten by the
NCI;
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·
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Continue
to focus on our collaboration with the CRUK to carry out our Phase I/II
clinical trial of our ADXS11-001 candidate in the treatment of head and
neck cancer entirely underwritten by the
CRUK;
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·
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Continue
to support our Collaborative Research and Development Agreement with the
U.S. Department of Homeland Security to develop vaccines for the
protection of our food supply;
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Continue
to execute our Canine Osteosarcoma Study with Penn with relevance to human
adolescents;
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·
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To
support our new Collaborative Research and Development Agreement with the
NCI to understand the mechanisms of action of attenuated Listeria vaccines, to
develop new vaccines, and to advance them to clinical
testing;
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·
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Continue
to further our structured collaboration with the University of British
Columbia on innovative uses of Listeria constructs in
infectious disease, parasitical disease and neonatal
immunity;
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·
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Continue
to develop strategic and development collaborations with academic
laboratories and potential commercial
partners;
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·
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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;
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·
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Continue
the development work necessary to bring ADXS31-164 in the therapeutic
treatment of breast, brain and other cancers into clinical trials, and
initiate that trial when and if funding is available;
and
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·
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Continue
the preclinical development of other product candidates, as well as
continue research to expand our technology
platform.
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Our
projected annual staff, overhead, laboratory and nonclinical expenses are
estimated to be approximately $4.1 million starting in fiscal year beginning
November 1, 2010. The cost of our Phase II clinical studies in therapeutic
treatment of CIN and late stage cervical cancer is estimated to be
approximately $11.2 million over the estimated 30 month period of the trial.
While approximately $4 million has already been paid towards these costs, we
must raise additional funds in order to complete the Phase II
trials. If we can raise additional funds we intend to commence the
clinical work in prostate cancer by late 2011 and breast and brain cancer by
late 2011. The timing and estimated costs of these projects are difficult to
predict.
22
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.: target enrollment: 120
Patients)
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·
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Cost
incurred through October 31, 2010: approximately $2.8
million.
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·
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Estimated
future clinical costs: approximately $4.7
million.
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·
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Anticipated
Timing: commenced in March 2010 (with patient dosing commencing in June
2010); reporting of low dose portion in late 2011, completion August 2012
or beyond.
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Uncertainties:
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·
|
The
FDA (or relevant foreign regulatory authority) may place the project on
clinical hold or stop the project;
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·
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One
or more serious adverse events in otherwise healthy patients enrolled in
the trial;
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·
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Difficulty
in recruiting patients;
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·
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Delays
in the program;
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·
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Material
cash flows; and
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·
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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.
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ADXS11-001 - Phase II
Cervical Cancer Trial Summary Information (India: target enrollment: 110
Patients)
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·
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Cost
incurred through October 31, 2010: approximately $1.4
million.
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·
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Estimated
future clinical costs: approximately $2.3
million.
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·
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Anticipated
Timing: start July-August; reporting of survival beginning in late summer
2011, completion August 2012 or
beyond.
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Additional
Uncertainties:
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·
|
One
or more serious adverse events in these late stage cancer patients
enrolled in the trial.
|
ADXS11-001
- Phase II Cancer of the Cervix Trial Summary Information (U.S. GOG/NCI: target
enrollment: up to 63 Patients)
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·
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Cost
incurred through October 31, 2010:
Minimal.
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23
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·
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Estimated
future clinical costs: $500,000 (NCI underwriting costs of $4.0 million to
$5.0 million).
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·
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Anticipated
Timing: The GOG of the NCI has agreed to conduct a study which we expect
will commence in 2011.
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Additional
Uncertainties:
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·
|
Unknown
timing in recruiting patients and conducting the study based on GOG/NCI
controlled study; and
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·
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Delays
in the program.
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ADXS11-001 - Phase II Cancer
of the Head and Neck Trial Summary Information (U.K. CRUK: target enrollment: up
to 45 Patients)
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·
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Cost
incurred through October 31, 2010:
Minimal.
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·
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Estimated
future clinical costs: approximately $50,000 (CRUK to underwrite costs of
$3.0 million to $4.0 million).
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·
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Anticipated
Timing: The CRUK is funding a study of up to 45 patients at 3 UK
facilities that we expect will commence in
2011.
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Additional
Uncertainties:
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·
|
Unknown
timing in recruiting patients and conducting the study based on CRUK
controlling the study; and
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·
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Delays
in the program.
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ADXS31-142 - GMP Production
and Phase I Trial Summary Information (Prostate Cancer: target enrollment: 30
Patients)
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·
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Cost
incurred through October 31, 2010:
Minimal.
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·
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Estimated
future costs: approximately $3.5
million.
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·
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Anticipated
Timing: to be determined.
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Additional
Uncertainties:
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·
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FDA
(or foreign regulatory authority) may not approve the
study.
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ADXS31-164 - Phase I trial
Summary Information (Breast or Brain Cancer: target enrollment: 24
Patients)
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·
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Cost
incurred through October 31, 2010:
Minimal.
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·
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Estimated
future costs: to be determined.
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·
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Anticipated
Timing: to be determined.
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Results
of Operations
Fiscal
Year 2010 Compared to Fiscal Year 2009
Revenue
Revenue
increased by approximately $478,791 to $508,481 for the year ended October 31,
2010, as compared with $29,690 for the same period a year ago, as a result of
grant revenue received by us.
24
Research
and Development Expenses
Research
and development expenses increased by approximately $2,589,000 to $4,904,298 for
the year ended October 31, 2010 as compared with $2,315,557 for the same period
a year ago. This increase is almost entirely attributable to clinical
trial expenses, which increased significantly in the current fiscal year due to
our clinical trial activity in the United States and India, initiated during the
first fiscal quarter of 2010.
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. In addition, expenses will be
incurred in the development of strategic and other relationships required to
license manufacture and distribute our product candidates.
General
and Administrative Expenses
General
and administrative expenses increased by approximately $829,000 or 22%, to
$3,530,198 for the year ended October 31, 2010 as compared with $2,701,133 for
the same period a year ago. This is primarily attributable to overall
compensation expense being higher in the current fiscal year resulting from
additional employees, costs related to a former employee and stock-based non
cash compensation resulting from the issuance of 750,000 shares of our common
stock pursuant to an executive’s employment agreement with
us. Overall professional fees also increased in the current year as a
result of higher recruiting, legal and accounting fees in fiscal 2010 compared
with a year ago. In addition, consulting and travel fees increased in
the current fiscal year primarily due to increased efforts by us to present our
scientific and business plans. We also recognized approximately $206,000 in
non-cash warrant expense, as compared to $0 in the prior fiscal year, as a
result of additional warrants that were issued to senior and junior bridge note
holders in September 2010. All of the above increases were somewhat offset by
higher offering expenses in fiscal 2009 that did not repeat in the current
fiscal year.
Interest
Expense/Income
In the
year ended October 31, 2010, net interest expense increased by approximately $3
million to $3,814,863 compared to $851,008 for the same period a year ago,
primarily because in the fiscal year ended October 31, 2010 we recognized both
(i) twelve months of interest expense for notes sold during the third and fourth
fiscal quarters of 2009 and (ii) partial-year interest expense for notes sold in
the fiscal year ended October 31, 2010 whereas in the fiscal year ended October
31, 2009 we only recognized partial-year interest expense for notes sold during
the third and fourth fiscal quarters of 2009. Additionally, the debt
discount, warrant liabilities and embedded derivatives related to the notes are
recorded as a liability on the balance sheet and are amortized to interest
expense over the life of the notes. Interest income earned during the
year ended October 31, 2010 of approximately $80,000 was the result of interest
earned from the Optimus notes receivable. These notes are classified in the
equity section of the balance sheet as a stock subscription
receivable.
Changes
in Fair Values
The
change in fair value of the common stock warrant liability and embedded
derivative liability increased income by approximately $446,000 for the year
ended October 31, 2010 compared to approximately $5.8 million the same period a
year ago. During the fiscal year ended October 31, 2009 we recorded income due
to changes in management’s assumptions used to calculate the fair value of our
warrant and embedded derivative liability. This change in assumption
substantially decreased both the number of warrants and related BSM values used
in calculating the warrant liability, therefore decreasing the overall warrant
and embedded derivative liability at October 31, 2009. For the first nine months
of the fiscal year ended October 31, 2010, the BSM values associated with these
warrants and embedded derivatives increased resulting from the increase in the
price of our common stock, from $0.135 at October 31, 2009 to $0.17 at July 31,
2010. However, from July 31 to October 31, 2010, the number of outstanding
warrants increased due to a decrease in their exercise price and the BSM values
decreased due to a decline in the price of our common stock, resulting in our
recording income for the full year.
Potential
future increases or decreases in our stock price will result in increased or
decreased warrant and embedded derivative liabilities, respectively, on our
balance sheet and therefore increased expenses being recognized in our statement
of operations in future periods.
For
the fiscal year ended October 31, 2010, we recorded income of approximately
$124,000 on the non-cash gain on the early retirement of certain senior and
junior bridge notes.
25
Income
Tax Benefit
For
the fiscal year ended October 31, 2010, other income decreased by approximately
$643,000, to approximately $279,000 as compared to approximately $922,000 a year
ago, primarily due to the fiscal 2009 period NOL being the first time we
received funds from the program and so the award covered all prior fiscal years’
NOLs from our inception whereas the award for the fiscal year ended October 31,
2010 covered only the current fiscal year’s NOL and prior two fiscal years of
the research tax credit.
Our
limited capital resources and operations to date have been funded primarily with
the proceeds from public, private equity and debt financings, NOL tax sales 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, 2010 and 2009, we had an
accumulated deficit of $27,416,000 and $16,603,800, respectively, and
shareholders’ deficiency of $14,802,631 and $15,733,328
respectively. Based on our available cash of approximately $108,000
on October 31, 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, 2010 included a going concern explanatory
paragraph.
Our
business will require substantial additional investment that we have not yet
secured, and our failure to raise capital and/or pursue partnering opportunities
will materially adversely affect our business, financial condition and results
of operations. We expect to spend substantial additional sums on the continued
administration and research and development of proprietary products and
technologies, including conducting clinical trials for our product candidates,
with no certainty that our products will become commercially viable or
profitable as a result of these expenditures. Further, we will not
have sufficient resources to develop fully any new products or technologies
unless we are able to raise substantial additional financing on acceptable terms
or secure funds from new partners. We cannot be assured that financing will be
available at all. Any additional investments or resources required would be
approached, to the extent appropriate in the circumstances, in an incremental
fashion to attempt to cause minimal disruption or dilution. Any
additional capital raised through the sale of equity or convertible debt
securities will result in dilution to our existing stockholders. No
assurances can be given, however, that we will be able to achieve these goals or
that we will be able to continue as a going concern.
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 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.
As of
October 31, 2010, we had issued and sold 289 shares of Series B preferred stock
to Optimus pursuant to the terms of the Series B purchase agreement. We received
net proceeds of $2,545,000 from this transaction. The aggregate purchase price
for the Series B preferred stock was $2.89 million. As of October 31, 2010,
under the terms of the Series B purchase Agreement, Optimus remained obligated,
from time to time until July 19, 2013, to purchase up to an additional 461
shares of Series B preferred stock at a purchase price of $10,000 per share upon
notice from us to Optimus, if certain conditions set forth in the Series B
purchase agreement are satisfied. Among these conditions, we must have a
sufficient number of registered shares underlying a warrant issued to an
affiliate of Optimus. We will likely need to register additional warrant shares
in order to require Optimus to purchase the remaining shares of Series B
preferred stock.
26
In
connection with the Series B preferred equity financing, an affiliate of Optimus
was granted on July 19, 2010 a warrant to purchase up to 40,500,000 shares of
our common stock at an exercise price of $0.25 to be adjusted in connection with
the draw down of each tranche. On August 13, 2010, the draw down date of the
first tranche of Series B preferred stock, the affiliate of Optimus exercised a
portion of the warrant to purchase 9,847,059 shares of common stock at an
adjusted exercise price of $0.17 per share. On September 28, 2010, the draw down
date of the second tranche of Series B preferred stock, the affiliate of Optimus
exercised a portion of the warrant to purchase 14,850,000 shares of common stock
at an exercise price of $0.15 per share. As permitted by the terms of such
warrant, the aggregate exercise price of $3,901,500 for the first tranche and
second tranche, received by us is payable pursuant to four year full recourse
promissory notes each bearing interest at the rate of 2% per year. As of October
31, 2010, 15,802,941 warrants remained outstanding.
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.
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 $0.15 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 October 31,
2010, approximately $89,000 remained outstanding under the senior bridge
notes.
During
the twelve months ended October 31, 2010, we issued to certain accredited
investors (i) junior bridge notes in the aggregate principal face amount of
approximately $1,462,000 for an aggregate net purchase price of approximately
$1,255,000 and (ii) warrants to purchase 3,270,955 shares of our common stock,
which we refer to as junior bridge warrants, at original exercise prices ranging
from $0.17 to $0.25 per share, subject to adjustments upon the occurrence of
certain events. These junior bridge notes were issued with original
issue discounts ranging from 6% to 18% and are convertible into shares of our
common stock. These junior bridge notes mature on or before May 31,
2011.
27
As a
result of anti-dilution provisions in the senior bridge warrants, certain of the
junior bridge warrants and the warrants issued in connection with the equity
financings completed in October 2007 being triggered by the tranche take down
under the Series B purchase agreement in September 2010, we agreed to issue an
additional 616,136 warrants to the senior bridge note investors and certain of
the junior bridge note investors at an exercise price of $0.15 per share and
agreed to reduce the exercise price of the warrants held by such senior and
junior bridge note investors to $0.15 per share (formerly ranging from $0.17 to
$0.25 per share).
During
the twelve months ended October 31, 2010, the company repaid a total of
approximately $1,542,000 in principal value of junior bridge notes and converted
$2,420,000 in principal value of junior bridge notes into 14,237,489 shares of
our common stock. At October 31, 2010, approximately $777,000 in
principal value of junior bridge notes remained outstanding and is classified as
a current liability on the balance sheet. The indebtedness
represented by these junior bridge notes is expressly subordinate to our
currently outstanding senior secured indebtedness (approximately $89,000 of
senior bridge notes at October 31, 2010).
As a
result of anti-dilution protection provisions contained in certain of our
outstanding warrants, we (i) reduced the exercise price from $0.20 to $0.17 per
share in January 2010 and further reduced the exercise price from $0.17 to $0.15
per share in September 2010 with respect to substantially all the warrants to
purchase shares of our common stock and (ii) correspondingly adjusted the amount
of warrant shares issuable such that approximately 11.4 million additional
warrant shares are issuable related to the January 2010 repricing and
approximately 10.4 million additional warrant shares are issuable related to the
September 2010 repricing. As of October 31, 2010, approximately 87.3
million warrant shares are currently exercisable at $0.15 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, which we refer to as the Moore
Agreement. The Moore Notes have been amended from time to
time. During 2010, we agreed to amend the terms of the Moore Notes
such that Mr. Moore may elect, at his option, to receive accumulated interest
thereon (of which we paid $130,000 on March 17, 2010) and that we will begin to
make installment payments on the outstanding principal beginning on April 15,
2010 (of which $250,000 was paid during the year ended October 31, 2010);
provided, however, that the balance of the principal will be repaid in full as a
result of either (i) consummation of our next equity financing resulting in
gross proceeds to the company of at least $6.0 million or (ii) default by the
company as defined under the terms of the Moore Agreement. As of October 31,
2010, the company was not in default under the terms of the Moore Agreement.
Additionally, we agreed to retain $200,000 of the repayment amount for
investment in our next equity financing (Mr. Moore exchanged debt with the
principal amount of $200,000 into 1,176,471 shares of our common stock in May
2010).
The
Moore Notes bear interest at a rate of 12% per annum and may be prepaid in whole
or in part at our option without penalty at any time prior to
maturity. As of October 31, 2010, approximately $600,000 in Moore
Notes were outstanding and payable to Mr. Moore.
In
October 2010, we received an IRS grant under the Qualified Therapeutic Discovery
Program for approximately $245,000. We plan to sell our Net Operating
Losses and research tax credits for the 2009 fiscal year under the same State of
New Jersey NOL Transfer Program for small business.
Off-Balance
Sheet Arrangements
As of
October 31, 2010, we had no off-balance sheet arrangements, other than our lease
for space. There were no changes in significant contractual obligations during
the year ended October 31, 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
|
28
|
|
·
|
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 Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 718, Stock Compensation
(formerly, FASB Statement 123R). 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.
