UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
xx ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED - OCTOBER 31, 2009
OR
¨¨ TRANSITION REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 000-28489
ADVAXIS, INC.
(Name of Registrant in Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
Technology Centre of New Jersey
675 US Highway One
North Brunswick, New Jersey
(Address of Principal Executive Offices)
(732) 545-1590
(Issuer’s Telephone Number)
02-0563870
(I.R.S. Employer Identification No.)
08902
(Zip Code)
Securities registered under Section 12(b) of the Exchange Act:
Common Stock - $.001 par value
The Common Stock is listed on the Over-The-Counter
Bulletin Board (OTC:BB)
Securities registered under Section 12(g) of the Exchange Act:
[None]
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes ¨ No x
Check whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or
such shorter period that the registrant was required to submit and post such files). Yes ¨ No¨
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”, “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
Non-accelerated filer ¨
Accelerated filer ¨
Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of April 30, 2009, the aggregate market value of the voting common equity held by non-affiliates was approximately $4,529,500
based on the closing bid price of the registrant’s common stock on the Over the Counter Bulletin Board. (For purposes of determining this
based on the closing bid price of the registrant’s common stock on the Over the Counter Bulletin Board. (For purposes of determining this
amount, only directors, executive officers, and 10% or greater stockholders and their respective affiliates have been deemed affiliates).
The registrant had 127,201,243 shares of Common Stock, par value $0.001 per share, issued and outstanding as of January 27, 2010.
Table of Contents
Form 10-K Index
PART 1
Item 1:
Item 1A:
Item 2:
Item 3:
Item 4:
Business
Risk Factors
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
PART II
Item 5:
Item 6:
Item 7:
Item 7A:
Item 8:
Market For Our Common Stock and Related Stockholder Matters
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9:
Item 9A(T): Assessment of the Effectiveness of Internal Controls over Financial Reporting
Item 9B:
Other Information
PART III
Item 10:
Item 11:
Item 12:
Item 13:
Item 14:
Part IV
Directors, Executive Officers, Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 15:
Exhibits, Financial Statements Schedules
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PART 1
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. When used in this Annual Report, statements that are not statements
of current or historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “plan”, “intend”,
“may,” “will,” “expect,” “believe”, “could,” “anticipate,” “estimate,” or “continue” or similar expressions or other variations or
comparable terminology are intended to identify such forward-looking statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. Except as required by law, the Company undertakes no obligation to update
any forward-looking statements, whether as a result of new information, future events or otherwise.
Item 1: 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 the University of Pennsylvania (“Penn”)
which secretes a protein sequence containing a tumor-specific antigen. We believe this vaccine technology is capable of stimulating the body’s
immune system to process and recognize the antigen as if it were foreign, generating an immune response able to attack the cancer. We believe
this to be a broadly enabling platform technology that can be applied to the treatment of many types of cancers infectious diseases and auto-
immune disorders.
The discoveries that underlie this innovative technology are based upon the work of Yvonne Paterson, Ph.D., Professor of
Microbiology at Penn. This technology involves the creation of genetically engineered Listeria that stimulate the innate immune system and
induce an antigen-specific immune response involving both arms of the adaptive immune system. In addition, this technology supports, among
other things, the immune response by altering tumors to make them more susceptible to immune attack, stimulating the development of specific
blood cells that underlie a strong therapeutic immune response.
We have focused our initial development efforts upon therapeutic cancer vaccines targeting cervical cancer, its predecessor condition,
CIN, Head and Neck cancer, breast cancer, prostate cancer, and other cancers. Our lead products in development are as follows:
Product
ADXS11-001
Indication
Cervical Cancer
Stage
Phase I Company sponsored & completed in 2007.
Cervical Intraepithelial Neoplasia Phase II Company sponsored study anticipated to commence in early
2010.
Cervical Cancer
Cervical Cancer
Phase II Company sponsored study anticipated to commence in early
2010 in India. 110 Patients with advanced cervical cancer.
Phase II The GOG of the NCI is conducting a study (timing to be
determined).
Head & Neck Cancer
Phase I The Cancer Research UK (CRUK) is conducting a study of up to
45 Patients (timing to be determined).
ADXS31-142
Prostate Cancer
Phase I Company sponsored (timing to be determined).
ADXS31-164
Breast Cancer
Phase I Company sponsored (timing to be determined).
We have sustained losses from operations in each fiscal year since our inception, and we expect these losses to continue for the
indefinite future, due to the substantial investment in research and development. As of October 31, 2009, we had an accumulated deficit of
$16,603,800 and shareholders’ deficiency of $15,733,328.
To date, we have outsourced many functions of drug development including manufacturing, and clinical trials
management. Accordingly, the expenses of these outsourced services account for a significant amount of our accumulated loss. We cannot
predict when, if ever, any of our product candidates will become commercially viable or approved by the FDA. We expect to spend substantial
additional sums on the continued administration and research and development of proprietary products and technologies, including conducting
clinical trials for our product candidates, with no certainty that our products will become commercially viable or profitable as a result of these
expenditures.
1
History of the Company
We were originally incorporated in the State of Colorado on June 5, 1987 under the name Great Expectations, Inc. We were
administratively dissolved on January 1, 1997 and reinstated June 18, 1998 under the name Great Expectations and Associates, Inc. In 1999, we
became a reporting company under the Securities Exchange of 1934 (the “Exchange Act’). We were a publicly-traded “shell” company without
any business until November 12, 2004 when we acquired Advaxis, Inc., a Delaware corporation, through a Share Exchange and Reorganization
Agreement, dated as of August 25, 2004 (the “Share Exchange”), by and among Advaxis, the stockholders of Advaxis and us. As a result of
such acquisition, Advaxis become our wholly-owned subsidiary and our sole operating company. On December 23, 2004, we amended and
restated our articles of incorporation and changed our name to Advaxis, Inc. On June 6, 2006 our shareholders approved the reincorporation of
the company from the state of Colorado to the state of Delaware by merging the Company into its wholly-owned subsidiary. As used herein, the
words “Company” and "Advaxis" refer to the current Delaware corporation only unless the context references such entity prior to the June 26,
2006 reincorporation into Delaware (in which case it refers to the Colorado entity). Our principal executive offices are located at Technology
Centre of NJ, 675 US Highway One, North Brunswick, NJ 08902 and our telephone number is (732) 545-1590.
On July 28, 2005 we began trading on the Over-The-Counter Bulletin Board (OTC:BB) under the ticker symbol ADXS.
Recent Developments
Preferred Equity Financing
On January 11, 2010, the Company issued and sold 145 shares of non-convertible, redeemable Series A preferred stock to Optimus
Life Sciences Capital Partners LLC (“Optimus”) pursuant to the terms of a Preferred Stock Purchase Agreement between the Company and
Optimus dated September 24, 2009 (the “ Purchase Agreement ”). The Company received net proceeds of $1,320,000 from this transaction. The
aggregate purchase price for the Series A preferred stock was $1.45 million (less $130,000 representing an administrative fee and the balance of a
commitment fee due and owing to Optimus under the Purchase Agreement). Under the terms of the Purchase Agreement, Optimus remains
obligated, from time to time until September 24, 2012, to purchase up to an additional 355 shares of Series A preferred stock at a purchase price
of $10,000 per share upon notice from the Company to Optimus, and subject to the satisfaction of certain conditions, as set forth in the Purchase
Agreement.
In connection with the foregoing transaction, an affiliate of Optimus was granted 33,750,000 warrants on September 24, 2009 at an
exercise price of $0.20 to be exercised and priced upon the draw down date of each tranche. On January 11, 2010, the draw down date of the first
tranche, Optimus exercised warrants to purchase 11,563,000 shares of common stock at an adjusted exercise price of $0.17 per share. The
Company and Optimus agreed to waive certain terms and conditions in the Purchase Agreement and the warrant in order to permit the affiliate of
Optimus to exercise the warrants at such adjusted exercise price prior to the closing of the purchase of the Preferred Stock and acquire beneficial
ownership of more than 4.99% of the Company’s common stock on the date of exercise. As permitted by the terms of such warrants, the
aggregate exercise price of $1,965,710 received by the Company is payable pursuant to a four year full recourse promissory note bearing interest
at the rate of 2% per year.
As a result of anti-dilution protection provisions contained in certain of the Company’s outstanding warrants, the Company has (i)
reduced the exercise price from $0.20 per share to $0.17 per share with respect to an aggregate of approximately 62.0 million warrant shares to
purchase the Company’s Common Stock and (ii) correspondingly adjusted the amount of warrant shares issuable pursuant to certain warrants
such that approximately 11.0 million additional warrant shares are issuable at $0.17 per share.
Recent Bridge Financings
From November 1, 2009 through February 16, 2010, we issued to certain accredited investors (i) junior unsecured convertible
promissory notes in the aggregate principal face amount of $673,529, for an aggregate net purchase price of $572,500 and (ii) warrants to
purchase1,431,250 shares of our common stock at an exercise price of $0.20 (prior to anti-dilution adjustments) per share, subject to adjustments
upon the occurrence of certain events. Each of these bridge notes were issued with an original issue discount of 15% (OID) and are convertible
into shares of our common stock. The maturity dates of these notes range between April 16 and July 30, 2010. The indebtedness represented
by the bridge notes is expressly subordinate to our currently outstanding senior secured indebtedness (including the June 2009 bridge notes), as
well as any future senior indebtedness of any kind. We will not make any payments to the holders of these bridge notes until the earlier of the
repayment in full or conversion of the senior indebtedness.
2
During January and February 2010, the Company repaid $834,852 of the $1,131,353 in face value of our June 2009 bridge notes. In
addition, holders of the remaining $296,501 of our June 2009 bridge notes agreed to extend the maturity dates from December 31, 2009 to
periods into February and March 2010. The Company has agreed to issue additional consideration, including warrants to June 2009 bridge note
holders, all of which have agreed to extend the maturity period beyond December 31, 2009.
On February 15, 2010, we agreed to amend the terms of the Moore Notes such that (i) Mr. Moore may elect, at his option, to receive
accumulated interest thereon on or after March 17, 2010 (which we expect will amount to approximately $130,000), (ii) we will begin to make
monthly installment payments of $100,000 on the outstanding principal amount beginning on April 15, 2010; provided, however, that the balance
of the principal will be repaid in full on consummation of our next equity financing resulting in gross proceeds to us of at least $6.0 million and
(iii) we will retain $200,000 of the repayment amount for investment in our next equity financing.
Other Developments
On February 9, 2010 the Company announced that Cancer Research UK (CRUK), the UK philanthropy dedicated to cancer research,
has agreed to fund the cost of a clinical trial to investigate the use of ADXS11-001, Advaxis’ lead human papilloma virus (HPV)-directed
vaccine candidate, for the treatment of head and neck cancer. This sponsored-clinical trial will investigate the safety and efficacy of ADXS11-
001 in head and neck cancer patients who have previously failed treatment with surgery, radiotherapy and chemotherapy – alone or in
combination. Advaxis will provide the vaccines with all other associated costs to be funded by CRUK. The study is to be conducted at Aintree
Hospital at the University of Liverpool, Royal Marsden Hospital in London, and Cardiff Hospital at the University of Wales. Patient enrollment
is slated for the latter part 2010. At such time, enrollment officials anticipate recruiting a maximum of forty-five (45) patients.
Effective as of January 5, 2010, Mark Rosenblum, 56, was hired as Senior Vice President, Chief Financial Officer and Secretary of the
Company. Since April 2005 Mr. Rosenblum was the Chief Financial Officer of Hemobiotech, Inc. (OTC BB: HMBT.OB), a company primarily
engaged in the commercialization of human blood substitute technology licensed from Texas Tech University. From 2003 until 2005, he acted as
a consultant to various distribution and manufacturing companies. From 1985 through 2003, Mr. Rosenblum was employed by Wellman, Inc., a
public chemical manufacturing company and held positions as its Corporate Controller, Vice President and Chief Accounting Officer. Mr.
Rosenblum’s base compensation is $225,000 per annum, with a discretionary bonus of up to 30% of his base compensation awarded annually in
March beginning in 2011. In addition, on January 5, 2010 Mr. Rosenblum was granted options to purchase 1,000,000 shares of the Company’s
Common Stock with an exercise price equal to the closing bid price on the date of grant. One third of these options vested on the date of grant,
one third vests on the first anniversary of the date of grant, and one third vests on the second anniversary of the date of grant. Mr. Rosenblum
may be eligible for additional option grants in one year.
On December 15, 2009, the Company announced its Phase II Trial Collaboration with the National Cancer Institute Gynecologic
Oncology Group to Study ADXS11-001 in Sixty-Patient Study. The Company will collaborate with the Gynecologic Oncology Group (GOG),
a collaborative research group of the National Cancer Institute (NCI), in a multicenter, Phase II clinical trial of the Company’s lead drug
candidate, ADXS11-001 in the treatment of advanced cervix cancer in women who have failed prior cytotoxic therapy. This Phase II trial will be
conducted by GOG investigators and largely underwritten by the NCI. The study’s patient population – a very sick and rapidly progressive
patient population that was treated in Advaxis Phase I trial of ADXS11-001. Under this agreement Advaxis is responsible for covering the costs
of translational research and has agreed to pay a total of $8,003 per patient, with the bulk of the costs of this study underwritten by NCI.
The Company received $278,978 from the New Jersey Economic Development Authority. Under the State of New Jersey Program for
small business we received this cash amount on January 15, 2010 from the sale of our State Net Operating Losses (“NOL”) through December
31, 2008 and our research tax credit for fiscal years 2007 and 2008.
Between February and December of 2009 the US, Japanese, and European patent offices have approved patents for a newly developed
strain of Listeria that uses a novel method of attenuation. This strain is attenuated by deleting genes that are responsible for making a protein that
is essential for the bacterial cell wall, and by engineering back the ability to make this protein at a reduced level. In developing this strain the
objective was to improve upon the useful properties of Listeria while reducing potential disease causing properties of the bacterium, and in
preliminary testing this strain of Lm appears to be more immunogenic and less virulent that prior vaccine strains.
On December 15, 2009 the survival of the patients in Advaxis Phase I trial of the agent were determined at the scheduled three month
interval. Two patients were still alive out of the 13 patients who were available for efficacy analysis. At that time these patients had survived for
1,104 and 1,053 days after their initial dose. One patient who had been alive at the prior assessment had passed away after 1,064 days. This
Phase I safety study was not designed to assess efficacy, however the response rate was greater than that associated with historical controls and
the long survival of these patients is noteworthy.
Our Website
We maintain a website at www.advaxis.com which contains descriptions of our technology, our drugs and the trial status of each drug.
3
Strategy
During the next 24 months, we intend to strategically focus on developing sufficient human clinical data on ADXS11-001, our first
Listeria construct, to demonstrate the effectiveness of this technology. This technology is based on attenuated Listeria that secretes an antigen
LLO fusion protein that can be an effective platform for multiple therapies against cancer and infectious disease. Overall our clinical trial plans
outlined below are contingent on our ability to raise additional capital or enter into partnerships. In the U.S., we plan on initiating the single blind,
placebo controlled Phase II clinical trial of ADXS11-001 with three dosage arms in CIN, a pre cancerous indication. Following the conclusion of
the first arm, we expect to generate an interim assessment of efficacy approximately 18 months following the start of the single blind, placebo
controlled Phase II Clinical Trial of ADXS11-001
In parallel with the CIN trial, we also intend to start trials in the development of ADXS11-001, both in the U.S. and abroad, as a
treatment of late stage cervical cancer in women who have progressed after receiving cytotoxic therapy and head and neck cancer. We intend to
hold our first Phase II trial in the therapeutic area of cervical cancer in India. In order to run a second trial in this patient population we are in
advanced discussions with the Gynecologic Oncology Group, which we refer to as the GOG which receives support from the National Cancer
Institute, which we refer to as the NCI. We anticipate that this trial, with the same patient population as those studied in our first Phase I trial, will
be underwritten, in part, by the NCI. Therefore, this Phase II multi-center study in their network in cervical cancer, is expected to result in a cost
savings to us of approximately $2.5 million to $3.0 million in trial expenses. Furthermore, once the above trials are underway, we expect to enter
our prostate construct ADXS31-142 (formerly called Lovaxin P) into human clinical trials as funds or partnerships are secured.
In order to implement our strategy, we will require substantial additional investment in the near future. Our failure to raise capital or
pursue partnering opportunities will materially and adversely affect both our ability to commence or continue the clinical trials described above
and our business, financial condition and results of operations, and could force us to significantly curtail or cease operations. Further, we will not
have sufficient resources to develop fully any new products or technologies unless we are able to raise substantial additional financing over and
above the preferred stock financing on acceptable terms or secure funds from new partners.
Given our expertise to genetically modify a host of Listeria vaccines, our longer term strategy will be to license the commercial
development of ADXS11-001 for the indications of CIN and cervical cancer. On a global basis, these indications are extremely large and will
require one or more significant partners. We do not intend to engage in commercial development beyond Phase II without entering into one or
more partnerships or a license agreement.
We intend to continue to devote a substantial portion of our resources to the continued pre-clinical development and optimization of our
technology so as to develop it to its full potential and to find appropriate new drug candidates. These activities may require significant financial
resources, as well as areas of expertise beyond those readily available. In order to provide additional resources and capital, we may enter into
research, collaborative or commercial partnerships, joint ventures, or other arrangements with competitive or complementary companies,
including major international pharmaceutical companies or universities.
Background
Cancer
Despite tremendous advances in science, cancer remains a major health problem, and for many it continues to be the most feared of
diseases. Although age-adjusted mortality rates for all cancer fell during the 1990’s, particularly for the major cancer sites (lung, colorectal,
breast, and prostate), mortality rates are still increasing in certain sites such as liver and non-Hodgkin’s lymphoma. In 2004, the last year for
which we have reliable numbers, 1,437,180 cases of invasive cancer were diagnosed according to the American Cancer Society, and 565,650
patients are expected to die from cancer annually.
Cancer is the second largest cause of death in the United States, exceeded only by heart disease. The cost of treating cancer patients in
2007 is estimated to be $219.2 billion in healthcare costs and another $18.2 billion in indirect costs resulting from morbidity and lost productivity
(source: Facts & Figures 2008, American Cancer Society). The NIH estimates the overall cost for cancer in the year 2005 at $209.9 billion:
$74.06 billion for direct medical costs, $17.5 billion for indirect morbidity costs (loss of productivity due to illness) and, $118.4 billion for
indirect mortality costs (cost of lost productivity due to premature death). (Source: cancer facts & figures 2006, American Cancer Society). The
incidence of newly diagnosed cervical cancer in the US in 2007 was 11,070 (ibid) and numbers for newly diagnosed CIN are approximately
about 250,000 patients per year based on 3.5 million abnormal Pap smears (source: Jones HW, Cancer 1995:76:1914-18; Jones BA and Davey,
Arch Pathol Lab Med 2000; 124:672-81)
4
US Cancer Rates (2009 Estimated)
Percent of US deaths due to cancer in 2006
Immune System and Normal Antigen Processing
Living creatures, including humans, are continually confronted with potentially infectious agents. The immune system has evolved
multiple mechanisms that allow the body to recognize these agents as foreign, and to target a variety of immunological responses, including
innate, antibody, and cellular immunity that mobilize the body’s natural defenses against these foreign agents and will eliminate them.
Innate Immunity:
Innate immunity is the first step in the recognition of a foreign antigen, and underlies an adaptive (antigen specific) response by
Innate immunity is the first step in the recognition of a foreign antigen, and underlies an adaptive (antigen specific) response by
lymphocytes. This non-specific ingestion Phagocytosis by these cells results in their activation and the release of various soluble mediators of
immune response such as cytokines, chemokines and co-stimulatory molecules.
Exogenous pathway of Adaptive Immunity (Class II pathway):
Proteins and foreign molecules ingested by Antigen Processing Cells (“APC”) are broken down inside digestive vacuoles into small
pieces, called peptides, and the pieces are combined with proteins called Class 2 MHC (for Major Histocompatibility Complex) in a part of the
cell called the endoplasmic reticulum. The MHC-peptide, termed and MHC-2 complex from the Class 2 (or exogenous) pathway, is then pushed
out to the cell surface where it interacts with certain classes of lymphocytes (CD4+) such as helper T-cells that produce induce a proliferation of
stimulate B-cells, which produce antibodies, or helper T cells that assist in the maturation of cytotoxic T-lymphocytes. This system is called the
exogenous pathway, since it is the prototypical response to an exogenous antigen like bacteria. (Listeria generated MHC-2 responses are directed
at the activation of helper T cell activation, as Listeria tends not to stimulate antibody formation.)
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Endogenous pathway of Adaptive Immunity (Class I pathway):
There exists another adaptive immune pathway, called the endogenous pathway. In this system, when one of the body's cells begins to
create unusual proteins within the cytoplasm (as opposed to within he digestive phagosome), the protein is broken up into peptides in the
cytoplasm and directed into the endoplasmic reticulum, where it is incorporated into an MHC-1 protein and trafficked to the cell surface. This
signal then calls effector cells of the cellular immune system, especially CD8+ cytotoxic T-lymphocytes, to come and kill the cell. The
endogenous pathway is primarily for elimination of virus-infected or cancerous cells.
Listeria based vaccines are unique for many reasons, one of which is that unlike viral vectors, DNA or peptide antigens or other
vaccines, Listeria stimulates all of the above mechanisms of immune action. Our technology allows the body to recognize tumor-associated or
tumor-specific antigens as foreign, thus creating the immune response needed to attack the cancer. It does this by utilizing a number of biologic
characteristics of the Listeria bacteria and Advaxis proprietary antigen-fusion protein technology to stimulate multiple therapeutic immune
mechanisms simultaneously in an integrated and coordinated manner.
Mechanism of Action
Listeria is a bacterium well known to medical science because it can cause an infection in humans. Listeria is a pathogen that causes
food poisoning, typically in the very old, the very young, people who are either immunocompromised or who eat a large quantity of the microbe
as can occur in spoiled dairy products. It is not laterally transmitted from person to person, and is a common microbe in our environment. Most
people ingest Listeria without being aware of it, but in high quantities or in immune suppressed people Listeria can cause various clinical
conditions, including sepsis, meningitis and placental infections in pregnant women. Fortunately, many common antibiotics can kill and sterilize
Listeria.
Because Listeria is a live bacterium it stimulates the innate immune system, thereby priming the adaptive immune system to better
respond to the specific antigens that the Listeria carries, which viruses and other vectors do not do. This is a non-specific stimulation of the
overall immune system that results when certain classes of pathogens such as bacteria (but not viruses) are detected. It provides some level of
immune protection and also serves to prime the elements of adaptive immunity to respond in a stronger way to the specific antigenic stimulus.
Listeria stimulates a strong innate response which engenders a strong adaptive response.
Antigen Presenting Cells (APC) are the scavengers’ in the body that circulate looking for foreign invaders. When they find one, they
ingest it, break it down, and provide the fragments as molecular targets for the immune system to attack. In this way they are the cells that direct a
specific immune response, and Listeria has the ability to infect them.
When Listeria enters the body, it is seen as foreign by the antigen processing cells and ingested into cellular compartments called
phagolysosomes, whose destructive enzymes kill most of the bacteria. A certain percentage of these bacteria, however, are able to break out of the
phagolysosomes and enter into the cytoplasm of the cell, where they are relatively safe from the immune system. The bacteria multiply in the cell,
and the Listeria is able to move to its cell surface so it can push into neighboring cells and spread.
6
Figs 1-7. When Listeria enters the body, it is seen as foreign by the antigen processing cells and ingested into cellular compartments called
phagolysosomes, whose destructive enzymes kill most of the bacteria, fragments of which are then presented to the immune system via the
exogenous pathway.
Figs 8-10 A certain percentage of bacteria is able to break out of the lysosomes and enter into the cytoplasm of the cell, where they are safe from
lysosomal destruction. The bacteria multiply in the cell, and the Listeria is able to migrate into neighboring cells and spread without entering the
extracellular space. Antigen produced by these bacteria enter the Class I pathway and directly stimulate a cytotoxic T cell response.
It is the details of Listeria intracellular activity that are important for understanding Advaxis technology. Inside the lysosome, Listeria
produces listeriolysin-O (“LLO”), a protein that digests a hole in the membrane of the lysosome that allows the bacteria to escape into the
cytoplasm. Once in the cytoplasm, however, LLO is also capable of digesting a hole in the outer cell membrane. This would destroy the host cell,
and spill the bacteria back out into the intercellular space where it would be exposed to more immune cell attacks and destruction. To prevent this,
the body has evolved a mechanism for recognizing enzymes with this capability based upon their amino acid sequence. The sequence of
approximately 30 amino acids in LLO and similar molecules is called the PEST sequence (for the predominant amino acids it contains) and it is
used by normal cells to force the termination of proteins that need only have a short life in the cytoplasm. This PEST sequence serves as a routing
tag that tells the cells to route the LLO in the cytoplasm and to the proteosome for digestion, which terminates its action and provides fragments
that then go to the endoplasmic reticulum, where it is processed just like a protein antigen in the endogenous pathway to generate MHC-1
complexes.
7
This mechanism is used by Listeria to its benefit because the actions of LLO enable the bacteria to avoid digestion in the lysosome and
escape to the cytosol where they can multiply and spread and then be neutralized so that it does not kill the host cell. Advaxis is using a
technology that co-opts this mechanism by creating a protein that is comprised of the cancer antigen fused to a non-hemolytic portion of the LLO
molecule that contains the PEST sequence. This serves to route the molecule for accelerated proteolytic degradation which accelerates both the
rate of antigen breakdown and the amount of antigen fragments available for incorporation in to MHC-1 complexes; thus increasing the stimulus
to activate cytotoxic T cells against a tumor specific antigen.
Other mechanisms that Advaxis vaccines employ include Listeria’s ability to increase the synthesis of myeloid cells such as Antigen
Presenting Cells (“APC”) and T cells, and to stimulate the maturation of immature myeloid cells to increase the number of available activated
immune cells that underlie a cancer killing response. Immature myeloid cells actually inhibit the immune system and Listeria removes this
inhibition within the actual tumor. Also, Listeria and LLO both stimulate the synthesis, release, and expression of various chemicals which
stimulate a therapeutic immune response. These chemicals are called cytokines, chemokines and co-stimulatory molecules. By doing this, not only
are immune cells activated to kill cancers and clear them from the body, but local environments within tumors is created that support and facilitate
a therapeutic response. Finally, in a manner that appears to be unique to Advaxis vaccines, our proprietary antigen-LLO fusion proteins, when
delivered by Listeria do not stimulate cells caused regulatory T cells (“Tregs”) which are known to inhibit a therapeutic anticancer response. This
does not occur when Listeria is engineered to deliver only a tumor specific antigen. The ability to reduce the effect of Tregs is currently under
clinical investigation by other companies and is believed to be a significant mechanism of achieving a therapeutic response. Listeria has other
effects as well, such as facilitating the transit of activated immune cells from the blood and into tumors.
The ability to reduce the number of Tregs within tumors appears to be as important as activating the immune system against an antigen.
Advaxis live Listeria vaccines have many diverse salutary effects, not the least of which is the ability to reduce regulatory Tregs within
tumors. Over the past few years it has become known that the reason many previous immunologic cancer treatments have failed is that although
they were able to strongly activate the immune system, they were rendered ineffective by endogenous sources of immune inhibition within the
tumors themselves. Tregs have the ability to turn off activated immune cells so that they no longer function within the tumor. We have published
on 2 occasions that our live Listeria vaccines that secrete a proprietary fusion protein comprised of a non-hemolytic fragment of the Listeria
virulence factor LLO fused to a tumor specific antigen will reduce these inhibitory cells within tumors. In this way, our vaccines not only
strongly stimulate the immune system, but also modify the tumor micro-environment in a manner that allows the immune system to kill and clear
tumor cells.
Advaxis live Listeria vaccines also have the ability to modify the function of vascular endothelial cells in a way that facilitates the
trafficking of activated immune cells out of the blood and into the tumor, where they are therapeutically effective. One property of cancer is the
modification of vascular cells to prevent activated immune cells from transiting into the tumor. Our vaccines appear to overcome this source of
anti-tumor inhibition.
Many of the immune effector cells, such as dendritic cells, macrophages, mast cells, Langerhans cells and others are myeloid cells. Our
vaccines have the ability to accelerate the synthesis and maturation of these cells, as well as their antigen specific activation, to increase the power
and efficiency of the immune response.
It should also be noted that the live Listeria vaccines Advaxis creates are attenuated from 10,000 to 100,000 times in order that they will
not cause disease themselves.
8
Thus, Listeria vaccines stimulate every immune pathway simultaneously, and in an integrated manner. It has long been recognized that
cytotoxic T lymphocytes, or CTL, are the elements of the immune system that kill and clear cancer cells. The amplified CTL response to Listeria
vaccines are arguably the strongest stimulator of CTL yet developed, but just as important is the ability Advaxis vaccines have to create a local
tumor environment in which these cells can be effective. This efficacy likely results in part from the fusion of LLO to the secreted tumor antigen
since many investigators have shown that LLO is a very strong source of immune stimulation independent of Listeria By fusing a molecule with
strong adjuvant properties to a tumor antigen, and then having it synthesized and secreted by live bacteria directly into the cytoplasm of Antigen
Presenting Cells, vascular endothelium and other relevant tissues an unusually powerful and complete immune response is generated.
Recently it has been shown that Lm -LLO vaccines can cause epitope spreading. This means that these vaccines can stimulate the
immune system to respond to more antigens than the one they are designed to attack. This happens when tumor cells are killed by the immune
system in response to the administered vaccine and portions of those killed cells are then recognized by the immune system and they too become
targets of an immune attack. This broadens the immune attack and results in a more therapeutic response.
Thus, what makes Advaxis live Listeria vaccines so effective are a combination of effects that stimulate multiple arms of the immune
system simultaneously in a manner that generates an integrated physiologic response conducive to the killing and clearing of tumor cells. These
mechanisms include:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Very strong innate immune response
Stimulates inordinately strong killer Tregs response
Stimulates helper Tregs
Stimulates release of and/or up-regulates immuno-stimulatory cytokines, chemokines, co-stimulatory molecules
Adjuvant activity creates a local tumor environment that supports anti-tumor efficacy
Minimizes inhibitory Tregs and inhibitory cytokines and shifts to Th-17 pathway
Stimulates the development and maturation of all Antigen Presenting Cells and effector Tregs & reduces immature myeloid
cells
Eliminates sources of endogenous inhibition present within tumors that suppress activated immune cells and prevent them
from working within tumors
Effecting non-immune systems that support the immune response, like the vascular system, the marrow, and the maturation
of cells in the blood stream
10.
Enables epitope spreading to increase the number of antigens attacked by the immune system.
Research and Development Program
Overview
We use genetically engineered and highly attenuated Listeria monocytogenes as a therapeutic agent. We start with an attenuated strain
of Listeria, and then add to this bacterium multiple copies of a plasmid that encodes a fusion protein sequence that includes a fragment of the LLO
molecule joined to the tumor antigen of interest. This protein is secreted by the Listeria inside the antigen processing cells, and other cells that
Listeria infects which then results in the immune response as discussed above.
We can use different tumor, infectious disease, or other antigens in this system. By varying the antigen, we create different therapeutic
agents. Our lead agent, ADX11-001uses a HPV derived antigen that is present in cervical cancers. ADXS31-162 uses Her2/neu, an antigen
found in many breast cancer and melanoma cells, to induce an immune response that should be useful in treating these conditions. See “Item 1.
Description of Business -Research and Development Programs.
9
Partnerships and Agreements
University of Pennsylvania
On July 1, 2002 we entered into a 20-year exclusive worldwide license, with Penn with respect to the innovative work of Yvonne
Paterson, Ph.D., Professor of Microbiology in the area of innate immunity, or the immune response attributable to immune cells, including
dendritic cells, macrophages and natural killer cells that respond to pathogens non-specifically. This agreement has been amended from time to
time and has been amended and restated as of February 13, 2007.
This license, unless sooner terminated in accordance with its terms, terminates upon the later (a) expiration of the last to expire Penn
patent rights; or (b) twenty years after the effective date of the license. The license provides us with the exclusive commercial rights to the patent
portfolio developed at Penn as of the effective date of the license, in connection with Dr. Paterson and requires us to raise capital and pay various
milestone, legal, filing and licensing payments to commercialize the technology. In exchange for the license, Penn received shares of our
common stock which currently represents approximately 3.27% of our common stock outstanding on a fully-diluted basis. In addition, Penn is
entitled to receive a non-refundable initial license fee, license fees, royalty payments and milestone payments based on net sales and percentages
of sublicense fees and certain commercial milestones. Under the licensing agreement, Penn is entitled to receive 1.5% royalties on net sales in all
countries. Notwithstanding these royalty rates, we have agreed to pay Penn a total of $525,000 over a three-year period as an advance minimum
royalty after the first commercial sale of a product under each license (which we are not expecting to begin paying within the next five years). In
addition, under the license, we are obligated to pay an annual maintenance fee on December 31, in 2008, 2009, 2010, 2011 and 2012 and each
December 31st thereafter for the remainder of the term of the agreement of $50,000, $70,000, $100,000, $100,000 and $100,000, respectively
until the first commercial sale of a Penn licensed product. Overall the amended and restated agreement payment terms reflect lower near term
requirements but the savings are offset by higher long term milestone payments for the initiation of a Phase III clinical trial and the regulatory
approval for the first Penn licensed product. We are responsible for filing new patents and maintaining and defending the existing patents
licensed to use and we are obligated to reimburse Penn for all attorneys fees, expenses, official fees and other charges incurred in the preparation,
prosecution and maintenance of the patents licensed from Penn.
Furthermore, upon the achievement of the first sale of a product in certain fields, Penn will be entitled to certain milestone payments, as
follows: $2.5 million will be due for first commercial sale of the first product in the cancer field. In addition, $1.0 million will be due upon the
date of first commercial sale of a product in each of the secondary strategic fields sold.
As a result of our payment obligations under the license, assuming we have net sales in the aggregate amount of $100.0 million from
our cancer products, our total payments to Penn over the next ten years could reach an aggregate of $5.4 million. If over the next 10 years our net
sales total an aggregate amount of only $10.0 million from our cancer products, total payments to Penn could be $4.4 million.
Pursuant to an option contained in our existing license agreement with Penn, as amended, we have been in negotiations with Penn since
March 2007 to further amend and restate the terms of the license agreement to acquire the rights to use an additional 12 dockets or more
(patentable research agents) under Penn’s ownership which, as of October 31, 2009, have generated approximately 35 additional patent
applications for Listeria and LLO-based vaccine dockets. “Docket number” or “case number” refers to a subject on which a patent application or
applications are filed. A docket number or case number can contain several applications, which are usually related applications. Related
applications are sometimes assigned to more than one docket number, for example if the inventor list is not identical. As a condition to our
exercising this option and entering into an amendment, we must, among other things, pay Penn a mutually agreeable option exercise fee and
reimburse Penn for all of its historically accrued patent and licensing expenses relating to these patents (dockets), including their legal and filing
fees. As of October 31, 2009, such expenses totaled approximately $548,105. Although the option exercise period formally expired in June
2009, we remain in negotiations with Penn over the form of payment and expect to reach a conclusion at the close of our next financial raise. If
we fail to acquire a license to use the additional dockets and patent applications, our patent position may be materially and adversely affected. In
addition, as of October 31, 2009, approximately $328,820 in fees and expense are due and owing to Penn by us under our existing license
agreement and other related agreements. While we consider our relationship with Penn to be good, we are in frequent communications over
payment of past due invoices and other payables due to our lack of cash. If we fail to reach a mutual agreement, Penn may issue a default notice
and we will have 60 days to cure the breach or be subject to the termination of the agreement.
Strategically we intend to enter into sponsored research agreements with Dr. Paterson and Penn to generate new intellectual property and
to exploit all existing intellectual property covered by the license.
Penn is not involved in the management of our company or in our decisions with respect to exploitation of the patent portfolio, except
that Dr. Paterson is the Chairperson of our Scientific Advisory Board.