If
factors change and we employ different assumptions in the application of ASC 718
in future periods, the compensation expense that we record under ASC 718
relative to new grants may differ significantly from what we have recorded in
the current period. There is a high degree of subjectivity involved when using
option-pricing models to estimate share-based compensation under ASC
718. Consequently, there is a risk that our estimates of the fair
values of our share-based compensation awards on the grant dates may bear little
resemblance to the actual values realized upon the exercise, expiration, early
termination or forfeiture of those share-based payments in the future. Employee
stock options may expire worthless or otherwise result in zero intrinsic value
as compared to the fair values originally estimated on the grant date and
reported in our financial statements. Alternatively, value may be realized from
these instruments that are significantly in excess of the fair values originally
estimated on the grant date and reported in our financial
statements.
Warrants.
Warrants
were issued in connection with the equity financings completed in October 2007,
the sale of preferred stock and the issuance of our senior and junior bridge
notes. At October 31, 2010, we estimated the fair value of the outstanding
instruments using the Black-Scholes valuation model, which takes into account a
variety of factors, including historical stock price volatility, risk-free
interest rates, remaining term and the closing price of our common stock.
Changes in assumptions used to estimate the fair value of these derivative
instruments could result in a material change in the fair value of the
instruments. We believe the assumptions used to estimate the fair values of the
warrants are reasonable.
As of
October 31, 2010, we had outstanding warrants to purchase 103,139,628 shares of
our common stock (adjusted for anti-dilution provisions to-date) including
approximately 87 million warrants with an exercise price of $0.15 per
share. These warrants include 15,802,941 warrants owned by Optimus as
part of the Series B purchase agreement.
New
Accounting Pronouncements
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.
29
DESCRIPTION
OF BUSINESS
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
immune system to induce antigen-specific anti-tumor immune response involving
both innate and adaptive arms of the immune system. In addition, this
technology facilitates the immune response by altering tumors to make them more
susceptible to immune attack, and increasing the number and maturation of
development of specific cells that underlie a strong therapeutic immune
response.
We have
focused our initial development efforts upon therapeutic cancer vaccines
targeting cervical cancer, its predecessor condition, CIN, head and neck cancer,
breast cancer, prostate cancer, and other cancers. Our lead products in
development are as follows:
|
Product
|
Indication
|
Stage
|
||
|
ADXS11-001
|
Cervical
Cancer
|
Phase I Company
sponsored & completed in 2007.
|
||
|
Cervical
Intraepithelial Neoplasia
|
Phase II Company
sponsored study; commenced in March 2010 (with patient dosing commencing
in June 2010).
|
|||
|
Cervical
Cancer
|
Phase II Company
sponsored study initiated in November 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 early 2011.
|
|||
|
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 early
2011.
|
|||
|
ADXS31-142
|
Prostate
Cancer
|
Phase I Company
sponsored (timing to be determined).
|
||
|
ADXS31-164
|
Breast
Cancer
|
Phase I Company
sponsored (timing to be determined).
|
||
|
ADXS31-164
|
Canine
Osteosarcoma
|
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,
2010, we had an accumulated deficit of $27,416,000 and shareholders’ deficiency
of $14,802,631.
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.
30
Strategy
During
the next 24 months, we will focus on developing sufficient human clinical data
on ADXS11-001, our first Listeria construct, to
demonstrate clinical effectiveness in cervical cancer and it’s medical
predecessor condition, CIN. Beyond effectiveness specifically against HPV
oncogenes, we also want to demonstrate more broadly that attenuated Listeria that secretes an
antigen adjuvant fusion protein is an effective platform for multiple therapies
against cancer and infectious disease. In the U.S., we have initiated a single
blind, placebo controlled Phase II clinical trial of ADXS11-001 with three
dosage arms in Cervical Intraepithelial Neoplasia (cervical dysplasia, CIN), a
pre cancerous condition. In India, we have launched a 110 patient Phase II trial
in advanced cervical cancer in women who have progressed after receiving
cytotoxic therapy.
Within
the next three months we will initiate in the U.S. another NCI-supported study
in late stage cervical cancer, and a head and neck cancer study with CRUK in the
United Kingdom, which we refer to as the U.K. We have signed an agreement to
collaborate in a clinical trial with the Gynecologic Oncology Group (GOG), one
of NIH’s clinical research groups, which will underwrite the cost and whose
members will execute the trial. It is expected that this U.S. Phase
II multi-center study will result in a cost avoidance benefit to us valued at
between $7 million to $8 million in trial expenses. The CRUK initial study is
expected to be worth between $2.5 and 3.5 million.
We
have entered into a clinical trials agreement with the School of Veterinary
Medicine at Penn to investigate the use of our compound ADXS31-164 for the
treatment of osteosarcoma in dogs. This disease is the leading cancer
killer of large dogs and is a model for the treatment of human osteosarcoma, the
leading fatal bone cancer in adolescents.
We
have also initiated production of two new human grade vaccines for which we
expect to begin clinical development in 2011. Planning has begun for
Phase I trials for ADXS31-142 for the treatment of prostate cancer, and
ADXS31-164 for the treatment of breast, brain and other
cancers.
Although
we have been successful in obtaining clinical funding from the U.S. and the
U.K., 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 in genetically modifying Listeria to create vaccines
for many different diseases, our longer term strategy will be to license the
commercial development of ADXS11-001 for the indications of CIN, cervical and
head and neck cancers, and other HPV related diseases. 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 basic
science and the continued pre-clinical development and optimization of our
technology so as to develop it to its full potential and to find additional new
drug candidates. These activities may require significant financial resources,
as well as areas of expertise beyond those readily available. In order to
provide additional resources and capital, we may enter into research,
collaborative or commercial partnerships, joint ventures, or other arrangements
with competitive or complementary companies, including major international
pharmaceutical companies or universities.
Background
Cancer
Cancer
is the second largest cause of death in the U.S., exceeded only by heart
disease. The cost of treating cancer patients in 2008 was estimated
to be $228.1 billion in healthcare costs and another $188 billion in indirect
costs resulting from morbidity and lost productivity (source: Facts &
Figures 2009, American Cancer Society). The American Cancer Society’s
most recent estimates for newly diagnosed cervical cancer in the U.S. in 2010
was 12,200 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:
31
US Cancer
Rates (2009 Estimated)
32
Percent
of U.S. deaths due to cancer in 2006
Cancer
Incidence and Mortality Rates* by Site, Race, and Ethnicity, US,
2001-2005
|
African
|
Asian American
|
American Indian
|
Hispanic/
|
|||||||||||||||||
|
Incidence
|
White
|
American
|
and Pacific Islander
|
and Alaska Native†
|
Latino‡§
|
|||||||||||||||
|
All
sites
|
||||||||||||||||||||
|
Male
|
551.4 | 651.5 | 354.0 | 336.6 | 419.4 | |||||||||||||||
|
Female
|
423.6 | 398.9 | 287.8 | 296.4 | 317.8 | |||||||||||||||
|
Breast
(female)
|
130.6 | 117.5 | 89.6 | 75.0 | 90.1 | |||||||||||||||
|
Colon
& rectum
|
||||||||||||||||||||
|
Male
|
58.9 | 71.2 | 48.0 | 46.0 | 47.3 | |||||||||||||||
|
Female
|
43.2 | 54.5 | 35.4 | 41.2 | 32.8 | |||||||||||||||
|
Kidney
& renal pelvis
|
||||||||||||||||||||
|
Male
|
18.8 | 21.3 | 9.1 | 19.5 | 17.4 | |||||||||||||||
|
Female
|
9.5 | 10.1 | 4.6 | 12.7 | 9.6 | |||||||||||||||
|
Liver
& bile duct
|
||||||||||||||||||||
|
Male
|
8.2 | 13.2 | 21.7 | 14.4 | 15.0 | |||||||||||||||
|
Female
|
2.9 | 4.0 | 8.3 | 6.3 | 5.8 | |||||||||||||||
|
Lung
& bronchus
|
||||||||||||||||||||
|
Male
|
79.3 | 107.6 | 53.9 | 54.3 | 44.2 | |||||||||||||||
|
Female
|
54.9 | 54.6 | 28.0 | 39.7 | 25.4 | |||||||||||||||
|
Prostate
|
156.7 | 248.5 | 93.8 | 73.3 | 138.0 | |||||||||||||||
|
Stomach
|
||||||||||||||||||||
|
Male
|
10.0 | 17.4 | 18.6 | 16.8 | 15.5 | |||||||||||||||
|
Female
|
4.7 | 8.9 | 10.5 | 7.7 | 9.5 | |||||||||||||||
|
Uterine
cervix
|
8.2 | 10.8 | 8.0 | 6.9 | 13.2 | |||||||||||||||
|
African
|
Asian American
|
American Indian
|
Hispanic/
|
|||||||||||||||||
|
Mortality
|
White
|
American
|
and Pacific Islander
|
and Alaska Native†
|
Latino‡¶
|
|||||||||||||||
|
All
sites
|
||||||||||||||||||||
|
Male
|
230.7 | 313.0 | 138.8 | 190.0 | 159.0 | |||||||||||||||
|
Female
|
159.2 | 186.7 | 95.9 | 142.0 | 105.2 | |||||||||||||||
|
Breast
(female)
|
24.4 | 33.5 | 12.6 | 17.1 | 15.8 | |||||||||||||||
|
Colon
& rectum
|
||||||||||||||||||||
|
Male
|
22.1 | 31.8 | 14.4 | 20.5 | 16.5 | |||||||||||||||
|
Female
|
15.3 | 22.4 | 10.2 | 14.2 | 10.8 | |||||||||||||||
|
Kidney
& renal pelvis
|
||||||||||||||||||||
|
Male
|
6.2 | 6.1 | 2.4 | 9.3 | 5.3 | |||||||||||||||
|
Female
|
2.8 | 2.7 | 1.2 | 4.3 | 2.4 | |||||||||||||||
|
Liver
& bile duct
|
||||||||||||||||||||
|
Male
|
6.7 | 10.3 | 15.2 | 10.6 | 11.1 | |||||||||||||||
|
Female
|
2.9 | 3.9 | 6.6 | 6.6 | 5.1 | |||||||||||||||
|
Lung
& bronchus
|
||||||||||||||||||||
|
Male
|
71.3 | 93.1 | 37.5 | 50.2 | 35.1 | |||||||||||||||
|
Female
|
42.0 | 39.9 | 18.5 | 33.8 | 14.6 | |||||||||||||||
|
Prostate
|
24.6 | 59.4 | 11.0 | 21.1 | 20.6 | |||||||||||||||
|
Stomach
|
||||||||||||||||||||
|
Male
|
5.0 | 11.5 | 10.1 | 9.9 | 8.7 | |||||||||||||||
|
Female
|
2.5 | 5.5 | 5.9 | 5.2 | 4.9 | |||||||||||||||
|
Uterine
cervix
|
2.3 | 4.7 | 2.2 | 3.7 | 3.2 | |||||||||||||||
* Per
100,000, age adjusted to the 2000 US standard population. † Data based on
Contract Health Service Delivery Areas (CHSDA), 624 counties comprising 54% of
the US American Indian/Alaska Native population. ‡ Persons of Hispanic/Latino
origin may be of any race. § Data unavailable from the Alaska Native Registry
and Kentucky. ¶ Data unavailable from Minnesota, New Hampshire, and North
Dakota.
Source: Ries LAG, Melbert D,
Krapcho M, et al. (eds). SEER Cancer Statistics Review, 1975-2005, National
Cancer Institute, Bethesda, MD, seer.cancer.gov/csr/1975_2005/,
2008.
American
Cancer Society, Surveillance and Health Policy Research, 2009
Immune
System and Normal Antigen Processing
People,
are continually confronted with potentially infectious agents. The
immune system has evolved multiple mechanisms to fight disease, including innate
immunity, two forms of adaptive immunity humoral (antibody), and cellular
immunity that mobilize the body’s natural defenses against these foreign agents
to eliminate them.
Innate
Immunity:
Innate
immunity is the first step in the recognition of a foreign
antigen. It is a non-specific protective response that also underlies
the generation of an adaptive (antigen- specific) immune responses. It is
characterized by 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 Presenting Cells, or APCs, are broken
down inside digestive vacuoles into small pieces, 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, migrates to
the cell surface where it interacts with certain classes of lymphocytes (CD4+)
called helper T-cells that support the function of cytotoxic T-lymphocytes
(killer T cells). This interaction renders CD4+ cells antigen
specific, and they express their function whenever they encounter the antigen to
which they’ve been activated. This system is called the exogenous
pathway, since it is the prototypical response to an antigen from outside of the
cell, like bacteria.
33
Endogenous
pathway of Adaptive Immunity (Class I pathway):
The
endogenous pathway provides immune protection against antigens created within
the cytoplasm of the APC (as opposed exogenous molecules contained within he
digestive phagosome). These intracellular antigens are typically
broken down by within the cell and directed to the endoplasmic reticulum, where
they are incorporated into an MHC-1 protein and trafficked to the cell
surface. MHC-1 complexes activate CD8+ cytotoxic T-lymphocytes, which
then kill cells that express the specific antigen to which these cells are now
activated. The endogenous pathway is needed for elimination of
virus-infected or cancerous cells.
Listeria generated adaptive
immune responses are directed at the activation of T cells. Listeria tends not to
stimulate antibody formation.
Listeria based vaccines are
unique for many reasons, one of which is that unlike viral vectors, DNA or
peptide antigens or other vaccines, Listeria stimulates all of
the above mechanisms of immune action. We use a bioengineered form of
Listeria to activate
the immune system to treat cancer, infectious diseases, or allergic
syndromes. Our technology allows the body to recognize
tumor-associated or tumor-specific antigens as foreign, thus creating the immune
response needed to attack the cancer. It does this by utilizing a
number of biological characteristics of the Listeria bacteria and Advaxis
proprietary antigen-fusion protein technology to stimulate multiple therapeutic
immune mechanisms simultaneously in an integrated and coordinated
manner.
Mechanism
of Action
Listeria monocytogenes (Lm) is a bacterium well known
to medical science because it can cause an infection in humans. Listeria is a rare, but
serious, cause 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 food. 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 . Advaxis
has a number of strains of Listeira that are
bioengineered for use as a human vaccine vector. These vaccines are
highly attenuated, which means they are much less pathogenic. Advaxis
vaccines are between 10,000 and 100,000 times weaker (and less able to cause
disease) than wild type Listeria.
34
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 scavenging cells 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 presenting 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.
35
Figs
1-7. When Listeria enters the body, it
is seen as foreign by the antigen presenting cells and ingested into cellular
compartments called phagolysosomes, whose destructive enzymes kill most of the
bacteria, fragments of which are then presented to the immune system via the
exogenous pathway.
Figs
8-10. A certain percentage of bacteria is able to break out of the
lysosomes and enter into the cytoplasm of the cell, where they are safe from
lysosomal destruction. The bacteria multiply in the cell, and the
Listeria is able to
migrate into neighboring cells and spread without entering the extracellular
space. Antigens produced by these bacteria enter the Class I pathway
and directly stimulate a cytotoxic T cell response.
It is
the details of Listeria
intracellular activity that are important for understanding Advaxis
technology. Inside the lysosome, Listeria produces
listeriolysin-O, or LLO, a protein that creates a hole in the membrane of the
lysosome that allows the bacteria to escape into the cytoplasm. Once
in the cytoplasm, however, LLO is also capable of creating a hole in the outer
cell membrane. This would destroy the host cell. To prevent this, the
body has evolved a mechanism for recognizing enzymes with this capability based
upon their amino acid sequence. The sequence of approximately 30
amino acids in LLO and similar molecules is called the PEST sequence (for the
predominant amino acids it contains). When a PEST sequence is
detected it is used by normal cells to force the termination of proteins that
need only have a short life in the cytoplasm. This PEST sequence
serves as a routing tag that tells the cells to route the LLO in the cytoplasm
to the proteosome for digestion, which terminates its action and provides
fragments that then go to the endoplasmic reticulum, where it is processed just
like a protein antigen in the endogenous pathway to generate MHC-1
complexes.
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. Moreover, LLO is
a very strong adjuvant, which means it is a strong stimulator of innate
immunity.
36
Other
mechanisms that Advaxis vaccines employ include Listeria’s ability to
increase the synthesis of myeloid cells such as APCs and macrophages, 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.
Finally,
in a manner that appears to be unique to Advaxis live attenuated Listeria vaccines: they can
reduce the number and function of immunosuppressive cells that tumors recruit to
protect them from therapeutic immune attack. Over the past few years
it has become known that the reason many previous immunologic cancer treatments
have failed is that although they were able to strongly activate the immune
system, they were rendered ineffective by endogenous sources of immune
inhibition within the tumors themselves. Advaxis has either published
scientific papers or presented data at scientific meetings about the ability of
our vaccines to reduce the number of regulatory T cells (Tregs) and Myeloid
Derived Suppressor Cells (MDSC); and that MDSC which remain are less
immunosuppressive. This renders tumors susceptible to immune attack.
The ability to reduce the effect of immunosuppressive cells within tumors is
currently under clinical investigation by other companies and is believed to be
a significant mechanism of achieving a therapeutic response.
Advaxis
live attenuated Listeria vaccines also have
the ability to modify the function of vascular endothelial cells in a way that
facilitates the trafficking of activated immune cells out of the blood and into
the tumor, where they are therapeutically effective. One property of
cancer is the modification of vascular cells to prevent activated immune cells
from transiting into the tumor. Our vaccines appear to overcome this
source of anti-tumor inhibition.
Many of
the immune effector cells, such as dendritic cells, macrophages, mast cells,
Langerhans cells and others are myeloid cells. Our vaccines have the
ability to accelerate the synthesis and maturation of these cells, as well as
their antigen specific activation, to increase the power and efficiency of the
immune response.
It
should also be noted that the live Listeria vaccines Advaxis
creates are attenuated from 10,000 to 100,000 times in order that they will not
cause disease themselves. The strains of Listeria that we use are
cleared by animals such as SCID mice or IFN-gamma knockout mice that lack
adaptive immune responses and are thus profoundly
immuno-compromised.
37
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 one of
the strongest stimulators 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
we have 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.
|
One
of the strongest known stimulators of innate
immunity
|
a. Lm-LLO vaccines are cleared
in SCID mice by innate immunity alone
|
|
2.
|
Stimulate
a very strong adaptive immune
response
|
a. High
titers of activated CD4+, CD8+, APC, and TIL
|
|
3.
|
Alters
Tumor Microenvironment
|
a. Reduces
both Tregs, MDSC & TAM in tumors but not in surrounding
tissue
|
|
4.
|
Stimulate
synthesis of new immune cells and maturation of existing
cells
|
a. Marrow,
tissue and blood born effects
|
|
5.
|
Stimulates
chemotaxis and extravasation of activated immune
cells
|
a. Chemokine
mediated effects and effects directly on vascular endothelium increase
TIL
|
|
6.
|
Lm infects tumors with
Intra-tumoral effects
|
a. Tumor
killing, chemotaxic focus, & local innate immune effects
|
|
7.
|
Initiates
epitope spreading
|
a. Vaccines
directed against one antigen result in immune activation against other
antigens
Importantly,
Advaxis live attenuated Listeria vaccines do not
stimulate antibody formation, which is important because other types of cancer
vaccines such as those that use viruses develop antibody responses which
inactivate them and prevent them being used repetitively in a vaccine
regimen. These types of vaccines are inactivated by antibody
responses before they can effectively deliver their immune payload which
prevents them from stimulating a therapeutic response. Advaxis
vaccines can be used effectively in a multidose vaccine regimen as they are not
inactivated by antibody responses.
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
presenting 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. ADXS31-162 uses Her2/neu, an antigen
found in many breast cancer and melanoma cells, to induce an immune response
that should be useful in treating these conditions. ADXS31-142 is
directed against PSA, and antigen of importance in prostate
cancer.
38
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
attributed 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 as of
February 13, 2007.
This
license, unless sooner terminated in accordance with its terms, terminates upon
the later (a) expiration of the last to expire Penn patent rights; or (b) twenty
years after the effective date of the license. The license provides
us with the exclusive commercial rights to the patent portfolio developed at
Penn as of the effective date of the license, in connection with Dr. Paterson
and requires us to raise capital and pay various milestone, legal, filing and
licensing payments to commercialize the technology. In exchange for
the license, Penn received shares of our common stock which currently represents
approximately 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.
Furthermore,
upon the achievement of the first sale of a product in certain fields, Penn will
be entitled to certain milestone payments, as follows: $2.5 million will be due
for first commercial sale of the first product in the cancer
field. In addition, $1.0 million will be due upon the date of first
commercial sale of a product in each of the secondary strategic fields
sold.
As a
result of our payment obligations under the license, assuming we have net sales
in the aggregate amount of $100.0 million from our cancer products, our total
payments to Penn over the next ten years could reach an aggregate of $5.4
million. If over the next 10 years our net sales total an aggregate
amount of only $10.0 million from our cancer products, total payments to Penn
could be $4.4 million.
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; such fees being paid prior to October 31,
2010. As part of this amendment we exercised our option for the rights to seven
additional patent dockets, including 23 additional patent applications, for (i)
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) and (ii) the assumption of certain historical costs of
approximately $462,000 associated with the 23 additional patents applications
acquired under the second amendment. As of January 27, 2011, $212,000
of these additional costs remained outstanding.
Strategically
we intend to maintain our relationship 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.
39
Dr.
Yvonne Paterson
Dr.
Paterson is a Professor in the Department of Microbiology at Penn and the
inventor of our licensed technology. She is a fellow of the American
Academy for the Advancement of Science, and 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
with emphasis during the last several years on the areas of HIV, AIDS and cancer
research. She has trained over forty post-doctoral and doctoral
students in the fields of Biochemistry and Immunology. Dr. Paterson
is also the Chairman of our Scientific Advisory Board.
Consulting
Agreement. On January 28, 2005 we entered into a consulting
agreement with Dr. Paterson, which expired on January 31, 2009. 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
believe that Dr. Paterson’s continuing research will serve as a source of
ongoing findings and data that both supports and strengthens 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.
Cancer
Research UK
On
February 9, 2010, we announced that Cancer Research UK (CRUK), the UK
organization 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. At such time,
enrollment officials anticipate recruiting a maximum of 45
patients.
National
Cancer Institute Gynecologic Oncology Group
On
December 15, 2009, we announced our Phase II Trial Collaboration with the GOG to
study ADXS11-001 in a study of up to 63 patients. We will collaborate 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 is underwritten by GOG and will be conducted by GOG
investigators. The study’s patients are very sick and rapidly progressing
similar to the 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.
On
November 1, 2010 we entered into a Collaborative Research and Development
Agreement (CRADA) with the Vaccine Section of National Cancer Institute for the
development of live attenuated Listeria vaccines for the
treatment of cancer. We will provide all live Listeria vaccines. NCI will
use different in vitro and in vivo models to elucidate the effect of our live
attenuated Listeria
vaccines on many different types of immune cells, and will investigate the
mechanisms by which live Listeria vaccines reduce
cancer induced immune inhibition that protects tumors from immune attack. We and
NCI will use the results of this work to enhance the anti-tumor effects of live
Listeria vaccines as
therapeutic agents for the treatment of cancer and as therapeutic immune
adjuvants that alter the tumor milieu which will enable them to be used with
other modalities of cancer treatment. The cost of the CRADA is $150,000 annually
and the length of the agreement is three years.
40
University
of British Columbia
We
entered into a structured collaboration with the laboratory of Dr. Tobias
Kollmann at the University of British Columbia to develop live attenuated Listeria vaccines for the
treatment of infectious disease and to develop new dosage forms of Listeria vaccines. The same
immune-stimulating properties that we have under development to develop live
Listeria vaccines as
safe and effective therapies for the treatment of cancer, also may have
application for the treatment of infectious disease. Dr. Kollmann is an
immunologist and neonatal vaccinologist who has published extensively on the use
of Listeria vaccines as
potential therapeutic agents for the treatment of childhood diseases. Under the
terms of this collaboration, Dr. Kollmann will use our proprietary Listeria vaccine vectors for
the development of novel infectious disease applications.
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 $56,000 through October 31,
2010.
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 manufacturing organization that manufactures
and supplies biologic 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.
On
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 U.K., and likely to be required by other regulatory bodies in the
future. Currently we have two agreements with Recipharm-Cobra; one to
conduct ongoing stability testing of the ADXS11-001 vaccine which they have
manufactured, and another to provide analytic services and certification
necessary to import ADXS11-001 for use in the U.K. head and neck study mentioned
above. For the year ending October 31, 2010, we paid Cobra
approximately $33,000 under the agreement.
Vibalogics
GmbH
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 cover the fill and finish operations as well
as specific tests that have to be performed in order to release the clinical
materials for human use. We have recently entered into agreements
with Vibalogics to produce two new vaccines, ADXS31-142 and ADXS31-164 for human
use and clinical development.
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 multicenter Phase II U.S. trial of ADXS11-001 in CIN and to act as our U.S.
CRO for the multicenter Phase II study of ADXS11-001 in progressive cervix
cancer being conducted in India. The scope of this agreement covers
over three years and is estimated to cost $11.2 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. During the year
ending October 31, 2010, we paid Numoda approximately $3.2 million for clinical
trial activities.
41
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 October 31, 2010 we have an outstanding balance due
to POI of $223,619.
Patents
and Licenses
Dr.
Paterson and Penn have invested significant resources and time in developing a
broad base of intellectual property around the cancer vaccine platform
technology for which on July 1, 2002 we entered into a 20-year exclusive
worldwide license and a right to grant sublicenses pursuant to our license
agreement with Penn. As of October 31, 2010 Penn has 32 issued and 33
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. 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
additional patent applications related to our proprietary Listeria vaccine technology
that were not included in the initial agreement. As of January 27,
2011, we acknowledged that we owe Penn approximately $212,000 in patent expenses
pursuant to the Second Amendment Agreement.
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 based
upon Anza’s technology. We believe that through our exclusive license
with Penn, we have the 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 ( 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
cannot 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 we refer to as the CFR, 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 of
the Lovaxin name.
On May
26, 2009, the United States Patent and Trademark Office, which we refer to as
the PTO, approved our patent application “Compositions and Methods for
Enhancing the Immunogenicity of Antigencs”. This patent application
covers the use of Listeria monocytogenes protein ActA
and fragments of this protein for use in the creation of antigen fusion
proteins. This intellectual property protects a unique strain of
Listeria monocytogenes for use as a
vaccine vector.
42
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.
Between
February and December of 2009 the U.S., 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
ActA.
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 Clinical Research Organizations, which we refer to as
CROs.
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:
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exclusion;
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Dosing
requirements and timing;
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and data assessment.
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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 oversee the conduct of the study, including
oversight of the communications which we or the CRO 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.
43
Clinical Trials
.. Human clinical studies or testing of a potential product prior to
Federal approval are generally done in three stages known as Phase I, Phase II,
and Phase III testing. The names of the phases are derived from the
CFR 21 that regulates the FDA. Generally, there are multiple studies conducted
in each phase.
Phase I . Phase I
studies involve testing a drug or product on a limited number of
participants. Phase I studies determine a drug’s basic safety and how
the drug is absorbed by, and eliminated from, the body. This phase
lasts an average of six months to a year. Typically, cancer therapies
are initially tested on late stage cancer patients.
Phase II . Phase
II trials involve larger numbers of participants at a time who suffer from the
targeted disease or condition. Phase II testing typically lasts an
average of one to three years. In Phase II, the drug is tested to
determine its safety and effectiveness for treating a specific illness or
condition. Phase II testing also involves determining acceptable
dosage levels of the drug. If Phase II studies show that a new drug
has an acceptable range of safety risks and probable effectiveness, a company
will continue to review the drug in Phase III studies.
Phase III . Phase
III studies involve testing even larger 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 Biologic License Applciation,
which we refer to as BLA. Following the completion of Phase III
studies, if the sponsor of a potential product in the U.S. believes it has
sufficient information to support the safety and effectiveness of their product,
the sponsor submits a BLA to the FDA requesting that the product be approved for
sale. 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 Program 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.
44
Other
Regulations
Various
Federal and state laws, regulations, and recommendations relating to safe
working conditions, laboratory practices, the experimental use of animals, and
the purchase, storage, movement, 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 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 that 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 Biomanufacturing (now Recipharm) for
the purpose of manufacturing our vaccines. Recipharm has extensive
experience in manufacturing gene therapy products for investigational
studies. Recipharm is a full service manufacturing organization that
manufactures and supplies biologic based therapeutics for the pharmaceutical and
biotech industry. These services include the GMP manufacturing of
stability testing and cell banking. Recipharm’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.
Beginning
in April 2008, we entered into a number of Agreements with Vibalogics to
manufacture clinical grade material for two new vaccines to develop in the
clinic as new drugs; ADXS31-142, a vaccine for the treatment of prostate cancer,
and ADXS31-164, a vaccine for the treatment of breast, brain and other cancers.
Cobra’s manufacturing plan for us calls for GMP manufacturing in several 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,
filling, finishing, and the development of a storage stable, room temperature,
dried form of our vaccines.
Competition
The
biotechnology and biopharmaceutical industries are characterized by rapid
technological developments and a high degree of competition. As a
result, our actual or proposed products could become obsolete before we recoup
any portion of our related research and development and commercialization
expenses. The biotechnology and biopharmaceutical industries are
highly competitive, and this competition comes from both biotechnology firms and
from major pharmaceutical and chemical companies, including Aduro Biotech,
Antigenics Inc., Avi BioPharma, Inc., Biomura 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.
45
We expect
that our products under development and in clinical trials will address major
markets within the cancer sector. Our competition will be determined
in part by the potential indications for which drugs are developed and
ultimately approved by regulatory authorities. Additionally, the
timing of market introduction of some of our potential products or of
competitors’ products may be an important competitive
factor. Accordingly, the speed with which we can develop products,
complete preclinical testing, clinical trials and approval processes and supply
commercial quantities to market are expected to be important competitive
factors. We expect that competition among products approved for sale
will be based on various factors, including product efficacy, safety,
reliability, availability, price and patent position.
Merck
has developed the drug Gardasil and GSK has developed the drug Cervarix which
can prevent cervical cancer by vaccinating women against the virus HPV, the
cause of the disease. Gardasil is directed against four HPV strains
while Cervarix is directed against two. Neither of these agents has
an approved indication for women who have a prior exposure to the HPV strains
that they protect against, nor are women protected from other strains of HPV
that the drugs do not treat. It has been written that these are
cancer vaccines, which is not true. They are anti-virus vaccines
intended to protect against strains of the HPV virus.
The
presence of these agents in the market does not eliminate the market for a
therapeutic vaccine directed against invasive cervical cancer and CIN for a
number of reasons:
HPV is
the most common sexually treated disease in the U.S., and since prior exposure
to the virus renders these anti-viral agents ineffective they tend to be limited
to younger women and do not offer protection for women who are already
infected. The number of women who are already infected with HPV is
estimated to be as much as (or more than) 25% of the female population of the
U.S.
There
are approximately 10 high risk strains 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
drugs 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.
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.”
46
Pramod Srivastava, Ph.D. Dr.
Srivastava is Professor of Immunology at the University of Connecticut School of
Medicine, where he is also Director of the Center for Immunotherapy of Cancer
and Infectious Diseases. He holds the Physicians Health Services
Chair in Cancer Immunology at the University of Connecticut School of
Medicine. Professor Srivastava is the Scientific Founder of
Antigenics, Inc. He serves on the Scientific Advisory Council of the
Cancer Research Institute, New York, and was a member of the Experimental
Immunology Study Section of the National Institutes of Health of the U.S.
Government from 1994 to 1999. He serves presently on the board of
directors of two privately held companies: Ikonisys, in New Haven, Connecticut
and CambriaTech, Lugano, Switzerland. In 1997, he was inducted into
the Roll of Honor of the International Union Against Cancer and was listed in
Who’s Who in Science and Engineering. He is among the twenty founding
members of the Academy of Cancer Immunology, New York. Dr. Srivastava
obtained his bachelor’s degree in biology and chemistry and a master’s degree in
botany (paleontology) from the University of Allahabad, India. He then studied
yeast genetics at Osaka University, Japan. He completed his Ph.D. in
biochemistry at the Center for Cellular and Molecular Biology, Hyderabad, India,
where he began his work on tumor immunity, including identification of the first
proteins that can mediate tumor rejection. He trained at Yale
University and Sloan-Kettering Institute for Cancer Research. Dr.
Srivastava has held faculty positions at the Mount Sinai School of Medicine and
Fordham University in New York City.