Dr. Yvonne Paterson
Dr. Paterson is a Professor in the Department of Microbiology at Penn and the inventor of our licensed technology. She has been an
invited speaker at national and international health field conferences and leading academic institutions. She has served on many federal advisory
boards, such as the NIH expert panel to review primate centers, the Office of AIDS Research Planning Fiscal Workshop, and the Allergy and
Immunology NIH Study Section. She has written over one hundred publications in immunology (including a recently published book) with
emphasis during the last several years on the areas of HIV, AIDS and cancer research. Her instruction and mentorship has trained over forty
post-doctoral and doctoral students in the fields of Biochemistry and Immunology. She was recently elected a fellow of the American
Association for the Advancement of Science.
10
Dr. Paterson is currently the principal investigator on several grants from the federal government and charitable trusts and the program
director of training grants. Her research interests are broad, but her laboratory has been focused for the past ten years on developing novel
approaches for prophylactic vaccines against infectious disease and immunotherapeutic approaches to cancer. The approach of the laboratory is
based on a long-standing interest in the properties of proteins that render them immunogenic and how such immunogenicity may be modulated
within the body.
Consulting Agreement. On January 28, 2005 we entered into a consulting agreement with Dr. Paterson, which expired on January 31,
2009. We are currently in the process of establishing a revised agreement to continue to have access to Dr. Paterson’s consulting services for one
full day per week. There can be no assurance that we will be able to enter into a new agreement with Dr. Paterson. Dr. Paterson has advised us
on an exclusive basis on various issues related to our technology, manufacturing issues, establishing our lab, knowledge transfer, and our long-
term research and development program. Pursuant to the expired agreement, Dr. Paterson received $7,000 per month. Upon the closing of an
additional $9.0 million in equity capital, Dr. Paterson’s rates would have increased to $9,000 per month. Also, under the prior Agreement, on
February 1, 2005, she received options to purchase 400,000 shares of our common stock at an exercise price of $0.287 per share which are now
fully vested. In total she holds 704,365 shares of our common stock and 569,048 fully vested options to purchase shares of our common stock.
We intend to enter into additional sponsored research agreements with Penn in the future with respect to research and development on
our product candidates.
We believe that Dr. Paterson’s continuing research will serve as a source of ongoing findings and data that both supports and strengthen
the existing patents. We further believe that her work will expand the claims of the patent portfolio (potentially including adding claims for new
tumor specific antigens, the utilization of new vectors to deliver antigens, and applying the technology to new disease conditions) and create the
infrastructure for the future filing of new patents.
Dr. Paterson is also the Chairman of our Scientific Advisory Board.
The Sage Group
We are party to a consulting agreement with The Sage Group, a health-care strategy consultant assisting us with a program to
commercialize our vaccines. The initial agreement was entered into in January 2009 and subsequently amended on July 22, 2009. Pursuant to
the terms of agreement, as amended, we have agreed to pay Sage (i) $5,000 per month (which we began paying in January 2009) until an
aggregate of $120,000 has been paid to Sage under the consulting agreement and (ii) a 5% commission for certain transactions if completed in the
first 24 months of the term of the agreement, reduced to 2% if completed in the 12 months thereafter. The Sage Group has been paid
approximately $20,600 through October 31, 2009.
Dr. David Filer
On January 7, 2005 we entered a consulting agreement with Dr. David Filer, a biotech consultant. The Agreement provides that Dr,
Filer spend three days per month assisting us with our development efforts, reviewing our scientific technical and business data and materials and
introducing us to industry analysts, institutional investor collaborators and strategic partners. In addition, Dr. Filer received options to purchase
40,000 shares of common stock which are fully vested. As of October 1, 2007 we entered into a new two year agreement at a monthly fee of
$5,000 including 1,500,000 warrants exercisable at $0.20 per warrant (prior to anti-dilution adjustments) as consideration for his assistance in
the raise on October 17, 2007 as well a his advisory services and assistance. This agreement expired on September 30, 2009 and has not been
renewed.
University of California
On March 14, 2004 we entered into a nonexclusive license and bailment agreement with the Regents of the University of California
(“UCLA”) to commercially develop products using the XFL7 strain of Listeria monoctyogenes in humans and animals. The agreement is
effective for a period of 15 years and is renewable by mutual consent of the parties. Advaxis paid UCLA an initial licensee fee and continues to
pay an annual maintenance fee of $1,000 for use of the Listeria. We may not sell products using the XFL7 strain Listeria other than agreed upon
products or sublicense the rights granted under the license agreement without the prior written consent of UCLA.
Cobra Biomanufacturing PLC (“Cobra”)
In July 2003, we entered into an agreement with Cobra for the purpose of manufacturing our cervical cancer vaccine ADX11-001.
Cobra has extensive experience in manufacturing gene therapy products for investigational studies. Cobra is a full service manufacturing
organization that manufactures and supplies DNA-based therapeutics for the pharmaceutical and biotech industry. These services include the
Good Manufacturing Practices (“GMP”) manufacturing of DNA, recombinant protein, viruses, mammalian cell products and cell banking.
Cobra’s manufacturing plan for us involves several manufacturing stages, including process development, manufacturing of non-GMP material
for toxicology studies and manufacturing of GMP material for the Phase I trial. The agreement to manufacture expired in December 2005 upon
the delivery and completion of stability testing of the GMP material for the Phase I trial. Cobra has agreed to surrender the right to $300,000 of
its existing fees for manufacturing in exchange for future royalties from the sales of ADX11-001 at the rate of 1.5% of net sales, with royalty
payments not to exceed $1,950,000.
11
In November 2005, in order to secure production of ADXS11-001 on a long-term basis as well as other drug candidates which we are
developing, we entered into a Strategic Collaboration and Long-Term Vaccine Supply Agreement for Listeria Cancer Vaccines, under which
Cobra will manufacture experimental and commercial supplies of our Listeria cancer vaccines, beginning with ADXS11-001. This agreement
leaves the existing agreement in place with respect to the studies contemplated therein, and supersedes a prior agreement and provides for mutual
exclusivity, priority of supply, collaboration on regulatory issues, research and development of manufacturing processes that have already
resulted in new intellectual property owned by Advaxis, and the long-term supply of live Listeria based vaccines on a discounted basis.
In October 20, 2007 we entered into a production agreement with Cobra to manufacture our Phase II clinical materials using a new
methodology now required by the United Kingdom, and likely to be required by other regulatory bodies in the future. The contract was for
£274,500 plus consumables and as of October 31, 2008 we have we have recorded $543,620 in full excluding consumables. In addition, we
entered into a contract for £47,250 to fill the Listeria in vials and as of October 31, 2008, we have recorded $107,793 in full payment. In 2009
we also have several other small contracts to cover, testing, stability and storage of our clinical supplies.
Vibalogics GtmbH
In April of 2008 we entered into a series of agreements with Vibalogics GmbH in Cuxhaven Germany to provide fill and finish services
for our final clinical materials that were made for the scheduled clinical trials described above. These agreements describe all of the fill and finish
operations as well as the specific tests that have to be performed in order to release the clinical materials for human use.
LVEP Management, LLC (“LVEP”)
The Company entered into a consulting agreement with LVEP dated as of January 19, 2005, and amended on April 15, 2005, and
October 31, 2005, pursuant to which Mr. Roni Appel served as Chief Executive Officer, Chief Financial Officer and Secretary of the Company
and was compensated by consulting fees paid to LVEP. Pursuant to an amendment dated December 15, 2006 (“effective date”) Mr. Appel
resigned as President and Chief Executive Officer and Secretary of the Company on the effective date, but remains as a board member and
consultant to the Company.
On February 11, 2008 the Company and LVEP agreed to satisfy the balances of the LVEP Agreement with cash payments of $130,000
and $20,000 in the Company’s common stock (153,846 shares). The cash payment was made on February 12, 2008 and the shares were issued
on April 4, 2008 and recorded at the market value of $14,615.
Pharm-Olam International Ltd. (“POI”)
In April 2005, we entered into a consulting agreement with POI, whereby POI is to execute and manage our Phase I clinical trial in
ADXS11-001 for a fee of $430,000 plus reimbursement of certain expenses. As of October 31, 2009 the Company has an outstanding balance
due POI of $219,131.
Biologics Consulting Group, Inc. (“BCG”)
On June 1, 2006 we entered into an agreement with Biologics Consulting Group, Inc., which we refer to as BCG, and effective June 1,
2008, we entered into an amendment No. 2 to provide biologics regulatory consulting services to us, on an as needed basis, in support of the
IND submission to the FDA and other related services. The tasks to be performed under this Agreement will be agreed to in advance by us and
BCG. The term of the amendment No. 2 is from June 1, 2006 to June 1, 2010. In April 2009 we entered into Amendment No. 2 which set June
1, 2008 as the effective date and amended the term from June 1, 2006 through June 1, 2010.
Numoda Corporation
On June 19, 2009 we entered into a Master Agreement and on July 8, 2009 we entered into a Project Agreement with Numoda, a
leading clinical trial and logistics management company, to oversee Phase II clinical activity with ADXS11-001 for the treatment of invasive
cervical cancer and CIN. Numoda will be responsible for integrating oversight and logistical functions with the clinical research organizations,
contract laboratories, academic laboratories and statistical groups involved. The scope of this agreement covers over three years and is estimated
to cost $8.0 million for both trials.
12
Patents and Licenses
Dr. Paterson and Penn have invested significant resources and time in developing a broad base of intellectual property around the cancer
vaccine platform technology to which on July 1, 2002 we entered into a 20-year exclusive worldwide license and a right to grant sublicenses
pursuant to our license agreement with Penn. As of October 31, 2009 Penn has 24 issued and 15 pending patents in the U.S. and other large
countries including Japan, and the European Union, through the Patent Cooperation Treaty system pursuant to which we have an exclusive
license to exploit the patents. Penn holds 35 additional patents and patent applications in foreign countries. We are negotiating to license these
patents as part of our Seconded Amended and Restated Agreement with Penn. We believe that these patents will allow us to take a lead in the
U.S. in the field of Listeria -based therapy.
In 2001, an issue arose regarding the inventorship of U.S. Patent 6,565,852 and U.S. Patent Application No. 09/537,642. These patent
rights are included in the patent rights licensed by Advaxis from Penn. It is contemplated by GlaxoSmithKline plc, which we refer to as GSK,
Penn and us that the issue will be resolved through: (1) a correction of inventorship to add certain GSK inventors, (2) where necessary and
appropriate, an assignment of GSK’s possible rights under these patent rights to Penn, and (3) a sublicense from us to GSK of certain subject
matter, which is not central to our business plan. To date, this arrangement has not been finalized and we cannot assure that this issue will
ultimately be resolved in the manner described above.
Pursuant to our existing license with Penn, we had an option to license from Penn any new future invention conceived by either Dr.
Yvonne Paterson or by Dr. Fred Frankel in the vaccine area that expired on June 17, 2009. Under our license agreement with Penn, we
expanded our intellectual property base and gained access to inventions. Although the option exercise period formally expired in June 2009, we
remain in negotiations with Penn to obtain additional patent licenses. Further, our previous consulting agreement with Dr. Paterson provided,
among other things, that, to the extent that Dr. Paterson’s consulting work resulted in new inventions, such inventions were assigned to Penn,
and we have access to those inventions under existing license agreements to be negotiated. This agreement is currently being revised.
Our approach to the intellectual property portfolio is to create significant offensive and defensive patent protection for every product and
technology platform that we develop. We work closely with our patent counsel to maintain a coherent and aggressive strategic approach to
building our patent portfolio with an emphasis in the field of cancer vaccines.
We are aware of a private company, Anza Therapeutics, Inc (formerly Cerus Corporation), which, is no longer in existence, but had
been developing Listeria vaccines. We believe that through our exclusive license with Penn we have earliest known and dominant patent position
in the U.S. for the use of recombinant Listeria monocytogenes expressing proteins or tumor antigens as a vaccine for the treatment of infectious
diseases and tumors. We successfully defended our intellectual property by contesting a challenge made by Anza to our patent position in Europe
on a claim not available in the U.S. The EPO Board of Appeals in Munich, Germany has ruled in favor of The Trustees of Penn and its
exclusive licensee Advaxis and reversed a patent ruling that revoked a technology patent that had resulted from an opposition filed by Anza. The
ruling of the EPO Board of Appeals is final and can not be appealed. The granted claims, the subject matter of which was discovered by Dr.
Yvonne Paterson, scientific founder of Advaxis, are directed to the method of preparation and composition of matter of recombinant bacteria
expressing tumor antigens for treatment of patients with cancer.
Based on searches of publicly available databases, we do not believe that Anza or any other third party owns any published Listeria
patents or has any issued patent claims that might materially and adversely affect our ability to operate our business as currently contemplated in
the field of recombinant Listeria monocytogenes. Additionally, our proprietary position that is the issued patents and licenses for pending
applications restricts anyone from using plasmid based Listeria constructs, or those that are bioengineered to deliver antigens fused to LLO,
ActA, or fragments of LLO or ActA. On January 7, 2009 we made the decision to discontinue our use of the Trademark Lovaxin and write-off
of our intangible assets for trademarks resulting in an asset impairment of $91,453 as of October 31, 2008. We developed a classic coding
system for our constructs. The rationale for this decision stemmed from several legal challenges to the Lovaxin name over the last two years and
certain rules in Title 21 of the Code of Federal Regulations which do not allow companies to use names that are assigned to drugs in development
after marketing approval. We will therefore focus company resources on product development and not the defense the Lovaxin name.
On May 26, 2009, the United States Patent and Trademark Office (“PTO”) approved our patent application “Compositions and
Methods for Enhancing the Immunogenicity of Antigencs.” This patent application covers the use of Listeria monocytogenes (Lm) protein ActA
and fragments of this protein for use in the creation of antigen fusion proteins. This intellectual property protects a unique strain of Listeria
monocytogenes for use as a vaccine vector.
On February 10, 2009 the U.S. PTO issued patent 7,488,487 “ Methods of Inducing Immune response Through the Administration of
Auxotrophic Attenuated DAT/DAL Double Mutant Listeria Strains ”, assigned to Penn and licensed to us. This intellectual property protects a
unique strain of Listeria monocytogenes for use as a vaccine vector. This new strain of Listeria is an improvement over the strain currently in
clinical testing as it is more attenuated, more immunogenic, and does not have an antibiotic resistance gene inserted. We believe that this
technology will make our product more effective and easier to obtain FDA regulatory approval.
13
Governmental Regulation
The Drug Development Process
The Food and Drug Administration (“FDA”) requires that pharmaceutical and certain other therapeutic products undergo significant
clinical experimentation and clinical testing prior to their marketing or introduction to the general public. Clinical testing, known as clinical trials
or clinical studies, is either conducted internally by pharmaceutical or biotechnology companies or is conducted on behalf of these companies by
contract research organizations.
The process of conducting clinical studies is highly regulated by the FDA, as well as by other governmental and professional
bodies. Below, we describe the principal framework in which clinical studies are conducted, as well as describe a number of the parties involved
in these studies.
Protocols. Before commencing human clinical studies, the sponsor of a new drug must typically receive governmental and institutional
approval. In the U.S., Federal approval is obtained by submitting an IND to the FDA and amending it for each new proposed study. The clinical
research plan is known in the industry as a protocol. A protocol is the blueprint for each drug study. The protocol sets forth, among other
things, the following:
·
·
·
·
Who must be recruited as qualified participants and who is to be excluded;
how often, and how to administer the drug and at what dose(s);
what tests to perform on the participants; and
what evaluations are to be made and how the data will be assessed.
Institutional Review Board (Ethics Committee). An institutional review board is an independent committee of professionals and lay
persons which reviews clinical research studies involving human beings and is required to adhere to guidelines issued by the FDA. The
institutional review board does not report to the FDA and its members are not appointed by the FDA, but its records are audited by the FDA. All
clinical studies must be approved by an institutional review board. The institutional review board is convened by the institution where the
protocol will be conducted and its role is to protect the rights of the participants in the clinical studies. It must approve the protocols to be used,
and then oversees the conduct of the study, including: the communications which we or the contract research organization conducting the study at
that specific site proposes to use to recruit participants, and the form of consent which the participants will be required to sign prior to their
participation in the clinical studies.
Clinical Trials. Human clinical studies or testing of a potential product prior to Federal approval are generally done in three stages
known as Phase I, Phase II, and Phase III testing. The names of the phases are derived from the CFR 21 that regulates the FDA. Generally,
there are multiple studies conducted in each phase.
Phase I. Phase I studies involve testing a drug or product on a limited number of participants. Phase I studies determine a drug’s basic
safety and how the drug is absorbed by, and eliminated from, the body. This phase lasts an average of six months to a year. Typically, cancer
therapeutics are initially tested on very late stage cancer patients.
Phase II. Phase II trials involve large numbers of participants at a time who may 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 substance in Phase III studies. It
is during Phase II that everything that goes into a Phase III test is determined.
Phase III. Phase III studies involve testing large numbers of participants, typically several hundred to several thousand persons. The
purpose is to verify effectiveness and long-term safety on a large scale. These studies generally last two to six years. Phase III studies are
conducted at multiple locations or sites. Like the other phases, Phase III requires the site to keep detailed records of data collected and procedures
performed.
New Drug Approval. The results of the clinical trials are submitted to the FDA as part of an NDA or BLA. Following the completion
of Phase III studies, assuming the sponsor of a potential product in the U.S. believes it has sufficient information to support the safety and
effectiveness of its product, it submits an NDA or BLA to the FDA requesting that the product be approved for marketing. The application is a
comprehensive, multi-volume filing that includes the results of all preclinical and clinical studies, information about the drug’s composition, and
the sponsor’s plans for producing, packaging, labeling and testing the product. The FDA’s review of an application can take a few months to
many years, with the average review lasting 18 months. Once approved, drugs and other products may be marketed in the U.S., subject to any
conditions imposed by the FDA.
14
The drug approval process is time-consuming, involves substantial expenditures of resources, and depends upon a number of factors,
including the severity of the illness in question, the availability of alternative treatments, and the risks and benefits demonstrated in the clinical
trials.
On November 21, 1997, former President Clinton signed into law the FDA Modernization Act. That act codified the FDA’s policy of
granting “Fast Track” approval for cancer therapies and other therapies intended to treat serious or life threatening diseases and that demonstrate
the potential to address unmet medical needs. The Fast Track program emphasizes close, early communications between the FDA and the
sponsor to improve the efficiency of preclinical and clinical development, and to reach agreement on the design of the major clinical efficacy
studies that will be needed to support approval. Under the Fast Track program, a sponsor also has the option to submit and receive review of
parts of the NDA or BLA on a rolling schedule approved by FDA, which expedites the review process.
The FDA’s Guidelines for Industry Fast Track Development Programs require that a clinical development program must continue to
meet the criteria for Fast Track designation for an application to be reviewed under the Fast Track Program. Previously, the FDA approved
cancer therapies primarily based on patient survival rates or data on improved quality of life. While the FDA could consider evidence of partial
tumor shrinkage, which is often part of the data relied on for approval, such information alone was usually insufficient to warrant approval of a
cancer therapy, except in limited situations. Under the FDA’s new policy, which became effective on February 19, 1998, Fast Track designation
ordinarily allows a product to be considered for accelerated approval through the use of surrogate endpoints to demonstrate effectiveness. As a
result of these provisions, the FDA has broadened authority to consider evidence of partial tumor shrinkage or other surrogate endpoints of
clinical benefit for approval. This new policy is intended to facilitate the study of cancer therapies and shorten the total time for marketing
approvals. Under accelerated approval, the manufacturer must continue with the clinical testing of the product after marketing approval to validate
that the surrogate endpoint did predict meaningful clinical benefit. To the extent applicable we intend to take advantage of the Fast Track
programs to obtain accelerated approval on our future products, however, it is too early to tell what effect, if any, these provisions may have on
the approval of our product candidates.
Other Regulations
Various Federal and state laws, regulations, and recommendations relating to safe working conditions, laboratory practices, the
experimental use of animals, and the purchase, storage, movements, import, export, use, and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease agents, are used in connection with our research or applicable to our
activities. They include, among others, the U.S. Atomic Energy Act, the Clean Air Act, the Clean Water Act, the Occupational Safety and Health
Act, the National Environmental Policy Act, the Toxic Substances Control Act, and Resources Conservation and Recovery Act, national
restrictions on technology transfer, import, export, and customs regulations, and other present and possible future local, state, or federal
regulation. The extent of governmental regulation which might result from future legislation or administrative action cannot be accurately
predicted.
There is a series of international harmonization treaties, known as the ICH treaties that enable drug development to be conducted on an
international basis. These treaties specify the manner in which clinical trials are to be conducted, and if trials adhere to the specified requirements,
then they are accepted by the regulatory bodies of in the signatory countries. In this way the Advaxis Phase I study conducted outside of the
U.S. is accepted by the FDA.
Manufacturing
The FDA requires that any drug or formulation to be tested in humans be manufactured in accordance with its GMP regulations. This
has been extended to include any drug which will be tested for safety in animals in support of human testing. The GMPs set certain minimum
requirements for procedures, record-keeping, and the physical characteristics of the laboratories used in the production of these drugs.
We have entered into a Long Term Vaccine Supply Agreement with Cobra for the purpose of manufacturing our vaccines. Cobra has
extensive experience in manufacturing gene therapy products for investigational studies. Cobra is a full service manufacturing organization that
manufactures and supplies DNA-based therapeutics for the pharmaceutical and biotech industry. These services include the GMP manufacturing
of DNA, recombinant protein, viruses, mammalian cells products and cell banking. Cobra’s manufacturing plan for us calls for several
manufacturing stages, including process development, manufacturing of non-GMP material for toxicology studies and manufacturing of GMP
material for the Phase I and Phase II trials.
We have entered into a GMP compliant filing of ADXS11-001 agreement with Vibalogics GmbH, Zeppelinstr. 2, 27472 Cuxhaven,
Germany to fill up to 5,000 vials of our clinical supplies. This agreement was for €84,800 and is near completion in preparation for our Phase II
CIN trial.
15
Competition
The biotechnology and biopharmaceutical industries are characterized by rapid technological developments and a high degree of
competition. As a result, our actual or proposed products could become obsolete before we recoup any portion of our related research and
development and commercialization expenses. The biotechnology and biopharmaceutical industries are highly competitive, and this competition
comes from both biotechnology firms and from major pharmaceutical and chemical companies, including Antigenics, Inc., Avi BioPharma, Inc.,
Biomira, Inc., Cellgenesis Inc., Biovest International, Biosante Pharmaceuticals, Inc , Dendreon Corporation, Pharmexa-Epimmune, Inc.,
Genzyme Corp., Progenics Pharmaceuticals, Inc., and Vical Incorporated each of which is pursuing cancer vaccines. Many of these companies
have substantially greater financial, marketing, and human resources than we do (including, in some cases, substantially greater experience in
clinical testing, manufacturing, and marketing of pharmaceutical products). We also experience competition in the development of our products
from universities and other research institutions and compete with others in acquiring technology from such universities and institutions. In
addition, certain of our products may be subject to competition from products developed using other technologies, some of which have completed
numerous clinical trials.
We expect that our products under development and in clinical trials will address major markets within the cancer sector. Our
competition will be determined in part by the potential indications for which drugs are developed and ultimately approved by regulatory
authorities. Additionally, the timing of market introduction of some of our potential products or of competitors’ products may be an important
competitive factor. Accordingly, the speed with which we can develop products, complete preclinical testing, clinical trials and approval
processes and supply commercial quantities to market are expected to be important competitive factors. We expect that competition among
products approved for sale will be based on various factors, including product efficacy, safety, reliability, availability, price and patent position.
Merck has developed the drug Gardasil and GSK has developed the drug Cervarix which can prevent cervical cancer by vaccinating
women against the virus HPV, the cause of the disease. Gardasil is directed against four HPV species while Cervarix is directed against
two. Neither of these agents have an approved indication for women who have a prior exposure to the HPV strains that they protect against, nor
are women protected from other strains of HPV that the drugs do not treat. It has been written that these are cancer vaccines, which is not
true. They are anti-virus vaccines intended to protect against strains of the HPV virus.
The presence of these agents in the market does not eliminate the market for a therapeutic vaccine directed against invasive cervical
cancer and CIN for a number of reasons:
HPV is the most common sexually treated disease in the U.S., and since prior exposure to the virus renders these anti-viral agents
ineffective they tend to be limited to younger women and do not offer protection for women who are already infected. This is estimated to be as
much as (or more than) 25% of the female population of the U.S.
There are believed to be approximately 10 high risk species of HPV, but these agents only protect against the most common 2-4
strains. If a woman contracts a high risk HPV species that is not one of those the drugs will not work.
Women with HPV are typically infected for over twenty years or more before they manifest cervical cancer. Thus, the true prophylactic
effect of these agents can only be inferred at this time. We believe that there currently exists a significant population of young woman who have
not received these agents, or for whom they will not work, and who will manifest HPV related cervical disease for the next 40+ years. We
believe this population will continue to grow until such time as a significant percentage of women who have not been exposed to HPV are
vaccinated; which we believe is not likely to occur within the next decade or longer. We do not know at this time whether a significant number of
women will be vaccinated to have an effect on the epidemiology of this disease. Currently, men are not vaccinated.
With the exception of the campaign to eradicate polio in which vaccination was mandatory for all school age children, vaccination is a
difficult model to accomplish because it is virtually impossible to treat everyone in any given country, much less the entire world. This is
especially true for cervical cancer as the incentive for men to be vaccinated is small, and infected men keep the pathogen circulating in the
population.
Taken together, experts believe that there will be a cervical cancer and CIN market for the foreseeable future.
Scientific Advisory Board
We maintain a Scientific Advisory Board consisting of internationally recognized scientists who advise us on scientific and technical
aspects of our business. The Scientific Advisory Board meets on an as needed basis to review specific projects and to assess the value of new
technologies and developments to us. In addition, individual members of the scientific advisory board meet with us periodically to provide advice
in particular areas of expertise. The scientific advisory board consists of the following members, information with respect to whom is set forth
below: Yvonne Paterson, Ph.D.; Carl June, M.D.; Pramod Srivastava, Ph.D.; Bennett Lorber, M.D.; David Weiner, Ph.D.; and Mark Einstein,
M.D.
Dr. Yvonne Paterson. For a description of our relationship with Dr. Paterson, please see “Partnerships and Agreements-Dr. Yvonne
Paterson.”
16
Carl June, M.D. Dr. June is currently Facility Director, Human Immunology Center and Professor, Pathology and Laboratory
Medicine Translational Research at the Abramson Cancer Center at Penn, and previously a Director of Translational Research at the Center and
Investigator of the Abramson Family Cancer Research Institute. He is a graduate of the Naval Academy in Annapolis, and Baylor College of
Medicine in Houston. He had graduate training in immunology and malaria with Dr. Paul-Henri Lambert at the World Health Organization,
Geneva, Switzerland from 1978 to 1979, and post-doctoral training in transplantation biology with Dr. E. Donnell Thomas at the Fred
Hutchinson Cancer Research Center in Seattle from 1983 to 1986. He is board certified in Internal Medicine and Medical Oncology. Dr. June
founded the Immune Cell Biology Program and was head of the Department of Immunology at the Naval Medical Research Institute from 1990
to 1995. Dr. June rose to Professor in the Departments of Medicine and Cell and Molecular Biology at the Uniformed Services University for
the Health Sciences in Bethesda, Maryland before assuming his current positions as of February 1, 1999. Dr. June maintains a research
laboratory that studies various mechanisms of lymphocyte activation that relate to immune tolerance and adoptive immunotherapy.
Pramod Srivastava, Ph.D. Dr. Srivastava is Professor of Immunology at the University of Connecticut School of Medicine, where he
is also Director of the Center for Immunotherapy of Cancer and Infectious Diseases. He holds the Physicians Health Services Chair in Cancer
Immunology at the University of Connecticut School of Medicine. Professor Srivastava is the Scientific Founder of Antigenics, Inc. He serves
on the Scientific Advisory Council of the Cancer Research Institute, New York, and was a member of the Experimental Immunology Study
Section of the National Institutes of Health of the U.S. Government from 1994 to 1999. He serves presently on the board of directors of two
privately held companies: Ikonisys, in New Haven, Connecticut and CambriaTech, Lugano, Switzerland. In 1997, he was inducted into the
Roll of Honor of the International Union Against Cancer and was listed in Who’s Who in Science and Engineering. He is among the twenty
founding members of the Academy of Cancer Immunology, New York. Dr. Srivastava obtained his bachelor’s degree in biology and
chemistry and a master’s degree in botany (paleontology) from the University of Allahabad, India. He then studied yeast genetics at Osaka
University, Japan. He completed his Ph.D. in biochemistry at the Center for Cellular and Molecular Biology, Hyderabad, India, where he
began his work on tumor immunity, including identification of the first proteins that can mediate tumor rejection. He trained at Yale University
and Sloan-Kettering Institute for Cancer Research. Dr. Srivastava has held faculty positions at the Mount Sinai School of Medicine and
Fordham University in New York City.
Bennett Lorber, M.D. Dr. Lorber attended Swarthmore College where he studied zoology and art history. He graduated from the
University of Pennsylvania School of Medicine and did his residency in internal medicine and fellowship in infectious diseases at Temple
University, following which he joined the Temple faculty. At Temple he rose through the ranks to become Professor of Medicine and, in 1988,
was named the first recipient of the Thomas Durant Chair in Medicine. He is also a Professor of Microbiology and Immunology and served as
the Chief of the Section of Infectious Diseases until 2006. He is a Fellow of the American College of Physicians, a Fellow of the Infectious
Diseases Society of America, and a Fellow of the College of Physicians of Philadelphia where he serves as College Secretary and as a member
of the Board of Trustees. Dr. Lorber’s major interest in infectious diseases is in human listeriosis, an area in which he is regarded as an
international authority. He has also been interested in the impact of societal changes on infectious disease patterns as well the relationship
between infectious agents and chronic illness, and he has authored papers exploring these associations. He has been repeatedly honored for his
teaching. Among his honors are 10 golden apples, the Temple University Great Teacher Award, the Clinical Practice Award from the
Pennsylvania College of Internal Medicine, and the Bristol Award from the Infectious Diseases Society of America. In 1996 he was the
recipient of an honorary Doctor of Science degree from Swarthmore College.
David B. Weiner, Ph.D. Dr. David Weiner received his B.S in Biology from the State University of New York and performed
undergraduate research in the Department of Microbiology, Chaired by Dr. Arnie Levine, at Stony Brook University. He completed his MS
and Ph.D. in Developmental Biology/Immunology from the Children’s Hospital Research Foundation at the University of Cincinnati in
1986. He completed his Post Doctoral Fellowship in the Department of Pathology at Penn in 1989, under the direction of Dr. Mark
Greene. At that time he joined the Faculty at the Wistar Institute in Philadelphia. He was recruited back to Penn in 1994. He is currently an
Associate Professor with Tenure in the Department of Pathology, and he is the Associate Chair of the Gene Therapy and Vaccines Graduate
Program at Penn. Of relevance during his career he has worked extensively in the areas of molecular immunology, the development of vaccines
and vaccine technology for infectious diseases and in the area of molecular oncology and immune therapy. His laboratory is considered one of
the founders of the field of DNA vaccines as his group not only was the first to report on the use of this technology for vaccines against HIV,
but was also the first group to advance DNA vaccine technology to clinical evaluation. In addition he has worked on the identification of novel
approaches to inhibit HIV infection by targeting the accessory gene functions of the virus. Dr. Weiner has authored over 260 articles in peer
reviewed journals and is the author of over 28 awarded U.S. patents as well as their international counterparts. He has served and still serves
on many national and international review boards and panels including the NIH Study section, WHO advisory panels, the National Institute for
Biological Standards and Control, Department of Veterans Affairs Scientific Review Panel, as well as the FDA Advisory panel - Center for
Biologics Evaluation and Research, and Adult AIDS Clinical Trial Group, among others. He also serves or has served in an advisory capacity
to several Biotechnology and Pharmaceutical Companies. Dr. Weiner has, through training of young people in his laboratory, advanced over 35
undergraduate scientists to Medical School or Doctoral Programs and has trained 28 Post Doctoral Fellows and 7 Doctoral Candidates as well
as served on fourteen Doctoral Student Committees.
17
Mark Einstein, M.D. Dr. Einstein received his BS degree in Biology from the University of Miami, where he also received his MD
with Research Distinction in Clinical Immunology. He also has an MS in Clinical Research Methods, which he received with Distinction. Dr.
Einstein completed his residency in OB/GYN at Saint Barnabas Medical Center, and was a Galloway Fellow in Gynecologic Oncology at the
Sloan-Kettering Cancer Center. Dr. Einstein has been at the Albert Einstein Cancer Center and Montefiore Medical Center since 1999, where
he has been an attending physician, Assistant Professor of Gynecologic Oncology, and currently the Director of Clinical Research of the
Division of Gynecologic Oncology at the Albert Einstein College of Medicine and Cancer Center, and at the Montefiore Medical Center. He is
a Fellow of the American College of Obstetrics and Gynecology and the American College of Surgeons, as well as belonging to various
research groups such as the American Association for Cancer Research and the American Society for Clinical Oncology. Dr. Einstein’s honors
and awards include; American Cancer Society Research Scholar, American Professors in Gynecology and Obstetrics McNeil Faculty Award,
ACOG/3M Research Award, ACOG/Solvay Research Award, Berlex Oncology Foundation Scholar Award, and others. Dr. Einstein is a
member of the GOG Vaccine subcommittee, chairs the Gynecologic Cancer Foundation National Cervical Cancer Education Campaign, sits on
the Translational Research Working Group Roundtable at NIH/NCI, the NHI AIDS malignancy Consortium, the Gynecologic Cancer
Foundation Task Force for Cervical Cancer Screening and Prevention, as well as three separate committees for the Society of Gynecologic
Oncologists. Dr. Einstein is very active in the clinical assessment of new immunological technologies for the treatment of gynecologic cancers.
Item 1A: Risk Factors.
You should carefully consider the risks described below as well as other information provided to you in this annual report, including
information in the section of this document entitled “Forward-Looking Statements.” The risks and uncertainties described below are not the
only ones facing us. Additional risks and uncertainties not presently known to us or that we currently believe are immaterial may also impair
our business operations. If any of the following risks actually occur, our business, financial condition or results of operations could be
materially adversely affected, the value of our common stock could decline, and you may lose all or part of your investment.
Risks Related to our Business
We are a development stage company.
We are an early stage development stage company with a history of losses and can provide no assurance as to future operating
results. As a result of losses which will continue throughout our development stage, we may exhaust our financial resources and be unable to
complete the development of our production. Our deficit will continue to grow during our drug development period.
We have sustained losses from operations in each fiscal year since our inception, and we expect losses to continue for the indefinite
future, due to the substantial investment in research and development. As of October 31, 2009, we had an accumulated deficit of $16,603,800
and shareholders’ deficiency of $15,733,328. We expect to spend substantial additional sums on the continued administration and research and
development of proprietary products and technologies with no certainty that our products will become commercially viable or profitable as a
result of these expenditures.
As a result of our current lack of financial liquidity and negative stockholders equity, our auditors have expressed substantial concern
about our ability to continue as a “going concern."
Our limited capital resources and operations to date have been funded primarily with the proceeds from public and private equity and
debt financings, NOL and Research tax credits and income earned on investments and grants. Based on our currently available cash, we do not
have adequate cash on hand to cover our anticipated expenses for the next 12 months. If we fail to raise a significant amount of capital, we may
need to significantly curtail operations, cease operations or seek federal bankruptcy protection in the near future. These conditions have caused
our auditors to raise substantial doubt about our ability to continue as a going concern. Consequently, the audit report prepared by our
independent public accounting firm relating to our financial statements for the year ended October 31, 2009 included a going concern explanatory
paragraph.
There can be no assurance that we will receive additional funding from Optimus in connection with the preferred equity financing.