Bennett Lorber,
M.D. Dr. Lorber attended Swarthmore College where he studied
zoology and art history. He graduated from the University of
Pennsylvania School of Medicine and did his residency in internal medicine and
fellowship in infectious diseases at Temple University, following which he
joined the Temple faculty. At Temple he rose through the ranks to
become Professor of Medicine and, in 1988, was named the first recipient of the
Thomas Durant Chair in Medicine. He is also a Professor of
Microbiology and Immunology and served as the Chief of the Section of Infectious
Diseases until 2006. He is a Fellow of the American College of
Physicians, a Fellow of the Infectious Diseases Society of America, and a Fellow
of the College of Physicians of Philadelphia where he serves as College
Secretary and as a member of the Board of Trustees. Dr. Lorber’s
major interest in infectious diseases is in human listeriosis, an area in which
he is regarded as an international authority. He has also been
interested in the impact of societal changes on infectious disease patterns as
well the relationship between infectious agents and chronic illness, and he has
authored papers exploring these associations. He has been repeatedly
honored for his teaching. Among his honors are 10 golden apples, the
Temple University Great Teacher Award, the Clinical Practice Award from the
Pennsylvania College of Internal Medicine, and the Bristol Award from the
Infectious Diseases Society of America. In 1996 he was the recipient
of an honorary Doctor of Science degree from Swarthmore College.
David B. Weiner,
Ph.D. Dr. David Weiner received his B.S in Biology from the
State University of New York and performed undergraduate research in the
Department of Microbiology, Chaired by Dr. Arnie Levine, at Stony Brook
University. He completed his MS and Ph.D. in Developmental
Biology/Immunology from the Children’s Hospital Research Foundation at the
University of Cincinnati in 1986. He completed his Post Doctoral
Fellowship in the Department of Pathology at Penn in 1989, under the direction
of Dr. Mark Greene. At that time he joined the Faculty at the Wistar
Institute in Philadelphia. He was recruited back to Penn in 1994. He
is currently an Associate Professor with Tenure in the Department of Pathology,
and he is the Associate Chair of the Gene Therapy and Vaccines Graduate Program
at Penn. Of relevance during his career he has worked extensively in
the areas of molecular immunology, the development of vaccines and vaccine
technology for infectious diseases and in the area of molecular oncology and
immune therapy. His laboratory is considered one of the founders of
the field of DNA vaccines as his group not only was the first to report on the
use of this technology for vaccines against HIV, but was also the first group to
advance DNA vaccine technology to clinical evaluation. In addition he
has worked on the identification of novel approaches to inhibit HIV infection by
targeting the accessory gene functions of the virus. Dr. Weiner has
authored over 260 articles in peer reviewed journals and is the author of over
28 awarded U.S. patents as well as their international
counterparts. He has served and still serves on many national and
international review boards and panels including the NIH Study section, WHO
advisory panels, the National Institute for Biological Standards and Control,
Department of Veterans Affairs Scientific Review Panel, as well as the FDA
Advisory panel - Center for Biologics Evaluation and Research, and Adult AIDS
Clinical Trial Group, among others. He also serves or has served in
an advisory capacity to several Biotechnology and Pharmaceutical
Companies. Dr. Weiner has, through training of young people in his
laboratory, advanced over 35 undergraduate scientists to Medical School or
Doctoral Programs and has trained 28 Post Doctoral Fellows and 7 Doctoral
Candidates as well as served on fourteen Doctoral Student
Committees.
Mark Einstein,
M.D. Dr. Einstein received his BS degree in Biology from the
University of Miami, where he also received his MD with Research Distinction in
Clinical Immunology. He also has an MS in Clinical Research Methods,
which he received with Distinction. Dr. Einstein completed his
residency in OB/GYN at Saint Barnabas Medical Center, and was a Galloway Fellow
in Gynecologic Oncology at the Sloan-Kettering Cancer Center. Dr.
Einstein has been at the Albert Einstein Cancer Center and Montefiore Medical
Center since 1999, where he has been an attending physician, Assistant Professor
of Gynecologic Oncology, and currently the Director of Clinical Research of the
Division of Gynecologic Oncology at the Albert Einstein College of Medicine and
Cancer Center, and at the Montefiore Medical Center. He is a Fellow
of the American College of Obstetrics and Gynecology and the American College of
Surgeons, as well as belonging to various research groups such as the American
Association for Cancer Research and the American Society for Clinical
Oncology. Dr. Einstein’s honors and awards include; American Cancer
Society Research Scholar, American Professors in Gynecology and Obstetrics
McNeil Faculty Award, ACOG/3M Research Award, ACOG/Solvay Research Award, Berlex
Oncology Foundation Scholar Award, and others. Dr. Einstein is a
member of the GOG Vaccine subcommittee, chairs the Gynecologic Cancer Foundation
National Cervical Cancer Education Campaign, sits on the Translational Research
Working Group Roundtable at NIH/NCI, the NIH AIDS Malignancy Consortium, the
Gynecologic Cancer Foundation Task Force for Cervical Cancer Screening and
Prevention, as well as three separate committees for the Society of Gynecologic
Oncologists. Dr. Einstein is very active in the clinical assessment
of new immunological technologies for the treatment of gynecologic
cancers.
47
Employees
As of
January 27, 2011, we had 11 employees, all of which were 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 $6,300
per month. In the event that our facility should, for any reason,
become unavailable, we believe that alternative facilities are available at
competitive prices.
Legal
Proceedings
As of the
date hereof, there are no material pending legal proceedings to which we are a
party or of which any of our property is the subject. In the ordinary
course of our business we may become subject to litigation regarding our
products or our compliance with applicable laws, rules, and
regulations.
48
MANAGEMENT
Executive
Officers, Directors and Key Employees
The
following are our executive officers and directors and their respective ages and
positions as of January 27, 2011:
|
Name
|
Age
|
Position
|
||
|
Thomas
A. Moore
|
60
|
Chief
Executive Officer and Chairman of our Board of
Directors
|
||
|
Dr.
James Patton
|
52
|
Director
|
||
|
Roni
A. Appel
|
43
|
Director
|
||
|
Dr.
Thomas McKearn
|
61
|
Director
|
||
|
Richard
Berman
|
68
|
Director
|
||
|
John
Rothman, Ph.D.
|
62
|
Executive
Vice President of Clinical and Scientific
Operations
|
||
|
Mark
J. Rosenblum
|
57
|
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.
49
Roni A.
Appel. Mr. Appel has served as a member of our board of
directors since November 2004. He was our President and Chief
Executive Officer from January 1, 2006 and Secretary and Chief Financial Officer
from November 2004, until he resigned as our Chief Financial Officer on
September 7, 2006 and as our President, Chief Executive Officer and Secretary on
December 15, 2006. From 1999 to 2004, he was a partner and managing
director of LV Equity Partners (f/k/a LibertyView Equity
Partners). From 1998 until 1999, he was a director of business
development at Americana Financial Services, Inc. From 1994 to 1998
he was an attorney and completed his MBA at Columbia University. Mr. Appel’s
longstanding service with us and his entrepreneurial investment career in early
stage biotech businesses qualify him to serve as our director.
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.
Board
of Directors
Each
director is elected for a period of one year and serves until the next annual
meeting of stockholders, or until his or her successor is duly elected and
qualified. Officers are elected by, and serve at the discretion of, our board of
directors. The board of directors may also appoint additional directors up to
the maximum number permitted under our by-laws, which is currently
nine.
50
Director
Independence
In
accordance with the disclosure requirements of the SEC, and since the
Over-The-Counter Bulletin Board (OTCBB) does not have its own rules for director
independence, we have adopted the NASDAQ listing standards for independence
effective April 2010. Although we are not presently listed on any national
securities exchange, each of our directors, other than Mr. Thomas A. Moore and
Mr. Roni Appel, is independent in accordance with the definition set forth in
the NASDAQ rules. Each current member of the Audit Committee and Compensation
Committee is an independent director under the NASDAQ standards. The Board
considered the information included in transactions with related parties as
outlined below along with other information the Board considered relevant, when
considering the independence of each director.
Committees
of the Board of Directors
Our board
of directors has three standing committees: the audit committee, the
compensation committee, and the nominating and corporate governance
committee.
Audit
Committee
The
audit committee of our board of directors 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 OTC Bulletin Board). For
fiscal 2010, 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) under Section 121 B(2)(a) of the
NYSE Amex Equities Company Guide (although our securities are not listed on the
NYSE Amex Equities but are quoted on the OTC Bulletin Board).
The audit
committee is responsible for the following:
|
|
·
|
reviewing
the results of the audit engagement with the independent registered public
accounting firm;
|
|
|
·
|
identifying
irregularities in the management of our business in consultation with our
independent accountants, and suggesting an appropriate course of
action;
|
|
|
·
|
reviewing
the adequacy, scope, and results of the internal accounting controls and
procedures;
|
|
|
·
|
reviewing
the degree of independence of the auditors, as well as the nature and
scope of our relationship with our independent registered public
accounting firm;
|
|
|
·
|
reviewing
the auditors’ fees; and
|
|
|
·
|
recommending
the engagement of auditors to the full board of
directors.
|
Compensation
Committee
The
compensation committee of our board of directors consists of Mr. Berman and Dr.
McKearn. The compensation committee determines the salaries and
incentive compensation of our officers subject to applicable employment
agreements, and provides recommendations for the salaries and incentive
compensation of our other employees and consultants.
Nominating
and Corporate Governance Committee
The
nominating and corporate governance committee of our board of directors
currently consists of Mr. Berman and Mr. Moore. The nominating and corporate
governance committee did not meet in fiscal 2010. The functions of
the nominating and corporate governance committee include the
following:
|
|
·
|
identifying
and recommending to the board of directors individuals qualified to serve
as members of our board of directors and on the committees of the
board;
|
|
|
·
|
advising
the board with respect to matters of board composition, procedures and
committees;
|
51
|
|
·
|
developing
and recommending to the board a set of corporate governance principles
applicable to us and overseeing corporate governance matters generally
including review of possible conflicts and transactions with persons
affiliated with directors or members of management;
and
|
|
|
·
|
overseeing
the annual evaluation of the board and our
management.
|
The
nominating and corporate governance committee will 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:
|
|
·
|
The
name, age, business address and residence address of the
person;
|
|
|
·
|
The
principal occupation or employment of the
person;
|
|
|
·
|
The
number of shares of our common stock which the person owns beneficially or
of record; and
|
|
|
·
|
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.
|
In
addition, the stockholder’s notice must include the following information about
such stockholder:
|
|
·
|
The
stockholder’s name and record
address;
|
|
|
·
|
The
number of shares of our common stock that the stockholder owns
beneficially or of record;
|
|
|
·
|
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;
|
|
|
·
|
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
|
|
|
·
|
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.
52
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.
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.
Compensation
Committee Interlocks and Insider Participation
The
current members of the compensation committee are Mr. Berman and Dr. McKearn.
Currently, none of such persons is an officer or employee of us or any of our
subsidiaries. During fiscal 2010, none of our executive officers served as a
director or member of a compensation committee (or other committee serving an
equivalent function) of any other entity, whose executive officers served as a
director or member of our compensation committee. No interlocking relationship,
as defined by the Securities Exchange Act of 1934, as amended, exists between
our board of directors or our Compensation Committee and the board of directors
or compensation committee of any other company.
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, 2010 and
2009. 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, 2010 and 2009,
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,
|
2010
|
$ | 350,000 | $ | - | $ | 135,000 | (7) | $ | 224,800 | $ | 142,174 | (3) | $ | 851,974 | |||||||||||
|
CEO
and Chairman
|
2009
|
350,000 | - | 71,250 | (7) | 223,500 | 17,582 | (2) | 662,332 | |||||||||||||||||
|
Dr.
John Rothman,
|
2010
|
250,000 | 50,000 | 30,000 | (4) | 252,900 | 29,451 | (5) | 612,351 | |||||||||||||||||
|
Executive
VP of Science & Operations
|
2009
|
250,000 | - | 30,000 | (4) | 156,450 | 23,797 | (5) | 460,247 | |||||||||||||||||
|
Mark
J. Rosenblum
|
2010
|
225,000 | - | 134,880 | 8,494 | (6) | 368,374 | |||||||||||||||||||
|
Chief
Financial Officer
|
2009
|
- | - | - | - | - | - | |||||||||||||||||||
53
|
(1)
|
The
amounts shown in this column represent the fair value on grant date in
accordance with ASC 718 using the assumptions described under Stock
Compensation in Note 2 to our financial statements included elsewhere in
this prospectus.
|
|
(2)
|
Based
on our cost of Mr. Moore’s coverage for health
care.
|
|
(3)
|
Based
on our cost of Mr. Moore’s coverage for health care and interest received
for the Moore Notes.
|
|
(4)
|
Represents
$30,000 of base salary paid in shares of our common stock in lieu of cash,
based on the average monthly stock
price.
|
|
(5)
|
Based
on our cost of his coverage for health care and the 401K company match he
received.
|
|
(6)
|
Based
on our cost of his coverage for health
care.
|
|
(7)
|
For
2010, 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 June 29, 2010. For 2009, represents 750,000
shares of the Company’s common stock granted to him based on the financial
raise milestone in his employment agreement valued at the market close
price on April 4, 2008.
|
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, other than Mr. Rosenblum. 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
2009 and fiscal 2010, 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. On
October 14, 2010, we granted Mr. Moore options to purchase 2,000,000 shares of
our common stock. Each option is exercisable at $0.15 per share. These options
vest over a three year period beginning one year from the grant
date.
54
We have
also agreed to grant Mr. Moore options to purchase an additional 1,500,000
shares of our common stock if the price of common stock (adjusted for any
splits) is equal to or greater than $0.40 for 40 consecutive business
days. Pursuant to the terms of his employment agreement, all options
will be awarded and vested upon a merger of the company which is a change of
control or a sale of the company while Mr. Moore is employed. In
addition, if Mr. Moore’s employment is terminated by us, Mr. Moore is entitled
to receive severance payments equal to one year’s salary at the then current
compensation level.
Mr. Moore
has agreed to refrain from engaging in certain activities that are competitive
with us and our business during his employment and for a period of 12 months
thereafter under certain circumstances. In addition, Mr. Moore is
subject to a non-solicitation provision for 12 months after termination of his
employment.
Rothman Employment Agreement and
Option Agreements. We previously entered into an employment
agreement with Dr. Rothman, Ph.D., dated as of March 7, 2005, that provided that
he would serve as our Vice President of Clinical Development for an initial term
of one year. Dr. Rothman’s current salary is $305,000, consisting of
$275,000 in cash and $30,000 in stock, payable in our common stock, based on the
average closing stock price for such six month period. 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. On
October 14, 2010, we granted Dr. Rothman options to purchase 2,250,000 shares of
our common stock. Each option is exercisable at $0.15 per share. These options
vest over a three year period beginning one year from the grant
date.
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.
Rosenblum
Compensation. Mr. Rosenblum serves as our Chief Financial
Officer, Senior Vice President and Secretary. His current salary is
$240,000 per annum, with a discretionary bonus of up to 30% of his base
compensation awarded annually in March beginning in 2011. While an
employment agreement has not been formally entered into, Mr. Rosenblum remains
employed by us.
In
addition, on January 5, 2010 Mr. Rosenblum was granted options to purchase
1,000,000 shares of the our common stock with an exercise price equal to
$0.128. One third of these options vested on the date of grant, one
third vested on January 5, 2011, and one third vests on the second anniversary
of the date of grant. On October 14, 2010, we granted Mr. Rosenblum
options to purchase 1,200,000 shares of our common stock. Each option is
exercisable at $0.15 per share. These options vest over a three year period
beginning one year from the grant date.
Outstanding
Equity Awards at Fiscal Year-End
The
following table provides information about the number of outstanding equity
awards held by our named executive officers at October 31,
2010.
55
|
Option
Awards
|
Stock
Awards
|
||||||||||||||||||||||||||||||||
|
Name
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
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
|
1,666,667 | 833,333 | (1) | — | 0.100 |
7/21/19
|
— | $ | — | — | — | ||||||||||||||||||||||
| 2,400,000 | — | — | 0.143 |
12/15/16
|
— | — | — | — | |||||||||||||||||||||||||
| 2,000,000 | (2) | 0.15 |
10/14/20
|
||||||||||||||||||||||||||||||
|
Dr.
John Rothman
|
1,166,667 | 583,333 | (3) | — | 0.100 |
7/21/19
|
— | — | — | — | |||||||||||||||||||||||
| 360,000 | — | — | 0.287 |
3/1/15
|
— | — | — | — | |||||||||||||||||||||||||
| 150,000 | - | — | 0.260 |
3/29/16
|
— | — | — | — | |||||||||||||||||||||||||
| 281,250 | 18,750 | (4) | — | 0.165 |
2/15/17
|
— | — | — | — | ||||||||||||||||||||||||
| 2,250,000 | (5) | 0.15 |
10/14/20
|
||||||||||||||||||||||||||||||
|
Mark
J. Rosenblum
|
666,666 | 333,334 | (6) | 0.1291 |
1/05/20
|
||||||||||||||||||||||||||||
| 1,200,000 | (7) | 0.15 |
10/14/20
|
||||||||||||||||||||||||||||||
|
(1)
|
Of
these options, approximately 833,333 became exercisable on July 21, 2009,
approximately 833,333 became exercisable on July 21, 2010 and
approximately 833,333 will become exercisable on July 21,
2011.
|
|
(2)
|
Of
these options, approximately 666,666 will become exercisable on October
14, 2011, approximately 666,667 will become exercisable on October 14,
2012 and approximately 666,667 will become exercisable on October 14,
2013.
|
|
(3)
|
Of
these options, approximately 583,333 became exercisable on July 21, 2009,
approximately 583,333 became exercisable on July 21, 2010 and
approximately 583,333 will become exercisable on July 21,
2011.
|
|
(4)
|
Of
these options, 75,000 became exercisable on February 15, 2008, 18,750
became exercisable in each quarter from the quarter ended April 30, 2008
through the quarter ended October 31, 2010, and 18,750 become exercisable
February 15, 2011.
|
|
(5)
|
Of
these options, 750,000 will become exercisable on October 14, 2011,
750,000 will become exercisable on October 14, 2012 and 750,000 will
become exercisable on October 14,
2013.
|
|
(6)
|
Of
these options, 333,333 became exercisable on January 5, 2010, 333,333
became exercisable on January 5, 2011 and 333,334 will become exercisable
on January 5, 2012.
|
|
(7)
|
Of
these options, 400,000 will become exercisable on October 14, 2011,
400,000 will become exercisable on October 14, 2012 and 400,000 will
become exercisable on October 14,
2013.
|
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 $2,000 a month in shares of our common stock based
on the average closing price of our common stock for the preceding
month. The non-employee director compensation that was earned for the
twelve months ended October 31, 2010, was not paid or issued. Our employee
director does not receive any compensation for his services as a
director.
The table
below summarizes the compensation that was earned by our non-employee directors
for fiscal 2010. As none of our non-employee directors received non-equity
incentive plan compensation or nonqualified deferred compensation earnings
during fiscal 2010, we have omitted those columns from the table.
56
|
Name
|
Fees
Earned
or Paid
in Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)(1)
|
All other
Compensation
($)
|
Total
($)
|
|||||||||||||||
|
Roni
A. Appel
|
$ | 5,500 | $ | 4,020 | (2) | $ | 28,100 | (3) | — | $ | 37,620 | |||||||||
|
Dr.
James Patton
|
9,000 | 4,020 | (2) | 28,100 | (3) | — | 41,120 | |||||||||||||
|
Dr.
Thomas McKearn
|
3,500 | 4,020 | (2) | 44,960 | (4) | — | 52,480 | |||||||||||||
|
Richard
Berman
|
7,750 | 24,000 | (5) | 44,960 | (4) | — | 76,710 | |||||||||||||
|
(1)
|
The
amounts shown in this column represent the fair value on grant date in
accordance with ASC 718 using the assumptions described under Stock
Compensation in Note 2 to our financial statements included elsewhere in
this prospectus.
|
|
(2)
|
Represents
the grant date fair value of 6,000 shares of our common stock a quarter
earned (but not paid or issued) if the member attends at least 75% of the
meetings annually.
|
|
(3)
|
Based
on the grant date fair value ($0.1124) of 250,000 options granted on
October 14, 2010.
|
|
(4)
|
Based
on the grant date fair value ($0.1124) of 400,000 options granted on
October 14, 2010.
|
|
(5)
|
Based
on $24,000 of compensation in the form of shares of our common stock
earned but not issued to date.
|
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. As of January 27, 2011, options to purchase 2,381,525
shares of our common stock have been granted under the 2004
plan.
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.
57
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. As of January 27, 2011, options to purchase 5,429,917
shares of our common stock have been granted under the 2005
plan.
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.
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.
58
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 January 27, 2011, options to purchase 19,409,732 shares
of our common stock have been granted under the 2009 plan, not including options
to purchase 2,366,667 shares of our common stock that were granted under the
2009 plan and subsequently cancelled.
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.
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.
59
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.
60
STOCK
OWNERSHIP
The
following table sets forth certain information with respect to the beneficial
ownership of our common stock as of January 27, 2011 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 January 27,
2011.
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
210,645,862 shares of common stock outstanding as of January 27, 2011, 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
|
10,252,171
|
(1)
|
4.8
|
%
|
||||
|
Roni
A. Appel
|
6,919,225
|
(2)
|
3.2
|
%
|
||||
|
Richard
Berman
|
2,190,933
|
(3)
|
1.0
|
%
|
||||
|
Dr.
James Patton
|
3,345,830
|
(4)
|
1.6
|
%
|
||||
|
Dr.
Thomas McKearn
|
1,014,054
|
(5)
|
*
|
|||||
|
Dr.
John Rothman
|
4,162,922
|
(6)
|
1.9
|
%
|
||||
|
Mark
J. Rosenblum
|
666,666
|
(7)
|
*
|
|||||
|
All
Current Directors and Executive Officers as a Group (7
people)
|
28,551,801
|
(8)
|
13.4
|
%
|
||||
* Less
than 1%.
|
(1)
|
Represents
5,352,171 issued shares of our common stock and options to purchase
4,900,000 shares of our common stock exercisable within 60
days. However, it excludes warrants to purchase 6,091,956
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 2,729,091
shares of our common stock exercisable within 60 days and 60,000 shares of
our common stock earned but not yet
issued.
|
|
(3)
|
Represents
760,624 issued shares of our common stock, options to purchase 900,001
shares of our common stock exercisable within 60 days and 530,308 shares
of our common stock earned but not yet
issued.
|
61
|
(4)
|
Represents
2,820,576 issued shares of our common stock, options to purchase 423,254
shares of our common stock exercisable within 60 days and 102,000 shares
earned but not yet issued.
|
|
(5)
|
Represents
179,290 issued shares of our common stock, options to purchase 732,764
shares of our common stock exercisable within 60 days and 102,000 shares
of our common stock earned but not yet
issued.
|
|
(6)
|
Represents
275,775 issued shares of our common stock, options to purchase 2,503,749
shares of our common stock exercisable within 60 days and 1,383,398 shares
of our common stock earned but not yet
issued.
|
|
(7)
|
Represents
options to purchase 666,666 shares of our common stock exercisable within
60 days.
|
|
(8)
|
Represents
an aggregate of 13,518,570 shares of our common stock, options to purchase
12,855,525 shares of our common stock exercisable within 60 days, and
2,177,706 shares of our common stock earned but not yet
issued.
|
62
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 January 27, 2011, 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 January 27, 2011 and information provided to
us by or on behalf of the selling stockholders. Applicable percentages are based
on 210,645,862 shares of common stock outstanding as of January 27, 2011,
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
|
Shares to be
Beneficially owned
after Offering
|
Percentage to
be Beneficially
owned after
offering
|
||||||||||||
|
Numoda
Capital Innovations, LLC (2)
|
3,500,000 | 3,500,000 | - | - | ||||||||||||
|
Optimus
CG II, Ltd. (3)
|
4,010,038 | 4,010,038 | - | - | ||||||||||||
|
(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)
|
Consists
of 3,500,000 shares of our common stock. 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.”
|
|
(3)
|
Consists
of warrants to purchase 4,010,038 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 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. 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.”
|
63
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 January 27, 2011, there were 210,645,862 shares of
common stock, no shares of Series A preferred stock and 922 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.
64
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 4,010,038
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. As of January 27, 2011, we issued and sold an aggregate of 422
shares of Series B preferred stock to Optimus. The aggregate purchase
price for the Series B preferred stock was $4.22 million. Under the
terms of the Series B purchase agreement, Optimus remains obligated, from time
to time until July 19, 2013, to purchase up to an additional 328 shares of
Series B preferred stock upon notice from us to Optimus. 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:
65
|
|
·
|
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.
|
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:
|
|
·
|
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;
|
|
|
·
|
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.
|
Stock
Symbol
Our
common stock is quoted on the OTC Bulletin Board under the symbol
ADXS.OB. On January 27, 2011, the last reported sale price per share
for our common stock as reported by the OTC Bulletin Board was
$0.15.
66
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.
At the
time of execution of the Series B purchase agreement, 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.
On
August 13, 2010, the draw down date of the first tranche of Series B preferred
stock, the affiliate of Optimus exercised a portion of the warrant to purchase
9,847,059 shares of common stock at an adjusted exercise price of $0.17 per
share. On September 28, 2010, the draw down date of the second
tranche of Series B preferred stock, the affiliate of Optimus exercised a
portion of the warrant to purchase 14,850,000 shares of common stock at an
exercise price of $0.15 per share. On November 15, 2010, the draw
down date of the third tranche of Series B preferred stock, the affiliate of
Optimus exercised a portion of the warrant to purchase 5,312,903 shares of
common stock at an exercise price of $0.155 per share. On December
30, 2010, the draw down date of the fourth tranche of Series B preferred stock,
the affiliate of Optimus exercised a portion of the warrant to purchase
6,480,000 shares of common stock at an exercise price of $0.15 per
share. As permitted by the terms of such warrant, the aggregate
exercise prices of $1,674,000, $2,227,500, $823,500 and $972,000 for the first
tranche, second tranche, third tranche and fourth tranche, respectively, are
payable pursuant to four year full recourse promissory notes bearing interest at
the rate of 2% per year
67
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.
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 $0.15, per share
with respect to an aggregate of approximately 77.0 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
10.0 million additional warrant shares are issuable at $0.15 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 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).
68
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
January 27, 2011, we had 210,645,862 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, as of January 27, 2011 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 January 27,
2011). The approximately 197,127,292 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 2,106,459 shares as of January 27, 2011,
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 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
January 27, 2011, approximately 157,067,188 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.
69
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 January 27, 2011, options to purchase
2,319,025 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.
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 January 27, 2011,
options to purchase 4,938,667 shares of common stock remain outstanding under
our 2005 plan of which options to purchase approximately 4,919,917 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 January 27, 2011,
options to purchase 19,259,732 shares of common stock remain outstanding under
our 2009 plan of which options to purchase approximately 6,918,065 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:
|
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
|
·
|
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;
|
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
|
·
|
privately
negotiated transactions;
|
70
|
|
·
|
settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a
part;
|
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per
share;
|
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
|
|
·
|
a
combination of any such methods of sale;
or
|
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
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.
71
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).
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 3,333,335 shares of our common
stock.
EXPERTS
The
financial statements of Advaxis, Inc. as of October 31, 2010 and 2009, and for
the years then ended, and for the cumulative period from March 1, 2002
(inception) to October 31, 2010, appearing in this prospectus and registration
statement have been audited by McGladrey & Pullen, LLP, an independent
registered public accounting firm (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.
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.
72
ADVAXIS,
INC.
INDEX
TO FINANCIAL STATEMENTS
|
Page
|
||
|
Advaxis,
Inc.
|
|
|
|
Reports
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
Balance
Sheets as of October 31, 2010 and 2009
|
F-2
|
|
|
Statements
of Operations for the years ended October 31, 2010 and 2009 and the period
from
|
||
|
March
1, 2002 (Inception) to October 31, 2010
|
F-3
|
|
|
Statements
of Stockholders’ Equity (Deficiency) for the Period from March 1, 2002
(Inception) to
|
||
|
October
31, 2010
|
F-4
|
|
|
Statements
of Cash Flows for the years ended October 31, 2010 and 2009 and the period
from
|
||
|
March
1, 2002 (Inception) to October 31, 2010
|
F-5
|
|
|
Notes
to the Financial Statements
|
F-7
|
Report of Independent Registered
Public Accounting Firm
To the Board of Directors and
Shareholders
Advaxis, Inc.
North Brunswick, New
Jersey
We have audited the accompanying
balance sheets of Advaxis, Inc. as of October 31, 2010 and 2009, and the related
statements of operations, stockholders' equity (deficiency), and cash flows for
the years then ended and for the cumulative period from March 1, 2002
(inception) to October 31, 2010. 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. The Company is not required to have, nor
were we engaged to perform an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, 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
financial position of Advaxis, Inc. as of October 31, 2010 and 2009, 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, 2010 in
conformity with U.S. generally accepted accounting
principles.
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
McGLADREY & PULLEN,
LLP
New York, New
York
January 31, 2011, except for the last
paragraph of Note 13 for which the date is February 16,
2011
F-1
ADVAXIS,
INC.
(A
Development Stage Company)
Balance
Sheet
|
October 31,
2010
|
October 31,
2009
|
|||||||
|
ASSETS
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
|
$ | 108,381 | $ | 659,822 | ||||
|
Grant
Receivable
|
244,479 | - | ||||||
|
Prepaid
expenses
|
38,511 | 36,445 | ||||||
|
Total
Current Assets
|
391,371 | 696,267 | ||||||
|
Deferred
expenses
|
233,322 | 288,544 | ||||||
|
Property
and Equipment (net of accumulated depreciation)
|
28,406 | 54,499 | ||||||
|
Intangible
Assets (net of accumulated amortization)
|
2,125,991 | 1,371,638 | ||||||
|
Deferred
Financing Cost
|
- | 299,493 | ||||||
|
Other
Assets
|
96,096 | 3,876 | ||||||
|
TOTAL
ASSETS
|
$ | 2,875,186 | $ | 2,714,317 | ||||
|
LIABILITIES
AND SHAREHOLDERS’ DEFICIENCY
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Accounts
payable
|
$ | 2,586,008 | $ | 2,368,716 | ||||
|
Accrued
expenses
|
647,125 | 917,250 | ||||||
|
Convertible
Bridge Notes and fair value of embedded derivative
|
751,456 | 2,078,851 | ||||||
|
Notes
payable – current portion, including interest payable
|
687,034 | 1,121,094 | ||||||
|
Total
Current Liabilities
|
4,671,623 | 6,485,911 | ||||||
|
Common
Stock Warrant
|
13,006,194 | 11,961,734 | ||||||
|
Total
Liabilities
|
17,677,817 | 18,447,645 | ||||||
|
Shareholders’
Deficiency:
|
||||||||
|
Preferred
stock, $0.001 par value; 5,000,000 shares authorized; Series B Preferred
Stock; issued and outstanding 789 at October 31, 2010 and 0 at October 31,
2009. Series A Preferred Stock; issued and outstanding 0 at October 31,
2010 and 0 at October 31, 2009
|
- | |||||||
|
Common
Stock - $0.001 par value; authorized 500,000,000 shares, issued and
outstanding 198,100,817 in 2010 and 115,638,243 in
2009
|
198,101 | 115,638 | ||||||
|
Additional
Paid-In Capital
|
23,074,978 | 754,834 | ||||||
|
Stock
Subscription Receivable
|
(10,659,710 | ) | ||||||
|
Deficit
accumulated during the development stage
|
(27,416,000 | ) | (16,603,800 | ) | ||||
|
Total
Shareholders’ Deficiency
|
(14,802,631 | ) | (15,733,328 | ) | ||||
|
TOTAL
LIABILITIES & SHAREHOLDERS’ DEFICIENCY
|
$ | 2,875,186 | $ | 2,714,317 | ||||
The
accompanying notes and the report of independent registered public accounting
firm should be read in conjunction with the financial
statements.