We have entered into the Optimus purchase agreement, pursuant to which Optimus has agreed to purchase up to 500 shares of our
Series A preferred stock at a purchase price of $10,000 per share from time to time ($5.0 million in the aggregate), subject to our ability to effect
and maintain an effective registration statement for the shares underlying the warrant initially issued in connection with the transaction to an
affiliate of Optimus. During January 2010, Optimus purchased 145 shares and remains obligated, from time to time until September 24, 2012, to
purchase up to an additional 355 shares upon notice from us to Optimus, if certain conditions set forth in the purchase agreement are satisfied,
including among things that: (i) we must be in compliance with our SEC reporting obligations, (ii) our common stock must be quoted on the
OTC Bulletin Board or another eligible trading market, (iii) a material adverse effect relating to, among other things, our results of operations,
assets, business or financial condition must not have occurred since September 24, 2009, other than losses incurred in the ordinary course of
business, (iv) we must not be in default under any material agreement, and (v) Optimus and its affiliates must not own more than 9.99% of our
outstanding common stock, and (vi) we must comply with certain other requirements set forth in the Optimus purchase agreement. If we fail to
comply with any of these requirements, including the ability to effect and maintain a registration statement underlying the warrant issued to an
affiliate of Optimus, Optimus will not be obligated to purchase additional shares of our Series A preferred stock and we will not receive any
additional funding from Optimus. Moreover, if we exercise our option to require Optimus to purchase additional shares of our Series A preferred
stock, and our common stock has a closing price of less than $0.20 per share on the trading day immediately preceding our delivery of the
exercise notice, we will trigger certain anti-dilution protection provisions in certain outstanding warrants that would result in an adjustment to the
number and price of a significant number of our outstanding warrants.
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Our business will require substantial additional investment that we have not yet secured, and our failure to raise capital and/or pursue
partnering opportunities will materially adversely affect our business, financial condition and results of operations.
We expect to continue to spend substantial amounts on research and development, including conducting clinical trials for our product
candidates. However, we will not have sufficient resources to develop fully any new products or technologies unless we are able to raise
substantial additional financing on acceptable terms, secure funds from new partners or consummate a preferred equity financing under the
Optimus purchase agreement. We cannot be assured that financing will be available at all. Our failure to raise a significant amount of capital in
the near future, will materially adversely affect our business, financial condition and results of operations, and we may need to significantly curtail
operations, cease operations or seek federal bankruptcy protection in the near future. Any additional investments or resources required would be
approached, to the extent appropriate in the circumstances, in an incremental fashion to attempt to cause minimal disruption or dilution. Any
additional capital raised through the sale of equity or convertible debt securities will result in dilution to our existing stockholders. No assurances
can be given, however, that we will be able to achieve these goals or that we will be able to continue as a going concern.
We have significant indebtedness which may restrict our business and operations, adversely affect our cash flow and restrict our future
access to sufficient funding to finance desired growth.
As of October 31, 2009, the face value of our outstanding indebtedness notes was approximately $4.3 million, of which approximately
$1.0 million is outstanding to our chief executive officer. The total face value of the notes outstanding as of October 31, 2009, other than the
Moore Notes, is due on or before July 30, 2010. We dedicate a substantial portion of our cash to pay interest and principal on our debt. If we are
not able to service our debt, we would need to refinance all or part of that debt, sell assets, borrow more money or sell securities, which we may
not be able to do on commercially reasonable terms, or at all.
As of October 31, 2009, $3.3 million of this indebtedness is secured by substantially all of our assets. The terms of our notes include
customary events of default and covenants that restrict our ability to incur additional indebtedness. These restrictions and covenants may prevent
us from engaging in transactions that might otherwise be considered beneficial to us. A breach of the provisions of our indebtedness could result
in an event of default under our outstanding notes. If an event of default occurs under our notes (after any applicable notice and cure periods), the
holders would be entitled to accelerate the repayment of amounts outstanding, plus accrued and unpaid interest. In the event of a default under
our senior indebtedness, the holders could also foreclose against the assets securing such obligations. In the event of a foreclosure on all or
substantially all of our assets, we may not be able to continue to operate as a going concern.
Our limited operating history does not afford investors a sufficient history on which to base an investment decision.
We commenced our Listeria System vaccine development business in February 2002 and have existed as a development stage company
since such time. Prior thereto we conducted no business. Accordingly, we have a limited operating history. Investors must consider the risks
and difficulties we have encountered in the rapidly evolving vaccine and therapeutic biopharmaceutical industry. Such risks include the
following:
·
·
·
·
·
·
competition from companies that have substantially greater assets and financial resources than we have;
need for acceptance of products;
ability to anticipate and adapt to a competitive market and rapid technological developments;
amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and
infrastructure;
need to rely on multiple levels of complex financing agreements with outside funding due to the length of the product
development cycles and governmental approved protocols associated with the pharmaceutical industry; and
dependence upon key personnel including key independent consultants and advisors.
We cannot be certain that our strategy will be successful or that we will successfully address these risks. In the event that we do not
successfully address these risks, our business, prospects, financial condition and results of operations could be materially and adversely
affected. We may be required to reduce our staff, discontinue certain research or development programs of our future products and cease to
operate.
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We can provide no assurance of the successful and timely development of new products.
Our products are at various stages of research and development. Further development and extensive testing will be required to
determine their technical feasibility and commercial viability. Our success will depend on our ability to achieve scientific and technological
advances and to translate such advances into reliable, commercially competitive products on a timely basis. Immunotherapy and vaccine products
that we may develop are not likely to be commercially available until five to ten or more years. The proposed development schedules for our
products may be affected by a variety of factors, including technological difficulties, proprietary technology of others, and changes in
governmental regulation, many of which will not be within our control. Any delay in the development, introduction or marketing of our products
could result either in such products being marketed at a time when their cost and performance characteristics would not be competitive in the
marketplace or in the shortening of their commercial lives. In light of the long-term nature of our projects, the unproven technology involved and
the other factors described elsewhere in “Risk Factors,” there can be no assurance that we will be able to successfully complete the development
or marketing of any new products.
Our research and development expenses are subject to uncertainty.
Factors affecting our research and development expenses include, but are not limited to:
·
·
·
·
·
·
competition from companies that have substantially greater assets and financial resources than we have;
need for acceptance of products;
ability to anticipate and adapt to a competitive market and rapid technological developments;
amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and
infrastructure;
need to rely on multiple levels of outside funding due to the length of the product development cycles and governmental
approved protocols associated with the pharmaceutical industry; and
dependence upon key personnel including key independent consultants and advisors.
We are subject to numerous risks inherent in conducting clinical trials.
We outsourced our clinical trials and entered into a contract with Numoda to manage the execution of two Phase II trials for the
assessment of our agent ADXS11-001 in the treatment of advanced cervix cancer in women who have failed prior cytotoxic treatment, and in the
treatment of CIN, the precursor condition to cervix cancer. We expect to conduct the CIN trial in the U.S. and we expect to conduct the cervix
cancer trial in India in association with the clinical research organization Max Neeman International. These trials are scheduled to begin during the
second fiscal quarter of 2010.
On December 15, 2009, the Company announced its Phase II Trial Collaboration with the National Cancer Institute Gynecologic
Oncology Group to Study ADXS11-001 in Sixty-Patient Study. The Company will collaborate with the Gynecologic Oncology Group (GOG),
a collaborative research group of the National Cancer Institute (NCI), in a multicenter, Phase II clinical trial of the Company’s lead drug
candidate, ADXS11-001 in the treatment of advanced cervix cancer in women who have failed prior cytotoxic therapy. This Phase II trial will be
conducted by GOG investigators and largely underwritten by the NCI. The study’s patient population is a very sick and rapidly progressive
patient population that was treated in Advaxis Phase I trial of ADXS11-001. Under this agreement Advaxis is responsible for covering the costs
of translational research and has agreed to pay a total of $8,003 per patient, with the bulk of the costs of this study underwritten by NCI.
Agreements with clinical investigators and medical institutions for clinical testing and with other third parties for data management
services, place substantial responsibilities on these parties which, if unmet, could result in delays in, or termination of, our clinical trials. For
example, if any of our clinical trial sites fail to comply with FDA-approved good clinical practices, we may be unable to use the data gathered at
those sites. If these clinical investigators, medical institutions or other third parties do not carry out their contractual duties or obligations or fail to
meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical
protocols or for other reasons, our clinical trials may be extended, delayed or terminated, and we may be unable to obtain regulatory approval for
or successfully commercialize our agent ADXS11-001. We are not certain that we will successfully recruit enough patients to complete our
clinical trials. Delays in recruitment and such agreements would delay the initiation of the Phase II trials of ADXS11-001.
We or our regulators may suspend or terminate our clinical trials for a number of reasons. We may voluntarily suspend or terminate our
clinical trials if at any time we believe they present an unacceptable risk to the patients enrolled in our clinical trials. In addition, regulatory
agencies may order the temporary or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not being
conducted in accordance with applicable regulatory requirements or that they present an unacceptable safety risk to the patients enrolled in our
clinical trials.
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Our clinical trial operations are subject to regulatory inspections at any time. If regulatory inspectors conclude that we or our clinical
trial sites are not in compliance with applicable regulatory requirements for conducting clinical trials, we may receive reports of observations or
warning letters detailing deficiencies, and we will be required to implement corrective actions. If regulatory agencies deem our responses to be
inadequate, or are dissatisfied with the corrective actions we or our clinical trial sites have implemented, our clinical trials may be temporarily or
permanently discontinued, we may be fined, we or our investigators may be precluded from conducting any ongoing or any future clinical trials,
the government may refuse to approve our marketing applications or allow us to manufacture or market our products, and we may be criminally
prosecuted.
The successful development of biopharmaceuticals is highly uncertain.
Successful development of biopharmaceuticals is highly uncertain and is dependent on numerous factors, many of which are beyond our
control. Products that appear promising in the early phases of development may fail to reach the market for several reasons including:
·
·
Preclinical study results that may show the product to be less effective than desired (e.g., the study failed to meet its primary
objectives) or to have harmful or problematic side effects;
Failure to receive the necessary regulatory approvals or a delay in receiving such approvals. Among other things, such delays
may be caused by slow enrollment in clinical studies, length of time to achieve study endpoints, additional time requirements
for data analysis, or Biologics License Application preparation, discussions with the FDA, an FDA request for additional
preclinical or clinical data, or unexpected safety or manufacturing issues;
· Manufacturing costs, formulation issues, pricing or reimbursement issues, or other factors that make the product
uneconomical; and
·
The proprietary rights of others and their competing products and technologies that may prevent the product from being
commercialized.
Success in preclinical and early clinical studies does not ensure that large-scale clinical studies will be successful. Clinical results are
frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals. The length of time necessary to complete
clinical studies and to submit an application for marketing approval for a final decision by a regulatory authority varies significantly from one
product to the next, and may be difficult to predict.
We must comply with significant government regulations.
The research and development, manufacture and marketing of human therapeutic and diagnostic products are subject to regulation,
primarily by the FDA in the U.S. and by comparable authorities in other countries. These national agencies and other federal, state, local and
foreign entities regulate, among other things, research and development activities (including testing in animals and in humans) and the testing,
manufacturing, handling, labeling, storage, record keeping, approval, advertising and promotion of the products that we are
developing. Noncompliance with applicable requirements can result in various adverse consequences, including delay in approving or refusal to
approve product licenses or other applications, suspension or termination of clinical investigations, revocation of approvals previously granted,
fines, criminal prosecution, recall or seizure of products, injunctions against shipping products and total or partial suspension of production
and/or refusal to allow a company to enter into governmental supply contracts.
The process of obtaining requisite FDA approval has historically been costly and time-consuming. Current FDA requirements for a
new human biological product to be marketed in the U.S. include: (1) the successful conclusion of preclinical laboratory and animal tests, if
appropriate, to gain preliminary information on the product’s safety; (2) filing with the FDA of an Investigational New Drug Application, which
we refer to as an IND, to conduct human clinical trials for drugs or biologics; (3) the successful completion of adequate and well-controlled
human clinical investigations to establish the safety and efficacy of the product for its recommended use; and (4) filing by a company and
acceptance and approval by the FDA of a Biologic License Application, which we refer to as a BLA, for a biological product, to allow
commercial distribution of a biologic product. A delay in one or more of the procedural steps outlined above could be harmful to us in terms of
getting our product candidates through clinical testing and to market.
We can provide no assurance that our products will obtain regulatory approval or that the results of clinical studies will be favorable.
In February 2006, we received permission from the appropriate governmental agencies in Israel, Mexico and Serbia to conduct Phase I
clinical testing of ADXS11-001, our Listeria -based cancer vaccine that targets cervical cancer in women in those countries. The study was
completed in the fiscal quarter ended January 31, 2008. The next step was to manufacture and test our product for future sale or distribution in
the U.S. which required a filing of an IND with the FDA for our Phase II CIN trial. The filing was based on information from the Phase I trial
and other pre-clinical information. On January 6, 2009 we received permission to conduct our clinical trial under this IND from the
FDA. However, even though we are allowed to conduct this trial, as with any experimental agent, we are always at risk to be placed on clinical
hold by the FDA at any time as our product may have effects on humans are not fully understood or documented. There can be delays in
obtaining FDA or any other necessary regulatory approvals of any proposed product and failure to receive such approvals would have an adverse
effect on the product’s potential commercial success and on our business, prospects, financial condition and results of operations. In addition, it
is possible that a product may be found to be ineffective or unsafe due to conditions or facts which arise after development has been completed
and regulatory approvals have been obtained. In this event, we may be required to withdraw such product from the market. To the extent that
our success will depend on any regulatory approvals from governmental authorities outside of the U.S. that perform roles similar to that of the
FDA, uncertainties similar to those stated above will also exist.
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We rely upon patents to protect our technology. We may be unable to protect our intellectual property rights and we may be liable for
infringing the intellectual property rights of others.
Our ability to compete effectively will depend on our ability to maintain the proprietary nature of our technologies, including the Listeria
System, and the proprietary technology of others with which we have entered into licensing agreements. As of October 31, 2009 we have
licensed 24 patents that have been issued and licenses for 15 patents are pending from Penn filed in some of the largest markets in the world and
we are negotiating to enter into a Second Amended and Restated Agreement with Penn for the rights to an additional 35 patents that Penn has
applied for patents. Further, we rely on a combination of trade secrets and nondisclosure, and other contractual agreements and technical
measures to protect our rights in the technology. We depend upon confidentiality agreements with our officers, employees, consultants, and
subcontractors to maintain the proprietary nature of the technology. These measures may not afford us sufficient or complete protection, and
others may independently develop technology similar to ours, otherwise avoid the confidentiality agreements, or produce patents that would
materially and adversely affect our business, prospects, financial condition, and results of operations. Such competitive events, technologies and
patents may limit our ability to raise funds, prevent other companies from collaborating with us, and in certain cases prevent us from further
developing our technology due to third party patent blocking rights.
We are aware of a private company, Anza Therapeutics, Inc (formerly Cerus Corporation), which is no longer in existence, but had been
developing Listeria vaccines. We believe that through our exclusive license with Penn we have earliest known and dominant patent position in
the U.S. for the use of recombinant Listeria monocytogenes expressing proteins or tumor antigens as a vaccine for the treatment of infectious
diseases and tumors. We successfully defended our intellectual property by contesting a challenge made by Anza to our patent position in Europe
on a claim not available in the U.S. The European Patent Office, which we refer to as the EPO, Board of Appeals in Munich, Germany has ruled
in favor of The Trustees of Penn and its exclusive licensee Advaxis and reversed a patent ruling that revoked a technology patent that had resulted
from an opposition filed by Anza. The ruling of the EPO Board of Appeals is final and can not be appealed. The granted claims, the subject
matter of which was discovered by Dr. Yvonne Paterson, scientific founder of Advaxis, are directed to the method of preparation and
composition of matter of recombinant bacteria expressing tumor antigens for treatment of patients with cancer. Based on searches of publicly
available databases, we do not believe that Anza or any other third party owns any published Listeria patents or has any issued patent claims that
might materially and adversely affect our ability to operate our business as currently contemplated in the field of recombinant Listeria
monocytogenes. Additionally, our proprietary position that is the issued patents and licenses for pending applications restricts anyone from using
plasmid based Listeria constructs, or those that are bioengineered to deliver antigens fused to LLO, ActA, or fragments of LLO or ActA.
We are dependent upon our license agreement with Penn; if we fail to make payments due and owing to Penn under our license agreement,
our business will be materially and adversely affected.
Although we have obtained licenses with regard to the use of Penn’s patents as described herein, we can provide no assurance that such
licenses will not be terminated or expire during critical periods, that we will be able to obtain licenses for other rights which may be important to
us, or, if obtained, that such licenses will be obtained on commercially reasonable terms.
Pursuant to an option contained in our existing license agreement with Penn, as amended, we have been in negotiations with Penn since
March 2007 to further amend and restate the terms of the license agreement to acquire the rights to use an additional 12 or more dockets
(patentable research agents) under Penn’s ownership which, as of October 31, 2009, have generated approximately 35 additional patent
applications for Listeria and LLO-based vaccine dockets. As a condition to our exercising this option and entering into an amendment, we must,
among other things, pay Penn a mutually agreeable option exercise fee and reimburse Penn for all of its historically accrued patent and licensing
expenses relating to these patents (dockets), including their legal and filing fees. As of October 31, 2009, such expenses totaled approximately
$548,105. Although the option exercise period formally expired in June 2009, we remain in negotiations with Penn over the form of payment
and expect to reach a conclusion at the close of our next financial raise. If we fail to acquire a license to use the additional dockets and patent
applications, our patent position may be materially and adversely affected. In addition, as of October 31, 2009, approximately $328,820 in fees
and expense are due and owing to Penn by us under our existing license agreement and other related agreements. While we consider our
relationship with Penn to be good, we are in frequent communications over payment of past due invoices and other payables due to our lack of
cash. If we fail to reach a mutual agreement, Penn may issue a default notice and we will have 60 days to cure the breach or be subject to the
termination of the agreement.
22
If we are unable to maintain and/or obtain licenses, we may have to develop alternatives to avoid infringing on the patents of others,
potentially causing increased costs and delays in product development and introduction or precluding the development, manufacture, or sale of
planned products. Some of our licenses provide for limited periods of exclusivity that require minimum license fees and payments and/or may be
extended only with the consent of the licensor. We can provide no assurance that we will be able to meet these minimum license fees in the future
or that these third parties will grant extensions on any or all such licenses. This same restriction may be contained in licenses obtained in the
future. Additionally, we can provide no assurance that the patents underlying any licenses will be valid and enforceable. Furthermore, in 2001, an
issue arose regarding the inventorship of U.S. Patent 6,565,852 and U.S. Patent Application No. 09/537,642. These patent rights are included in
the patent rights licensed by us from Penn. GlaxoSmithKline plc, Penn and we expect that the issue will be resolved through a correction of
inventorship to add certain GSK inventors, where necessary and appropriate, an assignment of GSK’s possible rights under these patent rights to
Penn, and a sublicense from us to GSK of certain subject matter, which is not central to our business plan. To date, this arrangement has not been
finalized and we cannot assure that this issue will ultimately be resolved in the manner described above. To the extent any products developed by
us are based on licensed technology, royalty payments on the licenses will reduce our gross profit from such product sales and may render the
sales of such products uneconomical.
We have no manufacturing, sales, marketing or distribution capability and we must rely upon third parties for such.
We do not intend to create facilities to manufacture our products and therefore are dependent upon third parties to do so. We currently
have an agreement with Cobra Manufacturing for production of our immunotherapies and vaccines for research and development and testing
purposes. Our reliance on third parties for the manufacture of our products creates a dependency that could severely disrupt our research and
development, our clinical testing, and ultimately our sales and marketing efforts if the source of such supply proves to be unreliable or
unavailable. If the contracted manufacturing source is unreliable or unavailable, we may not be able to replace the development of our product
candidates, our clinical testing program may not be able to go forward and our entire business plan could fail.
If we are unable to establish or manage strategic collaborations in the future, our revenue and product development may be limited.
Our strategy includes eventual substantial reliance upon strategic collaborations for marketing and commercialization of ADXS11-001,
and we may rely even more on strategic collaborations for research, development, marketing and commercialization of our other product
candidates. To date, we have not entered into any strategic collaborations with third parties capable of providing these services although we have
been heavily reliant upon third party outsourcing for our clinical trials execution. In addition, we have not yet marketed or sold any of our
product candidates or entered into successful collaborations for these services in order to ultimately commercialize our product
candidates. Establishing strategic collaborations is difficult and time-consuming. Our discussion with potential collaborators may not lead to the
establishment of collaborations on favorable terms, if at all. For example, potential collaborators may reject collaborations based upon their
assessment of our financial, regulatory or intellectual property position. If we successfully establish new collaborations, these relationships may
never result in the successful development or commercialization of our product candidates or the generation of sales revenue. To the extent that
we enter into co-promotion or other collaborative arrangements, our product revenues are likely to be lower than if we directly marketed and sold
any products that we may develop.
Management of our relationships with our collaborators will require:
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significant time and effort from our management team;
coordination of our research and development programs with the research and development priorities of our collaborators;
and
effective allocation of our resources to multiple projects.
If we continue to enter into research and development collaborations at the early phases of product development, our success will in part
depend on the performance of our corporate collaborators. We will not directly control the amount or timing of resources devoted by our
corporate collaborators to activities related to our product candidates. Our corporate collaborators may not commit sufficient resources to our
research and development programs or the commercialization, marketing or distribution of our product candidates. If any corporate collaborator
fails to commit sufficient resources, our preclinical or clinical development programs related to this collaboration could be delayed or
terminated. Also, our collaborators may pursue existing or other development-stage products or alternative technologies in preference to those
being developed in collaboration with us. Finally, if we fail to make required milestone or royalty payments to our collaborators or to observe
other obligations in our agreements with them, our collaborators may have the right to terminate those agreements.
We may incur substantial liabilities from any product liability claims if our insurance coverage for those claims is inadequate.
We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials, and will
face an even greater risk if the product candidates are sold commercially. An individual may bring a liability claim against us if one of the product
candidates causes, or merely appears to have caused, an injury. If we cannot successfully defend ourselves against the product liability claim, we
will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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decreased demand for our product candidates;
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damage to our reputation;
withdrawal of clinical trial participants;
costs of related litigation;
substantial monetary awards to patients or other claimants;
loss of revenues;
the inability to commercialize product candidates; and
increased difficulty in raising required additional funds in the private and public capital markets.
We have insurance coverage on our Phase II CIN and cervical cancer trials for each clinical trial site. We do not have product liability
insurance because we do not have products on the market. We currently are in the process of obtaining insurance coverage and to expand such
coverage to include the sale of commercial products if marketing approval is obtained for any of our product candidates. However, insurance
coverage is increasingly expensive and we may not be able to maintain insurance coverage at a reasonable cost and we may not be able to obtain
insurance coverage that will be adequate to satisfy any liability that may arise.
We may incur significant costs complying with environmental laws and regulations.
We and our contracted third parties will use hazardous materials, including chemicals and biological agents and compounds that could be
dangerous to human health and safety or the environment. As appropriate, we will store these materials and wastes resulting from their use at our
or our outsourced laboratory facility pending their ultimate use or disposal. We will contract with a third party to properly dispose of these
materials and wastes. We will be subject to a variety of federal, state and local laws and regulations governing the use, generation, manufacture,
storage, handling and disposal of these materials and wastes. We may also incur significant costs complying with environmental laws and
regulations adopted in the future.
If we use biological and hazardous materials in a manner that causes injury, we may be liable for damages.
Our research and development and manufacturing activities will involve the use of biological and hazardous materials. Although we
believe our safety procedures for handling and disposing of these materials will comply with federal, state and local laws and regulations, we
cannot entirely eliminate the risk of accidental injury or contamination from the use, storage, handling or disposal of these materials. We do not
carry specific biological or hazardous waste insurance coverage, workers compensation or property and casualty and general liability insurance
policies which include coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in
the event of contamination or injury, we could be held liable for damages or penalized with fines in an amount exceeding our resources, and our
clinical trials or regulatory approvals could be suspended or terminated.
We need to attract and retain highly skilled personnel; we may be unable to effectively manage growth with our limited resources.
As of October 31, 2009, we had eight employees. We do not intend to significantly expand our operations and staff unless we get
adequate financing. If funded then our new employees may include key managerial, technical, financial, research and development and operations
personnel who will not have been fully integrated into our operations. We will be required to expand our operational and financial systems
significantly and to expand, train and manage our work force in order to manage the expansion of our operations. Our failure to fully integrate
any new employees into our operations could have a material adverse effect on our business, prospects, financial condition and results of
operations.
As of January 1, 2009, we operate under an agreement with AlphaStaff, a professional employment organization that provides us with
payroll and human resources services. Our ability to attract and retain highly skilled personnel is critical to our operations and expansion. We
face competition for these types of personnel from other technology companies and more established organizations, many of which have
significantly larger operations and greater financial, technical, human and other resources than we have. We may not be successful in attracting
and retaining qualified personnel on a timely basis, on competitive terms, or at all. If we are not successful in attracting and retaining these
personnel, our business, prospects, financial condition and results of operations will be materially adversely affected. In such circumstances we
may be unable to conduct certain research and development programs, unable to adequately manage our clinical trials and other products, and
unable to adequately address our management needs. As of the pay period ending January 4, 2009 we reduced the salary of the highly
compensated employees to meet our economic challenges and our cash flow needs. As of October 31, 2009 substantially all of the back pay and
reduced pay was restored.
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We depend upon our senior management and key consultants and their loss or unavailability could put us at a competitive disadvantage.
We depend upon the efforts and abilities of our senior executives, as well as the services of several key consultants, including Yvonne
Paterson, Ph.D. The loss or unavailability of the services of any of these individuals for any significant period of time could have a material
adverse effect on our business, prospects, financial condition and results of operations. We have not obtained, do not own, nor are we the
beneficiary of, key-person life insurance.
Risks Related to the Biotechnology / Biopharmaceutical Industry
The biotechnology and biopharmaceutical industries are characterized by rapid technological developments and a high degree of
competition. We may be unable to compete with more substantial enterprises.
The biotechnology and biopharmaceutical industries are characterized by rapid technological developments and a high degree of
competition. Competition in the biopharmaceutical industry is based significantly on scientific and technological factors. These factors include
the availability of patent and other protection for technology and products, the ability to commercialize technological developments and the ability
to obtain governmental approval for testing, manufacturing and marketing. We compete with specialized biopharmaceutical firms in the U.S.,
Europe and elsewhere, as well as a growing number of large pharmaceutical companies that are applying biotechnology to their
operations. Many biopharmaceutical companies have focused their development efforts in the human therapeutics area, including cancer. Many
major pharmaceutical companies have developed or acquired internal biotechnology capabilities or made commercial arrangements with other
biopharmaceutical companies. These companies, as well as academic institutions and governmental agencies and private research organizations,
also compete with us in recruiting and retaining highly qualified scientific personnel and consultants. Our ability to compete successfully with
other companies in the pharmaceutical field will also depend to a considerable degree on the continuing availability of capital to us.
We are aware of certain products under development or manufactured by competitors that are used for the prevention, diagnosis, or
treatment of certain diseases we have targeted for product development. Various companies are developing biopharmaceutical products that
potentially directly compete with our product candidates even though their approach to such treatment is different. Several companies, such as
Anza Therapeutics, Inc in particular, as well as Biosante Pharmaceuticals Inc., Antigenics, Inc., Avi BioPharma, Inc., Biomira, Inc., Biovest
International, Dendreon Corporation, Pharmexa-Epimmune, Inc., Genzyme Corp., Progenics Pharmaceuticals, Inc., Vical Incorporated, and
other firms with more resources than we have are currently developing or testing immune therapeutic agents in the same indications we are
targeting.
We expect that our products under development and in clinical trials will address major markets within the cancer sector with a superior
technology that is both safer and more effective than our competitors. Our competition will be determined in part by the potential indications for
which drugs are developed and ultimately approved by regulatory authorities. Additionally, the timing of market introduction of some of our
potential products or of competitors’ products may be an important competitive factor. Accordingly, the relative speed with which we can
develop products, complete preclinical testing, clinical trials and approval processes and supply commercial quantities to market is expected to be
important competitive factors. We expect that competition among products approved for sale will be based on various factors, including product
efficacy, safety, reliability, availability, price and patent position.
Risks Related to the Securities Markets and Investments in our Common Stock
The price of our common stock may be volatile.
The trading price of our common stock may fluctuate substantially. The price of our common stock that will prevail in the market after
the sale of the shares of common stock by the selling stockholders may be higher or lower than the price you have paid, depending on many
factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose
part or all of your investment in our common stock. Those factors that could cause fluctuations include, but are not limited to, the following:
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price and volume fluctuations in the overall stock market from time to time;
fluctuations in stock market prices and trading volumes of similar companies;
actual or anticipated changes in our net loss or fluctuations in our operating results or in the expectations of securities
analysts;
the issuance of new equity securities pursuant to a future offering, including issuances of preferred stock pursuant to the
Optimus purchase agreement;
general economic conditions and trends;
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major catastrophic events;
sales of large blocks of our stock;
significant dilution caused by the anti-dilutive clauses in our financial agreements;
departures of key personnel;
changes in the regulatory status of our product candidates, including results of our clinical trials;
events affecting Penn or any future collaborators;
announcements of new products or technologies, commercial relationships or other events by us or our competitors;
regulatory developments in the U.S. and other countries;
failure of our common stock to be listed or quoted on the Nasdaq Stock Market, NYSE Amex Equities or other national
market system;
changes in accounting principles; and
discussion of us or our stock price by the financial and scientific press and in online investor communities.
Inability of the accounting professional to keep up with the complex rules resulting from numerous financial instruments.
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been
brought against that company. Due to the potential volatility of our stock price, we may therefore be the target of securities litigation in the
future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.
You may have difficulty selling our shares because they are deemed “penny stocks.”
Our common stock is deemed to be “penny stock” as that term is defined in Rule 3a51-1, promulgated under the Exchange Act. Penny
stocks are, generally, stocks:
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with a price of less than $5.00 per share;
that are neither traded on a “recognized” national exchange nor listed on an automated quotation system sponsored by a
registered national securities association meeting certain minimum initial listing standards; and
of issuers with net tangible assets less than $2.0 million (if the issuer has been in continuous operation for at least three
years) or $5.0 million (if in continuous operation for less than three years), or with average revenue of less than $6.0
million for the last three years.
Section 15(g) of the Exchange Act and Rule 15g-2 promulgated thereunder require broker-dealers dealing in penny stocks to provide
potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the
document before effecting any transaction in a “penny stock” for the investor’s account. We urge potential investors to obtain and read this
disclosure carefully before purchasing any shares that are deemed to be “penny stock.”
Rule 15g-9 promulgated under the Exchange Act requires broker-dealers in penny stocks to approve the account of any investor for
transactions in such stocks before selling any “penny stock” to that investor. This procedure requires the broker-dealer to:
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obtain from the investor information about his or her financial situation, investment experience and investment objectives;
reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the
investor has enough knowledge and experience to be able to evaluate the risks of “penny stock” transactions;
provide the investor with a written statement setting forth the basis on which the broker-dealer made his or her
determination; and
receive a signed and dated copy of the statement from the investor, confirming that it accurately reflects the investor’s
financial situation, investment experience and investment objectives.
26
Compliance with these requirements may make it harder for investors in our common stock to resell their shares to third
parties. Accordingly, our common stock should only be purchased by investors, who understand that such investment is a long-term and illiquid
investment, and are capable of and prepared to bear the risk of holding our common stock for an indefinite period of time.
A limited public trading market may cause volatility in the price of our common stock.
Our common stock began trading on the OTC Bulletin Board on July 28, 2005 and is quoted under the symbol ADXS.OB. The
quotation of our common stock on the OTC Bulletin Board does not assure that a meaningful, consistent and liquid trading market currently
exists, and in recent years such market has experienced extreme price and volume fluctuations that have particularly affected the market prices of
many smaller companies like us. Our common stock is thus subject to this volatility. Sales of substantial amounts of common stock, or the
perception that such sales might occur, could adversely affect prevailing market prices of our common stock and our stock price may decline
substantially in a short time and our stockholders could suffer losses or be unable to liquidate their holdings. Also there are large blocks of
restricted stock that have met the holding requirements under Rule 144 that can be unrestricted and sold. Our stock is thinly traded due to the
limited number of shares available for trading on the market thus causing large swings in price.
There is no assurance of an established public trading market.
A regular trading market for our common stock may not be sustained in the future. The effect on the OTC Bulletin Board of these rule
changes and other proposed changes cannot be determined at this time. The OTC Bulletin Board is an inter-dealer, over-the-counter market that
provides significantly less liquidity than the Nasdaq Stock Market. Quotes for stocks included on the OTC Bulletin Board are not listed in the
financial sections of newspapers. As such, investors and potential investors may find it difficult to obtain accurate stock price quotations, and
holders of our common stock may be unable to resell their securities at or near their original offering price or at any price. Market prices for our
common stock will be influenced by a number of factors, including:
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the issuance of new equity securities pursuant to a future offering, including issuances of preferred stock pursuant to the
Optimus purchase agreement;
changes in interest rates;
significant dilution caused by the anti-dilutive clauses in our financial agreements;
competitive developments, including announcements by competitors of new products or services or significant contracts,
acquisitions, strategic partnerships, joint ventures or capital commitments;
variations in quarterly operating results;
change in financial estimates by securities analysts;
the depth and liquidity of the market for our common stock;
investor perceptions of our company and the technologies industries generally; and
general economic and other national conditions.
We may not be able to achieve secondary trading of our stock in certain states because our common stock is not nationally traded.
Because our common stock is not listed for trading on a national securities exchange, our common stock is subject to the securities laws
of the various states and jurisdictions of the U.S. in addition to federal securities law. This regulation covers any primary offering we might
attempt and all secondary trading by our stockholders. If we fail to take appropriate steps to register our common stock or qualify for exemptions
for our common stock in certain states or jurisdictions of the U.S., the investors in those jurisdictions where we have not taken such steps may
not be allowed to purchase our stock or those who presently hold our stock may not be able to resell their shares without substantial effort and
expense. These restrictions and potential costs could be significant burdens on our stockholders.
If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board, which would limit the ability
of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.
Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Exchange Act, as
amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. For
our third quarter 2009 we were unable to file our quarterly report on Form 10-Q in a timely manner, but we were able to make the filing and cure
our compliance deficiency with the OTC Bulletin Board within the grace period allowed by the OTC Bulletin Board. If we fail to remain current
on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be
severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in
the secondary market.
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Our internal control over financial reporting and our disclosure controls and procedures have been ineffective, and failure to improve them
could lead to errors in our financial statements that could require a restatement or untimely filings, which could cause investors to lose
confidence in our reported financial information, and a decline in our stock price.
Our chief executive officer and chief financial officer, after evaluating the effectiveness of our “disclosure controls and procedures”, as
defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e), as of the end of the twelve month period ended October 31,
2009, concluded that as of October 31, 2009, our internal controls over financial reporting were not effective to provide reasonable assurance that
information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified by the SEC, and that material information relating to our company is made known to
management, including chief executive officer and chief financial officer, particularly during the period when our periodic reports are being
prepared, to allow timely decisions regarding required disclosure.
In addition, our management assessed the effectiveness of our internal control over financial reporting as of October 31, 2009 on criteria
for effective internal control over financial reporting described in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has determined that as of October 31, 2009,
there were material weaknesses in our internal control over financial reporting. For example, during the review of the financial statements for the
three month period ended July 31, 2009, it was determined that our initial presentation and accounting of certain of our convertible debt and
warrants in our financial statements was not correct. In light of this material weakness, we concluded that we did not maintain effective internal
control over financial reporting as of July 31, 2009. Our management is responsible for establishing and maintaining adequate internal control
over financial reporting for us. As defined by the Public Company Accounting Oversight Board Auditing Standard No. 5, a material weakness
is a deficiency or a combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim
financial statements will not be prevented or detected. We revised our financial statements for the three month period ended July 31, 2009, prior
to filing our quarterly report on Form 10-Q for the period ended July 31, 2009, but cannot offer assurances that we will not have additional
material weaknesses. While we have taken steps to improve our internal controls and procedures, there may continue to be material weaknesses
or deficiencies in our internal controls or ineffectiveness of our disclosure controls and procedures. As a result of the material weakness in our
internal controls and the ineffectiveness of our disclosure controls and procedures as of October 31, 2009, current and potential stockholders
could lose confidence in our financial reporting, which would harm our business and the trading price of our stock.