F-2
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,
|
||||||||||
|
2010
|
2009
|
2010
|
||||||||||
|
Revenue
|
$
|
508,481
|
$
|
29,690
|
$
|
1,863,343
|
||||||
|
Research
& Development Expenses
|
4,
904,298
|
2,315,557
|
15,077,839
|
|||||||||
|
General
& Administrative Expenses
|
3,530,198
|
2,701,133
|
16,239,898
|
|||||||||
|
Total
Operating expenses
|
8,434,496
|
5,016,690
|
31,317,737
|
|||||||||
|
Loss
from Operations
|
(7,926,015
|
)
|
(4,987,000
|
)
|
(29,454,394
|
)
|
||||||
|
Other
Income (expense):
|
||||||||||||
|
Interest
expense
|
(3,814,863
|
)
|
(851,008
|
)
|
(5,750,354
|
)
|
||||||
|
Other
Income
|
80,161
|
326,618
|
||||||||||
|
Gain
on note retirement
|
123,963
|
-
|
1,656,440
|
|||||||||
|
Net
changes in fair value of common stock warrant liability and embedded
derivative liability
|
445,576
|
5,845,229
|
4,648,573
|
|||||||||
|
Net
Income/( Loss) before income tax benefit
|
(11,091,178
|
)
|
7,221
|
(28,573,117
|
)
|
|||||||
|
Income
Tax Benefit
|
278,978
|
922,023
|
1,201,001
|
|||||||||
|
Net
Income/( Loss)
|
(10,812,200
|
)
|
929,244
|
|
(27,372,116
|
)
|
||||||
|
Dividends
attributable to preferred shares
|
-
|
-
|
43,884
|
|||||||||
|
Net
Income/( Loss) applicable to Common Stock
|
$
|
(10,812,200
|
)
|
$
|
929,244
|
|
$
|
(27,416,000
|
)
|
|||
|
Net
Income/(Loss) per share, basic
|
$
|
(0.07
|
)
|
$
|
0.01
|
|||||||
|
Net
Income/(Loss) per share, diluted
|
$
|
(0.07
|
)
|
$
|
0.01
|
|||||||
|
Weighted
average number of shares outstanding, basic
|
150,928,808
|
113,365,584
|
||||||||||
|
Weighted
average number of shares outstanding, diluted
|
150,928,808
|
118,264,246
|
||||||||||
The
accompanying notes and the report of independent registered public accounting
firm should be read in conjunction with the financial statements.
F-3
ADVAXIS,
INC.
(a
development stage company)
STATEMENT
OF SHAREHOLDERS’ EQUITY (DEFICIENCY)
Period
from March 1, 2002 (inception) to October 31, 2010
|
Preferred Stock
|
Common Stock
|
Deficit
|
||||||||||||||||||||||||||||||
|
Number of
Shares of
Outstanding
|
Amount
|
Number of shares
of outstanding
|
Amount
|
Stock
Subscription
Receivable
|
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 | ) | |||||||||||||||||||||
|
Preferred
Stock issued
|
789 | - | 6,828,293 | 6,828,293 | ||||||||||||||||||||||||||||
|
Common
stock issued upon exercise of warrants
|
62,265,059 | 62,265 | (10,659,710 | ) | 18,647,522 | 8,050,077 | ||||||||||||||||||||||||||
|
Options
granted to employees and directors
|
455,166 | 455,166 | ||||||||||||||||||||||||||||||
|
Common
stock issued upon conversion of Bridge Notes
|
15,413,960 | 15,414 | 3,306,677 | 3,322,091 | ||||||||||||||||||||||||||||
|
Common
stock issued to Numoda
|
3,500,000 | 3,500 | 591,500 | 595,000 | ||||||||||||||||||||||||||||
|
Common
stock issued to University of Pennsylvania
|
388,889 | 389 | 69,611 | 70,000 | ||||||||||||||||||||||||||||
|
Common
stock issued to employees and directors
|
750,000 | 750 | 114,750 | 115,500 | ||||||||||||||||||||||||||||
|
Common
stock issued to former employees
|
144,666 | 145 | (145 | ) | - | |||||||||||||||||||||||||||
|
Issuance
of common stock warrants
|
(7,693,230 | ) | (7,865,520 | ) | ||||||||||||||||||||||||||||
|
Net
Income/ (Loss)
|
(10,812,200 | ) | (10,812,200 | ) | ||||||||||||||||||||||||||||
|
Balance
at October 31, 2010
|
789 | - | 198,100,817 | $ | 198,101 | $ | (10,659,710 | ) | $ | 23,074,978 | $ | (27,416,000 | ) | $ | (14,802,631 | ) | ||||||||||||||||
The
accompanying notes and the report of independent registered public accounting
firm should be read in conjunction with the financial statements.
F-4
ADVAXIS,
INC.
(A
Development Stage Company)
Statement
of Cash Flows
|
|
Period from
|
|||||||||||
|
March 1
|
||||||||||||
|
2002
|
||||||||||||
|
Year ended
|
Year ended
|
(Inception) to
|
||||||||||
|
October 31,
|
October 31,
|
October 31,
|
||||||||||
|
2010
|
2009
|
2010
|
||||||||||
|
OPERATING
ACTIVITIES
|
||||||||||||
|
Net
Income (Loss)
|
$
|
(10,812,200
|
)
|
$
|
929,244
|
$
|
(27,372,116
|
)
|
||||
|
Adjustments
to reconcile net income (loss) to net cash used in operating
activities:
|
||||||||||||
|
Non-cash
charges to consultants and employees for options and stock
|
570,664
|
571,525
|
3,005,419
|
|||||||||
|
Amortization
of deferred financing costs
|
-
|
-
|
260,000
|
|||||||||
|
Amortization
of deferred expenses
|
212,952
|
61,456
|
274,408
|
|||||||||
|
Amortization
of discount on Bridge Loans
|
550,040
|
123,846
|
673,886
|
|||||||||
|
Impairment
of intangible assets
|
-
|
-
|
26,087
|
|||||||||
|
Non-cash
interest expense
|
3,238,054
|
698,650
|
4,464,520
|
|||||||||
|
(Gain)
Loss on change in value of warrants and embedded
derivative
|
(445,576
|
)
|
(5,845,229
|
)
|
.(4,648,573
|
)
|
||||||
|
Warrant
Expense
|
206,275
|
-
|
206,275
|
|||||||||
|
Value
of penalty shares issued
|
-
|
-
|
149,276
|
|||||||||
|
Depreciation
expense
|
38,528
|
36,648
|
167,266
|
|||||||||
|
Amortization
expense of intangibles
|
100,420
|
74,508
|
462,352
|
|||||||||
|
Gain
on note retirement
|
(123,963
|
)
|
-
|
(1,656,440
|
)
|
|||||||
|
(Increase)
decrease in prepaid expenses
|
(2,066
|
)
|
2,417
|
(38,510
|
)
|
|||||||
|
(Increase)
decrease in grant receivable
|
(244,479
|
)
|
-
|
(244,479
|
)
|
|||||||
|
Decrease
(increase) in other assets
|
(89,956
|
)
|
-
|
(93,833
|
)
|
|||||||
|
Increase
in accounts payable
|
388,924
|
1,421,838
|
3,167,193
|
|||||||||
|
(Decrease)
increase in accrued expenses
|
167,143
|
(109,540
|
)
|
634,761
|
||||||||
|
(Decrease)
increase in interest payable
|
(178,700
|
)
|
-
|
(160,409
|
)
|
|||||||
|
Net
cash used in operating activities
|
(6,423,940
|
)
|
(2,034,636
|
)
|
(20,722,917
|
)
|
||||||
|
INVESTING
ACTIVITIES
|
||||||||||||
|
Cash
paid on acquisition of Great Expectations
|
-
|
-
|
(44,940
|
)
|
||||||||
|
Purchase
of property and equipment
|
(12,436
|
)
|
-
|
(150,093
|
)
|
|||||||
|
Cost
of intangible assets
|
(854,773
|
)
|
(308,749
|
)
|
(2,619,382
|
)
|
||||||
|
Net
cash used in Investing Activities
|
(867,209
|
)
|
(308,749
|
)
|
(2,814,415
|
)
|
||||||
|
FINANCING
ACTIVITIES
|
||||||||||||
|
Proceeds
from convertible secured debenture
|
80,000
|
-
|
1,040,000
|
|||||||||
|
Cash
paid for deferred financing costs
|
-
|
(299,493
|
)
|
(559,493
|
)
|
|||||||
|
Proceeds
from notes payable
|
1,255,000
|
3,259,635
|
6,260,859
|
|||||||||
|
Payment
on notes payable
|
(1,798,119
|
)
|
(16,672
|
)
|
(1,921,710
|
)
|
||||||
|
Net
proceeds of issuance of Preferred Stock
|
7,032,827
|
-
|
7,267,827
|
|||||||||
|
Payment
on cancellation of Warrants
|
-
|
-
|
(600,000
|
)
|
||||||||
|
Proceeds
from the exercise of warrants
|
170,000
|
-
|
170,000
|
|||||||||
|
Net
proceeds of issuance of Common Stock
|
-
|
-
|
11,988,230
|
|||||||||
|
Net
cash provided by Financing Activities
|
6,739,708
|
2,943,469
|
23,645,713
|
|||||||||
|
Net
increase (decrease) in cash
|
(551,441)
|
600,084
|
108,381
|
|||||||||
|
Cash
at beginning of period
|
659,822
|
59,738
|
-
|
|||||||||
|
Cash
at end of period
|
$
|
108,381
|
$
|
659,822
|
$
|
108,381
|
||||||
The
accompanying notes and the report of independent registered public accounting
firm should be read in conjunction with the financial
statements.
F-5
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,
|
||||||||||
|
2010
|
2009
|
2010
|
||||||||||
|
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 embedded derivative liabilities converted to Common
Stock
|
$
|
3,322,092
|
$
|
-
|
$
|
5,835,250
|
||||||
|
Intangible
assets acquired with notes payable
|
$
|
$
|
-
|
$
|
360,000
|
|||||||
|
Intangible
assets acquired with common stock
|
$
|
70,000
|
$
|
$
|
70,000
|
|||||||
|
Debt
discount in connection with recording the original value of the embedded
derivative liability
|
$
|
578,770
|
$
|
1,579,646
|
$
|
2,661,212
|
||||||
|
Allocation
of the original secured convertible debentures to warrants
|
$
|
$
|
-
|
$
|
214,950
|
|||||||
|
Allocation
of the warrants on Bridge Notes as debt discount
|
$
|
712,036
|
$ |
940,511
|
$
|
1,652,547
|
||||||
|
Note
Receivable in connection with the exercise of warrants
|
$
|
10,659,710
|
$
|
$
|
10,659,710
|
|||||||
|
Warrants
issued in connection with issuance of Common Stock
|
$
|
$
|
-
|
$
|
1,505,550
|
|||||||
|
Warrants
issued in connection with issuance of Preferred Stock
|
$
|
$
|
3,587,625
|
$
|
3,587,625
|
|||||||
The
accompanying notes and the report of independent registered public accounting
firm should be read in conjunction with the financial statements.
F-6
ADVAXIS,
INC.
(a
development stage company)
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 have 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 intends to continue raising funds through
the sale of both debt and equity in order to continue funding ongoing clinical
trials activity. 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.
F-7
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, 2010 all of the Company’s revenues
have been from grants. For the years ended October 31, 2010 and 2009, all of the
Company’s revenues were received from multiple grants.
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.
The
Company maintains its cash in bank deposit accounts (money market) that at times
exceed federally insured limits.
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 and/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.
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 give effect to
dilutive options, warrants, convertible debt and other potential common
stock outstanding during the period. Therefore, in the case of a net loss the
impact of the potential common stock resulting 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 (excluding approximately
15.8 million warrants held by an affiliate of Optimus (as defined below) include
anti-dilutive provisions to adjust the number and price of the warrants based on
certain types of equity transactions.
|
As of October 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Warrants
|
103,139,628
|
127,456,301
|
||||||
|
Stock
Options
|
26,467,424
|
7,881,591
|
||||||
|
Convertible
Debt (using the if-converted method)
|
4,358,176
|
49,749,280
|
||||||
|
Total
|
133,965,228
|
185,087,172
|
||||||
Income
Taxes
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.
F-8
Accounts
payable consists entirely of trade accounts payable
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 years ending
October 31, 2010 and 2009.
Warrant
Liability/Embedded Derivative Liability
The
Company has outstanding Warrants and convertible features (Embedded Derivatives)
in its outstanding Senior and Junior Subordinated Promissory Notes. We
refer to all Senior Convertible Promissory Notes and Junior Subordinated
Convertible Promissory Notes as “Bridge 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 at each reporting
date. Both derivatives will continue to be reported until such time as they are
exercised, expire, or mature at which time these derivatives will be adjusted to
fair value and reclassified from liabilities to equity.
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. The
Company has not yet begun to generate revenues that contain milestone payments,
as it is still a pre-revenue, development stage company. ASU 2010-17 will
be reviewed and implemented, if applicable to the company’s revenue
arrangements, in the fiscal year in which the company begins to generate
revenues.
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.
2.
SHARE-BASED COMPENSATION EXPENSE
The
Company adopted ASC 718 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 ASC
718. 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 ASC 718, Stock Compensation expense would
have totaled $328,176 and the effect on the Company’s net loss would have been
as follows for the period March 1, 2002 (date of inception) to October 31,
2010:
F-9
|
March 1, 2002
(date of
inception) to
October 31,
2010
|
||||
|
Net
Loss as reported
|
$
|
(27,372,116
|
)
|
|
|
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
|
$
|
(27,611,075
|
)
|
|
The fair
value of each option granted from the Company’s stock option plans during the
years ended October 31, 2010 and 2009 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. 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 and lack of intrinsic value. 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.
|
Year Ended
|
Year Ended
|
|||||||
|
October 31,
2010
|
October 31,
2009
|
|||||||
|
Expected
volatility
|
156.5% | 170.2% | ||||||
|
Expected
Life
|
10.0
years
|
6.0
years
|
||||||
|
Dividend
yield
|
0 | 0 | ||||||
|
Risk-free
interest rate
|
2.75% | 3.5% | ||||||
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, 2010 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 ASC 718. 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 2010
and 2009 is based on awards granted and vested, it has been reduced for
estimated forfeitures (4.4%). ASC 718 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.
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.
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 32 patents issued
and 33 patents pending and applied for in most of the largest markets in the
world.
As of
October 31, 2010, all gross capitalized costs associated with the licenses and
patents filed and granted as well as costs associated with patents pending are
$2,506,347 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:
F-10
|
October
31,
2010
|
October
31,
2009
|
|||||||
|
License
|
$
|
651,992
|
$
|
571,275
|
||||
|
Patents
|
1,854,355
|
1,080,299
|
||||||
|
Total
intangibles
|
2,506,347
|
1,651,574
|
||||||
|
Accumulated
Amortization
|
(380,356
|
)
|
(279,936
|
)
|
||||
|
Intangible
Assets
|
$
|
2,125,991
|
$
|
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. ACCRUED
EXPENSES:
The
following table represents the major components of accrued
expenses:
|
October 31,
2010
|
October 31,
2009
|
|||||||
|
Salaries
and other compensation
|
$ | 500,927 | $ | 768,552 | ||||
|
Sponsored
Research Agreement
|
119,698 | 119,698 | ||||||
|
Consultants
|
18,000 | 29,000 | ||||||
|
Other
|
8,500 | - | ||||||
| $ | 647,125 | $ | 917,250 | |||||
5. NOTES
PAYABLE:
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 changed the maturity date of the Moore Notes from
June 15, 2009 to the earlier of (i) default under the terms of the Moore
Agreement or (ii) 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
purchasing notes under 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, (ii) we would 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 would retain $200,000 of the repayment
amount for investment in our next equity financing.
The
Company issued 1,176,471 shares in satisfaction of $200,000 of the aggregate
principal amount outstanding under the Moore Notes. For the twelve months ending
October 31,2010, the Company paid Mr. Moore $250,000 in principal and $130,000
in interest. As of October 31, 2010, the Company was not in default under
the terms of the Moore Agreement.
Senior
Convertible Promissory Notes
Effective
June 18, 2009, the Company entered into a Note Purchase Agreement with certain
accredited investors, pursuant to which such 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
October 31, 2010, the Company had repaid $1,042,529 of these notes and $88,824
in principal value remained outstanding.
Junior
Subordinated Convertible Promissory Notes
Additionally,
during October 2009, the company entered into Bridge Note agreements whereby
certain accredited investors acquired junior subordinated convertible promissory
in the aggregate face amounts of approximately $2.1 million for aggregate net
purchase prices of approximately $1.8 million. As of October 31, 2010, all
of these October 2009 Bridge Notes had been repaid or converted into the
Company’s common stock as described below.
F-11
During
the year ended October 31, 2010, we issued to certain accredited investors (i)
junior unsecured convertible promissory notes in the aggregate principal face
amount of approximately $1,462,000 for an aggregate net purchase price of
approximately $1,255,000 and (ii) warrants to purchase 3,270,955 shares of our
common stock at original exercise prices ranging from $0.17 to $0.25 per share,
subject to adjustments upon the occurrence of certain events. As a result
of the latest round of equity financing with Optimus in September 2010, under
the Series B Preferred Stock Purchase Agreement (see Note 11 – Shareholders’
Equity), the Company issued an additional 616,136 warrants to these bridge note
holders due to a decrease in the exercise price of their warrants, to $0.15 per
share. The company recognized non-cash warrant expense in the income statement
for all additional warrants issued to bridge note holders as a result of the
above equity financing (See Note 6 for additional information). The bridge notes
were issued with original issue discounts ranging from 6% to 18% and are
convertible into shares of our common stock. These notes mature on or
before May 31, 2011.
During
the twelve months ended October 31, 2010, the company repaid a total of
approximately $1,542,000 in principal value and converted $2,420,000 in
principal value into 14,237,489 shares of our common stock. At October 31,
2010, approximately $777,000 in principal value remains and is classified as a
current liability on the balance sheet. The indebtedness represented by
these bridge notes is expressly subordinate to our currently outstanding senior
secured indebtedness (approximately $89,000 at October 31, 2010).
As of
October 31, 2010, all Bridge Notes were originally issued with an original issue
discounts ranging from 6% to 18%. Each Investor paid between $0.82 and $.94 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 a result of the
latest round of equity financing with Optimus in September 2010, under the
Series B Preferred Stock Purchase Agreement (see Note 11 – Shareholders’
Equity), all the outstanding bridge notes, at October 31, 2010, are convertible
into shares of the Company’s common stock at an exercise price of $0.15 per
share. 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 October 31, 2010 all Bridge Note
warrants have an exercise price of $.15 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
|
$
|
4,740,058
|
||
|
Principal
payments on Bridge Notes
|
(1,542,531
|
)
|
||
|
Bridge
Note Conversions
|
(2,420,373
|
)
|
||
|
Original
Issue Discount, net of accreted interest
|
(21,937
|
)
|
||
|
Fair
Value of Attached Warrants at issuance
|
(1,652,547
|
)
|
||
|
Fair
Value of Embedded Derivatives at issuance
|
(2,158,689
|
)
|
||
|
Accreted
interest on embedded derivative and warrant liabilities
|
3,726,446
|
|||
|
Convertible
Bridge Notes- as of October 31, 2010
|
$
|
670,428
|
||
|
Embedded
Derivatives Liability at October 31, 2010
|
81,028
|
|||
|
Convertible Bridge
Notes and fair value of embedded derivative
|
$
|
751,456
|
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.
During the twelve months ending October 31, 2010, the Company paid $10,000 in
accrued interest on the remaining note. As of October 31, 2010, the Company owes
approximately $40,000 in principal and $11,000 in interest to BioAdvance. The
terms of the outstanding note calls for accrual of 8% interest per annum on the
unpaid principal.
F-12
6.
DERIVATIVES
The table
below lists the Company’s derivative instruments as of October 31,
2010:
|
Description
|
Principal
|
Original
Issue
Discount
|
Warrant
Liability
|
Embedded
Derivative
Liability
|
||||||||||||
|
Bridge
Note 1-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 | ||||||||
|
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 | ||||||||||||
|
Issuance
of Optimus Warrants
|
- | - | 6,856,946 | - | ||||||||||||
|
Bridge
Note Conversions
|
(2,420,373 | ) | - | - | (701,718 | ) | ||||||||||
|
Change
in fair value
|
- | - | (3,866,801 | ) | (260,843 | ) | ||||||||||
|
Accreted
interest
|
- | (50,842 | ) | - | - | |||||||||||
|
Exercise
of common stock warrants
|
- | - | (1,475,758 | ) | - | |||||||||||
|
Note
Payoffs
|
(88,236 | ) | (12,665 | ) | ||||||||||||
|
Total
Valuation as of July 31, 2010
|
$ | 925,815 | $ | 17,532 | $ | 17,982,187 | $ | 102,433 | ||||||||
|
Bridge
Note VI
|
265,457 | 25,457 | 72,300 | 39,416 | ||||||||||||
|
Note
Payoff
|
(414,118 | ) | - | - | (46,945 | ) | ||||||||||
|
Issuance
of Warrants
|
- | - | 1,042,559 | - | ||||||||||||
|
Accreted
Interest
|
- | (21,052 | ) | - | - | |||||||||||
|
Exercise
of Warrants
|
- | - | (4,156,797 | ) | - | |||||||||||
|
Change
in FV
|
- | - | (1,934,055 | ) | (13,876 | ) | ||||||||||
|
Total
Valuation as of October 31, 2010
|
$ | 777,154 | $ | 21,937 | $ | 13,006,194 | $ | 81,028 | ||||||||
Warrants
As of
October 31, 2010, there were outstanding warrants to purchase 103,139,628 shares
of our common stock with exercise prices ranging from $0.15 to $0.287 per share.
Information on the outstanding warrants is as follows:
|
Type
|
ExercisePrice
|
Amount
|
Expiration Date
|
Type
|
|||||||
|
Common
Stock Purchase Warrant
|
$ | 0.15 | 72,025,662 |
February
2011 – October 2012
|
2007
Securities Purchase Agreement
|
||||||
|
Common
Stock Purchase Warrant
|
$ | 0.15 | 14,813,851 |
June
2014 – August 2015
|
Bridge
Notes
|
||||||
|
Common
Stock Purchase Warrant
|
$0.1952 - $0.287 | 497,174 |
February
2011 – February 2012
|
Vendor
& Other
|
|||||||
|
Subtotal
|
87,336,687 | ||||||||||
|
Common
Stock Purchase Warrant
|
(1) | 15,802,941 |
July
2013
|
Optimus
Preferred Stock Purchase Agreement (7/19/2010)
|
|||||||
|
Grand
Total
|
103,139,628 | ||||||||||
F-13
(1)
For purposes of this warrant, exercise price means an amount per warrant
share equal to the closing sale price of a share of common stock on the
applicable tranche notice date.
Warrant
Liability/Embedded Derivative Liability
The fair
value of the Warrants and Embedded Derivatives are estimated using the BSM
model. The fair value of the Warrants and Embedded Derivatives are
estimated using an adjusted BSM model. The Company computes valuations, each
quarter, using the BSM model for each derivative instrument to account for the
various possibilities that could occur due to changes in the inputs to the BSM
model as a result of contractually-obligated changes (for example, changes in
strike price to account for down-round provisions). The Company effectively
weights each calculation based on the likelihood of occurrence to determine the
value of the derivative at the reporting date. As of October 31, 2010,
the fair value of the Warrants and Embedded Derivatives were determined to be
approximately $13.0 million and $81,000, respectively. As of October 31,
2009, the fair value of the Warrants and Embedded Derivatives were determined to
be approximately $12.0 million and $1.0 million, respectively We increased
income approximately $446,000 for net changes in the fair value of the common
stock warrant liability and embedded derivative liability for year ending
October 31, 2010. We increased income approximately $5.8 million for net
changes in the fair value of the common stock warrant liability and embedded
derivative liability for year ending October 31, 2009.
The
repricing (“ratchet effect”) of our warrants both in January and September 2010
also increased the company’s warrant liability for the year ending October 31,
2010. As a result of the increase in warrant liability due to the ratchet
effect, the company issued approximately 21.8 million additional warrants to
existing warrant holders. These warrants were recorded at their 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 at
each reporting date. These warrants will continue to be reported until such time
as they are exercised, expire, or mature at which time these derivatives will be
adjusted to fair value and reclassified from liabilities to equity. Of the total
21.8 million additional warrants, approximately 3.6 million warrants were issued
to bridge note holders. The company recognized non-cash warrant expense of
approximately $206,000, for the year ending October 31, 2010, related to the
fair value of the additional warrants issued to bridge note holders because they
were not contractually obligated (no anti-dilution provisions in their warrant
agreements) to receive additional warrants due to ratchet effects.
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, 2010, 2,319,025 options were granted under
the 2004 plan.
F-14
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, 2010 there were 4,983,667 options granted
under the 2005 plan.
On November 12, 2004, in connection with the
recapitalization,(see Note 10), the options granted under the 2002 option plan
were canceled, and employees and consultants were granted options of Advaxis
under the 2004 plan. The cancellation and replacement had no accounting
consequence since the aggregate intrinsic value of the options immediately after
the cancellation and replacement was not greater than the aggregate intrinsic
value immediately before the cancellation and replacement, and the ratio of the
exercise price per share to the fair value per share was not reduced.
Additionally, the original options were not modified to accelerate vesting or
extend the life of the new options. The table provided in this Note 7
reflects the options on a post recapitalization basis.
2009 Stock Option
Plan
Our board
of directors adopted the 2009 Stock Option Plan (the “2009 Plan”), effective
July 21, 2009, and was approved by our shareholders in June 2010. An
aggregate of 20,000,000 shares (subject to adjustment by the compensation
committee) are reserved for issuance upon the exercise of options granted under
the plan. As of October 31, 2010, options to purchase 19,209,732
shares of our common stock have been granted under the 2009 Plan. The
purpose of this plan is 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. 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).
A summary
of the grants, cancellations and expirations (none were exercised) of the
Company’s outstanding options for the periods starting with October 31, 2008
through October 31, 2010 is as follows:
|
Shares
|
Weighted
Average
Exercise
Price
|
Weighted Average
Remaining
Contractual Life In
Years
|
Aggregate
Intrinsic Value
|
|||||||||||||
|
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
|
|||||||||||
|
Granted
|
11,075,000
|
0.16
|
9.8
|
42,500
|
||||||||||||
|
Exercised
|
(306,000
|
)
|
0.09
|
8.1
|
(16,860
|
)
|
||||||||||
|
Cancelled
or Expired
|
(2,633,167
|
)
|
0.12
|
8.6
|
(104,912
|
)
|
||||||||||
|
Outstanding
as of October 31, 2010
|
26,467,424
|
0.16
|
7.4
|
415,967
|
||||||||||||
|
Vested
& Exercisable at October 31, 2010
|
14,157,007
|
$
|
0.17
|
6.0
|
$
|
283,217
|
||||||||||
F-15
The fair
value of options granted for the year ended October 31, 2010 amounted to
$1,409,841
The
following table summarizes significant ranges of outstanding and exercisable
options as of October 31, 2010 (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
|
8,133
|
8.3
|
0.10
|
$
|
356,667
|
5,283
|
$
|
0.10
|
$
|
260,833
|
|||||||||||||||||||
|
0.12-0.13
|
1,750
|
5.2
|
$
|
0.13
|
42,500
|
583
|
0.13
|
14,167
|
||||||||||||||||||||||
|
0.14-0.17
|
11,281
|
3.0
|
0.15
|
16,800
|
3,055
|
0.15
|
8,217
|
|||||||||||||||||||||||
|
0.18-0.21
|
606
|
3.3
|
0.19
|
0
|
539
|
0.19
|
0
|
|||||||||||||||||||||||
|
0.22-0.25
|
1,308
|
4.1
|
0.22
|
0
|
1,308
|
0.22
|
0
|
|||||||||||||||||||||||
|
0.26-0.29
|
3,067
|
4.0
|
0.28
|
0
|
3,067
|
0.28
|
0
|
|||||||||||||||||||||||
|
0.30-0.43
|
322
|
2.3
|
0.37
|
0
|
322
|
0.37
|
0
|
|||||||||||||||||||||||
|
Total
|
26,467
|
5.0
|
$
|
0.16
|
$
|
415,967
|
14,157
|
$
|
0.17
|
$
|
283,217
|
|||||||||||||||||||
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 $0.15 as of October 31, 2010.
As of
October 31, 2010, there was approximately $1,150,000 of unrecognized
compensation cost related to non-vested stock option awards, which is expected
to be recognized over a remaining average vesting period of 2.3
years.
|
A summary of the status of the Company’s nonvested shares as
of October 31, 2007, and changes during the years ended
October 31, 2009 and 2008 are presented below:
|
Number of
Shares
|
Weighted
Average
Exercise
Price at
Grant
Date
|
Weighted Average
Remaining
Contractual Term
(in years)
|
|||||||||
|
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 | ||||||||
|
Options
Granted
|
10,108,333 |
$
|
0.14 | 2.8 | ||||||||
|
Options
Vested
|
(4,518,333 | ) |
$
|
0.10 | 1.0 | |||||||
|
Non-vested
shares at October 31, 2010
|
12,310,417 |
$
|
0.13 | 2.3 | ||||||||
8. COMMITMENTS AND
CONTINGENCIES :
University
of Pennsylvania
On May
10, 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 acknowledgedthat it owes Penn approximately $249,000 in
patent expenses and $130,000 in sponsored research agreement fees. As of
October 31, 2010, all such payments had been made to Penn.
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 elected to receive payment of the option
exercise fee in the form of $35,000 in cash and $70,000 in company common stock
( 388,889 shares of common stock were issued at a price of $0.18 per
share).
F-16
During
the year ending October 31, 2010, the Company paid in aggregate $657,049 to Penn
under these agreements.
Numoda
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 $11.2 million for both
trials. Per the agreement, the Company is permitted to pay a portion of
outstanding charges to Numoda in the form of the Company’s common stock and
during May 2010, the Company issued 3,500,000 shares of its common stock to an
affiliate of Numoda in satisfaction of $595,000 in services rendered by Numoda
to the Company under the Master Agreement. The Company has recorded deferred
expenses on the balance sheet for this amount as well as any cash payments made
to Numoda and amortizes this amount to expense over the life of the
agreement. For the year ending October 31, 2010 the company paid Numoda
approximately $3.2 million. At October 31, 2010, the balance in deferred
expenses was approximately $233,000.
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 October 31, 2010, the Company has an outstanding balance of $219,131 on
this agreement, which is included in Accounts Payable as of October 31,
2010.
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 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 $56,000 through
October 31, 2010.
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,
2010.
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, his current salary,
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 and the shares were then issued in June
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. On
October 14, 2010, we granted Mr. Moore options to purchase 2,000,000 shares of
our common stock. Each option is exercisable at $0.15 per share. These options
vest over a three year period beginning one year from the grant
date.
We have
also agreed to grant Mr. Moore 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-17
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 $305,000, consisting of
$275,000 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. On
October 14, 2010, we granted Dr. Rothman options to purchase 2,250,000 shares of
our common stock. Each option is exercisable at $0.15 per share. These
options vest over a three year period beginning one year from the grant
date.
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 $20,095,366 and
$19,466,268 at October 31, 2010 and 2009, respectively, available to offset
taxable income through 2030. 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:
|
2010
|
2009
|
|||||||
|
Net
operating loss carryforwards-federal
|
$
|
8,038,146
|
$
|
7,786,507
|
||||
|
Stock
based compensation
|
1,202,168
|
990,700
|
||||||
|
Research
and development tax credits
|
-
|
216,134
|
||||||
|
Less
valuation allowance
|
(9,240,314
|
)
|
(8,993,341
|
)
|
||||
|
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,
2010
|
Year ended
October 31,
2009
|
Period from
March 1, 2002
(inception) to
October 31,
2010
|
||||||||||
|
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 NOL Transfer 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. In January 2010, the company
received a net cash amount of $278,978 from the sale of some of our State Net
Operating Losses (“NOL”) through December 31, 2008. The company plans to sell
its Net Operating Losses and research tax credits for the 2009 fiscal year under
the same State of New Jersey Program for small business.
F-18
We
adopted ASC 740, Income Taxes, formerly Financial Interpretation Number 48,
“Accounting for Uncertain Tax Positions” (“FIN 48”) on November 1, 2007.
ASC 740 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.” ASC 740 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 ASC 740. There were no adjustments for uncertain
tax positions in the current year.
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 no longer subject to audit under the statute of limitations by the Internal
Revenue Service and state jurisdictions for 2006 through 2009.
10.
CAPITALIZATION
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;. 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. 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.
Pursuant to the terms of a investment banking
agreement, dated March 19, 2004, by and between the Company and Sunrise
Securities, Corp. (the “Placement Agent”), the Company issued to the Placement
Agent and its designees an aggregate of 2,283,445 shares of common stock and
warrants to purchase up to an aggregate of 2,666,900 shares of common stock. The
shares were issued as part consideration for the services of the Placement
Agent, as placement agent for the Company in the Private Placement. In addition,
the Company paid the Placement Agent a total cash fee of $50,530.
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.