We may be exposed to potential risks resulting from new requirements under Section 404 of the Sarbanes-Oxley Act of 2002.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our fiscal year ended October 31, 2008, we were required
to include in our annual report our assessment of the effectiveness of our internal control over financial reporting. Furthermore, beginning with
our fiscal year ending October 31, 2010, our independent registered public accounting firm will be required to attest to whether our assessment of
the effectiveness of our internal control over financial reporting is fairly stated in all material respects and separately report on whether it believes
we have maintained, in all material respects, effective internal control over financial reporting for our fiscal year then ending and for each fiscal
year thereafter. Although we have completed our assessment of the effectiveness of our internal control over financial reporting, we expect to
incur additional expenses and diversion of management’s time as a result of performing the system and process evaluation, testing and
remediation required in order for us and our auditors to comply with the auditor attestation requirements.
Our executive officers and directors can exert significant influence over us and may make decisions that do not always coincide with the
interests of other stockholders.
Our officers and directors, and their affiliates, in the aggregate, beneficially own, as of January 27, 2010, 17.2% of the outstanding
shares of our common stock. As a result, such persons, acting together, have the ability to substantially influence all matters submitted to our
stockholders for approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our
assets, and to control our management and affairs. Accordingly, such concentration of ownership may have the effect of delaying, deferring or
preventing a change in or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our business,
even if such a transaction would be beneficial to other stockholders.
Sales of additional equity securities may adversely affect the market price of our common stock and your rights in us may be reduced.
We expect to continue to incur product development and selling, general and administrative costs, and to satisfy our funding
requirements, we will need to sell additional equity securities, which may be subject to registration rights and warrants with anti-dilutive
protective provisions. The sale or the proposed sale of substantial amounts of our common stock in the public markets may adversely affect the
market price of our common stock and our stock price may decline substantially. Our stockholders may experience substantial dilution and a
reduction in the price that they are able to obtain upon sale of their shares. Also, new equity securities issued may have greater rights, preferences
or privileges than our existing common stock.
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Additional authorized shares of common stock available for issuance may adversely affect the market.
We are authorized to issue 500,000,000 shares of our common stock. As of January 27, 2010, we had 127,201,243 shares of our
common stock issued and outstanding, excluding shares issuable upon exercise of our outstanding warrants and options. As of October 31,
2009, we had outstanding options to purchase 18,331,591 shares of our common stock at a weighted average exercise price of $0.16 per share
and outstanding warrants to purchase 127,456,301 shares of our common stock, with exercise prices ranging from $0.17 to $0.29 per share. To
the extent the shares of common stock are issued or options and warrants are exercised, holders of our common stock will experience dilution. In
addition, in the event of any future financing of equity securities or securities convertible into or exchangeable for, common stock, holders of our
common stock may experience dilution. Moreover, warrants to purchase up to approximately 73.0 million shares of our common stock are
subject to “full ratchet” anti-dilution protection upon certain equity issuances below $0.17 per share (as may be further adjusted).
We are able to issue shares of preferred stock with rights superior to those of holders of our common stock. Such issuances can dilute the
tangible net book value of shares of our common stock.
Our Certification of Incorporation provides for the authorization of 5,000,000 shares of “blank check” preferred stock. Pursuant to our
Certificate of Incorporation, our board of directors is authorized to issue such “blank check” preferred stock with rights that are superior to the
rights of stockholders of our common stock, at a purchase price then approved by our board of directors, which purchase price may be
substantially lower than the market price of shares of our common stock, without stockholder approval. Such issuances can dilute the tangible
net book value of shares of our common stock. Pursuant to the Optimus purchase agreement, Optimus has agreed to purchase up to 500 shares
of our Series A preferred stock at a purchase price of $10,000 per share from time to time until September 24, 2012 ($5.0 million in the
aggregate), subject to certain conditions. As of January 20, 2010, Optimus has purchased 145 shares.
We do not intend to pay dividends other than to holders of our Series A preferred stock.
We do not intend to pay dividends other than to holders of our Series A preferred stock. Holders of Series A preferred stock will be
entitled to receive dividends, which will accrue in shares of Series A preferred stock on an annual basis at a rate equal to 10% per annum from the
issuance date. Accrued dividends will be payable upon redemption of the Series A preferred stock.
Item 2. Properties.
Our corporate offices are currently located at a biotech industrial park located at 675 U.S. Highway 1, North Brunswick, NJ
08902. Our current Lease Amendment Agreement dated as of March 1, 2008 with the NJEDA has expired, but they have agreed to extend our
lease on a monthly basis until December 31, 2010, for two research and development laboratory units (total of 1,600 s.f.) and one office (total of
655 s.f.). We believe our facility will be sufficient for our near term purposes and the facility offers additional space for the foreseeable
future. Our monthly payment on this facility is approximately $6,286 per month. In the event that our facility should, for any reason, become
unavailable, we believe that alternative facilities are available at competitive rates.
Item 3. Legal Proceedings.
As of the date hereof, there are no material pending legal proceedings to which we are a party or of which any of our property is the
subject. In the ordinary course of our business we may become subject to litigation regarding our products or our compliance with applicable
laws, rules, and regulations.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market For Our Common Stock and Related Stockholder Matters.
Since July 28, 2005, our common stock has been quoted on the OTC Bulletin Board under the symbol ADXS.OB. The following table
shows, for the periods indicated, the high and low bid prices per share of our common stock as reported by the OTC Bulletin Board. These bid
prices represent prices quoted by broker-dealers on the OTC Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commissions, and may not represent actual transactions.
29
Fiscal 2009
Fiscal 2008
High
Low High Low
First Quarter (November 1-January 31)
Second Quarter (February 1- April 30)
Third Quarter (May 1 - July 31)
Fourth Quarter (August 1 - October 31)
$
$
$
$
0.06 $
0.05 $
0.21 $
0.19 $
0.01 $
0.02 $
0.04 $
0.06 $
0.20 $
0.15 $
0.135 $
0.07 $
0.13
0.09
0.058
0.03
As of January 27, 2010, there were approximately 100 stockholders of record. Because shares of our common stock are held by
depositaries, brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of stockholders
of record. Based on information available to us, we believe there are approximately 1,700 non-objecting beneficial owners of our shares of our
common stock in addition to the stockholders of record.
We have not declared or paid any cash dividends on our common stock, and we do not anticipate declaring or paying cash dividends for
the foreseeable future. We are not subject to any legal restrictions respecting the payment of dividends, except that we may not pay dividends if
the payment would render us insolvent. Any future determination as to the payment of dividends on our common stock will be at our board of
directors’ discretion and will depend on our financial condition, operating results, capital requirements and other factors that our board of
directors considers to be relevant.
Holders of Series A preferred stock will be entitled to receive dividends, which will accrue in shares of Series A preferred stock on an
annual basis at a rate equal to 10% per annum from the issuance date. Accrued dividends will be payable upon redemption of the Series A
preferred stock. The Series A preferred stock ranks, with respect to dividend rights and rights upon liquidation:
· senior to our common stock; and
· junior to all of our existing and future indebtedness
Equity Compensation Plan Information
The following table provides information regarding the status of our existing equity compensation plans at October 31, 2009:
Weighted-
average
exercise price
of outstanding
options,
warrants and
rights
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in the
previous columns)
Number of shares of
common stock to be
issued on exercise of
outstanding options,
warrants and rights
7,680,192 $
0.22
301,333
10,651,399 $
0.10
3,350,000
Plan category
Equity compensation plans approved by
security holders
Equity compensation plans not approved
by security holders
Total
18,331,591 $
0.16
3,651,333
ITEM 6. Selected Financial Data.
Not required.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This Management’s Discussion and Analysis of Financial Conditions and Results of Operations and other portions of this report contain
forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by the
forward-looking information. Factors that may cause such differences include, but are not limited to, availability and cost of financial
resources, product demand, market acceptance and other factors discussed in this report under the heading “Risk Factors”. This
Management’s Discussion and Analysis of Financial Conditions and Results of Operations should be read in conjunction with our financial
statements and the related notes included elsewhere in this report.
30
Overview
Advaxis is a development stage biotechnology company with the intent to develop safe and effective cancer vaccines that utilize multiple
mechanisms of immunity. We are developing a live Listeria vaccine technology under license from Penn which can be engineered to secrete a
variety of different protein sequences containing tumor-specific antigens leading to the development of a variety of different products. We believe
this vaccine technology is capable of stimulating the body’s immune system to process and recognize the antigen that has a therapeutic effect
upon cancer. We believe that this to be a broadly enabling platform technology that can be applied to the treatment of many types of cancers,
infectious diseases and auto-immune disorders.
The discoveries that underlie this innovative technology are based upon the work of Yvonne Paterson, Ph.D., Professor of
Microbiology at Penn. This technology involves the creation of genetically engineered Listeria that stimulate the innate immune system and
induce an antigen-specific immune response involving both arms of the adaptive immune system. In addition, this technology supports, among
other things, the immune response by altering tumors to make them more susceptible to immune attack, stimulating the development of specific
blood cells that underlie a strong therapeutic immune response.
We have no customers. Since our inception in 2002, we have focused our development efforts upon understanding our technology and
establishing a product development pipeline that incorporates this technology in the therapeutic cancer vaccines area targeting cervical, head and
neck, prostate, breast, and a pre cancerous indication of CIN. Although no products have been commercialized to date, research and development
and investment continues to be placed behind the pipeline and the advancement of this technology. Pipeline development and the further
exploration of the technology for advancement entail risk and expense. We anticipate that our ongoing operational costs will increase significantly
when we begin several of our clinical trials.
The following factors, among others, could cause actual results to differ from those indicated in the above forward-looking statements:
increased length and scope of our clinical trials, failure to recruit patients, increased costs related to intellectual property related expenses,
increased cost of manufacturing and higher consulting costs. These factors or additional risks and uncertainties not known to us or that we
currently deem immaterial may impair business operations and may cause our actual results to differ materially from any forward-looking
statement.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements.
We expect our future sources of liquidity to be primarily debt and equity capital raised from investors, as well as licensing fees and
milestone payments in the event we enter into licensing agreements with third parties, and research collaboration fees in the event we enter into
research collaborations with third parties. Of the $5,809,571 worth of grants applied for, we were awarded one grant from the NIH in August
2009 for $210,739.
On January 15, 2010 we received $278,978 from the New Jersey Economic Development Authority. Under the State of New Jersey
Program for small business we received this cash amount from the sale of our State Net Operating Losses through December 31, 2008 and our
research tax credit for fiscal years 2007 and 2008.
If additional capital were raised through the sale of equity or convertible debt securities, the issuance of such securities would result in
additional dilution to our existing stockholders. If we fail to raise a significant amount of capital, we may need to significantly curtail operations
or cease operations in the near future. Any sale of our common stock below $0.17 per share (as may be further adjusted) will trigger a significant
dilution due to the anti-dilution protection provisions in certain of our outstanding warrants and debt instruments.
Plan of Operations
If we are successful in our financing plans we intend to use a significant portion of the proceeds currently under way to conduct our two
Phase II trials using ADXS11-001, our lead product candidate in development using our Listeria System. One will be a U.S. study in CIN, the
other, the other, an Indian study in cervical cancer. We also anticipate using the funds to further our pre-clinical and clinical, research and
development efforts in developing product candidates and to maintain our preclinical capabilities and strategic activities. Our corporate staff will
be responsible for the general and administrative activities.
During the next 24 months, our strategic focus will be to achieve the following goals and objectives:
· Continue to raise funding to recruit patients in our U.S. based Phase II clinical study of ADXS11-001 in the therapeutic treatment of
CIN and our Indian based Phase II study in late stage cervical cancer;
· Continue to execute our two Phase II clinical studies of ADXS11-001 in the therapeutic treatment of CIN and late-stage cervical cancer
managed by our clinical partner Numoda;
31
· Continue to work on our grant from the NIH awarded in August 2009 for $210,000 to develop a single bioengineered Listeria
monocytogenes (Lm) vaccine to deliver two different antigen-adjuvant proteins.
· Continue to focus on our collaboration with the GOG to carry out our Phase II clinical trial of our ADXS11-001 candidate in the
treatment of cervical cancer largely underwritten by the NCI;
· Continue to focus on our collaboration with the CRUK to carry out our Phase II clinical trial of our ADXS11-001 candidate in the
treatment of head and neck cancer largely underwritten by the CRUK;
· Continue to work with our strategic and development collaborations with academic laboratories;
· Continue the development work necessary to bring ADXS31-142 in the therapeutic treatment of prostate cancer into clinical trials, and
initiate that trial provided that funding is available;
· Continue the development work necessary to bring ADXS31-164 in the therapeutic treatment of breast cancer into clinical trials, and
initiate that trial when and if funding is available; and
· Continue the pre-clinical development of other product candidates, as well as continue research to expand our technology platform.
Our projected annual staff, overhead and preclinical expenses are estimated to be approximately $4.1 million starting in fiscal year
beginning November 1, 2009. The cost of our Phase II clinical studies in therapeutic treatment of CIN and late stage cancer of the cervix is
estimated to be approximately $8.0 million over the estimated 30 month period of the trial. Therefore we must raise additional funds in order to
fund the entire Phase II trials. Our Phase II ADXS11-001 clinical studies are anticipated to commence in February 2010. If we can raise
additional funds we intend to commence the clinical work in prostate cancer by late 2010 or beyond and breast cancer by 2011 or beyond. The
timing and estimated costs of these projects are difficult to predict and depends on factors such as our ability to raise funds and enter into a
corporate partnership.
Overall, given the development stage of our business, our financial needs are driven, in large part, by the progress of our clinical trials
and those of the GOG and CRUK as well as preclinical programs. The cost of these clinical trial projects is significant. As a result, we will are
currently attempting to raise additional debt or equity now and in the future. If the clinical progress continues to be successful and the value of
our company increases, we may attempt to accelerate the timing of the required financing and, conversely if the trial or trials are not successful we
may slow our spending and the timing of additional financing will be deferred. While we will attempt to attract a corporate partnership and
grants, we have not assumed the receipt of any additional financial resources in our cash planning.
We anticipate that our research and development expenses will increase significantly as a result of our expanded development and
commercialization efforts related to clinical trials, product development, and development of strategic and other relationships required ultimately
for the licensing, manufacture and distribution of our product candidates. We regard three of our product candidates as major research and
development projects. The timing, costs and uncertainties of those projects are as follows:
ADXS11-001 - Phase II CIN Trial Summary Information (U.S. 80 Patients)
· Cost incurred to date: approximately $1.1 million
· Estimated future clinical costs: $5.7 million to $6.0 million
· Anticipated Timing: start February 2010; completion August 2012 or beyond
Uncertainties:
· The FDA (or relevant foreign regulatory authority) may place the project on clinical hold or stop the project;
· One or more serious adverse events in otherwise healthy patients enrolled in the trial;
· Difficulty in recruiting patients;
· Delays in the program;
· Material cash flows; and
32
· Anticipated Timing: Unknown at this stage and dependent upon successful trials, adequate fund raising, entering a licensing deal or
pursuant to a marketing collaboration subject to regulatory approval to market and sell the product.
ADXS11-001 - Phase II Cancer of the Cervix Trial Summary Information (India: 110 Patients)
· Cost incurred to date: approximately $101,650
· Estimated future clinical costs: $2.1 million to $2.3 million
· Anticipated Timing: start February 2010; completion August 2012 or beyond
Additional Uncertainties:
· One or more serious adverse events in these late stage cancer patients enrolled in the trial; and
· Difficulty in recruiting patients especially in a new country.
ADXS11-001 - Phase II Cancer of the Cervix Trial Summary Information (U.S. GOG/NCI: 63 Patients)
· Cost incurred to date: less than $10,000
· Estimated future clinical costs: $500,000 (Government absorbed cost $2.5 million to $3.0 million)
· Anticipated Timing: to be determined
Additional Uncertainties:
· Unknown timing in recruiting patients and conducting the study based on GOG/NCI controlled study;
· Delays in the program; and
· Given the economic environment the trial may not get funded.
ADXS11-001 - Phase II Cancer of the Head and Neck Trial Summary Information (U.K. CRUK: approximately 45 Patients)
· Cost incurred to date: less than $25,000
· Estimated future clinical costs: $500,000 (CRUK to absorb cost $2.5 million to $3.0 million)
· Anticipated Timing: to be determined
Additional Uncertainties:
· Unknown timing in recruiting patients and conducting the study based on CRUK controlled study;
· Delays in the program; and
· Given the economic environment the trial may not get funded.
ADXS31-142 - Pre Clinical and Phase I Trial Summary Information (TBD Prostate Cancer 30 Patients)
· Cost incurred to date: approximately $200,000
· Estimated future costs: $3.0 million to $3.5 million
· Anticipated Timing: to be determined
Additional Uncertainties:
·
New agent; and
33
·
FDA (or foreign regulatory authority) may not approve the study.
ADXS31-164 - Phase I trial Summary Information (TBD Breast Cancer 24 Patients)
· Cost incurred to date: $450,000
· Estimated future costs: $3.0 million to $3.5 million
· Anticipated Timing: to be determined
Results of Operations
Fiscal Year 2009 Compared to Fiscal Year 2008
Revenue. Our revenue decreased by $36,046, or 55%, to $29,690 for the year ended October 31, 2009 (“Fiscal 2009 Period”) as compared with
$65,736 for the year ended October 31, 2008 (“Fiscal 2008 Period”) due to a grant from the State of New Jersey received in the Fiscal 2008
Period not being repeated in Fiscal 2009 Period in addition to the State’s request to refund $5,769 in Fiscal 2009 Period in residual grant money
received in the prior fiscal year. These decreases were partially offset in the Fiscal 2009 Period by $35,059 revenue received for a NIH grant.
Research and Development Expenses. Research and development expenses decreased by $166,283 or 7%, to $2,315,557 for the Fiscal 2009
Period as compared with $2,481,840 for the Fiscal 2008 Period, principally attributable to the following:
· Clinical trial expenses increased by $866,111, or 304%, to $1,150,880 from $284,769 primarily due to the close out of our Phase I trial
in the Fiscal 2008 Period which was offset by the start-up costs of our phase II cervical cancer study in India and CIN study in the US both
in the Fiscal 2009 Period.
· Wages, options and lab costs decreased by $215,180 or 18% to $969,639 from $1,184,819 principally due to the recording of the full year’s
bonus accrual in Fiscal 2008 Period that was reversed in Fiscal 2009 Period or $279,558. No bonus accrual was recorded nor paid in Fiscal
2009 Period. Overall the lab costs were lower by $80,387due to the priority given to the lower cost of grant and publication writing. These
lower costs were partially offset by $120,182 in higher option expense relating to new grants in Fiscal 2009 Period and $24,583 in wages
primarily due to the new hire of the Executive Director, Product Development in March 2008.
· Consulting expenses decreased by $25,195, or 18%, to $114,970 from $140,165, principally due to higher option expense of $54,903
recorded in Fiscal 2009 Period relating to the true-up of unvested options at higher stock prices compared to a credit to option expense of
$42,307 due to the true up of unvested option expense recorded in prior fiscal periods at lower stock prices. This increase of option expense
which was offset in part by the lower effort required to prepare the Investigational New Drug filing for the FDA or $80,098 in the Fiscal
2009 Period compared to the same period last year.
· Subcontracted research expenses decreased by $172,473, or 100%, to $0 from $172,473 reflecting the completion of the project prior to
Fiscal 2009 Period performed by Dr. Paterson at Penn, pursuant to a sponsored research agreement ongoing in the Fiscal 2008 Period.
· Manufacturing expenses decreased by $592,907, to $80,067 from $672,974, or 88% resulting from the completion of our clinical supply
program for the upcoming phase II trials prior to Fiscal 2009 Period compared to the manufacturing program in the Fiscal 2008 Period.
· Toxicology study expenses decreased by $26,640, to $0 or 100% due the completion in Fiscal 2008 Period of our toxicology study by
Pharm Olam in connection with our ADXS111-001 product candidates in anticipation of clinical studies in 2008.
General and Administrative Expenses. General and administrative expenses decreased by $334,547, or 11%, to $2,701,133 for the Fiscal 2009
Period as compared with $3,035,680 for the Fiscal 2008 Period primarily attributable to the following:
· Wages, Options and benefit expenses decreased by $40,953, or 3% to $1,169,227 from $1,210,180 principally due to the reversal of a twelve
month bonus accrual in Fiscal 2009 Period or $89,877 that was recorded as expense in Fiscal 2008 Period (no bonus accrual was recorded
nor paid in Fiscal 2009 Period) and less stock was issued in Fiscal 2009 Period compared to $43,030 worth of stock was issued primarily to
the CEO per his employment agreement in Fiscal 2008 Period. These lower expenses were partially offset by higher option expense of
$77,949 primarily due to new stock options granted in Fiscal 2009 Period and $14,005 in overall higher wages and related fees in the Fiscal
2009 Period than Fiscal 2008 Period.
34
· Consulting fees decreased by $350,136, or 82%, to $77,783 from $427,919. This decrease was primarily attributed to a one-time payment in
settlement of Mr. Appel’s (our previous President & CEO) employment agreement of $144,615 recorded in the Fiscal 2008 Period. In
addition, consulting expenses were sharply down by $255,521 due to no financial advisor fees in Fiscal 2009 Period compared to $256,571
recorded in the Fiscal 2008 Period attributed to the close of the October 17, 2007 offering. These lower fees were partially offset by $50,000
fees recorded for the Sage Group (Business Development Consultants) in Fiscal 2009 Period for seeking corporate partnerships that didn’t
occur in Fiscal 2008 Period.
· Offering expenses increased by $396,128 to $449,646 from $53,518. The $396,128 increase in offering expenses recorded in Fiscal 2009
Period consists of legal costs in preparation for financial raises and SEC filings that didn’t occur in Fiscal 2008 Period, partially offset by non-
cash warrants expense.
· Increases in legal, accounting, professional and public relations expenses of $77,389, or 14%, to $643,032 from $565,643, primarily as a
result of a higher overall legal, patent expenses and filing fees of $107,870 partially offset by lower public relations and tax preparation fees in
Fiscal 2009 Period than in the Fiscal 2008 Period.
· Amortization of intangibles and depreciation of fixed assets decreased by $86,189, or 44%, to $111,156 from $197,345 primarily due to a
$91,453 write-off of our trademarks in the Fiscal 2008 Period partially offset by an increase in fixed assets and intangibles in the Fiscal 2009
Period compared to the Fiscal 2008 Period.
· Analysis Research cost decreased by $101,949 or 100%, to $0 from $101,949 due to a one time report and business analysis report in the
Fiscal 2008 Period not repeated in Fiscal 2009 Period.
· Recruiting fees for the Executive Director of Product Development in Fiscal 2008 Period was $63,395 and there was no such expense in
Fiscal 2009 Period.
· Overall occupancy and conference related expenses decreased by $165,442 or 40% to $250,290 from $415,732. Conference and dues and
subscription expenses have decreased by $145,396 in the Fiscal 2009 Period due to lower participation in cancer conferences. In addition
lower travel related to the reduced conferences attendance, taxes and other miscellaneous expenses amounted to a decrease of $20,046 in the
Fiscal 2009 Period than incurred in Fiscal 2008 Period.
Other Income (expense). The change in the fair value of common stock warrant liability and embedded derivative liability was
$5,845,229 compared to zero in the prior year resulting from improvements in the share price, the anticipated pay down of our June 2009 bridge
notes, and the sale of preferred stock authorized during September 2009 would lead to a qualified equity financing thereby reducing risk
associated with the establishment of these liability accounts during June 2009. Interest expense increased to $851,008 compared to $11,263 in the
prior year resulting from interest accrued on our outstanding notes including accreted interest on the value of the warrant and embedded derivative
liabilities. Interest earned on investments for the Fiscal 2009 and Fiscal 2008 Periods amounted to $0 and $46,629, respectively. See also Fair
Value of Warrants , Warrant Liability and Embedded Conversion Feature below.
Income Tax. In the Fiscal 2009 Period there was a net change of $922,020 recorded due to a gain recorded from the receipt of a NOL
tax sale received from the State of New Jersey tax program. There was no comparable gain in Fiscal 2008 Period as this was the first year we
were awarded this NOL credit.
We anticipate an increase in Research and Development expenses as a result of expanded development and commercialization efforts
related to clinical trials, and product development, and expenses to be incurred in the development of strategic and other relationships required
ultimately if the licensing, manufacture and distribution of our product candidates are undertaken.
Liquidity and Capital Resources
Our limited capital resources and operations to date have been funded primarily with the proceeds from public and private equity and
debt financings, NOL tax sale and income earned on investments and grants. We have sustained losses from operations in each fiscal year since
our inception, and we expect losses to continue for the indefinite future, due to the substantial investment in research and development. As of
October 31, 2009 and 2008, we had an accumulated deficit of $16,603,800 and $17,533,044, respectively, and shareholders’ deficiency of
$15,733,328 and $839,311, respectively. Based on our available cash of approximately $660,000 on October 31, 2009, we do not have adequate
cash on hand to cover our anticipated expenses for the next 12 months. If we fail to raise a significant amount of capital, we may need to
significantly curtail or cease operations in the near future. These conditions have caused our auditors to raise substantial doubt about our ability
to continue as a going concern. Consequently, the audit report prepared by our independent public accounting firm relating to our financial
statements for the year ended October 31, 2009 included a going concern explanatory paragraph.
35
Our business will require substantial additional investment that we have not yet secured, and our failure to raise capital and/or pursue
partnering opportunities will materially adversely affect our business, financial condition and results of operations. We expect to spend substantial
additional sums on the continued administration and research and development of proprietary products and technologies, including conducting
clinical trials for our product candidates, with no certainty that our products will become commercially viable or profitable as a result of these
expenditures. Further, we will not have sufficient resources to develop fully any new products or technologies unless we are able to raise
substantial additional financing on acceptable terms or secure funds from new partners. We cannot be assured that financing will be available at
all. Any additional investments or resources required would be approached, to the extent appropriate in the circumstances, in an incremental
fashion to attempt to cause minimal disruption or dilution. Any additional capital raised through the sale of equity or convertible debt securities
will result in dilution to our existing stockholders. No assurances can be given, however, that we will be able to achieve these goals or that we
will be able to continue as a going concern.
From November 1, 2009 through February 16, 2010, we issued to certain accredited investors (i) junior unsecured convertible
promissory notes in the aggregate principal face amount of $673,529, for an aggregate net purchase price of $572,500 and (ii) warrants to
purchase1,431,250 shares of our common stock at an exercise price of $0.20 (prior to anti-dilution adjustments) per share, subject to adjustments
upon the occurrence of certain events. Each of these bridge notes were issued with an original issue discount of 15% (OID) and are convertible
into shares of our common stock. The maturity dates of these notes range between April 16 and July 30, 2010. The indebtedness represented
by the bridge notes is expressly subordinate to our currently outstanding senior secured indebtedness (including the June 2009 bridge notes), as
well as any future senior indebtedness of any kind. We will not make any payments to the holders of these bridge notes until the earlier of the
repayment in full or conversion of the senior indebtedness.
During January 2010 the Company repaid $834,852 of the $1,131,353 in face value of our June 2009 bridge notes. In addition, holders
of the remaining $296,501 of our June Bridge Notes agreed to extend the maturity dates from December 31, 2009 to periods into February and
March 2010. The Company has agreed to issue additional consideration, including warrants, to June 2009 bridge note holders, all of which have
agreed to extend the maturity period beyond December 31, 2009.
Pursuant to the Optimus purchase agreement, Optimus has agreed to purchase, upon the terms and subject to the conditions set forth
therein and described below, up to $5.0 million of non-convertible, redeemable Series A preferred stock at a price of $10,000 per share. Under
the terms of the purchase agreement, from time to time until September 24, 2012, in our sole discretion, we may present Optimus with a notice to
purchase a specified amount of Series A preferred stock, which Optimus is obligated to purchase on the 10th trading day after the date of the
notice, subject to satisfaction of certain closing conditions (including our ability to effect and maintain an effective registration statement for the
shares underlying the warrant, issued to an affiliate of Optimus in connection with the transaction). We will determine, in our sole discretion, the
timing and amount of Series A preferred stock to be purchased by Optimus, and may sell such shares in multiple tranches. Optimus will not be
obligated to purchase the Series A preferred stock upon our notice (i) in the event the closing price of our common stock during the nine trading
days following delivery of our notice falls below 75% of the closing price on the trading day prior to the date such notice is delivered to Optimus
or (ii) to the extent such purchase would result in Optimus and its affiliates beneficially owning more than 9.99% of our outstanding common
stock. During January 2010, (i) Optimus purchased 145 shares and remains obligated to purchase up to an additional 355 shares (subject to the
foregoing conditions) and (ii) the affiliate of Optimus has exercised warrants to purchase 11,563,000 shares of common stock at an adjusted
exercise price of $0.17 per share.
On June 18, 2009, we completed the June 2009 bridge financing. The June 2009 bridge financing was a private placement with certain
accredited investors pursuant to which we issued (i) senior convertible promissory notes in the aggregate principal face amount of $1,131,353,
for an aggregate net purchase price of $961,650 and (ii) warrants to purchase 2,404,125 shares of our common stock at an exercise price of $0.20
(prior to anti-dilution adjustments) per share, subject to adjustments upon the occurrence of certain events.
During October, 2009, we completed the sale of additional bridge notes. This bridge financing was a private placement with certain
accredited investors pursuant to which we issued (i) junior convertible promissory notes in the aggregate principal face amount of $2,147,059 for
an aggregate net purchase price of $1,825,000 and (ii) warrants to purchase 4,562,500 shares of our common stock at an exercise price of $0.20
(prior to anti-dilution adjustments) per share, subject to adjustments upon the occurrence of certain events.
Each of the bridge notes were issued with an original issue discount of 15% and are convertible into shares of our common stock as
described below.
In the event we consummate an equity financing with aggregate gross proceeds of not less than $2.0 million, which we refer to as a
qualified equity financing, prior to the second business day immediately preceding the maturity date of our bridge notes, as the case may be, then
prior to the respective maturity date, the holders will have the option to convert all or a portion of the respective notes into the same securities sold
in such qualified equity financing at an effective per share conversion price equal to 90% of the per share purchase price of the securities issued in
the qualified equity financing. In the event we do not consummate a qualified equity financing prior to the second business day immediately
preceding the respective maturity date, then the holders shall have the option to convert all or a portion of the June 2009 bridge notes or October
2009 bridge notes, as the case may be, into shares of common stock, at an effective per share conversion price equal to 50% of the volume-
weighted average price per share of our common stock over the five consecutive trading days immediately preceding the third business day prior
to the maturity date. To the extent a holder does not elect to convert its bridge notes as described above, the principal amount of the bridge notes
not so converted shall be payable in cash on the respective maturity date.
36
In connection with the June 2009 bridge financing, we entered into a Security Agreement, dated as of June 18, 2009 with the investors
in the June 2009 bridge financing. The Security Agreement grants the investors a security interest in all of our tangible and intangible assets, as
further described on Exhibit A to the Security Agreement. We also entered into a Subordination Agreement, dated as of June 18, 2009 with the
investors in the June 2009 bridge financing and Mr. Moore. Pursuant to the Subordination Agreement, Mr. Moore subordinated certain rights to
payments under the Moore Note to the right of payment in full in and in cash of all amounts owed to the investors pursuant to the June 2009
bridge notes; provided, however, that principal and interest of the Moore Note may be repaid prior to the full payment of the investors in certain
circumstances.
On September 22, 2008, we entered into a note purchase agreement with our Chief Executive Officer, Thomas A. Moore, pursuant to
which we agreed to sell to Mr. Moore, from time to time, Moore Notes. On June 15, 2009, we amended the terms of the Moore Notes to
increase the amounts available from $800,000 to $950,000 and to change the maturity date of the Moore Notes from June 15, 2009 to the earlier
of January 1, 2010 or our next equity financing resulting in gross proceeds to us of at least $6.0 million. On February 15, 2010, we agreed to
amend the terms of the Moore Notes such that (i) Mr. Moore may elect, at his option, to receive accumulated interest thereon on March 17, 2010
(which we expect will amount to approximately $130,000), (ii) we will begin to make monthly installment payments of $100,000 on the
outstanding principal amount beginning on April 15, 2010; provided, however, that the balance of the principal will be repaid in full on
consummation of our next equity financing resulting in gross proceeds to us of at least $6.0 million and (iii) we will retain $200,000 of the
repayment amount for investment in our next equity financing.
The Moore Notes bear interest at a rate of 12% per annum, compounded quarterly, and may be prepaid in whole or in part at our option
without penalty at any time prior to maturity. In consideration of Mr. Moore’s agreement to purchase the Moore Notes, we agreed that
concurrently with an equity financing resulting in gross proceeds to us of at least $6.0 million, we will issue to Mr. Moore a warrant to purchase
our common stock, which will entitle Mr. Moore to purchase a number of shares of our common stock equal to one share per $1.00 invested by
Mr. Moore in the purchase of the Moore Notes. The terms of these warrants were subsequently modified by our board of directors based on the
terms of the June 2009 bridge financing increasing the number of shares underlying the warrant from one share per $1.00 invested to two and
one-half shares. The terms of these warrants were further modified by our board of directors in connection with the February 2010 amendment
based on the terms of certain amendments to the June 2009 bridge notes increasing the number of warrants from two and one-half warrants per
$1.00 invested to three warrants. The final terms are anticipated to contain the same terms and conditions as warrants issued to investors in the
subsequent financing (which are currently exercisable at $0.17 per share). As of October 31, 2009, $947,985 in notes were outstanding and
payable to Mr. Moore.
The Company received $278,978 from the New Jersey Economic Development Authority. Under the State of New Jersey Program for
small business we received this cash amount on January 15, 2010 from the sale of our State Net Operating Losses (“NOL”) through December
31, 2008 and our research tax credit for fiscal years 2007 and 2008.
Off-Balance Sheet Arrangements
As of October 31, 2009, we had no off-balance sheet arrangements, other than our lease for space. There were no changes in significant
contractual obligations during the year ended October 31, 2009.
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP accepted in the U.S. requires management to make estimates and
assumptions that affect the reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to
be critical if:
·
·
It requires assumption to be made that were uncertain at the time the estimate was made, and
Changes in the estimate of difference estimates that could have been selected could have material impact in our
results of operations or financial condition.
Actual results could differ from those estimates and the differences could be material. The most significant estimates impact the
following transactions or account balances: stock compensation, warrant valuation, impairment of intangibles, dilution caused by ratchets in the
warrants and other agreements.
Share-Based Payment. We record compensation expense associated with stock options in accordance with SFAS No. 123R, “Share
Based Payment,” which is a revision of SFAS No. 123. We adopted the modified prospective transition method provided under SFAS No.
123R. Under this transition method, compensation expense associated with stock options recognized in the first quarter of fiscal year 2007, and
in subsequent quarters, includes expense related to the remaining unvested portion of all stock option awards granted prior to April 1, 2006, the
estimated fair value of each option award granted was determined on the date of grant using the Black-Scholes option valuation model, based on
the grant date fair value estimated in accordance with the original provisions of SFAS No. 123.
37
We estimate the value of stock options awards on the date of grant using the Black-Scholes-Merton option-pricing model. The
determination of the fair value of the share-based payment awards on the date of grant is affected by our stock price as well as assumptions
regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards,
expected term, risk-free interest rate, expected dividends and expected forfeiture rates. The forfeiture rate is estimated using historical option
cancellation information, adjusted for anticipated changes in expected exercise and employment termination behavior. Our outstanding awards do
not contain market or performance conditions; therefore we have elected to recognize share based employee compensation expense on a straight-
line basis over the requisite service period.
If factors change and we employ different assumptions in the application of SFAS 123(R) in future periods, the compensation expense
that we record under SFAS 123(R) relative to new grants may differ significantly from what we have recorded in the current period. There is a
high degree of subjectivity involved when using option-pricing models to estimate share-based compensation under SFAS 123(R).
Consequently, there is a risk that our estimates of the fair values of our share-based compensation awards on the grant dates may bear little
resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those share-based payments in the future.
Employee stock options may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the
grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that are significantly in excess of
the fair values originally estimated on the grant date and reported in our financial statements.
Fair Value of Warrants , Warrant Liability and Embedded Conversion Feature
Warrants were issued in connection with various financings throughout our history. We estimate the fair value of these instruments
using the Black-Scholes model, which takes into account a variety of factors, including historical stock price volatility, risk-free interest rates,
remaining term and the closing price of our common stock. Changes in assumptions used to estimate the fair value of these derivative instruments
could result in a material change in the fair value of the instruments. We believe the assumptions outlined below used to estimate the fair values of
the warrants are reasonable. Accounting for all outstanding warrants related to our determination that all of the outstanding warrants were
reclassified as liabilities due to the fact that the conversion feature on the June 2009 bridge notes could require us to issue shares in excess of its
authorized amount. All outstanding warrants have been recorded as a liability effective June 18, 2009, based on their fair value calculated using
the Black-Scholes valuation model and the following assumptions: First we estimated the probability of three different outcomes (i) that we
would be able to meet the QEF at the current warrant price of $0.20 (prior to anti-dilution adjustments) per share, (ii) the QEF price would be
$0.15 per share and trigger a 10% discount and (iii) not meet the QEF (“Non-QEF Pricing”) and trigger an effective per share conversion price
equal to 50% of the VWAP per share of the Common Stock over the five (5) consecutive trading days immediately preceding the third business
day prior to the Maturity Date. We estimated that there was an equal probability for each scenario. The fair value of the warrant liability under
each outcome was determined and then averaged the outcomes to estimate the warrant value of $12,785,695 at June 18, 2009.
In accounting for the 2009 bridge notes’ embedded conversion feature and warrants described above, we considered the guidance
contained in EITF 00-19, “ Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In, a Company’s Own Common
Stock ,” and SFAS 133 “ Accounting for Derivative Instruments and Hedging Activities .” We determined that the conversion feature in the June
2009 bridge notes represented an embedded derivative since the debenture is convertible into a variable number of shares based upon a
conversion formula which could require us to issue shares in excess of its authorized amount. The convertible debentures are not considered
“conventional” convertible debt under EITF 00-19 and the embedded conversion feature was bifurcated from the debt host and accounted for as a
derivative liability.
As of October 31, 2009, we had outstanding warrants to purchase 127,456,301 shares of our common stock (adjusted for anti-dilution
provision to-date) with exercise prices ranges from $0.187 to $0.287 per share. These warrants include 2,404,125 warrants issued to holders of
2009 bridge notes at an exercise price of $0.20 per warrant (prior to anti-dilution adjustments).
New Accounting Pronouncements
In June 2008, the Financial Accounting Standards Board, or FASB, ratified Emerging Issues Task Force (EITF) Issue No 07-5, “
Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock ” (EITF 07-5). EITF 07-5 mandates a two-step
process for evaluating whether an equity-linked financial instrument or embedded feature indexed to the entities own stock. It is effective for
fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, which is our first quarter of fiscal 2010. Many of
the warrants issued by us contain a strike price adjustment feature, which upon adoption of EITF 07-5, may result in the instruments no longer
being considered indexed to our own stock. Accordingly, adoption of EITF 07-5 may change the current classification (from equity to liability)
and the related accounting for many warrants outstanding at that date, even though we now record warrants and the embedded derivative as a
liability under the guidance contained in EITF 00-19, “Accounting for Derivative Financial Instrument Indexed to and Potentially Settled In a
Company’s Own Common Stock,” and SFAS 133 “Accounting for Derivative Instruments and Hedging Activities.” We determined that the
conversion feature in the June 2009 bridge notes represented an embedded derivative since the debenture is convertible into a variable number of
shares based upon a conversion formula. The convertible debentures are not considered “conventional” convertible debt under EITF 00-19 and
the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability. We are currently evaluating the
impact the adoption of EITF 07-5 may have on our financial position, results of operation, or cash flows.
38
In May 2009, FASB issued Statement of Financial Accounting Standards No. 165, Subsequent Events (“SFAS 165”), which provides
guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial
statements are issued or are available to be issued. SFAS 165 also requires entities to disclose the date through which subsequent events were
evaluated as well as the rational as to why the date was selected. SFAS 165 is effective for interim and annual periods ended after June 15, 2009.
We have adopted the provisions of SFAS 165.
Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have
a material effect on the accompanying financial statements.
Item 7A. Quantitative Qualitative Disclosures About Market Risk.
Not Required
Item 8: Financial Statements and Supplementary Data.
The index to Financial Statements appears on page F-1, the Report of the Independent Registered Public Accounting Firm appears on
page F-2, and the Financial Statements and Notes to Financial Statements appear on pages F-3 to F-22.
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
None
Item 9A(T): Controls and Procedures.
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our
chief executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of
the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and
procedures were not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange
Act is: (1) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to
allow timely decisions regarding required disclosure; and (2) recorded, processed, summarized and reported, within the time periods specified in
the SEC's rules and forms.
Changes in Internal Control Over Financial Reporting
During the year ended October 31, 2009, there were no changes in our internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Assessment of the Effectiveness of Internal Controls over Financial Reporting
Our chief executive officer and chief financial officer, after evaluating the effectiveness of our “disclosure controls and procedures”, as
defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e), as of the end of the twelve month period ended October 31,
2009, concluded that as of October 31, 2009, our internal controls over financial reporting were not effective to provide reasonable assurance that
information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified by the SEC, and that material information relating to our company is made known to
management, including chief executive officer and chief financial officer, particularly during the period when our periodic reports are being
prepared, to allow timely decisions regarding required disclosure.
In addition, our management assessed the effectiveness of our internal control over financial reporting as of October 31, 2009 on criteria
for effective internal control over financial reporting described in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has determined that as of October 31, 2009,
there were material weaknesses in our internal control over financial reporting. For example, during the review of the financial statements for the
three month period ended July 31, 2009, it was determined that our initial presentation and accounting of certain of our convertible debt and
warrants in our financial statements was not correct. In light of this material weakness, we concluded that we did not maintain effective internal
control over financial reporting as of July 31, 2009. Our management is responsible for establishing and maintaining adequate internal control
over financial reporting for us. As defined by the Public Company Accounting Oversight Board Auditing Standard No. 5, a material weakness
is a deficiency or a combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim
financial statements will not be prevented or detected. We revised our financial statements for the three month period ended July 31, 2009, prior
to filing our quarterly report on Form 10-Q for the period ended July 31, 2009, but cannot offer assurances that we will not have additional
material weaknesses. While we have taken steps to improve our internal controls and procedures, there may continue to be material weaknesses
or deficiencies in our internal controls or ineffectiveness of our disclosure controls and procedures.
39
We are a non-accelerated filer and are required to comply with the internal control reporting and disclosure requirements of Section 404
of the Sarbanes-Oxley Act for fiscal years ending October 31, 2010. Although we are working to comply with these requirements, we have
limited financial personnel, making compliance with Section 404 very difficult and cost ineffective, if not impossible.
Attestation Report of our Registered Public Accounting Firm
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control
over financial reporting. Our management's report was not subject to attestation by our independent registered public accounting firm pursuant to
rules of the SEC that permit us to provide only management's report in this annual report.
Item 9B: Other Information.
On February 15, 2010, we agreed to amend the terms of the Moore Notes such that (i) Mr. Moore may elect, at his option, to receive
accumulated interest thereon on or after March 17, 2010 (which we expect will amount to approximately $130,000), (ii) we will begin to make
monthly installments payments of $100,000 on the outstanding principal amount beginning on April 15, 2010; provided, however, that the
balance of the principal will be repaid in full on consummation of our next equity financing resulting in gross proceeds to us of at least $6.0
million and (iii) we will retain $200,000 of the repayment amount for investment in our next equity financing.
In consideration of Mr. Moore’s initial agreement to purchase the Moore Notes, we agreed that concurrently with an equity financing
resulting in gross proceeds to us of at least $6.0 million, we will issue to Mr. Moore a warrant to purchase our common stock, which will entitle
Mr. Moore to purchase a number of shares of our common stock equal to one share per $1.00 invested by Mr. Moore in the purchase of the
Moore Notes. The terms of these warrants were subsequently modified by our board of directors based on the terms of the June 2009 bridge
financing increasing the number of shares underlying the warrant from one share per $1.00 invested to two and one-half shares. The terms of
these warrants were further modified by our board of directors to increase the number of warrants from two and one-half warrants per $1.00
invested to three warrants. The final terms are anticipated to contain the same terms and conditions as warrants issued to investors in the
subsequent financing (which are currently exercisable at $0.17 per share).
Item 10: Directors, Executive Officers, Corporate Governance.
Executive Officers, Directors and Key Employees
PART III
The following are our executive officers and directors and their respective ages and positions as of January 20, 2010:
Name
Age
Position
Thomas A. Moore
James Patton, MD
Roni A. Appel
Thomas McKearn, MD, Ph.D.
Richard Berman
John Rothman, Ph.D.
Mark J. Rosenblum
59
51
42
60
67
61
56
Chief Executive Officer and Chairman of our Board of Directors
Director
Director
Director
Director
Executive Vice President of Clinical and Scientific Operations
Chief Financial Officer, Senior Vice President and Secretary
Thomas A. Moore. Effective December 15, 2006, Mr. Moore was appointed our Chairman and Chief Executive Officer. He is
currently also a director of MD Offices, an electronic medical records provider, and Opt-e-scrip, Inc., which markets a clinical system to compare
multiple drugs in the same patient. He also serves as Chairman of the board of directors of Mayan Pigments, Inc., which has developed and
patented Mayan pigment technology. Previously, from June 2002 to June 2004 Mr. Moore was President and Chief Executive Officer of
Biopure Corporation, a developer of oxygen therapeutics that are intravenously administered to deliver oxygen to the body’s tissues. From 1996
to November 2000 he was President and Chief Executive Officer of Nelson Communications. Prior to 1996, Mr. Moore had a 23-year career
with the Procter & Gamble Company in multiple managerial positions, including President of Health Care Products where he was responsible for
prescription and over-the-counter medications worldwide, and Group Vice President of the Procter & Gamble Company.
40
Mr. Moore is subject to a five year injunction, which came about because of a civil action captioned Securities & Exchange Commission
v. Biopure Corp. et al., No. 05-11853-PBS (D. Mass.), filed on September 14, 2005, which alleged that Mr. Moore made and approved
misleading public statements about the status of FDA regulatory proceedings concerning a product manufactured by his former employer,
Biopure Corp. Mr. Moore vigorously defended the action. On December 11, 2006, the SEC and Mr. Moore jointly sought a continuance of all
proceedings based upon a tentative agreement in principle to settle the SEC action. The SEC’s Commissioners approved the terms of the
settlement, and the court formally adopted the settlement.
Dr. James Patton. Dr. Patton has served as a member of our board of directors since February 2002, as Chairman of our board of
directors from November 2004 until December 31, 2005 and as Advaxis’ Chief Executive Officer from February 2002 to November
2002. Since February 1999, Dr. Patton has been the Vice President of Millennium Oncology Management, Inc., which provides management
services for radiation oncology care to four sites. Dr. Patton has been a trustee of Dundee Wealth US, a mutual fund family since October 2006.
In addition, was the President of Comprehensive Oncology Care, LLC since 1999, a company which owned and operated a cancer treatment
facility in Exton, Pennsylvania until its sale in 2008. From February 1999 to September 2003, Dr. Patton also served as a consultant to
LibertyView Equity Partners SBIC, LP, a venture capital fund based in Jersey City, New Jersey. Dr. Patton served as a director of Pinpoint Data
Corp. From February 2000 to November 2000, Dr. Patton served as a director of Healthware Solutions. From June 2000 to June 2003, Dr.
Patton served as a director of LifeStar Response. He earned his B.S. from the University of Michigan, his Medical Doctorate from Medical
College of Pennsylvania, and his M.B.A. from Penn’s Wharton School. Dr. Patton was also a Robert Wood Johnson Foundation Clinical
Scholar. He has published papers regarding scientific research in human genetics, diagnostic test performance and medical economic analysis.
Roni A. Appel. Mr. Appel has served as a member of our board of directors since November 2004. He was President and Chief
Executive Officer from January 1, 2006 and Secretary and Chief Financial Officer from November 2004, until he resigned as our Chief Financial
Officer on September 7, 2006 and as our President, Chief Executive Officer and Secretary on December 15, 2006. From 1999 to 2004, he has
been a partner and managing director of LV Equity Partners (f/k/a LibertyView Equity Partners). From 1998 until 1999, he was a director of
business development at Americana Financial Services, Inc. From 1994 to 1998 he was an attorney and completed his MBA at Columbia
University.
Dr. Thomas McKearn. Dr. McKearn has served as a member of our board of directors since July 2002. He brings to us a 25 plus
year experience in the translation of biotechnology science into oncology products. First as one of the founders of Cytogen Corporation, then as
an Executive Director of Strategic Science and Medicine at Bristol-Myers Squibb and now as the VP of Strategic Medical Affairs at Agennix,
Inc. (formerly GPC-Biotech), he has worked at bringing the most innovative laboratory findings into the clinic and through the FDA regulatory
process for the benefit of cancer patients who need better ways to cope with their afflictions. Prior to entering the biotechnology industry in
1981, Dr. McKearn did his medical, graduate and post-graduate training at the University of Chicago and served on the faculty of the Medical
School at the University of Pennsylvania.
Richard Berman. Mr. Berman has served as a member of our board of directors since September 1, 2005. In the last five years, he
served as a professional director and/or officer of about a dozen public and private companies. He is currently Chairman of NexMed, Inc., a
public biotech company, and National Investment Managers. Mr. Berman is a director of six public companies: Broadcaster, Inc., Easy Link
Services International, Inc., NexMed, Inc., National Investment Managers, Advaxis, Inc., and NeoStem, Inc. Previously, Mr. Berman worked at
Goldman Sachs and was Senior Vice President of Bankers Trust Company, where he started the M&A and Leverage Buyout Departments. He
is a past Director of the Stern School of Business of New York University, where he earned a B.S. and an M.B.A. He also has law degrees from
Boston College and The Hague Academy of International Law.
John Rothman, Ph.D. Dr. Rothman joined our company in March 2005 as Vice President of Clinical Development and as of
December 12, 2008 he was appointed to Executive Vice President of Clinical and Scientific Operations. From 2002 to 2005, Dr. Rothman was
Vice President and Chief Technology Officer of Princeton Technology Partners. Prior to that he was involved in the development of the first
interferon at Schering Inc., was director of a variety of clinical development sections at Hoffman LaRoche, and the Senior Director of Clinical
Data Management at Roche. While at Roche his work in Kaposi’s Sarcoma became the clinical basis for the first filed BLA which involved the
treatment of AIDS patients with interferon. Dr. Rothman completed his doctorate at California University Los Angeles.
Mark J. Rosenblum. Effective as of January 5, 2010, Mr. Rosenblum joined our company as our Chief Financial Officer, Senior Vice
President and Secretary. Mr. Rosenblum was the Chief Financial Officer of HemobioTech, Inc., a public company primarily engaged in the
commercialization of human blood substitute technology licensed from Texas Tech University, from April 1, 2005 until December 31, 2009.
From August 1985 through June 2003, Mr. Rosenblum was employed by Wellman, Inc., a public chemical manufacturing company. Between
1996 and 2003, Mr. Rosenblum was the Chief Accounting Officer, Vice President and Controller at Wellman, Inc. Mr. Rosenblum holds both
Masters in Accountancy and a B.S. degree from the University of South Carolina. Mr. Rosenblum is a certified public accountant.
41
Board of Directors
Board of Directors
Each director is elected for a period of one year and serves until the next annual meeting of stockholders, or until his or her successor is
duly elected and qualified. Officers are elected by, and serve at the discretion of, our board of directors. The board of directors may also appoint
additional directors up to the maximum number permitted under our by-laws, which is currently nine.
Committees of the Board of Directors
Our board of directors has three standing committees: the audit committee, the compensation committee, and the nominating and
corporate governance committee.
Audit Committee
The audit committee of our board of directors consists of Mr. Berman and Dr. Patton with Mr. Berman serving as the audit committee’s
financial expert as defined under Item 407 of Regulation S-K of the Securities Act of 1933, as amended, which we refer to as the Securities Act.
Our board of directors has determined that the audit committee financial expert is independent as defined in (i) Rule 10A-3(b)(i)(ii) under the
Exchange Act and (ii) under Section 121 B(2)(a) of the NYSE Amex Equities Company Guide (although our securities are not listed on the
NYSE Amex Equities but are quoted on the OTC Bulletin Board).
The audit committee is responsible for the following:
·
·
·
·
·
·
reviewing the results of the audit engagement with the independent registered public accounting firm;
identifying irregularities in the management of our business in consultation with our independent accountants, and
suggesting an appropriate course of action;
reviewing the adequacy, scope, and results of the internal accounting controls and procedures;
reviewing the degree of independence of the auditors, as well as the nature and scope of our relationship with our
independent registered public accounting firm;
reviewing the auditors’ fees; and
recommending the engagement of auditors to the full board of directors.
Compensation Committee
The compensation committee of our board of directors consists of Mr. Berman and Dr. McKearn. The compensation committee
determines the salaries and incentive compensation of our officers subject to applicable employment agreements, and provides recommendations
for the salaries and incentive compensation of our other employees and consultants.
Nominating and Corporate Governance Committee
The nominating and corporate governance committee of our board of directors consists of Mr. Berman and Mr. Moore. The functions of
the nominating and corporate governance committee include the following:
·
·
identifying and recommending to the board of directors individuals qualified to serve as members of our board of directors
and on the committees of the board;
advising the board with respect to matters of board composition, procedures and committees;
42
·
·
developing and recommending to the board a set of corporate governance principles applicable to us and overseeing
corporate governance matters generally including review of possible conflicts and transactions with persons affiliated with
directors or members of management; and
overseeing the annual evaluation of the board and our management.
The nominating and corporate governance committee will be governed by a charter, which we intend to adopt.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers and each person who
owns more than ten percent of a registered class of our equity securities (collectively, “Reporting Persons”) to file with the SEC initial reports of
ownership and reports of changes in ownership of our common stock and our other equity securities. Reporting Persons are required by SEC
regulation to furnish us with copies of all Section 16(a) forms that they file. Based solely on the Company’s review of the copies of the forms
received by it during the fiscal year ended October 31, 2009 and written representations that no other reports were required, the Company
believes that each person who, at any time during such fiscal year, was a director, officer or beneficial owner of more than ten percent of the
Company’s common stock complied with all Section 16(a) filing requirements during such fiscal year.
Code of Ethics
We have adopted a code of ethics that applies to our officers, employees and directors, including our principal executive officers,
principal financial officer and principal accounting officer. The code of ethics sets forth written standards that are designated to deter wrongdoing
and to promote:
·
·
·
·
·
Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and
professional relationships;
full, fair, accurate, timely and understandable disclosure in reports and documents that a we file with, or submit to, the
SEC and in other public communications made by us;
compliance with applicable governmental laws, rules and regulations;
the prompt internal reporting of violations of the code to an appropriate person or persons identified in our code of
ethics; and
accountability for adherence to our code of ethics.
A copy of our code of ethics has been filed with the SEC as an exhibit to our Form 8K dated November 12, 2004 and a copy of our
code is posted on our website at www.advaxis.com.
Item 11: Executive Compensation
Summary Compensation Table
The following table sets forth the information as to compensation paid to or earned by our Chief Executive Officer and our two other
most highly compensated executive officers during the fiscal years ended October 31, 2009 and 2008. These individuals are referred to in this
report as our named executive officers. As none of our named executive officers received non-equity incentive plan compensation or
nonqualified deferred compensation earnings during the fiscal years ended October 31, 2009 and 2008, we have omitted those columns from the
table.
Name and
Principal
Position
Fiscal Year
Salary ($)
Bonus ($)
Stock
Award(s)
(1) ($)
Option
Award(s)
(1)
All Other
Compensation($)
Total ($)
Thomas A. Moore,
CEO and Chairman
2009
2008
350,000 —
352,692 —
71,250
—
(2) 115,089
156,364
17,582
27,626
250,000 -
255,000 55,000
11,550
23,378
(5) 82,911
(5) 25,092
23,797
27,862
(3) 553,919
(4) 536.682
(6) 368,258
(6) 386,332
Dr. John Rothman,
Executive VP of
Science &
Operations
Fredrick D. Cobb,
VP Finance
2009
2008
2009
2008
180,000 -
182,923 40,000
29,167
15,585
(7) 55,117
(8) 19,977
7,685
7,136
(6) 271,968
(6) 265,621
43
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
The amounts shown in this column represent the compensation expense incurred by us for the fiscal year in accordance with
FAS 123(R) using the assumptions described under “ Share-Based Compensation Expense ” in Note 2 to our financial
statements included elsewhere in this report.
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.
Based on our cost of Mr. Moore’s coverage for health care.
Based on our cost of Mr. Moore’s coverage for health care and interest received for the Moore Notes.
Represents: (i) $30,000 of base salary paid in shares of our common stock in lieu of cash, based on the average monthly
stock price, with the minimum set at $0.20 per share, and (ii) the compensation expense incurred in connection with 150,000
shares earned but not issued in 2009 and 196,339 shares earned, but not issued in 2008.
Based on our cost of his coverage for health care and the 401K company match he received.
Represents: (i) $20,000 of base salary paid in shares of our common stock in lieu of cash, based on the daily average closing
stock price per month retrospectively to January 1, 2008, and (ii) the compensation expense incurred in connection with
704,342 shares earned, but not issued.
Represents: (i) $20,000 of base salary paid in shares of our common stock in lieu of cash, based on the average monthly
stock price, with the minimum set at $0.20 per share, and (ii) the compensation expense incurred in connection with 130,893
shares earned, but not issued.
Discussion of Summary Compensation Table
We are party to an employment agreement with each of our named executive officers who is presently employed by us. Each
employment agreement sets forth the terms of that officer’s employment, including among other things, salary, bonus, non-equity incentive plan
and other compensation, and its material terms are described below. In fiscal 2008 and fiscal 2009, we granted stock options to our named
executive officers to purchase shares of our common stock and issued stock to our Chief Executive Officer. The material terms of these grants
are also described below.
Moore Employment Agreement and Option Agreements. We are party to an employment agreement with Mr. Moore, dated as of
August 21, 2007 (memorializing an oral agreement dated December 15, 2006), that provides that he will serve as our Chairman of the Board and
Chief Executive Officer for an initial term of two years. For so long as Mr. Moore is employed by us, Mr. Moore is also entitled to nominate
one additional person to serve on our board of directors. Following the initial term of employment, the agreement was renewed for a one year
term, and is automatically renewable for additional successive one year terms, subject to our right and Mr. Moore’s right not to renew the
agreement upon at least 90 days’ written notice prior to the expiration of any one year term.
Under the terms of the agreement, Mr. Moore was entitled to receive a base salary of $250,000 per year, subject to increase to $350,000
per year upon our successful raise of at least $4.0 million (which condition was satisfied on November 1, 2007) and subject to annual review for
increases by our board of directors in its sole discretion. The agreement also provides that Mr. Moore is entitled to receive family health
insurance at no cost to him. Mr. Moore’s employment agreement does not provide for the payment of a bonus.
In connection with our hiring of Mr. Moore, we agreed to grant Mr. Moore up to 1,500,000 shares of our common stock, of which
750,000 shares were issuable on November 1, 2007 upon our successful raise of $4.0 million and 750,000 shares are issuable upon our
successful raise of an additional $6.0 million (which condition was satisfied in January 2010). In addition, on December 15, 2006, we granted
Mr. Moore options to purchase 2,400,000 shares of our common stock. Each option is exercisable at $0.143 per share (which was equal to the
closing sale price of our common stock on December 15, 2006) and expires on December 15, 2016. The options vest in 24 equal monthly
installments. On July 21, 2009, we granted Mr. Moore options to purchase 2,500,000 shares of our common stock. Each option is exercisable
at $0.10 per share (which was equal to the closing sale price of our common stock on July 21, 2009) and expires on July 21, 2019. One-third of
these options vested on the grant date, and the remaining vest in one-third installments on the first and second anniversary of the grant.
44
We have also agreed to grant Mr. Moore options to purchase an additional 1,500,000 shares of our common stock if the price of common
stock (adjusted for any splits) is equal to or greater than $0.40 for 40 consecutive business days. Pursuant to the terms of his employment
agreement, all options will be awarded and vested upon a merger of the company which is a change of control or a sale of the company while Mr.
Moore is employed. In addition, if Mr. Moore’s employment is terminated by us, Mr. Moore is entitled to receive severance payments equal to
one year’s salary at the then current compensation level.
Mr. Moore has agreed to refrain from engaging in certain activities that are competitive with us and our business during his employment
and for a period of 12 months thereafter under certain circumstances. In addition, Mr. Moore is subject to a non-solicitation provision for 12
months after termination of his employment.
Rothman Employment Agreement and Option Agreements. We previously entered into an employment agreement with Dr. Rothman,
Ph.D., dated as of March 7, 2005, that provided that he would serve as our Vice President of Clinical Development for an initial term of one
year. Dr. Rothman’s current salary is $280,000, consisting of $250,000 in cash and $30,000 in stock, payable in our common stock, issued on a
semi-annual basis, based on the average closing stock price for such six month period, with a minimum price of $0.20. While the employment
agreement has expired and has not been formally renewed in accordance with the agreement, Dr. Rothman remains employed by us and is
currently our Executive V.P. of Clinical and Scientific Operations.
In addition, on March 1, 2005, we granted Dr. Rothman options to purchase 360,000 shares of our common stock. Each option is
exercisable at $0.287 per share (which was equal to the closing sale price of our common stock on March 1, 2005) and expires on March 1,
2015. All of these options have vested. On March 29, 2006, we granted Dr. Rothman options to purchase 150,000 shares of our common
stock. Each option is exercisable at $0.26 per share (which was equal to the closing sale price of our common stock on March 29, 2006) and
expires on March 29, 2016. One-fourth of these options vested on the first anniversary of the grant date, and the remaining vest in 12 equal
quarterly installments. On February 15, 2007, we granted Dr. Rothman options to purchase 300,000 shares of our common stock. Each option
is exercisable at $0.165 per share (which was equal to the closing sale price of our common stock on February 15, 2007) and expires on
February 15, 2017. One-fourth of these options vested on the first anniversary of the grant date, and the remaining vest in 12 equal quarterly
installments. Pursuant to the terms of the 2005 plan, at least 75% of Dr. Rothman’s options will be vested upon a merger of the company which
is a change of control or a sale of the company while Dr. Rothman is employed, unless the administrator of the plan otherwise allows for all
options to become vested. On July 21, 2009, we granted Mr. Rothman options to purchase 1,750,000 shares of our common stock. Each option
is exercisable at $0.10 per share (which was equal to the closing sale price of our common stock on July 21, 2009) and expires on July 21, 2019.
One-third of these options vested on the grant date, and the remaining vest in one-third installments on the first and second anniversary of the
grant.
Dr. Rothman has agreed to refrain from engaging in certain activities that are competitive with us and our business during his
employment and for a period of 18 months thereafter under certain circumstances. In addition, Dr. Rothman is subject to a non-solicitation
provision for 18 months after termination of his employment.
Cobb Employment Agreement and Option Agreements. We entered into an employment agreement with Mr. Cobb, dated as of
February 20, 2006, that provided that he would serve as our Vice President of Finance. Mr. Cobb’s current salary is $200,000, consisting of
$180,000 in cash and $20,000 in stock, payable in our common stock, issued on a semi-annual basis, based on the average closing stock price for
such six month period, with a minimum price of $0.20. Mr. Cobb has resigned as an officer of the Company, but has agreed to continue as an
employee of ours on a part-time basis for a three month period in order to assist with the transition of our newly hired Chief Financial
Officer. During the transition period, Mr. Cobb will continue to receive the base salary and health care benefits that he was receiving prior to his
resignation. Mr. Cobb also received eight weeks of accrued vacation pay and 752,142 shares of common stock that were previously earned but
not yet issued. In addition, we agreed to extend the expiration date of all his options that will be vested on his last day as an employee of ours to
the date that is five years from his last day of employment (provided that such date is not more than 10 years after the date of grant).
In addition, on February 20, 2006, we granted Mr. Cobb options to purchase 150,000 shares of our common stock. Each option is
exercisable at $0.26 per share (which was equal to the closing sale price of our common stock on February 20, 2006) and expires on February
20, 2016. One-fourth of these options vest on the first anniversary of the grant date, and the remaining vest in 12 equal quarterly installments. On
September 21, 2006, we granted Mr. Cobb options to purchase 150,000 shares of our common stock. Each option is exercisable at $0.16 per
share (which was equal to the closing sale price of our common stock on September 21, 2006) and expires on September 21, 2016. One-fourth
of these options vest on the first anniversary of the grant date, and the remaining vest in 12 equal quarterly installments. On February 15, 2007,
we granted Mr. Cobb options to purchase 150,000 shares of our common stock. Each option is exercisable at $0.165 per share (which was equal
to the closing sale price of our common stock on February 15, 2007) and expires on February 15, 2017. One-fourth of these options vest on the
first anniversary of the grant date, and the remaining vest in 12 equal quarterly installments. Pursuant to the terms of the 2005 plan, at least 75%
of Mr. Cobb’s options will be vested upon a merger of the company which is a change of control or a sale of the company while Mr. Cobb is
employed, unless the administrator of the plan otherwise allows for all options to become vested. On July 21, 2009, we granted Mr. Cobb
options to purchase 1,000,000 shares of our common stock. Each option is exercisable at $0.10 per share (which was equal to the closing sale
price of our common stock on July 21, 2009) and expires on July 21, 2019. One-third of these options vested on the grant date, and the
remaining vest in one-third installments on the first and second anniversary of the grant.
45
Mr. Cobb has agreed to refrain from engaging in certain activities that are competitive with us and our business during his employment
and for a period of 18 months thereafter under certain circumstances. In addition, Mr. Cobb is subject to a non-solicitation provision for 18
months after termination of his employment.
Outstanding Equity Awards at Fiscal Year-End
The following table provides information about the number of outstanding equity awards held by our named executive officers at October 31,
2009.
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Name
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
Market Value
of Shares or
Units of Stock
That Have
Not Vested ($)
Option
Exercise
Price ($)
Option
Expiration
Date
Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested (#)
Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares,
Units or Other Rights
That Have
Not Vested ($)
Thomas A. Moore
Dr. John Rothman
Fredrick D. Cobb
833,333
2,400,000
583,333
360,000
131,250
187,500
333,333
131,250
112,500
93,750
1,666,667 (1)
-
1,166,667 (4)
-
18,750 (5)
131,250 (6)
666,667 (7)
18,750 (8)
37,500 (9)
56,250 (10)
-
-
-
—
—
—
-
—
—
—
0.100 7/21/19
0.143 12/15/16
0.100 7/21/19
0.287 3/1/15
0.260 3/29/16
0.165 2/15/17
0.100 7/21/19
0.260 2/20/16
0.160 9/21/16
0.165 2/15/17
-
750,000 (2)
-
—
—
—
-
—
—
—
-
97,500 (3)
-
—
—
—
-
—
—
—
-
-
-
—
—
—
-
—
—
—
-
-
-
—
—
—
-
—
—
—
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Of these options, approximately 833,333 will become exercisable on each anniversary date of July 21, 2010 and 2011.
In connection with our hiring of Mr. Moore, we agreed to grant Mr. Moore up to 1,500,000 shares of our common stock, of
which 750,000 shares were issued on April 4, 2008 upon our successful raise of $4.0 million and 750,000 shares are issuable
upon our successful raise of an additional $6.0 million.
Based on the closing sale price of $0.13 per share of common stock on October 31, 2009 (the last day of our fiscal year).
Of these options, approximately 583,333 will become exercisable on each anniversary date of July 21, 2010 and 2011.
Of these options, 9,375 became exercisable on December 29, 2009 and will become exercisable on March 29, 2010.
Of these options, 18,750 became exercisable on November 15, 2009 and will become exercisable February 15, May 15, August
15 and November 15 of each year until February 15, 2011.
Of these options, approximately 333,333 will become exercisable on each anniversary date of July 21, 2010 and 2011.
Of these options, 9,375 became exercisable on November 20, 2009 and will become exercisable on February 20, 2010.
Of these options, 9,375 became exercisable on December 21, 2009 and will become exercisable on March 21, 2010, June 21,
2010 and September 21, 2010.
(10)
Of these options, 9,375 became exercisable on November 15, 2009 and will become exercisable on February 15, May 15 and
August 15 and November 15, of each year until February 15, 2011.
Director Compensation
With the exception of Mr. Berman, who receives $2,000 a month in shares of our common stock based on the average closing price of
our common stock for the preceding month, none of our directors received any compensation for his services as a director other than options to
purchase shares of our common stock and reimbursement of expenses. Each director is granted options to purchase shares of our common stock
upon joining our board of directors and as the compensation committee so directs. In addition, each non-employee director earned compensation
in shares of the company's common stock and cash for the twelve months ended October 31, 2009 but none were paid or issued.
46
All of our other non-employee directors receive a combination of cash compensation and awards of share of our common stock. Each
non-employee directors receives $2,000 for each board meeting attended in person and $750 for each telephonic board meeting. In addition, each
member of a committee of our board of directors receives $2,000 per meeting attended in person held on days other than board meeting days and
$750 for each telephonic committee meeting. This plan is contingent upon stockholder approval at our next annual meeting.
The table below summarizes the compensation that was earned by our non-employee directors for the fiscal year ended October 31,
2009. As none of our non-employee directors received non-equity incentive plan compensation or nonqualified deferred compensation earnings
during the fiscal year ended October 31, 2009, we have omitted those columns from the table.
Fees
Earned
or Paid
in Cash
($)
Stock
Awards
($)
Option
Awards
($)(1)
All other
Compensation
($)
Total
($)
$
7,500 $
11,250
10,500
3,750
1,848(2) $
1,848(2)
1,848(2)
31,840(5)
12,464(3)
12,464(3)
23,518(4)
21,972(6)
— $
—
—
—
21,812
25,562
35,866
57,563
Name
Roni A. Appel
Dr. James Patton
Dr. Thomas McKearn
Richard Berman
(1)
(2)
(3)
(4)
(5)
(6)
The amounts shown in this column represents the compensation expense incurred by us for the fiscal year in accordance with
FAS 123(R) using the assumptions described under “Share –Based Compensation Expense” in Note 2 to our financial
statements included elsewhere in this 10-K.
Based on the board of directors’ compensation plan subject to approval by stockholders paying 6,000 shares a quarter if the
member attends at least 75% of the meetings annually.
Based on the vesting of 350,000 options of our common stock granted on July 21, 2009 at a market price of $0.10 share.
Vests at a rate of one-third on the anniversary date of grant and one-third over the next two years at a fair value of $0.09 share
value (Black Scholes Model) at grant date.
Based on the vesting of 500,000 options of our common stock granted on July 21, 2009 at a market price of $0.10 share.
Vests at a rate of one-third on the anniversary date of grant and one-third over the next two years at a fair value of $0.09 share
value (Black Scholes Model) at grant date. Based on the vesting of 150,000 options of our common stock granted on March
29, 2006 at a market price of $0.261 share. Vests quarterly over a three year period at a fair value of $0.1434 share value
Black Scholes Model at grant date.
Based on the average monthly closing prices of our common stock for the $2,000 monthly compensation. The total shares
earned but not issued in fiscal year 2009 was 325,765.
Based on the vesting of 500,000 options of our common stock granted on July 23, 2009 at a market price of $0.10 share.
Vests at a rate of one-third on the anniversary date of grant and one-third over the next two years at a fair value of $0.09 share
value (Black Scholes Model) at grant date. Based on the vesting of 400,000 options of our common stock granted at $0.287
per share on February 1, 2005. These options vested quarterly over the next four years.
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.
The 2004 Plan is administered by “disinterested members” of the board of directors or the Compensation Committee, who determine,
among other things, the individuals who shall receive options, the time period during which the options may be partially or fully exercised, the
number of shares of common stock issuable upon the exercise of each option and the option exercise price.
47
Subject to a number of exceptions, the exercise price per share of common stock subject to an incentive option may not be less than the
fair market value per share of common stock on the date the option is granted. The per share exercise price of the common stock subject to a non-
qualified option may be established by the board of directors, but shall not, however, be less than 85% of the fair market value per share of
common stock on the date the option is granted. The aggregate fair market value of common stock for which any person may be granted incentive
stock options which first become exercisable in any calendar year may not exceed $100,000 on the date of grant.
No stock option may be transferred by an optionee other than by will or the laws of descent and distribution, and, during the lifetime of
an optionee, the option will be exercisable only by the optionee. In the event of termination of employment or engagement other than by death or
disability, the optionee will have no more than three months after such termination during which the optionee shall be entitled to exercise the
option to the extent vested at termination, unless otherwise determined by the board of directors. Upon termination of employment or engagement
of an optionee by reason of death or permanent and total disability, the optionee’s options remain exercisable for one year to the extent the options
were exercisable on the date of such termination. No similar limitation applies to non-qualified options.