F-19
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.
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.
F-20
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 (i) the earlier of the close of the Company’s next equity
financing resulting in gross proceeds to the Company of at least $6,000,000 (the
“Subsequent Equity Raise”) or (ii) default under the terms of the Moore
Agreement (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. At October 31, 2010, with the
agreement of Mr. Moore, the company had not issued these warrants to
him.
11. SHAREHOLDERS’
EQUITY:
Series
A Preferred Stock Equity Financing
For the twelve months ended October 31,
2010, the Company issued and sold 500 shares of nonconvertible, 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 $5,000,000 (of which the Company received
approximately $4,488,000, net of registration statement costs, commitment and
legal fees of approximately $512,000). No more shares of Series A
Preferred Stock remain available under the Series A Purchase
Agreement.
In connection with the issuance by the
Company of Series A Preferred Stock, described above, an affiliate of the
Investor exercised warrants to purchase 36,568,000 shares of the Company’s
common stock at exercise prices ranging from $0.17 to $0.20 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 warrants in order to
permit the affiliate of the Investor to exercise such warrants and acquire
beneficial ownership of more than 4.99% of the Company’s common stock on the
date of exercise. As permitted by the terms of such warrants, the
aggregate exercise price of approximately $6,758,000 to be received by the
Company is payable pursuant to 4 year full recourse promissory notes bearing
interest at the rate of 2% per annum.
Series
B Preferred Stock Financing
On July
19, 2010, the Company entered into a Series B Preferred Stock Purchase Agreement
with Optimus (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 Optimus 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 (“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.
F-21
Pursuant
to the Series B Purchase Agreement, on July 19, 2010, the Company issued to an
affiliate of 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 affiliate of the Investor) in cash or by its 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.
For the
period between July 19, 2010 and October 31, 2010 the Company issued and sold
289 shares of nonconvertible, redeemable Series B Preferred Stock (“Series B
Preferred Stock”) to Optimus Life Sciences Capital Partners LLC (“the Investor”)
pursuant to the terms of the Series B Agreement between the Company and the
Investor dated July 19, 2010. The aggregate purchase price for the shares
of Series B Preferred Stock was $2,890,000 (of which the company received
$2,545,000, net of commitment and legal fees of $345,000).
In
connection with the issuance by the Company of the Series B Preferred Stock
described above, an affiliate of the Investor exercised warrants to
purchase 24,697,059 shares of the Company’s common stock at exercise prices
ranging from $0.15 to $0.17 per share. The Company, the affiliate and the
Investor also agreed to waive certain terms and conditions in the Series B
Purchase Agreement and such warrants in order to permit the affiliate of the
Investor to exercise such warrants and acquire beneficial ownership of more than
4.99% of the Company’s common stock on the date of exercise. As permitted
by the terms of such warrants, the aggregate purchase price of approximately
$3,901,500 received by the Company is payable pursuant to four year, full
recourse promissory notes bearing interest at the rate of 2% per
annum.
On
September 28, 2010, Advaxis, Inc. (the “ Company ”) issued and
sold 165 shares of Series B preferred stock (part of the 289 preferred
shares sold between July 19, 2010 and October 31, 2010) to Optimus pursuant to
the terms of the Series B Purchase Agreement. The aggregate purchase price
for the shares of Series B Preferred Stock was $1.65 million (of which the
Company received $1.505 million. The Company has agreed to pay a fee of
$140,000 to the Investor in consideration of (i) the closing of the purchase of
the Series B Preferred Stock taking place prior to 10 trading days following the
delivery of the tranche notice as required by the Purchase Agreement, (ii) the
Investor allowing the Company to increase the amount of the original tranche
notice after it was originally delivered to the Investor and (iii) the
waiver by the Investor of a closing condition under the Purchase
Agreement. As of September 28, 2010, 461 shares of Series B Preferred
Stock remained available for sale under the Series B Purchase
Agreement.
In
connection with the September 28, 2010 issuance by the Company of the Series B
Preferred Stock described above, an affiliate of Optimus exercised a warrant to
purchase 14,850,000 shares of the Company’s common stock at an exercise price of
$0.15 per share. As permitted by the terms of these warrants, the
aggregate exercise price of approximately $2,227,500 received by the Company is
payable pursuant to four-year full recourse promissory notes bearing
interest at the rate of 2% per year.
Warrants
Almost
all of our warrants (except the warrants issued to an affiliate of Optimus)
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. Subsequently, the Optimus exercise of warrants on
September 28, 2010 triggered the anti-dilution provisions of the warrant
agreements requiring a reset of both the price of these warrants (from $0.17 to
$0.15) and an increase in the amount of warrants. Therefore, any future
financial offering or instrument issuance below $0.15 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
87.4 million outstanding warrants (see table in Note 5). During September 2010,
the company issued additional warrants to bridge note holders to mirror the
“ratchet effect” warrants and repricing of the 2007 Private Placement
transaction. In September 2010, the company issued approximately 1.9 million of
such warrants to bridge note holders, valued using the BSM model, at
approximately, $206,000.
F-22
12. Fair
Value
The
authoritative guidance for fair value measurements defines fair value as the
exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or the most advantageous market for
the asset or liability in an orderly transaction between market participants on
the measurement date. Market participants are buyers and sellers in the
principal market that are (i) independent, (ii) knowledgeable, (iii) able to
transact, and (iv) willing to transact. The guidance describes a fair value
hierarchy based on the levels of inputs, of which the first two are considered
observable and the last unobservable, that may be used to measure fair value
which are the following:
|
|
·
|
Level
1 — Quoted prices in active markets for identical assets or
liabilities
|
|
|
·
|
Level
2— Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are
observable or corroborated by observable market data or substantially the
full term of the assets or
liabilities
|
|
|
·
|
Level
3 — Unobservable inputs that are supported by little or no market activity
and that are significant to the value of the assets or
liabilities
|
In
accordance with FASB ASC 820, “Fair Value Measurements and Disclosures”, the
following table represents the Company’s fair value hierarchy for its financial
liabilities measured at fair value on a recurring basis as of October 31,
2010:
|
Level
2
|
||||
|
2010
|
||||
|
Fair
Value of Embedded Derivative
|
$ | 81,028 | ||
|
Common
Stock Warrants
|
13,006,194 | |||
|
Total
|
$ | 13,087,222 | ||
The
derivative instruments were valued using the market approach, which is
considered Level 2 because it uses inputs other than quoted prices in active
markets that are either directly or indirectly observable. Accordingly, the
derivatives were valued using the Black-Scholes model as described in Note
6.
F-23
13.
SUBSEQUENT EVENTS
Series
B Preferred Equity Financing
On
November 15, 2010, Advaxis, Inc. (the “ Company ”) issued and
sold 61 shares of Series B preferred to Optimus pursuant to the terms of the
Series B Purchase Agreement. The aggregate purchase price for the shares
of Series B Preferred Stock was $610,000 (of which the Company received
$605,000. As of November 5, 2010, 400 shares of Series B Preferred Stock
remained available for sale under the Series B Purchase Agreement.
In
connection with the November 15, 2010 issuance by the Company of the Series B
Preferred Stock described above, an affiliate of Optimus exercised a warrant to
purchase 5,312,903 shares of the Company’s common stock at an exercise price of
$0.155 per share. As permitted by the terms of these warrants, the
aggregate exercise price of approximately $823,500 received by the Company is
payable pursuant to four-year full recourse promissory notes bearing
interest at the rate of 2% per year.
On
December 30, 2010, Advaxis, Inc. (the “ Company ”) issued and
sold 72 shares of Series B preferred to Optimus pursuant to the terms of the
Series B Purchase Agreement. The aggregate purchase price for the shares
of Series B Preferred Stock was $720,000. The company received approximately
$473,000 (net of $150,000 used to repay a short-term promissory note due
Optimus, approximately $20,000 in legal and early payment fees and approximately
$77,000 in redemption fees).
On
December 30, 2010, immediately following the closing of the above Transaction,
the Company redeemed two hundred twenty-six (226) shares of Series B Preferred
Stock held by the Investor for an aggregate redemption price of $3,141,004
consisting of (i) cash in an amount of $76,622 and (ii) cancellation of certain
promissory notes issued by an affiliate of the Investor to the Company in the
aggregate amount of $3,064,382. As of December 30, 2010, 328 shares of
Series B Preferred Stock remained available for sale under the Series B Purchase
Agreement.
In
connection with the December 30, 2010 issuance by the Company of the Series B
Preferred Stock described above, an affiliate of Optimus exercised a warrant to
purchase 6,480,000 shares of the Company’s common stock at an exercise price of
$0.15 per share. As permitted by the terms of these warrants, the
aggregate exercise price of approximately $972,000 received by the Company is
payable pursuant to four-year full recourse promissory notes bearing
interest at the rate of 2% per year.
Junior
Subordinated Convertible Promissory Notes
In
November 2010, the Company entered into Bridge Note agreements whereby certain
accredited investors acquired junior subordinated convertible promissory notes
of the Company in the aggregate face amounts of approximately $432,000 for
aggregate net purchase prices of $410,000. These junior subordinated convertible
promissory notes mature in 60 days from their origination, subject to certain
provisions in the note agreement. In addition, the Company also entered
into Bridge Note agreements whereby certain accredited investors acquired junior
subordinated convertible promissory notes of the Company in the aggregate face
amounts of approximately $500,000 for aggregate net purchase prices of
$425,000. These junior subordinated convertible promissory notes
mature on or before August 31, 2011, subject to certain provisions in the note
agreement.
In
November 2010, the Company repaid five junior bridge notes that were due during
fiscal 2010, in the principal amounts of $187,582. Approximately
$206,500 in unpaid principal, due prior to October 31, 2010, remains outstanding
as of January 24, 2011.
In
January and February 2011, the Company issued in private placements to
certain accredited investors, junior unsecured convertible promissory notes in
the aggregate principal face amount of $452,941, for an aggregate net purchase
price of $395,000 and (ii) warrants to purchase an aggregate of 1,642,500 shares
of its common stock, each at an exercise price of $0.15 per share, subject to
adjustments upon the occurrence of certain events. These junior
unsecured convertible promissory notes have maturity dates ranging from 90 days
to nine months from their date of issue.
F-24
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.
|
Printing
and engraving expenses
|
5,000
|
|||
|
Legal
fees and expenses
|
30,000
|
|||
|
Accounting
fees and expenses
|
5,000
|
|||
|
Transfer
agent and registrar’s fees and expenses
|
1,000
|
|||
|
Miscellaneous
expense
|
200
|
|||
|
Total
|
$
|
41,200
|
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
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.
II-2
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.
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.
II-3
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, the registrant 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.
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.
On
August 13, 2010, the registrant issued and sold 124 shares of Series B preferred
stock to Optimus for an aggregate purchase price of $1.24
million.
On
September 28, 2010, the registrant issued and sold 165 shares of Series B
preferred stock to Optimus for an aggregate purchase price of $1.65
million.
In
November 2010, the registrant issued in private placements to certain accredited
investors convertible promissory notes of the Company in the aggregate principal
face amount of $931,579, for an aggregate net purchase price of
$835,000. In connection with the purchase of these notes, the
registrant issued to such investors warrants to purchase an aggregate of
3,087,500 shares of its common stock, each at an exercise price of $0.17 per
share, subject to adjustments upon the occurrence of certain
events.
On
November 15, 2010, the registrant issued and sold 61 shares of Series B
preferred stock to Optimus for an aggregate purchase price of
$610,000.
On
December 30, 2010, the registrant issued and sold 72 shares of Series B
preferred stock to Optimus for an aggregate purchase price of
$720,000.
II-4
In
January and February 2011, the registrant issued in private placements to
certain accredited investors, junior unsecured convertible promissory notes in
the aggregate principal face amount of $452,941, for an aggregate net purchase
price of $395,000 and (ii) warrants to purchase an aggregate of 1,642,500 shares
of its common stock, each at an exercise price of $0.15 per share, subject to
adjustments upon the occurrence of certain events.
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.
|
|
|
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.
|
II-5
|
Exhibit
Number
|
Description of Exhibit
|
|
|
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.
|
|
|
4.14
|
Form
of Convertible Promissory Note. Incorporated by reference to
Exhibit 4.1 to Current Report on Form 8-K filed with the SEC on November
12, 2010.
|
|
|
4.15
|
Form
of Common Stock Purchase Warrant. Incorporated by reference to
Exhibit 4.2 to Current Report on Form 8-K filed with the SEC on November
12, 2010.
|
|
|
5.1
|
Opinion
of Greenberg Traurig, LLP. Incorporated by reference to Exhibit
5.1 to Registration Statement on Form S-1 (File No. 333-168298) filed with
the SEC on July 23, 2010.
|
|
|
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.
|
|
|
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.
|
II-6
|
Exhibit
Number
|
Description of Exhibit
|
|
|
10.10
|
Security
Agreement dated February 2, 2006 between the registrant and Cornell
Capital Partners, L.P. Incorporated by reference to Exhibit
10.06 to Current Report on Form 8-K filed with the SEC on February 8,
2006.
|
|
|
10.11
|
Investor
Registration Rights Agreement dated February 2, 2006 between the
registrant and Cornell Capital Partners, LP. Incorporated by
reference to Exhibit 10.05 to Current Report on Form 8-K filed with the
SEC on February 8, 2006.
|
|
|
10.12
|
2004
Stock Option Plan of the registrant. Incorporated by reference
to Exhibit 4.1 to Report on Form S-8 filed with the SEC on December 1,
2005.
|
|
|
10.13
|
2005
Stock Option Plan of the registrant. Incorporated by reference
to Annex A to DEF 14A Proxy Statement filed with the SEC on May 15,
2006.
|
|
|
10.14
|
License
Agreement, between University of Pennsylvania and the registrant dated as
of June 17, 2002, as Amended and Restated on February 13,
2007. Incorporated by reference to Exhibit 10.11 to Annual
Report on Form 10-KSB filed with the SEC on February 13,
2007.
|
|
|
10.15
|
Sponsored
Research Agreement dated November 1, 2006 by and between University of
Pennsylvania (Dr. Paterson Principal Investigator) and the
registrant. Incorporated by reference to Exhibit 10.44 to
Annual Report on 10-KSB filed with the SEC on February 13,
2007.
|
|
|
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.
|
|
|
10.76
|
Separation
Agreement and General Release dated January 6, 2010 between the Company
and Fred Cobb. Incorporated by reference to Exhibit 10.1 to
Quarterly Report on Form 10-Q filed with the SEC on September 14,
2010.
|
|
|
10.77
|
Form
of Note Purchase Agreement. Incorporated by reference to
Exhibit 10.1 to Current Report on Form 8-K filed with the SEC on November
12, 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 Greenberg Traurig LLP (See Exhibit 5.1 above).
|
|
|
24.1
|
Power
of Attorney (Included in the signature page of the initial filing of this
Registration Statement on Form S-1, filed with the SEC on July 23,
2010).
|
*Filed
herewith
II-11
(b) Financial
Statement Schedules. See page F-1.
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
II-12
(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.
II-13
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 February 16, 2011.
|
ADVAXIS,
INC.
|
||
|
By:
|
/S/
THOMAS A. MOORE
|
|
|
Name:
Thomas A. Moore
|
||
|
Title:
Chief Executive Officer and Chairman of
the
Board of Directors
|
||
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
|
||
|
/S/
THOMAS A. MOORE
|
Chief
Executive Officer and Chairman of
the
Board of Directors
|
February
16, 2011
|
||
|
Thomas
A. Moore
|
(Principal
Executive Officer)
|
|||
|
/S/
MARK J. ROSENBLUM
|
Senior
Vice President, Chief Financial Officer and Secretary
|
February
16, 2011
|
||
|
Mark
J. Rosenblum
|
(Principal
Financial and Accounting Officer)
|
|||
|
*
|
Director
|
February
16, 2011
|
||
|
Roni
A. Appel
|
||||
|
*
|
Director
|
February
16, 2011
|
||
|
Dr.
Thomas McKearn
|
||||
|
*
|
Director
|
February
16, 2011
|
||
|
Dr.
James Patton
|
||||
|
*
|
Director
|
February
16, 2011
|
||
|
Richard
Berman
|
* By
the signature set forth below, the undersigned, pursuant to the duly authorized
power of attorney filed with the SEC, has signed this Amendment to the
Registration Statement on behalf of the person indicated.
|
/S/
MARK J. ROSENBLUM
|
|
Mark
J. Rosenblum
|
II-14