We must grant options under the 2004 Plan within ten years from the effective date of the 2004 Plan. The effective date of the Plan was
November 12, 2004. Subject to a number of exceptions, holders of incentive stock options granted under the Plan cannot exercise these options
more than ten years from the date of grant. Options granted under the 2004 Plan generally provide for the payment of the exercise price in cash
and may provide for the payment of the exercise price by delivery to us of shares of common stock already owned by the optionee having a fair
market value equal to the exercise price of the options being exercised, or by a combination of these methods. Therefore, if it is provided in an
optionee’s options, the optionee may be able to tender shares of common stock to purchase additional shares of common stock and may
theoretically exercise all of his stock options with no additional investment other than the purchase of his original shares.
Any unexercised options that expire or that terminate upon an employee’s ceasing to be employed by us become available again for
issuance under the 2004 Plan.
2005 Stock Option Plan
In June 2006, our board of directors adopted and stockholders approved on June 6, 2006, the 2005 Stock Option Plan (“2005 Plan”).
The 2005 Plan provides for the grant of options to purchase up to 5,600,000 shares of our common stock to employees, officers,
directors and consultants. Options may be either “incentive stock options” or non-qualified options under the Federal tax laws. Incentive stock
options may be granted only to our employees, while non-qualified options may be issued to non-employee directors, consultants and others, as
well as to our employees.
The 2005 Plan is administered by “disinterested members” of the board of directors or the compensation committee, who determine,
among other things, the individuals who shall receive options, the time period during which the options may be partially or fully exercised, the
number of shares of common stock issuable upon the exercise of each option and the option exercise price.
Subject to a number of exceptions, the exercise price per share of common stock subject to an incentive option may not be less than the
fair market value per share of common stock on the date the option is granted. The per share exercise price of the common stock subject to a non-
qualified option may be established by the board of directors, but shall not, however, be less than 85% of the fair market value per share of
common stock on the date the option is granted. The aggregate fair market value of common stock for which any person may be granted incentive
stock options which first become exercisable in any calendar year may not exceed $100,000 on the date of grant.
Except when agreed to by the board or the administrator of the 2005 Plan, no stock option may be transferred by an optionee other than
by will or the laws of descent and distribution, and, during the lifetime of an optionee, the option will be exercisable only by the optionee. In the
event of termination of employment or engagement other than by death or disability, the optionee will have no more than three months after such
termination during which the optionee shall be entitled to exercise the option, unless otherwise determined by the board of directors. Upon
termination of employment or engagement of an optionee by reason of death or permanent and total disability, the optionee’s options remain
exercisable for one year to the extent the options were exercisable on the date of such termination. No similar limitation applies to non-qualified
options.
We must grant options under the 2005 Plan within ten years from the effective date of the 2005 Plan. The effective date of the Plan was
January 1, 2005. Subject to a number of exceptions, holders of incentive stock options granted under the 2005 Plan cannot exercise these options
more than ten years from the date of grant. Options granted under the 2005 Plan generally provide for the payment of the exercise price in cash
and may provide for the payment of the exercise price by delivery to us of shares of common stock already owned by the optionee having a fair
market value equal to the exercise price of the options being exercised, or by a combination of these methods. Therefore, if it is provided in an
optionee’s options, the optionee may be able to tender shares of common stock to purchase additional shares of common stock and may
theoretically exercise all of his stock options with no additional investment other than the purchase of his original shares.
Any unexercised options that expire or that terminate upon an employee’s ceasing to be employed by us become available again for
issuance under the 2005 Plan.
48
2009 Stock Option Plan
Our board of directors adopted the 2009 Stock Option Plan (the “2009 Plan”), effective July 21, 2009, and recommended that it be
submitted to our shareholders for their approval at the next annual meeting. As of October 31, 2009, options to purchase 10,150,000 shares of
our common stock have been granted under the 2009 Plan. Shareholder approval of the 2009 Plan is required, among other things, (i) to comply
with certain exclusions from the limitations of Section 162(m) of the Internal Revenue Code of 1986, which we refer to as the Code and (ii) to
comply with the incentive stock options rules under Section 422 of the Code.
The 2009 Plan is to be administered by the compensation committee of our board of directors; provided, however, that except as
otherwise expressly provided in the 2009 Plan, our board of directors may exercise any power or authority granted to the compensation
committee under the 2009 Plan. Subject to the terms of the 2009 Plan, the compensation committee is authorized to select eligible persons to
receive options, determine the type, number and other terms and conditions of, and all other matters relating to, options, prescribe option
agreements (which need not be identical for each participant), and the rules and regulations for the administration of the 2009 Plan, construe and
interpret the 2009 Plan and option agreements, correct defects, supply omissions or reconcile inconsistencies therein, and make all other decisions
and determinations as the compensation committee may deem necessary or advisable for the administration of the 2009 Plan.
An aggregate of 14,001,399 shares of our common stock (subject to adjustment by the compensation committee) are reserved for
issuance upon the exercise of options granted under the 2009 Plan. The maximum number of shares of common stock to which options may be
granted to any one individual under the 2009 Plan is 4,200,420 (subject to adjustment by the compensation committee). The shares acquired
upon exercise of options granted under the 2009 Plan will be authorized and issued shares of our common stock. Our shareholders will not have
any preemptive rights to purchase or subscribe for any common stock by reason of the reservation and issuance of common stock under the 2009
Plan. If any option granted under the 2009 Plan should expire or terminate for any reason other than having been exercised in full, the
unpurchased shares subject to that option will again be available for purposes of the 2009 Plan.
The persons eligible to receive awards under the 2009 Plan are the officers, directors, employees, consultants and other persons who
provide services to us or any related entity. An employee on leave of absence may be considered as still in our or a related entity’s employ for
purposes of eligibility for participation in the 2009 Plan. All options granted under the 2009 Plan must be evidenced by a written agreement. The
agreement will contain such terms and conditions as the compensation committee shall prescribe, consistent with the 2009 Plan, including,
without limitation, the exercise price, term and any restrictions on the exercisability of the options granted. For any option granted under the 2009
Plan, the exercise price per share of common stock may be any price determined by the compensation committee; however, the exercise price per
share of any incentive stock option may not be less than the fair market value of the common stock on the date such incentive stock option is
granted.
The compensation committee may permit the exercise price of an option to be paid for in cash, by certified or official bank check or
personal check, by money order, with already owned shares of common stock that have been held by the optionee for at least six (6) months (or
such other shares as we determine will not cause us to recognize for financial accounting purposes a charge for compensation expense), the
withholding of shares of common stock issuable upon exercise of the option, by delivery of a properly executed exercise notice together with
such documentation as shall be required by the compensation committee (or, if applicable, the broker) to effect a cashless exercise, or a
combination of the above. If paid in whole or in part with shares of already owned common stock, the value of the shares surrendered is deemed
to be their fair market value on the date the option is exercised.
No incentive stock option, and unless the prior written consent of our compensation committee is obtained (which consent may be
withheld for any reason) and the transaction does not violate the requirements of Rule 16b-3 of the Exchange Act, no non-qualified stock option
granted under the 2009 Plan is assignable or transferable, other than by will or by the laws of descent and distribution. During the lifetime of an
optionee, an option is exercisable only by him or her, or in the case of a non-qualified stock option, by his or her permitted assignee.
The expiration date of an option under the 2009 Plan will be determined by our compensation committee at the time of grant, but in no
event may such an option be exercisable after 10 years from the date of grant. An option may be exercised at any time or from time to time or
only after a period of time in installments, as determined by our compensation committee. Our compensation committee may in its sole discretion
accelerate the date on which any option may be exercised. Each outstanding option granted under the 2009 Plan may become immediately fully
exercisable in the event of certain transactions, including certain changes in control of us, certain mergers and reorganizations, and certain
dispositions of substantially all our assets.
Unless otherwise provided in the option agreement, the unexercised portion of any option granted under the 2009 Plan shall
automatically be terminated (a) three months after the date on which the optionee’s employment is terminated for any reason other than (i) cause
(as defined in the 2009 Plan), (ii) mental or physical disability, or (iii) death; (b) immediately upon the termination of the optionee’s employment
for cause; (c) one year after the date on which the optionee’s employment is terminated by reason of mental or physical disability; or (d) one year
after the date on which the optionee’s employment is terminated by reason of optionee’s death, or if later, three months after the date of optionee’s
death if death occurs during the one year period following the termination of the optionee’s employment by reason of mental or physical
disability.
49
Unless earlier terminated by our board, the 2009 Plan will terminate at the earliest of (a) such time as no shares of common stock remain
available for issuance under the 2009 Plan, (b) termination of the 2009 Plan by our board, or (c) the tenth anniversary of the effective date of the
2009 Plan. Options outstanding upon expiration of the 2009 Plan shall remain in effect until they have been exercised or terminated, or have
expired.
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of January 27, 2010
of:
·
·
·
·
each person who is known by us to be the beneficial owner of more than 5% of our outstanding common stock;
each of our directors;
each of our named executive officers; and
all of our directors and executive officers as a group.
As used in the table below and elsewhere in this report, the term beneficial ownership with respect to our common stock consists of sole
or shared voting power (which includes the power to vote, or to direct the voting of shares of our common stock) or sole or shared investment
power (which includes the power to dispose, or direct the disposition of, shares of our common stock) through any contract, arrangement,
understanding, relationship or otherwise, including a right to acquire such power(s) during the 60 days following January 27, 2010.
Unless otherwise indicated in the footnotes to this table, and subject to community property laws where applicable, we believe each of
the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable
percentages are based on 127,201,243 shares of common stock outstanding as of January 27, 2010, adjusted as required by the rules
promulgated by the SEC. Unless otherwise indicated, the address for each of the individuals and entities listed in this table is the Technology
Centre of New Jersey, 675 Route One, North Brunswick, New Jersey 08902.
Name and Address of Beneficial Owner
Optimus CG II Ltd.
Number of
Shares of our
Common Stock
Beneficially Owned
12,592,923 (1)
Percentage
of Class
Beneficially Owned
Thomas A. Moore
Roni A. Appel
Richard Berman
Dr. James Patton
Dr. Thomas McKearn
Dr. John Rothman
Fredrick Cobb**
7,409,034(2)
6,655,891(3)
1,653,056(4)
3,082,496(5)
650,720(6)
2,712,585(7)
1,569,320(8)
All Directors and Executive Officers as a
Group (7 people)
* Less than 1%.
** Mr. Cobb has resigned as an Officer of the Company.
24,066,435(9)
50
9.0%
5.6%
5.1%
1.3%
2.4%
*
2.1%
1.2%
17.2%
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Represents approximately 9.9% of our outstanding shares of common stock as of January 27, 2010 that may be acquired by the
holder under a warrant exercisable for up to 22,187,000 shares of common stock within 60 days of January 27, 2010. Such warrant
is not fully exercisable within 60 days thereof due to contractual limitations and a 9.9% ownership limitation contained in the warrant
for the holder and its affiliates. The sole stockholder of the holder is Optimus Capital Partners, LLC, d/b/a Optimus Life Sciences
Capital Partners, LLC. Voting and dispositive power with respect to these securities is exercised by Terry Peizer, the Managing
Director of Optimus Life Sciences Capital Partners, LLC, who acts as investment advisor to the holder. The holder is not a registered
broker-dealer or an affiliate of a registered broker-dealer. The address of the principal business office of the holder is Cricket Square,
Hutchins Drive, Grand Cayman, KY1-1111 Cayman Islands and the address of the principal business office of Optimus Life
Sciences Capital Partners, LLC is 11150 Santa Monica Boulevard, Suite 1500, Los Angeles, CA 90025.
Represents 3,425,700 issued shares of our common stock and options to purchase 3,233,334 shares of our common stock exercisable
within 60 days. In addition, Mr. Moore owns warrants to purchase 4,889,760 shares of our common stock, limited by a 4.99%
beneficial ownership provision in the warrants that would prohibit him from exercising any of such warrants to the extent that upon
such exercise he, together with his affiliates, would beneficially own more than 4.99% of the total number of shares of our common
stock then issued and outstanding (unless Mr. Moore provides us with 61 days' notice of the holders waiver of such provisions). In
addition, Mr. Moore beneficially owns 750,000 shares of our common stock earned, but not issued.
Represents 4,130,134 issued shares of our common stock, options to purchase 2,495,757 shares of our common stock exercisable
within 60 days and 30,000 shares of our common stock earned but not yet issued.
Represents 760,624 issued shares of our common stock, options to purchase 566,667 shares of our common stock exercisable within
60 days and 325,765 shares of our common stock earned but not yet issued.
Represents 2,820,576 issued shares of our common stock, options to purchase 189,920 shares of our common stock exercisable
within 60 days and 72,000 shares earned but not yet issued.
Represents 179,290 issued shares of our common stock, options to purchase 399,430 shares of our common stock exercisable within
60 days and 72,000 shares of our common stock earned but not yet issued.
Represents 275,775 issued shares of our common stock, options to purchase 1,308,958 shares of our common stock exercisable
within 60 days and 1,127,852 shares of our common stock earned but not yet issued.
Represents 90,336 issued shares of our common stock, options to purchase 727,083 shares of our common stock exercisable within
60 days and 751,901 shares of our common stock earned but not yet issued.
Represents an aggregate of 11,682,435 shares of our common stock, options to purchase 9,254,482 shares of our common stock
exercisable within 60 days, and 3,129,518 shares of our common stock earned but not yet issued.
Item 13: Certain Relationships and Related Transactions, and Director Independence.
Our policy is to enter into transactions with related parties on terms that, on the whole, are no more favorable, or no less favorable, than
those available from unaffiliated third parties. Based on our experience in the business sectors in which we operate and the terms of our
transactions with unaffiliated third parties, we believe that all of the transactions described below met this policy standard at the time they
occurred.
In connection with the June 2009 bridge financing, we entered into a Security Agreement, dated as of June 18, 2009 with the investors
in the June 2009 bridge financing. The Security Agreement grants the investors a security interest in all of our tangible and intangible assets, as
further described on Exhibit A to the Security Agreement. We also entered into a Subordination Agreement, dated as of June 18, 2009 with the
investors in the June 2009 bridge financing and Mr. Moore. Pursuant to the Subordination Agreement, Mr. Moore subordinated certain rights to
payments under the Moore Note to the right of payment in full in and in cash of all amounts owed to the investors pursuant to the June 2009
bridge notes; provided, however, that principal and interest of the Moore Note may be repaid prior to the full payment of the investors in certain
circumstances.
51
On September 22, 2008, we entered into a note purchase agreement with our Chief Executive Officer, Thomas A. Moore, pursuant to
which we agreed to sell to Mr. Moore, from time to time, Moore Notes. On June 15, 2009, we amended the terms of the Moore Notes to
increase the amounts available from $800,000 to $950,000 and to change the maturity date of the Moore Notes from June 15, 2009 to the earlier
of January 1, 2010 or our next equity financing resulting in gross proceeds to us of at least $6.0 million. On February 15, 2010, we agreed to
amend the terms of the Moore Notes such that (i) Mr. Moore may elect, at his option, to receive accumulated interest thereon on or after March
17, 2010 (which we expect will amount to approximately $130,000), (ii) we will begin to make monthly installment payments of $100,000 on the
outstanding principal amount beginning on April 15, 2010; provided, however, that the balance of the principal will be repaid in full on
consummation of our next equity financing resulting in gross proceeds to us of at least $6.0 million and (iii) we will retain $200,000 of the
repayment amount for investment in our next equity financing.
Director Independence
In accordance with the disclosure requirements of the Securities and Exchange Commission, and since the Over-The-Counter Bulletin
Board (OTC:BB) does not have its own rules for director independence, the Company has adopted the director independence definitions as set
forth in the NYSE AMEX Rules. Although we are not presently listed on any national securities exchange, each of our directors, other than Mr.
Thomas A. Moore and Roni Appel, is independent in accordance with the definition set forth in the NYSE AMEX Rules. Mr. Moore was an
independent director of the Company during the fiscal year ended October 31, 2006 and continued to be an independent director until he became
Chief Executive Officer on December 15, 2006. Each current member of the Audit Committee and Compensation Committee was an independent
director under the NYSE AMEX standards. The Board considered the information included in transactions with related parties as outlined above
along with other information the Board of Directors considered relevant, when considering the independence of each director.
Item 14: Principal Accountant Fees and Services.
McGladrey & Pullen, LLP (“M&P”) have billed or anticipate billing the Company as follows for the year ended October 31, 2009 and
2008.
The following table sets forth the fees billed by our independent accountants for each of our last two fiscal years for the categories of
services indicated.
Fiscal Year
2009
Fiscal Year
2008
Audit Fees-McGladrey and Pullen LLP
Audit Related Fees-McGladrey and Pullen LLP
Tax Fees-RSM McGladrey, Inc. (1)
Total
(1) Consists of professional services rendered by a Company aligned without principal accountant for tax compliance and tax advice.
94,500
$
10,000
13,000
117,500
$
$
$
87,704
10,000
16,622
114,326
Audit Fees: The Company recorded fees of $94,500 and $87,704, respectively, in connection with its audit of the Company’s financial
statements for the fiscal years ended October 31, 2009 and 2008 and its review of the Company’s interim financial statements included in the
Company’s Quarterly Reports on Form 10-Q for the periods ended January 31, April 30, and July 31.
Audit-Related Fees: The Company recorded fees of $10,000 to perform audit-related services for the fiscal years ended October 31,
2009 and 2008, primarily for review of comments to the Securities and Exchange Commission in its review of securities registration documents
and the Company’s replies and for assistance with private placement memorandums and other document reviews.
Tax Fees: The Company fees of $13,000 and $16,622 respectively for RSM McGladrey, Inc. to amend and prepare the Company’s tax
returns. Starting in fiscal year ended October 31, 2008 the Company engaged RSM McGladrey, Inc. to amend and prepare the Company’s 2008
tax returns and amend years 2008, and 2007.
All Other Fees: No fees were classified outside the recorded Audit and Audit Related fees.
The Audit Committee will pre-approve all auditing services and the terms thereof (which may include providing comfort letters in
connection with securities underwriting) and non-audit services (other than non-audit services prohibited under Section 10A(g) of the Exchange
Act or the applicable rules of the SEC or the Public Company Accounting Oversight Board) to be provided to us by the independent auditor;
provided, however, the pre-approval requirement is waived with respect to the provisions of non-audit services for us if the "de minimus"
provisions of Section 10A(i)(1)(B) of the Exchange Act are satisfied. This authority to pre-approve non-audit services may be delegated to one or
more members of the Audit Committee, who shall present all decisions to pre-approve an activity to the full Audit Committee at its first meeting
following such decision. The Audit Committee may review and approve the scope and staffing of the independent auditors' annual audit plan.
52
Item 15: Exhibits, Financial Statements Schedules.
See Index of Exhibits below. The Exhibits are filed with or incorporated by reference in this report.
** Filed herewith
(a) Exhibits. The following exhibits are included herein or incorporated herein by reference.
Exhibit
Number
2.1
Description of Exhibit
Agreement Plan and Merger of Advaxis, Inc. (a Colorado corporation) and Advaxis, Inc. (a Delaware
corporation). Incorporated by reference to Annex B to DEF 14A Proxy Statement filed with the SEC on May 15, 2006.
3.1(i)
Amended and Restated Articles of Incorporation. Incorporated by reference to Annex C to DEF 14A Proxy Statement filed
with the SEC on May 15, 2006.
3.1(ii)
Amended and Restated Bylaws. Incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-QSB filed with
the SEC on September 13, 2006.
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
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.
Form of warrant to purchase shares of the registrant’s common stock at the price of $0.20 (prior to anti-dilution adjustments)
per share (the “$0.20 Warrant”). Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed with the SEC
on October 23, 2007.
Form of warrant to purchase shares of the registrant’s common stock at the price of $0.001 per share (the “$.001
Warrant”). Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K filed with the SEC on October 23, 2007.
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.
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.
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.
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.
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.
Certificate of Designations of Preferences, Rights and Limitations of Series A Preferred Stock of the registrant, dated
September 24, 2009. Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed with the SEC on
September 25, 2009.
4.10
Promissory Note issued to Biotechnology Greenhouse Corporation of Southeastern Pennsylvania, dated November 10,
2003. Incorporated by reference to Exhibit 10.53 to Annual Report on Form 10-KSB filed with the SEC on January 29,
2009.
4.11
Promissory Note issued to Biotechnology Greenhouse Corporation of Southeastern Pennsylvania, dated December
17, 2003. Incorporated by reference to Exhibit 10.54 to Annual Report on Form 10-KSB filed with the SEC on January 29,
2009.
4.12
Form of Common Stock Purchase Warrant, issued in the October 2009 bridge financing. Incorporated by reference to
Exhibit 4.12 to Registration Statement on Form S-1 (File No. 333-162632) filed with the SEC on October 22, 2009.
53
4.13
Form of Convertible Promissory Note, issued in the October 2009 bridge financing. Incorporated by reference to Exhibit
4.13 to Registration Statement on Form S-1 (File No. 333-162632) filed with the SEC on October 22, 2009.
4.14
Amendment to Senior Promissory Note. Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K/A filed
with the SEC on February 11, 2010.
4.15
Form of Amended and Restated Common Stock Purchase Warrant. Incorporated by reference to Exhibit 4.2 to Current
Report on Form 8-K/A filed with the SEC on February 11, 2010.
4.16
Form of Common Stock Purchase Warrant. Incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K/A
filed with the SEC on February 11, 2010.
4.17**
Form of Amended and Restated Senior Promissory Note, between the registrant and Thomas Moore.
10.1
Securities Purchase Agreement between the registrant and the purchasers in the private placement (the “SPA”), dated as of
October 17, 2007, and Disclosure Schedules thereto. Incorporated by reference to Exhibit 10.1 to Current Report on Form
8-K filed with the SEC on October 23, 2007.
10.2
Securities Purchase Agreement dated February 2, 2006 between the registrant and Cornell Capital Partners,
LP. Incorporated by reference to Exhibit 10.01 to Report on Form 8-K filed with the SEC on February 8, 2006.
10.3
10.4
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.
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
10.7
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.
Memorandum of Agreement between the registrant and CAMHZN Master LDC and CAMOFI Master LDC, purchasers of the
Units consisting of common stock, $0.20 (prior to anti-dilution adjustments) warrants, and $0.001 warrants, dated October 17,
2007. Incorporated by reference to Exhibit 10.5 to Current Report on Form 8-K filed with the SEC on October 23, 2007.
10.8
Advisory Agreement between the registrant and Centrecourt Asset Management LLC, dated August 1, 2007. Incorporated by
reference to Exhibit 10.6 to Current Report on Form 8-K filed with the SEC on October 23, 2007.
10.9
Share Exchange and Reorganization Agreement, dated as of August 25, 2004, by and among the registrant, Advaxis and the
shareholders of Advaxis. Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the SEC on
November 18, 2004.
10.10
Security Agreement dated February 2, 2006 between the registrant and Cornell Capital Partners, L.P. Incorporated by reference
to Exhibit 10.06 to Current Report on Form 8-K filed with the SEC on February 8, 2006.
10.11
Investor Registration Rights Agreement dated February 2, 2006 between the registrant and Cornell Capital Partners,
LP. Incorporated by reference to Exhibit 10.05 to Current Report on Form 8-K filed with the SEC on February 8, 2006.
10.12
2004 Stock Option Plan of the registrant. Incorporated by reference to Exhibit 4.1 to Report on Form S-8 filed with the SEC on
December 1, 2005.
10.13
2005 Stock Option Plan of the registrant. Incorporated by reference to Annex A to DEF 14A Proxy Statement filed with the
SEC on May 15, 2006.
10.14
License Agreement, between University of Pennsylvania and the registrant dated as of June 17, 2002, as Amended and Restated
on February 13, 2007. Incorporated by reference to Exhibit 10.11 to Annual Report on Form 10-KSB filed with the SEC on
February 13, 2007.
10.15
Sponsored Research Agreement dated November 1, 2006 by and between University of Pennsylvania (Dr. Paterson Principal
Investigator) and the registrant. Incorporated by reference to Exhibit 10.44 to Annual Report on 10-KSB filed with the SEC on
February 13, 2007.
54
10.16
Non-Exclusive License and Bailment, dated as of March 17, 2004, between The Regents of the University of California and
Advaxis, Inc. Incorporated by reference to Exhibit 10.8 to Pre-Effective Amendment No. 2 filed on April 28, 2005 to
Registration Statement on Form SB-2 (File No. 333-122504).
10.17
10.18
10.19
10.20
10.21
10.22
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).
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.
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.
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.
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).
Consultancy Agreement, dated as of March 15, 2003, by and between Dr. Joy A. Cavagnaro and Advaxis, Inc. Incorporated
by reference to Exhibit 10.13 to Pre-Effective Amendment No. 2 filed on April 28, 2005 to Registration Statement on Form SB-
2 (File No. 333-122504).
10.23
Consulting Agreement, dated as of July 2, 2004, by and between Sentinel Consulting Corporation and Advaxis,
Inc. Incorporated by reference to Exhibit 10.15 to Pre-Effective Amendment No. 2 filed on April 28, 2005 to Registration
Statement on Form SB-2 (File No. 333-122504).
10.24
Agreement, dated July 7, 2003, by and between Cobra Biomanufacturing PLC and Advaxis, Inc. Incorporated by reference to
Exhibit 10.16 to Pre-Effective Amendment No. 4 filed on June 9, 2005 to Registration Statement on Form SB-2 (File No. 333-
122504).
10.25
Securities Purchase Agreement, dated as of January 12, 2005, by and between the registrant and Harvest Advaxis
LLC. Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the SEC on January 18, 2005.
10.26
Registration Rights Agreement, dated as of January 12, 2005, by and between the registrant and Harvest Advaxis
LLC. Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed with the SEC on January 18, 2005.
10.27
Letter Agreement, dated as of January 12, 2005 by and between the registrant and Robert T. Harvey. Incorporated by reference
to Exhibit 10.3 to Current Report on Form 8-K filed with the SEC on January 18, 2005.
10.28
Consultancy Agreement, dated as of January 15, 2005, by and between Dr. David Filer and the registrant. Incorporated by
reference to Exhibit 10.20 to Pre-Effective Amendment No. 2 filed on April 28, 2005 to Registration Statement on Form SB-2
(File No. 333-122504).
10.29
Consulting Agreement, dated as of January 15, 2005, by and between Pharm-Olam International Ltd. and the
registrant. Incorporated by reference to Exhibit 10.21 to Pre-Effective Amendment No. 2 filed on April 28, 2005 to
Registration Statement on Form SB-2 (File No. 333-122504).
10.30
Letter Agreement, dated February 10, 2005, by and between Richard Berman and the registrant. Incorporated by reference to
Exhibit 10.23 to Pre-Effective Amendment No. 2 filed on April 28, 2005 to Registration Statement on Form SB-2 (File No.
333-122504).
10.31
Employment Agreement, dated February 8, 2005, by and between Vafa Shahabi and the registrant. Incorporated by reference to
Exhibit 10.24 to Pre-Effective Amendment No. 2 filed on April 28, 2005 to Registration Statement on Form SB-2 (File No.
333-122504).
55
10.32
10.33
10.34
10.35
10.36
10.37
10.38
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).
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).
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).
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).
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).
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.
Employment Agreement dated February 9, 2006 between the registrant and Fred Cobb. Incorporated by reference to Exhibit
10.35 to the Registration Statement on Form SB-2 (File No. 333-132298) filed with the SEC on March 9, 2006.
10.39
Termination of Employment Agreement between J. Todd Derbin and the registrant dated October 31, 2005. Incorporated by
reference to Exhibit 10.1 to Current Report on Form 8-K filed with the SEC on November 9, 2005.
10.40
Consulting Agreement dated June 1, 2006 between the registrant and Biologics Consulting Group Inc. Incorporated by
reference to Exhibit 10.40 to Annual Report on Form 10-KSB field with the SEC on February 13, 2007.
10.41
Consulting Agreement dated June 1, 2006 between the registrant and Biologics Consulting Group Inc., as amended on June 1,
2007. Incorporated by reference to Exhibit 10.42(i) to Annual Report on Form 10-KSB filed with the SEC on January 16,
2008.
10.42
Master Contract Service Agreement between the registrant and MediVector, Inc. dated May 20, 2007. Incorporated by reference
to Exhibit 10.44 to Annual Report on Form 10-KSB filed with the SEC on January 16, 2008.
10.43
Letter of Agreement, dated November 21, 2007, between Crystal Research Associates, LLC and the registrant. Incorporated by
reference to Exhibit 10.45 to Annual Report on Form 10-KSB filed with the SEC on January 16, 2008.
10.44
Service Proposal O781, dated May 14, 2007, to the Strategic Collaboration and Long Term Vaccine Supply Agreement, dated
October 31, 2005, between the registrant and Cobra Biomanufacturing Plc. Incorporated by reference to Exhibit 10.46 to
Annual Report on Form 10-KSB filed with the SEC on January 16, 2008.
10.45
Service Proposal, dated September 20, 2007, to the Strategic Collaboration and Long Term Vaccine Supply Agreement, dated
October 31, 2005, between the registrant and Cobra Biomanufacturing Plc. Incorporated by reference to Exhibit 10.47 to
Annual Report on Form 10-KSB filed with the SEC on January 16, 2008.
10.46
Consulting Agreement, dated May 1, 2007 between the registrant and Bridge Ventures, Inc. Incorporated by reference to
Exhibit 10.48 to Annual Report on Form 10-KSB filed with the SEC on January 16, 2008.
10.47
Consulting Agreement, dated August 1, 2007 between the Company and Dr. David Filer. Incorporated by reference to Exhibit
10.49 to Annual Report on Form 10-KSB filed with the SEC on January 16, 2008.
10.48
Employment Agreement dated February 29, 2008 between the registrant and Christine Chansky. Incorporated by reference to
Exhibit 10.50 to Annual Report on Form 10-KSB filed with the SEC on January 29, 2009.
10.49
Note Purchase Agreement, dated September 22, 2008 by and between Thomas A. Moore and the registrant. Incorporated by
reference to Exhibit 10.1 to Current Report on Form 8-K filed with the SEC on September 30, 2008.
56
10.50
Lease Extension Agreement dated June 1, 2008 by and between New Jersey Economic Development Authority and the
registrant. Incorporated by reference to Exhibit 10.55 to Annual Report on Form 10-KSB filed with the SEC on January 29,
2009.
10.51
Technical/Quality Agreement dated May 6, 2008 by and between Vibalogics GmbH and the registrant. Incorporated by
reference to Exhibit 10.57 to Annual Report on Form 10-KSB filed with the SEC on January 29, 2009.
10.52
Master Service Agreement dated April 7, 2008 by and between Vibalogics GmbH and the registrant. Incorporated by
reference to Exhibit 10.58 to Annual Report on Form 10-KSB filed with the SEC on January 29, 2009.
10.53
Agreement, dated as of December 8, 2008, by and between The Sage Group and the registrant. Incorporated by reference to
Exhibit 10.59 to Annual Report on Form 10-KSB filed with the SEC on January 29, 2009.
10.54
Service Agreement dated January 1, 2009 by and between AlphaStaff, Inc. and the registrant. Incorporated by reference to
Exhibit 10.60 to Annual Report on Form 10-KSB filed with the SEC on January 29, 2009.
10.55
Letter of Intent dated November 20, 2008 by and between Numoda Corporation and the registrant. Incorporated by reference
to Exhibit 10.61 to Annual Report on Form 10-KSB filed with the SEC on January 29, 2009.
10.56
Consulting Agreement dated December 1, 2008 by and between Conrad Mir and the registrant. Incorporated by reference to
Exhibit 10.62 to Annual Report on Form 10-KSB filed with the SEC on January 29, 2009.
10.57
Form of Note Purchase Agreement. Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the
SEC on June 19, 2009.
10.58
Form of Security Agreement. Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed with the SEC on
June 19, 2009.
10.59
Form of Subordination Agreement. Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed with the
SEC on June 19, 2009.
10.60
Preferred Stock Purchase Agreement dated September 24, 2009 by and between Optimus Capital Partners, LLC and the
registrant. Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the SEC on September 25,
2009.
10.61
Form of Note Purchase Agreement, entered into in connection with the October 2009 bridge financing. Incorporated by
reference to Exhibit 10.61 to Registration Statement on Form S-1 (File No. 333-162632) filed with the SEC on October 22,
2009.
10.62**
2009 Stock Option Plan of the registrant.
14.1
Code of Business Conduct and Ethics dated November 12, 2004. Incorporated by reference to Exhibit 14.1 to Current Report
on Form 8-K filed with the SEC on November 18, 2004.
Consent of McGladrey & Pullen, LLP.
Power of Attorney (Included in the signature page of this annual report).
23.1
24.1
57
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf
by the undersigned, thereunto duly authorized, in North Brunswick, Middlesex County, State of New Jersey, on this 19th day of February, 2010.
SIGNATURE
ADVAXIS, INC.
By:
/s/ Thomas Moore
Thomas Moore, Chief Executive Officer and Chairman
of the Board
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Thomas Moore
and Mark J. Rosenblum (with full power to act alone), as his true and lawful attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form
10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to
be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or their substitute or substitutes, lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf
of the registrant and in the capacities and on the dates indicated:
SIGNATURE
TITLE
DATE
/s/ Thomas Moore
Thomas Moore
/s/ Mark J. Rosenblum
Mark J. Rosenblum
/s/ John M. Rothman
John M. Rothman
Roni Appel
Roni Appel
/s/ Thomas McKearn
Thomas McKearn
/s/ James Patton
James Patton
/s/ Richard Berman
Richard Berman
Chief Executive Officer and Chairman of the Board
February 19, 2010
(Principal Executive Officer)
Chief Financial Officer, Senior Vice President and Secretary
February 19, 2010
(Principal Financial and Accounting Officer)
Executive Vice President of Science and Operations
February 19, 2010
(Chief Operating Officer)
Director
Director
Director
Director
58
February 19, 2010
February 19, 2010
February 19, 2010
February 19, 2010
ADVAXIS, INC.
FINANCIAL STATEMENTS
INDEX
Advaxis, Inc.
Report of Independent Registered Public Accounting Firm
Balance Sheets as of October 31, 2009 and 2008
Statements of Operations for the years ended October 31, 2009 and 2008 and the period from
March 1, 2002 (Inception) to October 31, 2009
Statements of Stockholders’ Equity (Deficiency) for the Period from March 1, 2002 (Inception) to
October 31, 2009
Statements of Cash Flows for the years ended October 31, 2009 and 2008 and the period from
March 1, 2002 (Inception) to October 31, 2009
Notes to the Financial Statements
F-1
Page
F-1
F-2
F-3
F-4
F-5
F-7
F-8
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Advaxis, Inc.
North Brunswick, New Jersey
We have audited the balance sheets of Advaxis, Inc. (a development stage company) as of October 31, 2009 and 2008, and the related
statements of operations, shareholders’ equity (deficiency) and cash flows for the years then ended and for the cumulative period from March 1,
2002 (inception) to October 31, 2009. These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. The financial statements for the period from March 1, 2002 (inception) to
October 31, 2006 were audited by other auditors and our opinion, insofar as it relates to cumulative amounts included for such prior periods, is
based solely on the reports of such other auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material
respects, the financial position of Advaxis, Inc. as of October 31, 2009 and 2008 and the results of its operations and its cash flows for the
years then ended and the cumulative period from March 1, 2002 (inception) to October 31, 2009 in conformity with accounting principles
generally accepted in the United States.
We were not engaged to examine management’s assertion about the effectiveness of Advaxis Inc.’s internal control over financial reporting as
of October 31, 2009 included in the accompanying “Management’s Report on Internal Control over Financial Reporting” and, accordingly, we
do not express an opinion thereon.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note
1 to the financial statements, the Company’s products are being developed and have not generated significant revenues. As a result, the
Company has suffered recurring losses and its liabilities exceed its assets. This raises substantial doubt about the Company’s ability to continue
as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
MCGLADREY & PULLEN LLP
New York, New York
February 19, 2010
F-2
ADVAXIS, INC.
(A Development Stage Company)
Balance Sheet
ASSETS
Current Assets:
Cash
Prepaid expenses
Total Current Assets
Deferred expenses
Property and Equipment (net of accumulated depreciation)
Intangible Assets (net of accumulated amortization)
Deferred Financing Cost
Other Assets
October 31,
2009
October 31,
2008
$
659,822 $
36,445
696,267
59,738
38,862
98,600
288,544
54,499
1,371,638
299,493
3,876
-
91,147
1,137,397
3,876
TOTAL ASSETS
$ 2,714,317 $ 1,331,020
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
Current Liabilities:
Accounts payable
Accrued expenses
Convertible Bridge Notes and fair value of embedded derivative
Notes payable – current portion, including interest payable
Total Current Liabilities
Common Stock Warrant
Notes payable - net of current portion
Total Liabilities
Shareholders’ Deficiency:
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued and
outstanding
Common Stock - $0.001 par value; authorized 500,000,000 shares, issued and outstanding
115,638,243 in 2009 and 109,319,520 in 2008
Additional Paid-In Capital
Deficit accumulated during the development stage
Total Shareholders' Deficiency
TOTAL LIABILITIES & SHAREHOLDERS’ DEFICIENCY
$ 2,368,716 $
917,250
2,078,851
1,121,094
6,485,911
998,856
603,345
-
563,317
2,165,518
-
11,961,734
4,813
-
$ 18,447,645 $ 2,170,331
-
-
115,638
109,319
754,834 16,584,414
(16,603,800) (17,533,044)
(839,311)
(15,733,328)
$ 2,714,317 $ 1,331,020
The accompanying notes and the report of independent registered public accounting firm should be read in conjunction with the financial
statements.
F-3
ADVAXIS, INC.
(A Development Stage Company)
Statement of Operations
Revenue
Research & Development Expenses
General & Administrative Expenses
Total Operating expenses
Loss from Operations
Other Income (expense):
Interest expense
Other Income
Gain on note retirement
Net changes in fair value of common stock warrant liability and embedded
derivative liability
Net Income/( Loss) before income tax benefit
Income Tax Benefit
Net Income/( Loss)
Dividends attributable to preferred shares
Net Income/( Loss) applicable to Common Stock
Net Income/(Loss) per share, basic
Net Income/(Loss) per share, diluted
Year Ended
October 31,
Year Ended
October 31,
2009
2008
Period from
March 1, 2002
(Inception) to
October 31,
2009
$
29,690 $
2,315,557
2,701,133
5,016,690
(4,987,000)
65,736 $
2,481,840
3,035,680
5,517,520
(5,451,784)
1,354,862
10,173,541
12,709,700
22,883,243
(21,528,379)
(851,008)
-
(11,263)
46,629
-
(1,935,491)
246,457
1,532,477
5,845,229
7,221
922,023
929,244
-
4,202,997
(17,481,939)
922,023
(16,559,916)
43,884
929,244 $ (5,416,418) $ (16,603,800)
-
(5,416,418)
-
(5,416,418)
-
0.01 $
0.01
(0.05)
(0.05)
$
$
$
Weighted average number of shares outstanding, basic
113,365,584 108,715,875
Weighted average number of shares outstanding, diluted
118,264,246 108,715,875
The accompanying notes and the report of independent registered public accounting firm should be read in conjunction with the financial
statements.
F-4
ADVAXIS, INC.
(a development stage company)
STATEMENT OF SHAREHOLDERS’ EQUITY (DEFICIENCY)
Period from March 1, 2002 (inception) to October 31, 2009
Preferred Stock
Common Stock
Number of
Shares of
Outstanding Amount
3,418 $
235,000
Number of shares
of outstanding Amount
Additional Paid-
in Capital
40,000
$
40
$
(40)
Deficit
Accumulated
During the
Development Stage
Shareholders’
Equity (Deficiency)
235,000
$
10,493
(166,936)
$
$
10,493
(166,936)
(3,481)
(235,000)
15,557,723
15,558
219,442
15,597,723
$
15,598
$
229,895
$
(166,936)
$
78,557
232
15,969
(232)
(15,969)
638
43,884
(638)
(43,884)
$
$
$
15,969
8,484
(909,745)
(909,745)
8,484
15,969
15,597,723
$
15,598
$
254,348
$
(1,076,681)
$
(806,735)
(43,884)
(538,076)
$
(538,076)
5,315
5,315
43,884
15,597,723
$
15,598
$
303,547
$
(1,658,641)
$
(1,339,496)
752,600
752,600
753
753
2,136,441
2,136
(753)
(753)
64,924
611,022
17,450,693
17,451
4,335,549
586,970
409,401
587
408
166,190
117,090
(329,673)
(88,824)
(1,805,789)
64,924
613,158
4,353,000
166,777
117,498
(329,673)
(1,805,789)
(88,824)
37,686,428
$
37,686
$
5,178,319
$
(3,464,430)
$
1,751,575
1,766,902
1,767
229,422
556,240
40,238,992
59,228,334
229
557
40,239
59,228
6,974,202
6,974
416,448
1,100,001
416
1,100
172,831
71,667
298,233
54,629
139,114
5,914,793
9,321,674
(2,243,535)
268,577
222,501
993,026
73,384
220,678
(6,197,744)
(9,662,173)
1,505,550
(2,454,453)
172,831
71,667
300,000
54,858
139,674
(6,197,744)
(3,707,141)
9,380,902
(2,243,535)
268,577
222,501
1,000,010
73,800
221,778
1,505,550
(2,454,453)
107,957,977
$
107,957
$
16,276,648
$
(12,116,626)
$
4,267,979
211,853
212
31,566
(78,013)
(42,306)
257,854
-
31,778
(78,013)
(42,306)
257,854
Preferred stock issued
Common Stock Issued
Options granted to
consultants &
professionals
Net Loss
Retroactive restatement to
reflect re-capitalization
on Nov. 12, 2004
Balance at December 31,
2002
Note payable converted into
preferred stock
Options granted to
consultants and
professionals
Net loss
Retroactive restatement to
reflect re-capitalization
on Nov. 12, 2004
Balance at December 31,
2003
Stock dividend on preferred
stock
Net loss
Options granted to
consultants and
professionals
Retroactive restatement to
reflect re-capitalization
on Nov. 12, 2004
Balance at October 31,
2004
Common Stock issued to
Placement Agent on re-
capitalization
Effect of re-capitalization
Options granted to
consultants and
professionals
Conversion of Note payable
to Common Stock
Issuance of Common Stock
for cash, net of shares
to Placement Agent
Issuance of common stock
to consultants
Issuance of common stock
in connection with the
registration statement
Issuance costs
Net loss
Restatement to reflect re-
capitalization on Nov.
12, 2004 including cash
paid of $44,940
Balance at October 31,
2005
Options granted to
consultants and
professionals
Options granted to
employees and directors
Conversion of debenture to
Common Stock
Issuance of Common Stock
to employees and
directors
Issuance of common stock
to consultants
Net loss
Balance at October 31,
2006
Common Stock issued
Offering Expenses
Options granted to
consultants and
professionals
Options granted to
employees and directors
Conversion of debenture to
Common Stock
Issuance of Common Stock
to employees and
directors
Issuance of common stock
to consultants
Warrants issued on
conjunction with
issuance of common
stock
Net loss
Balance at October 31,
2007
Common Stock Penalty
Shares
Offering Expenses
Options granted to
consultants and
professionals
Options granted to
employees and directors
Issuance of Common Stock
to employees and
directors
Issuance of common stock
to consultants
Warrants issued to
consultant
Net loss
Balance at October 31,
2008
Common stock issued upon
exercise of warrants
Warrants classified as
a liability
Issuance of common Stock
Warrants
Options granted to
professionals and
consultants
Options granted to
employees and directors
Issuance of common stock
to employees and
directors
Issuance of common stock
to consultants
Net Income/ (Loss)
Balance at October 31,
2009
995,844
153,846
996
154
85,005
14,462
39,198
86,001
14,616
39,198
(5,416,418)
(5,416,418)
109,319,520
$
109,319
$
16,584,414
$
(17,533,044)
$
(839,311)
3,299,999
3,300
(3,300)
(12,785,695)
(3,587,625)
12,596
0
467,304
422,780
423
2,595,944
2,596
17,757
49,383
929,244
0
(12,785,695)
(3,587,625)
12,596
467,304
18,180
51,979
929,244
115,638,243 $
115,638 $
754,834
$
(16,603,800)
$
(15,733,328)
The accompanying notes and the report of independent registered public accounting firm should be read in conjunction with the financial
statements.
F-5
ADVAXIS, INC.
(A Development Stage Company)
Statement of Cash Flows
Period from
March 1
2002
Year ended Year ended (Inception) to
October 31, October 31, October 31,
2008
2009
2009
$
929,244
571,525
-
$ (5,416,418) $ (16,559,916)
355,364
-
-
61,456
123,846
698,650
(5,845,229)
-
36,648
74,508
-
2,417
-
1,421,838
2,424,755
260,000
61,456
123,846
1,216,835
(4,202,997)
149,276
128,738
388,019
(1,532,477)
(36,445)
(3,876)
2,857,900
477,618
18,291
(14,228,977)
7,907
-
31,778
36,137
161,208
-
161,055
-
211,559
298,322
-
(2,034,636) (4,153,088)
OPERATING ACTIVITIES
Net Income (Loss)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Non-cash charges to consultants and employees for options and stock
Amortization of deferred financing costs
Amortization of deferred expenses
Amortization of discount on Bridge Loans
Non-cash interest expense
(Gain) Loss on change in value of warrants and embedded derivative
Value of penalty shares issued
Depreciation expense
Amortization expense of intangibles
Gain on note retirement
(Increase) decrease in prepaid expenses
Decrease (increase) in other assets
Increase in accounts payable
(Decrease) increase in accrued expenses
(Decrease) increase in interest payable
Net cash used in operating activities
INVESTING ACTIVITIES
Cash paid on acquisition of Great Expectations
Purchase of property and equipment
Cost of intangible assets
Net cash used in Investing Activities
FINANCING ACTIVITIES
Proceeds from (repayment of) convertible secured debenture
Cash paid for deferred financing costs
Proceeds from notes payable
Payment on notes payable
Net proceeds of issuance of Preferred Stock
Payment on cancellation of Warrants
Net proceeds of issuance of Common Stock
Net cash provided by Financing Activities
Net increase in cash
Cash at beginning of period
Cash at end of period
The accompanying notes and the report of independent registered public accounting firm should be read in conjunction with the financial
statements.
-
-
475,000
(14,832)
-
-
(78,014)
382,154
(3,982,246)
4,041,984
59,738 $
$
960,000
(559,493)
5,005,860
(123,591)
235,000
(600,000)
11,988,230
16,906,005
659,822
-
659,822
-
-
-
2,943,469
600,084
59,738
659,822
-
(10,842)
(200,470)
(211,312)
(44,940)
(137,657)
(1,834,609)
(2,017,206)
(308,749)
(308,749)
3,259,635
(299,493 )
(109,540)
(16,672)
-
-
$
-
-
F-6
Supplemental Schedule of Noncash Investing and Financing Activities
Year ended
Year ended
October 31, October 31,
2009
2008
Equipment acquired under notes payable
Common Stock issued to Founders
Notes payable and accrued interest converted to Preferred Stock
Stock dividend on Preferred Stock
Accounts payable from consultants settled with common stock
Notes payable and accrued interest converted to Common Stock
Intangible assets acquired with notes payable
Debt discount in connection with recording the original value of the embedded
derivative liability
Allocation of the original secured convertible debentures to warrants
Allocation of the warrants on Bridge Notes as debt discount
Warrants issued in connection with issuance of Common Stock
Warrants issued in connection with issuance of Preferred Stock
$
$
$
$
$
$
$
$
$
$
51,978
$
$
$
$ 1,579,646
$
$
940,511
$
$
$
$ 3,587,625 $
Period from
March 1, 2002
(Inception) to
October 31,
2008
45,580
40
15,969
43,884
51,978
2,513,158
360,000
2,082,442
214,950
940,511
1,505,550
3,587,625
$
-
$
-
$
-
-
$
-
$
-
$
-
$
-
-
$
- $
-
$
- $
The accompanying notes and the report of independent registered public accounting firm should be read in conjunction with the financial
statements.
F-7
ADVAXIS, INC.
(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 not generated significant revenues. As a result, the Company has suffered recurring losses and
its liabilities exceed its assets which raises substantial doubt about our ability to continue as a going concern.. These losses are expected to
continue for an extended period of time. The Company plans to obtain sufficient financing so it can develop and market its products. The
Company began to aggressively raise capital during June 2009. From June 2009 through October 31, 2009 the Company was able to raise
$2,786,650 through the sale of promissory notes with a principal amount of $3,278,412 and with attached warrants. In addition the Company has
entered into an agreement with Optimus Capital Partners, LLC. for the sale of up to $5,000,000 of Preferred Stock. In January 2010 the
Company closed on the sale of $1,450,000 in gross proceeds from the sale of such stock. The Company intends to continue raising funds
through the sale of both debt and equity and expects to fund at least one arm of our Phase II CIN trial and to assess the potential outcome of the
trial. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. There is a working
capital deficiency and recurring losses that raise substantial doubt about its ability to continue as a going concern. The financial statement does
not include any adjustments to the carrying amount and classification of recorded assets and liabilities should we be unable to continue
operations.
Revenue from license fees and grants is recognized when the following criteria are met; persuasive evidence of an arrangement exists, services
have been rendered, the contract price is fixed or determinable, and collectability is reasonably assured. In licensing arrangements, delivery does
not occur for revenue recognition purposes until the license term begins. Nonrefundable upfront fees received in exchange for products delivered
or services performed that do not represent the culmination of a separate earnings process will be deferred and recognized over the term of the
agreement using the straight line method or another method if it better represents the timing and pattern of performance. Since its inception and
through October 31, 2009 all of the Company’s revenues have been from grants. For the years ended October 31, 2009 and 2008, all of the
Company’s revenues were received from one grant and two grants, respectively.
For revenue contracts that contain multiple elements, revenue arrangements with multiple deliverables are divided into separate units of
accounting if the delivered item has value to the customer on a standalone basis and there is objective and reliable evidence of the fair value of the
undelivered item.
F-8
The Company maintains its cash in bank deposit accounts (money market) that at times exceed federally insured limits.
Equipment: Equipment is stated at cost. Depreciation and amortization are provided for on a straight-line basis over the estimated useful life of
the asset ranging from 3 to 5 years. Expenditures for maintenance and repairs that do not materially extend the useful lives of the respective assets
are charged to expense as incurred. The cost and accumulated depreciation or amortization of assets retired or sold are removed from the
respective accounts and any gain or loss is recognized in operations.
Intangible assets, which consist primarily of legal and filing costs in obtaining patents and licenses and are being amortized on a straight-line
basis over 20 years.
We review our long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset might not be
recoverable and its carrying amount exceeds its fair value, which is based upon estimated undiscounted future cash flows. Net assets recorded on
the balance sheet for patents and licenses related to ADXS11-001, ADXS31-142, ADXS31-164 and other products are in development.
However, if a competitor were to gain FDA approval for a treatment before us or if future clinical trials fail to meet the targeted endpoints, we
would likely record an impairment related to these assets. In addition, if an application is rejected or fails to be issued we would record an
impairment of its estimated book value. In January 2009 the company decided to discontinue its use of the Trademark Lovaxin and write-off of
its intangible assets for trademarks resulting in an asset impairment of $91,453 as of October 31, 2008.
Basic Income (loss) per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during
the periods. Diluted earnings per share gives effect to dilutive options, warrants, convertible debt and other potential common stock outstanding
during the period. Therefore, the impact of the potential common stock resulting from warrants and outstanding stock options are not included in
the computation of diluted loss per share, as the effect would be anti-dilutive. The Company also has outstanding convertible debt, but the amount
of shares is not a set amount due to the contingent nature of the exercise price as further described in Note 5. The table sets forth the number of
potential shares of common stock that have been excluded from diluted net loss per share.
Warrants
Stock Options
Convertible Debt (using the if-converted method)
Total
October 31, 2009 October 31, 2008
97,187,400
8,812,841
-
106,000,241
127,456,301
7,881,591
49,749,280
185,087,172
No deferred income taxes are provided for the differences between the bases of assets and liabilities for financial reporting and income tax
purposes. Future ownership changes may limit the future utilization of these net operating loss and research and development tax credit carry-
forwards as defined by the Internal Revenue Code. The amount of any potential limitation is unknown. The net deferred tax asset has been fully
offset by a valuation allowance due to our history of taxable losses and uncertainty regarding our ability to generate sufficient taxable income in
the future to utilize these deferred tax assets.
The estimated fair value of the notes payable approximates the principal amount based on the rates available to the Company for similar debt.
Accounts payable consists entirely of trade accounts payable.
Research and development costs are charged to expense as incurred.
In June, 2008, The FASB ratified Emerging Issues Task Force (EITF) Issue No 07-05, “Determining Whether an Instrument (or Embedded
Feature) is Indexed to an Entity’s Own Stock” (EITF 07-5). EITF 07-5 mandates a two-step process for evaluating whether an equity-linked
financial instrument or embedded feature indexed to the entity’s own stock. It is effective for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years, which is our first quarter of fiscal 2010. Many of the warrants issued by the Company contain a strike
price adjustment feature, which upon adoption of EITF 07-5, will result in the instruments no longer being considered indexed to the Company’s
own stock. The Company is currently evaluating the impact the adoption of EITF 07-5 will have on its financial position, results of operation, or
cash flows.
F-9
Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material
effect on the accompanying financial statements.
The Company has evaluated the financial statements for subsequent events through the date of filing of this annual report on Form 10-K on
February 19, 2010.
2. SHARE-BASED COMPENSATION EXPENSE
The Company adopted SFAS 123(R) and uses the modified prospective transition method, which requires the application of the accounting
standard as of November 1, 2005, the first day of the Company’s fiscal year 2006. In accordance with the modified prospective transition
method, the Company’s Financial Statements for prior periods were not restated to reflect, and do not include the impact of SFAS 123(R). The
Company began recognizing expense in an amount equal to the fair value of share-based payments (stock option awards) on their date of grant,
over the requisite service period of the awards (usually the vesting period). Under the modified prospective method, compensation expense for
the Company is recognized for all share based payments granted and vested on or after November 1, 2005 and all awards granted to employees
prior to November 1, 2005 that were unvested on that date but vested in the period over the requisite service periods in the Company’s Statement
of Operations. Prior to the adoption of the fair value method, the Company accounted for stock-based compensation to employees under the
intrinsic value method of accounting set forth in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees , and
related interpretations. Therefore, compensation expense related to employee stock options was not reflected in operating expenses in any period
prior to the fiscal year of 2006 and prior period results have not been restated. Since the date of inception to October 31, 2005 had the Company
adopted the fair value based method of accounting for stock-based employee compensation under the provisions of SFAS No. 123, Stock Option
Expense would have totaled $328,176 for the period March 1, 2002 (date of inception) to October 31, 2009, and the effect on the Company’s net
loss would have been as follows:
Net Loss as reported
Add: Stock based option expense included in recorded net loss
Deduct stock option compensation expense determined under fair value based method
Adjusted Net Loss
March 1, 2002
(date of
inception) to
October 31,
2009
$ (16,559,916)
89,217
(328,176)
$ (16,798,875)
The fair value of each option granted from the Company’s stock option plans during the years ended October 31, 2009 and 2008 was estimated
on the date of grant using the Black-Scholes option-pricing model. Using this model, fair value is calculated based on assumptions with respect to
(i) expected volatility of the Company’s Common Stock price, (ii) the periods of time over which employees and Board Directors are expected to
hold their options prior to exercise (expected lives), (iii) expected dividend yield on the Company’s Common Stock, and (iv) risk-free interest
rates, which are based on quoted U.S. Treasury rates for securities with maturities approximating the options’ expected lives. Expected volatility
for a development stage biotechnology company is very difficult to estimate as such; the company considered several factors in computing
volatility. The company used their own historical volatility in determining the volatility to be used. Expected lives are based on contractual terms
given the early stage of the business, lack of intrinsic value and significant future dilution along typical of early stage biotech. The expected
dividend yield is zero as the Company has never paid dividends to common shareholders and does not currently anticipate paying any in the
foreseeable future.
F-10
Expected volatility
Expected Life
Dividend yield
Risk-free interest rate
Year Ended
October 31,
2009
Year Ended
October 31,
2008
170.2%
6.0 years
0
3.5%
110.1%
5.9 years
0
3.6%
Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that vested
during the period. Stock-based compensation expense for the twelve months ended October 31, 2009 includes compensation expense for share-
based payment awards granted prior to, but not yet vested as of October 31, 2005 based on the grant date fair value and compensation expense
for the share-based payment awards granted subsequent to October 31, 2005 based on the grant date fair value estimated in accordance with the
provisions of SFAS 123(R). Compensation expense for all share-based payment awards to be recognized using the straight line method over the
requisite service period. As stock-based compensation expense for the fiscal years 2009 and 2008 is based on awards granted and vested, it has
been reduced for estimated forfeitures (4.4%). SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates. In the Company’s pro forma information required under SFAS 123 for the
periods prior to fiscal 2006, the Company accounted for forfeitures as they occurred.
Warrant Expense
Pursuant to the November 21, 2007 Letter of Agreement between Crystal Research Associates and Advaxis, Inc. we issued 400,000 warrants
expiring in four years to purchase Advaxis stock at $0.20 per share and $40,000 for providing a fee-based research document. The company
recorded a fair value of $39,198 in Fiscal 2008.
On October 17, 2007 (the closing date of the private placement) the following transactions took place:
Pursuant to the related Placement Agency Agreement with Carter Securities, LLC, the Company paid the placement agent $354,439 in cash
commissions and reimbursement of expenses and issued to it 2,949,333 warrants exercisable at $0.20 (prior to anti-dilution adjustments) per
share. The fair value of the warrants is estimated to be $574,235. The fair value of the warrants was calculated using the Black-Scholes valuation
model with the following assumptions: 2,949,333 warrants, market price of common stock on the date of sale of $0.23 per share October 17,
2007, exercise price of $0.20, risk-free interest rate of 4.16%, expected volatility of 119% and expected life of 5 years. The value of the warrants
and cash are included in APIC as a reduction to net proceeds from the October 2007 private placement.
In accordance with a consulting agreement, Centrecourt Asset Management was paid $328,000 in cash commissions and issued 2,483,333
warrants exercisable at $0.20 (prior to anti-dilution adjustments) per share. The fair value of the warrants is estimated to be $483,505. The fair
value of the warrants was calculated using the Black-Scholes valuation model with the following assumptions: 2,483,333 warrants, market price
of common stock on the date of sale of $0.23 per share on October 17, 2007, an exercise price of $0.20 (prior to anti-dilution adjustments), risk-
free interest rate of 4.16%, expected volatility of 119% and expected life of 5 years. The value of the warrants and one half of the cash was
included in APIC as a reduction to net proceeds from the October 2007 private placement. The other half of the cash was recorded as prepaid
expense for advisory consulting services to be amortized over the balance of the term of the one- year agreement.
F-11
In accordance with a consulting agreement with BridgeVentures they were paid $51,427 in cash commissions and issued 800,000 warrants
exercisable at $0.20 (prior to anti-dilution adjustments) per share. The fair value of the warrants is estimated to be $155,760. The fair value of the
warrants was calculated using the Black-Scholes valuation model with the following assumptions: 800,000 warrants, market price of common
stock on the date of sale of $0.23 per share on October 17, 2007, an exercise price of $0.20 (prior to anti-dilution adjustments), risk-free interest
rate of 4.16%, expected volatility of 119% and expected life of 5 years. The value of the warrants and the cash was included in APIC as a
reduction to net proceeds from the October 2007 private placement. The future consulting payments of cash will recorded as consulting expense
for advisory consulting services over the balance of the agreement.
In accordance with a consulting agreement with Dr. Filer, he was issued 1,500,000 warrants exercisable at $0.20 (prior to anti-dilution
adjustments) per share. The fair value of the warrants is estimated to be $292,050. The fair value of the warrants was calculated using the Black-
Scholes valuation model with the following assumptions: 1,500,000 warrants, market price of common stock on the date of sale of $0.23 per
share on October 17, 2007, an exercise price of $0.20 (prior to anti-dilution adjustments), risk-free interest rate of 4.16%, expected volatility of
119% and expected life of 5 years. The value of the warrants was included in APIC as a reduction to net proceeds from the October 2007 private
placement. He receives a monthly fee of $5,000 for consulting recorded as consulting expense for advisory consulting services over the balance
of the agreement.
The Company accounts for nonemployee stock-based awards in which goods or services are the consideration received for the equity instruments
issued based on the fair value of the equity instruments.
Substantially all of the Company’s warrants are subject to anti-dilution provisions which have the effect of adjusting the exercise price of
outstanding warrants. See also Note 6.
Warrants Outstanding – October 31, 2008
Issued New Warrants
Exercised
Change in Ratchet Calculation
Warrants Outstanding – October 31, 2009
3. INTANGIBLE ASSETS:
97,187,400
40,716,625
-3,333,333
-7,114,391
127,456,301
Intangible assets primarily consist of legal and filing costs associated with obtaining patents and licenses. The license and patent costs capitalized
primarily represent the value assigned to the Company’s 20-year exclusive worldwide license agreement with Penn which are amortized on a
straight-line basis over their remaining useful lives which are estimated to be twenty years from the effective date of the Penn Agreement dated
July 1, 2002. The value of the license and patents is based on management’s assessment regarding the ultimate recoverability of the amounts paid
and the potential for alternative future uses. This license now includes the exclusive right to strategically exploit 24 patents issued and 15 pending
filed in some of the largest markets in the world (including the patents issued and applied for that we are no longer pursing in smaller
markets). After careful review and analysis we decided not to pursue 4 patents issued and 6 patent applications filed in smaller countries.
This license agreement has been amended, from time to time, and was amended and restated on February 13, 2007. We have acquired and paid
for the First Amended and Restated Patent License Agreement. However, the Second Amendment that we mutually agreed to enter into on
March 26, 2007 to exercise our option to license an additional 12 other dockets or approximately 39 or more additional patent applications for
Listeria and LLO-based vaccine dockets was not finalized. In order to purchase this Second Amendment as of October 31, 2009 we are
contingently liable for $548,105 including the reimbursement of certain legal and filing costs. We are still in negotiations with Penn over the
form of payment, some combination of stock or cash, and expect to reach a conclusion at the close of our next financial raise. These fees are
currently unpaid and are not recorded in our financial statements as of the October 31, 2009. While we consider our relationship with Penn good
we are in frequent communications over payment of past due invoices and other payables due to our lack of cash. If we fail to reach a mutual
understanding Penn may issue a default notice and we will have 60 days to cure the breach or be subject to the termination of the agreement.
As of October 31, 2009, all capitalized costs associated with the licenses and patents filed and granted as well as costs associated with patents
pending are $1,371,638 as shown under license and patents on the table below, excluding the Second Amendment costs. Of the total $1,651,574
in intangibles capitalized the company estimates that $875,505 and $776,069 are for granted and in granted patent applications, respectively. The
expirations of the existing patents range from 2014 to 2020 but the expirations may be extended based on market approval if granted and/or based
on existing laws and regulations. Capitalized costs associated with patent applications that are abandoned without future value or patents
applications that are not issued are charged to expense when the determination is made not to pursue the application. Based on a review and
analysis of its patents we determined that it was no longer cost effective to pursue patents in other countries such as Canada, Israel or Ireland. A
review of the capitalized costs for these countries resulted in the write-off of $26,087 as of October 31, 2009 of capitalized cost since inception of
the company and the elimination of a total of eleven patent and patent applications. No other additional patent applications with future value were
abandoned and charged to expense in the current or prior year. Amortization expense for licensed technology and capitalized patent cost is
included in general and administrative expenses.
F-12
Under the amended and restated agreement we are billed actual patent expenses as they are passed through from Penn and or billed directly from
our patent attorney. The following is a summary of the intangibles assets as of the following fiscal periods:
License
Patents
Total intangibles
Accumulated Amortization and impairments
Intangible Assets
$
October 31,
October 31,
2008
2009
$529,915
571,275 $
1,080,299
812,910
1,651,574 1,342,825
205,428
$ 1,371,638 $ 1,137,397
279,936
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. An asset is considered to be impaired when the estimated fair value determined by the sum of the undiscounted
future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. The amount of
impairment loss, if any, is measured as the difference between the net book value of the asset and its estimated fair value.
4. ACCRUED EXPENSES:
The following table represents the major components of accrued expenses:
Salaries and other compensation
Sponsored Research Agreement
Consultants
Warrants
Clinical Research Organization
Other
5. NOTES PAYABLE:
October 31,
2009
October 31,
2008
$
$
768,552
119,698
29,000
-
-
-
917,250
$
$
430,256
119,698
24,000
16,340
11,166
1,885
603,345
On September 22, 2008, Advaxis entered into an agreement (the “Moore Agreement”) with the Company’s Chief Executive Officer, Thomas
Moore, pursuant to which the Company agreed to sell to Mr. Moore, from time to time, the Moore Notes. On June 15, 2009, Mr. Moore and the
Company amended the Moore Notes to increase the amounts available pursuant to the Moore Agreement from $800,000 to $950,000 and change
the maturity date of the Moore Notes from June 15, 2009 to the earlier of January 1, 2010 (the “Maturity Date”) or the Company’s next equity
financing resulting in gross proceeds to the Company of at least $6 million (“Subsequent Equity Raise”). The balance of the Moore Agreement,
including accrued interest, approximates $1,044,500 as of October 31, 2009. The Moore Agreement was amended per the terms of the June 18,
2009 Note Purchase Agreement (described below) retroactively to include the same warrant provision provided to Investors in the Note Purchase
Agreement.
F-13
On February 15, 2010, we agreed to amend the terms of the Moore Notes such that (i) Mr. Moore may elect, at his option, to receive accumulated
interest thereon on or after March 17, 2010 (which we expect will amount to approximately $130,000), (ii) we will begin to make monthly
installment payments of $100,000 on the outstanding principal amount beginning on April 15, 2010; provided, however, that the balance of the
principal will be repaid in full on consummation of our next equity financing resulting in gross proceeds to us of at least $6.0 million and (iii) we
will retain $200,000 of the repayment amount for investment in our next equity financing.
Effective June 18, 2009 we entered into a Note Purchase Agreement with each of accredited and/or sophisticated investors, pursuant to which it
completed a private placement whereby the Investors acquired senior convertible promissory notes of the Company in the aggregate principal face
amount of $1,131,353, for an aggregate net purchase price of $961,650.
Additionally, on October 26, and October 30, 2009 the Company entered into Bridge Note agreements whereby Investors acquired junior
subordinated convertible promissory notes of the Company in the aggregate face amounts of $1,617,647 and $529,412 for aggregate net
purchase prices of $1,375,000 and $450,000 respectively. These junior subordinated convertible promissory notes mature on April 30, 2010
subject to certain provisions in the note agreement.
Both the June and October 2009 Bridge Notes were issued with an original issue discount of 15%. Each Investor paid $0.85 for each $1.00 of
principal amount of notes purchased at the closing. The bridge notes are convertible into shares of the Company’s common stock at an exercise
price contingent on the completion of equity financing as described below. For every dollar invested, each Investor received warrants to purchase
2 ½ shares of common stock (the “Bridge Warrants”) at an exercise price of $0.20 per share, subject to adjustments upon the occurrence of
certain events as more particularly described below and in the form of Warrant. They may be prepaid in whole or in part at the option of the
Company without penalty at any time prior to the Maturity Date. The warrants may be exercised on a cashless basis under certain circumstances.
In the event the Company consummates an equity financing after August 1, 2009 and prior to the second business day immediately preceding the
Maturity Date, in which it sells shares of its stock with aggregate gross proceeds of not less than $2,000,000, then prior to the Maturity Date, the
Investors shall have the option to convert all or a portion of the Bridge Notes into the same securities sold in the Qualified Equity Financing
(“QEF”), at an effective per share conversion price equal to 90% of the per share purchase price of the securities issued in the QEF. In the event
the Company does not consummate a QEF from and after August 1, 2009 and prior to the second business day immediately preceding the
Maturity Date, then the Investors shall have the option to convert all or a portion of the Bridge Notes into shares of common stock, at an effective
per share conversion price equal to 50% of the volume-weighted average price (“VWAP”) per share of the common stock over the five (5)
consecutive trading days immediately preceding the third business day prior to the Maturity Date. To the extent an Investor does not elect to
convert its Bridge Note as described above, the principal amount of the Bridge Note not so converted shall be payable in cash on the Maturity
Date. (See also Note 11, Subsequent Events.)
In connection with the bridge transaction, the Company entered into a Security Agreement, dated as of June 18, 2009, October 26, 2009, and
October 30, 2009 with the Investors. The Security Agreement grants the Investors a security interest in all of the Company’s tangible and
intangible assets, as further described in the Security Agreement. The Company also entered into a Subordination Agreement, dated as of like
dates (the “Subordination Agreement”) with the Investors and Mr. Moore. Pursuant to the Subordination Agreement, Mr. Moore subordinated
certain rights to payments under the Moore Notes to the right of payment in full in cash of all amounts owed to the Investors pursuant to the
Notes; provided, however, that principal and interest of the Moore Notes may be repaid prior to the full payment of the Investors under certain
circumstances.
Description
Tranche I-June 18, 2009
Tranche II-October 26, 2009
Tranche III-October 30, 2009
Principal
$ 1,131,353
1,617,647
529,412
Purchase
Price
Original Issue
Discount
$
961,650 $
1,375,000
450,000
169,703
242,647
79,412
Maturity Date
December 31, 2009
April 30, 2010
April 30, 2010
Total Bridge Notes
$ 3,278,412
$ 2,786,650 $
491,762
F-14
Activity related to the Bridge Notes is as follows:
Bridge Notes – Principal Value
Original Issue Discount, net of accreted interest
Fair Value of Attached Warrants at issuance
Fair Value of Embedded Derivatives at issuance
Accreted interest on embedded derivative and warrant liabilities
Convertible Bridge Notes- as of October 31, 2009
Embedded Derivatives Liability at October 31, 2009
Convertible Bridge Notes and fair value of embedded derivative
$
3,278,412
(367,916)
(940,512)
(1,579,646)
601,999
$
$
922,337
1,086,514
2,078,851
BioAdvance Biotechnology Greenhouse of Southeastern Pennsylvania Notes (“BioAdvance”) received notes from the company for $10,000
dated November 13, 2003 and $40,000 dated December 17, 2003 that were each due on their fifth anniversary date hereof. During November
2009 we paid $14,788 in full payment of the November, 13, 2003 note and BioAdvance agreed to extend the remaining Note until we draw
down from our equity line of credit from Optimus. The outstanding balance of this note as of October 31, 2009 approximates $73,600. The terms
of the outstanding Note calls for accrual of 8% interest per annum on the unpaid principal.
6. DERIVATIVE INSTRUMENTS:
As of October 31, 2009, there were outstanding warrants to purchase 127,456,301 shares of our common stock (adjusted for anti-dilution
provision to-date) with exercise prices ranges from $0.183 to $0.287 per share (adjusted for anti-dilution provisions to-date). The table below
lists the company’s derivative instruments as of October 31, 2009 and includes the original value of the warrants and the embedded derivatives:
Description
Bridge Note I-June 18, 2009
Bridge Note II & III-October 26 & 30, 2009
Optimus September 24, 2009
Other outstanding warrants
Total Valuation at Origination
Change in fair value
Accreted interest
Total Valuation as of October 31, 2009
Principal
$ 1,131,353
2,147,059
-
-
$ 3,278,412
-
-
$ 3,278,412
$
$
$
Original
Issue
Discount
Warrant
Liability
Embedded
Derivative
Liability
169,703
322,059
-
-
491,762
-
$
250,392
690,119
3,587,625
12,785,695
$17,313,831
(5,352,697)
(123,846)
367,916
-
$11,961,734
$
711,258
868,388
-
-
$ 1,579,646
(493,132)
-
$ 1,086,514
The company is required to revalue these derivative instruments at the end of each reporting period and record the changes in values to the profit
and loss statements line item Net changes in fair value of common stock warrant liability and embedded derivative liability.
These warrants include 6,966,625 warrants issued to Bridge Notes holders and 33,750,000 issued to Optimus at an exercise price of $0.20 (prior
to anti-dilution and other adjustments) per warrant. Most of the warrants include anti-dilutive provisions that can trigger an adjustment to the
number and price of the warrants outstanding resulting from certain future equity transactions issued below their exercise price.
F-15
The warrants to purchase shares of common stock issued by the Company in connection with our private placements consummated on October
17, 2007 (the “2007 Warrants”) and the warrants issued in connection with our Bridge Notes contain “full-ratchet” anti-dilution provisions set at
$0.20 with a term of five years. Therefore, any future financial offering or instrument issuance below $0.20 per share of the company’s common
stock or warrants (subject to certain exceptions) will trigger the full-ratchet anti-dilution provisions in approximately 54,653,917 of the
outstanding 2007 Warrants lowering the exercise price of such 2007 Warrants from $0.20 to an offering price and proportionately increasing the
number of shares that could be obtained upon the exercise of such warrants. Additionally, the Company has 31,685,759 warrants outstanding
(the “Prior Warrants”) which contain weighted average anti-dilution provisions. As a result, an offering or instrument issuance below $0.26 per
share will trigger the weighted average anti-dilution provisions in such outstanding Prior Warrants, substantially lowering the exercise price of
such Prior Warrants (in accordance with the terms of the Prior Warrants) and proportionately increasing the number of shares that could be
obtained upon the exercise of such Prior Warrants. On November 12, 2009, 30,928,581 of the Prior Warrants expired and 447,264 expired on
December 31, 2009. There are also 944,438 warrants that don’t include any anti-dilution provision. Additionally, in September 2009 the
Company issued 33,750,000 warrants as part of preferred stock purchase agreement. While these warrants contain a repricing provision they do
not contain a ratchet provisions that would increase the number of warrants.
In May 2009 all of the 3,333,333 warrants that were purchased for $0.149 per warrant with an exercise price of $0.001were exercised on a
cashless basis and 3,299,999 common shares were issued.
Bridge Notes
Under the terms of the Bridge Note Agreements, the Company can repay the Notes at any time and avoid any conversion of these Notes into its
common stock. In addition, the Note holders can convert their Note into common stock under two events. First, in the event the Company
consummates an equity financing after August 1, 2009 and prior to the second business day immediately preceding the Maturity Date, in which it
sells shares of its stock with aggregate gross proceeds of not less than $2,000,000, then prior to the Maturity Date, the Investors shall have the
option to convert all or a portion of the New Notes into the same securities sold in the QEF, at an effective per share conversion price equal to
90% of the per share purchase price of the securities issued in the QEF. Second, in the event the Company does not consummate a QEF from
and after August 1, 2009 and prior to the second business day immediately preceding the Maturity Date, then the Investors shall have the option
to convert all or a portion of the Bridge Notes into shares of common stock, at an effective per share conversion price equal to 50% of the
volume-weighted average price per share of the Common Stock over the five (5) consecutive trading days immediately preceding the third
business day prior to the Maturity Date.
In accounting for the Bridge Note OID the Company is amortizing the discount of $491,762 over the life of the notes by increasing the note
amount each reporting period and charging the offset to interest expense. Also the Company is amortizing the original warrant and embedded
derivative values over the life of the Notes.
In accounting for the Bridge Note’s embedded conversion feature and warrants described above the Company considered the guidance contained
in EITF 00-19, “ Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In, a Company’s Own Common Stock, ”
and SFAS 133 “ Accounting for Derivative Instruments and Hedging Activities. ” The Company determined that the conversion feature in the
Bridge Notes represented an embedded derivative since the bridge notes are potentially convertible into a variable number of shares based upon a
conversion formula. The convertible bridge notes are not considered “conventional” convertible debt under EITF 00-19 and the embedded
conversion feature was bifurcated from the debt host and accounted for as a derivative liability. The Company measured the fair value of the
embedded derivatives at the commitment date using the Black-Scholes valuation model based on the following assumptions:
F-16
Bridge Notes I
First, we estimated the probability of outcomes that the company would be able to meet the QEF and trigger a 10% discount on the QEF share
price (“QEF Pricing”) or alternatively not meet the QEF (“Non-QEF Pricing”) and trigger an effective per share conversion price equal to 50% of
the VWAP per share of the Common Stock over the five (5) consecutive trading days immediately preceding the third business day prior to the
Maturity Date. Both events would trigger an embedded derivative value. On the date of origination of the June 18, 2009 Bridge Note the
Company estimated a 70% probability that they would be able to meet the QEF Pricing at a price of $0.15 per share of its common stock and
30% that they would meet the Non-QEF Pricing based on its knowledge of the Company’s current business strategy and position. The fair value
of the embedded derivative under both outcomes was determined and then factored for the 70% and 30% outcomes to estimate the embedded
derivative value of $711,258 as recorded upon issuance.
The Company is required to record the fair market value of the embedded derivatives at the issuance of the Bridge Notes as an embedded
derivative liability partially offsetting the Bridge Note liability (Convertible Bridge Notes and fair value of embedded derivative) and then to
amortize the value of the embedded liability over the life of the Note by charging interest expense in the Statement of Operations and while
increasing the value of the Convertible Bridge Notes. The amount charged to interest expenses for the year ended October 31, 2009 for the June
18, 2009 Bridge Note was $625,668. The Company shall also adjust each reporting period for any changes in fair value of the embedded
derivative liability by recording the change to the Net changes in fair value of common stock warrant liability and embedded derivative liability in
the Statement of Operations.
The Black-Scholes valuation method was used based on the following factors. QEF Pricing factors used at origin (June 18, 2009) was based on
a stock closing price $0.11 per share, exercise price $0.135 per share (10% discount to QEF Pricing) risk free interest rate 0.34%, volatility
310.97% and life of 196 days. On October 31, 2009 stock closing price $0.13 per share, exercise price $0.135 per share, risk free interest rate
.037%, volatility 143.5% and life of 61 days. This initial embedded derivative liability of $711,258, will be adjusted to fair value at each
reporting period based on the current assumptions at that time. The increase or decrease in the fair market value of the embedded conversion
feature at each reporting period will result in a non-cash income or expense which is recorded in other income (expense) in the Statement of
Operations along with corresponding changes in the fair value of the liability. As of October 31, 2009, the fair value of the embedded derivative
was adjusted by $804,990 resulting in a reduction of the embedded derivative liability and a corresponding amount to other income. The balance
for the embedded derivative liability was $1,086,514 at October 31, 2009.
Accounting for all outstanding warrants related to the Company’s determination that all of the outstanding warrants should be reclassified as
liabilities due the fact that the conversion feature on the Bridge Notes could require the Company to issue shares in excess of its authorized
amount. All outstanding warrants have been recorded as a liability effective June 18, 2009, based on their fair value calculated using the Black-
Scholes valuation model and the following assumptions: First the Company estimated the probability of three different outcomes (i) that the
Company would be able to meet the QEF at the current warrant price of $0.20 (prior to anti-dilution adjustments) per share, (ii) the QEF price
would be $0.15 per share and trigger a 10% discount and (iii) not meet the QEF (“Non-QEF Pricing”) and trigger an effective per share
conversion price equal to 50% of the VWAP per share of the Common Stock over the five (5) consecutive trading days immediately preceding
the third business day prior to the Maturity Date. The Company estimated that there was and equal probability for each scenario. The fair value
of the warrant liability under each outcome was determined and then averaged the outcomes to estimate the warrant value of $13,036,087 at June
18, 2009.
Warrant Liability(Other Outstanding Warrants)
This initial warrant liability triggered by the Bridge Notes of $13,036,087 was offset by a reduction to the Bridge Notes liability of $250,392 for
warrants issued in connection with the bridge notes and a reduction to additional paid in capital in the amount of $12,785,695 for all previously
issued and outstanding warrants. The Company will continue to measure the fair value of the warrants at each reporting date using the Black-
Scholes-Merton valuation model based on the current assumptions at that point in time. The increase or decrease in the fair market value of the
warrants at each reporting period will result in a non-cash income or expense which is recorded the Net changes in fair value of common stock
warrant liability and embedded derivative liability in the Statement of Operations along with corresponding changes in fair value of the common
stock warrant liability. As of October 31, 2009, the fair value of the warrants was calculated using the following assumptions:
F-17
The Black-Scholes valuation method was used based on the following factors based on the date of origin June 18, 2009:
(i)
(ii)
$0.20 exercise price, market price $0.11, risk free interest 0.28% to 2.86%, volatility 170.16% to 319.25%, Life 145 to 1825 days,
warrants outstanding 89,143,801.
$0.135 exercise price, market price $0.11, risk free interest 0.28% to 2.86%, volatility 170.16% to 319.25%, Life 145 to 1825
days warrants outstanding 123,269,393
(iii) $0.055 exercise price, market price $0.11, risk free interest 1.00% to 2.86%, volatility 170.16% to 191.53%, Life 620 to 1825
days, warrants outstanding 202,416,414
The Black-Scholes valuation method was used based on the following factors used as of October 31, 2009:
(i)
(ii)
$0.20 exercise price, market price $0.13, risk free interest 0.01% to 2.3%, volatility 89.7% to 211.6%, Life 10 to 1690 days
warrants outstanding 86,739,676.
$0.135 exercise price, market price $0.13, risk free interest 0.01% to 2.3%, volatility 89.7% to 211.6%, Life 10 to 1690 days,
warrants outstanding 120,865,268
(iii) The third assumption used at June 18, 2009 is no longer being used given the events that could have triggered this assumption, in
managements estimation, are no longer probable.
Based on the original probability the convertible notes payable cannot be converted under outcome number (iii) above until three days prior to the
due date of the notes of December 31, 2009. In this scenario, 31,375,845 warrants with expiration dates expire prior to this date would expire
worthless. These warrants do not have a value in the valuation under outcome number (iii) above. As of October 31, 2009 management
estimation is that the events that could have triggered a 50% share price reduction is no longer probable given that management intends to full
repay the Notes and or meet the conditions of the QEF on or before the triggering of the event. This was the primary cause to the $5,352,697
reduction to the warrant liabilities due to the reduction of the fair market value that resulted in the income in the statement of operations for the
year ended October 31, 2009.
The Company will continue to measure the fair value of the warrants and embedded conversion features at each reporting date using the Black-
Scholes-Merton valuation model based on the current assumptions at that point in time. The increase or decrease in the fair market value of the
warrants and embedded conversion feature at each reporting period will result in a non-cash income or expense which is recorded in other income
(expense) in the Statement of Operations along with corresponding changes n fair value of the liability.
We believe the assumptions used to estimate the fair values of the warrants are reasonable.
If in the event the Company does not consummate a QEF from and after August 1, 2009 and prior to the second business day immediately
preceding the Maturity Date, then the Investors shall have the option to convert all or a portion of the Bridge Notes into shares of common stock,
at an effective per share conversion price equal to 50% of the VWAP per share of the Common Stock over the five (5) consecutive trading days
immediately preceding the third business day prior to the Maturity Date then the following table provides a range of the dilution:
If the five-day VWAP per share the Common Stock at a 50% conversion feature is:
·
$0.20/share at a 50% conversion divided into $1,131,353 equals 11,313,530 shares plus warrant & share dilution (1).
F-18
·
·
·
$0.10/share at a 50% conversion divided into $1,131,353 equals 22,627,060 shares plus warrant & share dilution (1).
$0.05/share at a 50% conversion divided into $1,131,353 or 45,254,120 shares plus warrant and share dilution (1).
$0.01/share at a 50% conversion divided into $1,131,353 or 226,270,600 shares plus warrant and share dilution (1).
(1) Based on the dilution effect of the ratchets in the Stock Purchase Agreement and Warrants from the October 17, 2007 raise.
For the reporting period of July 31, 2009 this VWAP assumption was probable. For the period ending October 31, 2009 management believes
that it will no longer be probable.
7. STOCK OPTIONS:
2004 Stock Option Plan
In November 2004, our board of directors adopted and stockholders approved the 2004 Stock Option Plan (“2004 Plan”). The 2004 Plan
provides for the grant of options to purchase up to 2,381,525 shares of our common stock to employees, officers, directors and consultants.
Options may be either “incentive stock options” or non-qualified options under the Federal tax laws. Incentive stock options may be granted only
to our employees, while non-qualified options may be issued, in addition to employees, to non-employee directors, and consultants. Except as
determined by the Administrator at the time of the grant of the Options, a participant Options vest over four years, twenty-five percent of the
granted amount on or after the first year anniversary of the date of the granting of an Options and the balance to vest an additional one twelfth of
the Options granted for each additional three-month period following the first anniversary over a next three years.
The 2004 Plan is administered by “disinterested members” of the board of directors or the Compensation Committee, who determine, among
other things, the individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of
shares of common stock issuable upon the exercise of each option and the option exercise price.
Subject to a number of exceptions, the exercise price per share of common stock subject to an incentive option may not be less than the fair
market price value per share of common stock on the date the option is granted. The per share exercise price of the common stock subject to a
non-qualified option may be established by the board of directors, but shall not, however, be less than 85% of the fair market value per share of
common stock on the date the option is granted. The aggregate fair market value of common stock for which any person may be granted incentive
stock options which first become exercisable in any calendar year may not exceed $100,000 on the date of grant.
We must grant options under the 2004 Plan within ten years from the effective date of the 2004 Plan. The effective date of the Plan was
November 12, 2004. Subject to a number of exceptions, holders of incentive stock options granted under the Plan cannot exercise these options
more than ten years from the date of grant. Options granted under the 2004 Plan generally provide for the payment of the exercise price in cash
and may provide for the payment of the exercise price by delivery to us of shares of common stock already owned by the optionee having a fair
market value equal to the exercise price of the options being exercised, or by a combination of these methods. Therefore, if it is provided in an
optionee’s options, the optionee may be able to tender shares of common stock to purchase additional shares of common stock and may
theoretically exercise all of his stock options with no additional investment other than the purchase of his original shares. As of October 31, 2009,
2,325,275 options were granted under the 2004 plan.
F-19
2005 Stock Option Plan
In June 2006, our board of directors adopted and stockholders approved on June 6, 2006, the 2005 Stock Option Plan (“2005 Plan”).
The 2005 Plan provides for the grant of options to purchase up to 5,600,000 shares of our common stock to employees, officers, directors and
consultants. Options may be either “incentive stock options” or non-qualified options under the Federal tax laws. Incentive stock options may be
granted only to our employees, while non-qualified options may be issued to non-employee directors, consultants and others, as well as to our
employees.
The 2005 Plan is administered by “disinterested members” of the board of directors or the compensation committee, who determine, among other
things, the individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of
shares of common stock issuable upon the exercise of each option and the option exercise price.
Subject to a number of exceptions, the exercise price per share of common stock subject to an incentive option may not be less than the fair
market value per share of common stock on the date the option is granted. The per share exercise price of the common stock subject to a non-
qualified option may be established by the board of directors, but shall not, however, be less than 85% of the fair market value per share of
common stock on the date the option is granted. The aggregate fair market value of common stock for which any person may be granted incentive
stock options which first become exercisable in any calendar year may not exceed $100,000 on the date of grant.
We must grant options under the 2005 Plan within ten years from the effective date of the 2005 Plan. The effective date of the Plan was January
1, 2005. Subject to a number of exceptions, holders of incentive stock options granted under the 2005 Plan cannot exercise these options more
than ten years from the date of grant. Options granted under the 2005 Plan generally provide for the payment of the exercise price in cash and
may provide for the payment of the exercise price by delivery to us of shares of common stock already owned by the optionee having a fair
market value equal to the exercise price of the options being exercised, or by a combination of these methods. Therefore, if it is provided in an
optionee’s options, the optionee may be able to tender shares of common stock to purchase additional shares of common stock and may
theoretically exercise all of his stock options with no additional investment other than the purchase of his original shares. As of October 31, 2009
there were 5,354,917 options granted under the 2005 plan.
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 recommended that it be submitted to
our shareholders for their approval at the next annual meeting. As of October 31, 2009, options to purchase 10,150,000 shares of our common
stock have been granted under the 2009 Plan. Shareholder approval of the 2009 Plan was obtained to, among other things, (i) comply with
certain exclusions from the limitations of Section 162(m) of the Internal Revenue Code of 1986, which we refer to as the Code, and (ii) comply
with the incentive stock options rules under Section 422 of the Code. An aggregate of 14,001,399 shares of our common stock (subject to
adjustment by the compensation committee) are reserved for issuance upon the exercise of options granted under the 2009 Plan. The maximum
number of shares of common stock to which options may be granted to any one individual under the 2009 Plan is 4,200,420 (subject to
adjustment by the compensation committee).
F-20
A summary of the grants, cancellations and expirations (none were exercised) of the Company’s outstanding options for the periods starting with
October 31, 2007 through October 31, 2009 is as follows:
Outstanding as of October 31, 2007
Granted
Cancelled or Expired
Outstanding as of October 31, 2008
Granted
Exercised
Cancelled or Expired
Outstanding as of October 31, 2009
Vested & Exercisable at October 31, 2009
Weighted
Average
Exercise
Price
Weighted Average
Remaining
Contractual Life In
Years
0.22
0.09
-
0.22
0.10
-
0.13
0.16
0.18
7.8
-
6.3
9.8
-
7.5
6.0
6.0
Aggregate
Intrinsic Value
167,572
-
-
167,572
294,500
-
(15,000)
306,500
102,667-
$
$
Shares
8,512,841
300,000
-
8,812,841
10,150,000
-
$
$
$
$
$
(631,250)
18,331,591
11,611,174
$
The fair value of options granted for the year ended October 31, 2009 amounted to $947,210
The following table summarizes significant ranges of outstanding and exercisable options as of October 31, 2009 (number outstanding
and exercisable in thousands):
Options Outstanding
Weighted-
Average
Remaining
Contractual
Life (in Years)
Weighted-
Average
Exercise
Price per
Share
Options Exercisable
Aggregate
Intrinsic
Value
Number
Exercisable
(000’s)
Weighted-
Average
Exercise
Price per
Share
Aggregate
Intrinsic
Value
Range of
Exercise
Prices
Number
Outstanding
(000’s)
$
0.09-
0.11
0.14-
0.17
0.18-
0.21
0.22-
0.25
0.26-
0.29
0.30-
0.43
Total
9.3
0.10 $ 306,500
3,496
$
0.10 $ 102,667
9,950
3,115
1,739
6.2 $
0.15
4.0
0.21
296
4.3
0.24
2,992
5.1
0.28
0
0
0
0
2,906
1,720
213
2,954
0.15
0.21
0.24
0.28
0
0
0
0
322
18,332
3.3
6.0 $
0.37
0.16 $ 306,500
322
11,611
$
0.37
0
0.18 $ 102,667
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on options with an exercise price less than the
Company’s closing stock price of $0.13 as of October 31, 2009 which would have been received by the option holders had those option holders
exercised their options as of that date.
A summary of the status of the Company’s nonvested shares as
of October 31, 2007, and changes during the years ended
October 31, 2009 and 2008 are presented below:
Non-vested shares at October 31, 2007
Options granted
Options vested
Non-vested shares at October 31, 2008
Options granted
Options vested
Non-vested shares at October 31, 2009
F-21
Weighted
Average
Exercise
Price at
Grant
Date
Weighted Average
Remaining
Contractual Term
(in years)
0.19
0.09
0.18
0.18
0.10
0.19
0.10
8.5
9.4
7.5
7.5
9.3
6.0
8.7
Number of
Shares
$
3,080,305
300,000
$
(1,967,027) $
1,413,278
$
6,766,667 $
(1,459,528) $
6,720,417 $
As of October 31, 2009, there was approximately $587,606 of unrecognized compensation cost related to non-vested stock option awards, which
is expected to be recognized over a remaining average vesting period of 1.4 years.
8. COMMITMENTS AND CONTINGENCIES:
Pursuant to multiple consulting agreements and a licensing agreement, the Company is contingently liable for the following:
Under an amended and restated 20-year exclusive worldwide (July 1, 2002 effective date) license agreement, the Company is obligated to pay (a)
$525,000 in aggregate, divided over a three-year period as a minimum royalty after the first commercial sale of a product. Such payments are not
anticipated within the next five years. (b) On December 31, 2008 the Company is also obligated to pay annual license maintenance fees of
$50,000 increasing to a maximum of $100,000 per year until the first commercial sale of a licensed product. As of the date of this filing the
Company didn’t pay this fee. (c) Upon the initiation of a phase III clinical trial and the regulatory approval for the first Licensor product the
Company is obligated to pay milestone payments of $400,000 and $600,000, respectively. (d) Upon the achievement of the first sale of a product
in certain fields, the Company shall be obligated to pay certain milestone payments, as follows: $2,500,000 shall be due for first commercial sale
of the first product in the cancer field (of which $1,000,000 shall be paid within forty-five (45) days of the date of the first commercial sale,
$1,000,000 shall be paid on the first anniversary of the first commercial sale; and $500,000 shall be paid on the second anniversary of the date of
the first commercial sale). In addition, $1,000,000 shall be due and payable within forty-five (45) days following the date of the first commercial
sale of a product in each of the following fields (a) infectious disease, (b) allergy, (c) autoimmune disease, and (d) any other therapeutic
indications for which licensed products are developed. Therefore, the maximum total potential amount of milestone payments is $3,500,000 in a
cancer field. The milestone payments related to first sales are not expected prior to obtaining a regulatory approval to market and sell the
Company’s vaccines, and such regulatory approval is not expected within the next 5 years. In addition, the Licensor is entitled to receive a non-
refundable $157,134 payment of historical license costs. Under a licensing agreement, the Licensor is also entitled to receive royalties of 1.5% on
net sales in all countries. In addition, we are obligated to reimburse the Licensor for all attorneys fees, expenses, official fees and other charges
incurred in the preparation, prosecution and maintenance of the patents licensed from the Licensor.
Also pursuant to our restated and amended license agreement our option terms to license from the Licensor any new future invention conceived
by either Dr. Paterson or Dr. Fred Frankel in the vaccine area were extended until June 17, 2009. We intend to expand our intellectual property
base by exercising this option and gaining access to such future inventions. Further, our consulting agreement with Dr. Paterson provides, among
other things, that, to the extent that Dr. Paterson’s consulting work results in new inventions, such inventions will be assigned to Licensor, and
we will have access to those inventions under license agreements to be negotiated. With each license (or docket and, there can be several patents
per docket) an initiation fee up to $10,000 each can be negotiated. We exercised the option under this agreement twice resulting in approximately
50 patent applications. The license fees, legal expense, and other filing expenses for such applications cost approximately $376,000.
Under a consulting agreement with the Company’s scientific inventor, the Company is obligated to pay $3,000 per month until the Company
closes a $3,000,000 equity financing, $5,000 per month pursuant to a $3,000,000 equity financing, $7,000 per month pursuant to a $6,000,000
equity financing, and $9,000 per month pursuant to a $9,000,000 equity financing. Currently the scientific inventor is earning $7,000 per month
based on the agreement and milestones achieved.
Pursuant to a Clinical Research Service Agreement, the Company is obligated to pay service fees related to our Phase I clinical trial totaling of
$697,000. As of October 31, 2009 the company has an outstanding balance of $219,131 on this agreement.
The Company operates under a month to month lease for its laboratory and office space. There are no aggregate future minimum payments due as
of October 31, 2009.
F-22
We have entered into a nonexclusive license and bailment agreement with the Regents of the University of California (“UCLA”) to commercially
develop products using the XFL7 strain of Listeria monoctyogenes in humans and animals. The agreement is effective for a period of 15 years
and is renewable by mutual consent of the parties. Advaxis is to pay UCLA an initial license fee and annual maintenance fees for use of the
Listeria. We may not sell products using the XFL7 strain Listeria other than agreed upon products or sublicense the rights granted under the
license agreement without the prior written consent of UCLA.
We are party to a consulting agreement with The Sage Group, a health-care strategy consultant assisting us with a program to commercialize our
vaccines. The initial agreement was entered into in January 2009 and subsequently amended on July 22, 2009. Pursuant to the terms of
agreement, as amended, we have agreed to pay Sage (i) $5,000 per month (which we began paying in January 2009) until an aggregate of
$120,000 has been paid to Sage under the consulting agreement and (ii) a 5% commission for certain transaction if completed in the first 24
months of the term of the agreement, reduced to 2% if completed in the 12 months thereafter. The Sage Group has been paid approximately
$20,600 through October 31, 2009.
On June 19, 2009 we entered into a Master Agreement and on July 8, 2009 we entered into a Project Agreement with Numoda, a leading clinical
trial and logistics management company, to oversee Phase II clinical activity with ADXS11-001 for the treatment of invasive cervical cancer and
CIN. Numoda will be responsible for integrating oversight and logistical functions with the clinical research organizations, contract laboratories,
academic laboratories and statistical groups involved. The scope of this agreement covers over three years and is estimated to cost $8.0 million
for both trials.
Moore Employment Agreement and Option Agreements. We are party to an employment agreement with Mr. Moore, dated as of August 21,
2007 (memorializing an oral agreement dated December 15, 2006), that provides that he will serve as our Chairman of the Board and Chief
Executive Officer for an initial term of two years. For so long as Mr. Moore is employed by us, Mr. Moore is also entitled to nominate one
additional person to serve on our board of directors. Following the initial term of employment, the agreement was renewed for a one year term,
and is automatically renewable for additional successive one year terms, subject to our right and Mr. Moore’s right not to renew the agreement
upon at least 90 days’ written notice prior to the expiration of any one year term.
Under the terms of the agreement, Mr. Moore was entitled to receive a base salary of $250,000 per year, subject to increase to $350,000 per year
upon our successful raise of at least $4.0 million (which condition was satisfied on November 1, 2007) and subject to annual review for increases
by our board of directors in its sole discretion. The agreement also provides that Mr. Moore is entitled to receive family health insurance at no
cost to him. Mr. Moore’s employment agreement does not provide for the payment of a bonus.
In connection with our hiring of Mr. Moore, we agreed to grant Mr. Moore up to 1,500,000 shares of our common stock, of which 750,000
shares were issuable on November 1, 2007 upon our successful raise of $4.0 million and 750,000 shares are issuable upon our successful raise
of an additional $6.0 million (which condition was satisfied in January 2010). In addition, on December 15, 2006, we granted Mr. Moore
options to purchase 2,400,000 shares of our common stock. Each option is exercisable at $0.143 per share (which was equal to the closing sale
price of our common stock on December 15, 2006) and expires on December 15, 2016. The options vest in 24 equal monthly installments. On
July 21, 2009, we granted Mr. Moore options to purchase 2,500,000 shares of our common stock. Each option is exercisable at $0.10 per share
(which was equal to the closing sale price of our common stock on July 21, 2009) and expires on July 21, 2019. One-third of these options
vested on the grant date, and the remaining vest in one third installments on the first and second anniversary of the grant.
We have also agreed to grant Mr. Moore options to purchase an additional 1,500,000 shares of our common stock if the price of common stock
(adjusted for any splits) is equal to or greater than $0.40 for 40 consecutive business days. Pursuant to the terms of his employment agreement,
all options will be awarded and vested upon a merger of the company which is a change of control or a sale of the company while Mr. Moore is
employed. In addition, if Mr. Moore’s employment is terminated by us, Mr. Moore is entitled to receive severance payments equal to one year’s
salary at the then current compensation level.
F-23
Mr. Moore has agreed to refrain from engaging in certain activities that are competitive with us and our business during his employment and for
a period of 12 months thereafter under certain circumstances. In addition, Mr. Moore is subject to a non-solicitation provision for 12 months
after termination of his employment.
Rothman Employment Agreement and Option Agreements. We previously entered into an employment agreement with Dr. Rothman, Ph.D.,
dated as of March 7, 2005, that provided that he would serve as our Vice President of Clinical Development for an initial term of one year. Dr.
Rothman’s current salary is $280,000, consisting of $250,000 in cash and $30,000 in stock, payable in our common stock, issued on a semi-
annual basis, based on the average closing stock price for such six month period, with a minimum price of $0.20. While the employment
agreement has expired and has not been formally renewed in accordance with the agreement, Dr. Rothman remains employed by us and is
currently our Executive V.P. of Clinical and Scientific Operations.
In addition, on March 1, 2005, we granted Dr. Rothman options to purchase 360,000 shares of our common stock. Each option is exercisable
at $0.287 per share (which was equal to the closing sale price of our common stock on March 1, 2005) and expires on March 1, 2015. All of
these options have vested. On March 29, 2006, we granted Dr. Rothman options to purchase 150,000 shares of our common stock. Each
option is exercisable at $0.26 per share (which was equal to the closing sale price of our common stock on March 29, 2006) and expires on
March 29, 2016. One-fourth of these options vested on the first anniversary of the grant date, and the remaining vest in 12 equal quarterly
installments. On February 15, 2007, we granted Dr. Rothman options to purchase 300,000 shares of our common stock. Each option is
exercisable at $0.165 per share (which was equal to the closing sale price of our common stock on February 15, 2007) and expires on February
15, 2017. One-fourth of these options vested on the first anniversary of the grant date, and the remaining vest in 12 equal quarterly
installments. Pursuant to the terms of the 2005 plan, at least 75% of Dr. Rothman’s options will be vested upon a merger of the company
which is a change of control or a sale of the company while Dr. Rothman is employed, unless the administrator of the plan otherwise allows for
all options to become vested. On July 21, 2009, we granted Mr. Rothman options to purchase 1,750,000 shares of our common stock. Each
option is exercisable at $0.10 per share (which was equal to the closing sale price of our common stock on July 21, 2009) and expires on July
21, 2019. One-third of these options vested on the grant date, and the remaining vest, in one third installments on the first and second
anniversary of the grant.
Dr. Rothman has agreed to refrain from engaging in certain activities that are competitive with us and our business during his employment and
for a period of 18 months thereafter under certain circumstances. In addition, Dr. Rothman is subject to a non-solicitation provision for 18
months after termination of his employment.
9. INCOME TAXES:
The Company has a net operating loss carry forward of approximately $19,466,268 and $16,130,067 at October 31, 2009 and 2008,
respectively, available to offset taxable income through 2029. Due to change in control provisions, the Company’s utilization of these losses may
be limited. The tax effects of loss carry forwards give rise to a deferred tax asset and a related valuation allowance at October 31, as follows:
Net operating loss carryforwards-federal
Stock based compensation
Research and development tax credits
Less valuation allowance
Deferred tax asset
2009
2008
$ 7,786,507 6,452,027
217,334
990,700
216,134
(8,993,341) (6,669,360)
-
- $
$
The difference between income taxes computed at the statutory federal rate of 34% and the provision for income taxes relates to the
following:
Provision at federal statutory rate
Valuation allowance
Year ended
October 31,
2009
Year ended
October 31,
2008
Period from
March 1, 2002
(inception) to
October 31,
2009
34%
(34)
-%
34%
(34)
-%
34%
(34)
-%
In a letter dated November 13, 2008 from the New Jersey Economic Development Authority we were notified that our application for
the New Jersey Technology Tax Certificate Transfer Program was preliminarily approved. Under the State of New Jersey Program for small
business we received a net cash amount of $922,020 on December 12, 2008 from the sale of our State Net Operating Losses (“NOL”) through
December 31, 2007 of $1,084,729.
We adopted Financial Interpretation Number 48, “Accounting for Uncertain Tax Positions” (“FIN 48”) on November 1, 2007. FIN 48 clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109,”
Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement of a tax position taken or expected to be taken in a
tax return. We did not establish any additional reserves for uncertain tax liabilities upon adoption of FIN 48. There were no adjustments for
uncertain tax positions in the current year.
F-24
We will account for interest and penalties related to uncertain tax positions, if any, as part of our provision for federal and state income taxes.
We do not expect that the amounts of unrecognized benefits will change significantly within the next 12 months.
We are currently open to audit under the statute of limitations by the Internal Revenue Service and state jurisdictions for 2006 through 2009.
10. RECAPITALIZATION
On November 12, 2004, Great Expectations and Associates, Inc. ("Great Expectations") acquired the Company through a share exchange and
reorganization (the "Recapitalization"), pursuant to which the Company became a wholly owned subsidiary of Great Expectations. Great
Expectations acquired (i) all of the issued and outstanding shares of common stock of the Company and the Series A preferred stock of the
Company in exchange for an aggregate of 15,597,723 shares of authorized, but theretofore unissued, shares of common stock, no par value, of
Great Expectations; (ii) all of the issued and outstanding warrants to purchase the Company's common stock, in exchange for warrants to
purchase 584,885 shares of Great Expectations; and (iii) all of the issued and outstanding options to purchase the Company's common stock in
exchange for an aggregate of 2,381,525 options to purchase common stock of Great Expectations, constituting approximately 96% of the
common stock of Great Expectations prior to the issuance of shares of common stock of Great Expectations in the private placement described
below. Prior to the closing of the Recapitalization, Great Expectations performed a 200-for-1 reverse stock split, thus reducing the issued and
outstanding shares of common stock of Great Expectations from 150,520,000 shares to 752,600 shares. Additionally, 752,600 shares of
common stock of Great Expectations were issued to the financial advisor in connection with the Recapitalization. Pursuant to the Recapitalization,
there were 17,102,923 common shares outstanding in Great Expectations. As a result of the transaction, the former shareholders of Advaxis are
the controlling shareholders of the Company. Additionally, prior to the transaction, Great Expectations had no substantial assets. Accordingly, the
transaction is treated as a recapitalization, rather than a business combination. The historical financial statements of Advaxis are now the historical
financial statements of the Company. Historical shareholders' equity (deficiency) of Advaxis has been restated to reflect the recapitalization, and
include the shares received in the transaction.
On November 12, 2004, the Company completed an initial closing of a private placement offering (the “Private Placement”), whereby it sold an
aggregate of $2.925 million worth of units to accredited investors. Each unit was sold for $25,000 (the “Unit Price”) and consisted of (a) 87,108
shares of common stock and (b) a warrant to purchase, at any time prior to the fifth anniversary following the date of issuance of the warrant, to
purchase 87,108 shares of common stock included at a price equal to $0.40 per share of common stock (a “Unit”). In consideration of the
investment, the Company granted to each investor certain registration rights and anti-dilution rights. Also, in November 2004, the Company
converted approximately $618,000 of aggregate principal promissory notes and accrued interest outstanding into Units.
On December 8, 2004, the Company completed a second closing of the Private Placement, whereby it sold an aggregate of $200,000 of Units to
accredited investors.
On January 4, 2005, the Company completed a third and final closing of the Private Placement, whereby it sold an aggregate of $128,000 of
Units to accredited investors.
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.
F-25
On January 12, 2005, the Company completed a second private placement offering whereby it sold an aggregate of $1,100,000 of units to a
single investor. As with the Private Placement, each unit issued and sold in this subsequent private placement was sold at $25,000 per unit and is
comprised of (i) 87,108 shares of common stock, and (ii) a five-year warrant to purchase 87,108 shares of our common stock at an exercise price
of $0.40 per share. Upon the closing of this second private placement offering the Company issued to the investor 3,832,753 shares of common
stock and warrants to purchase up to an aggregate of 3,832,753 shares of common stock.
The aggregate sale from the four private placements was $4,353,000, which was netted against transaction costs of $329,673 for net proceeds of
$4,023,327.
Pursuant to a Securities Purchase Agreement dated February 2, 2006 ($1,500,000 principal amount) and March 8, 2006 ($1,500,000 principal
amount) we issued to Cornell Capital Partners, LP (“Cornell”) $3,000,000 principal amount of the Company’s Secured Convertible Debentures
due February 1, 2009 (the “Debentures”) at face amount, and five year Warrants to purchase 4,200,000 shares of Common Stock at the price of
$0.287 per share and five year B Warrants to purchase 300,000 shares of Common Stock at a price of $0.3444 per share.
The Debentures were convertible at a price equal to the lesser of (i) $0.287 per share (“Fixed Conversion Price”), or (ii) 95% of the lowest
volume weighted average price of the Common Stock on the market on which the shares are listed or traded during the 30 trading days
immediately preceding the date of conversion (“Market Conversion Price”). Interest was payable at maturity at the rate of 6% per annum in cash
or shares of Common Stock valued at the conversion price then in effect.
Cornell agreed that (i) it would not convert the Debenture or exercise the Warrants if the effect of such conversion or exercise would result in its
and its affiliates’ holdings of more than 4.9% of the outstanding shares of Common Stock, (ii) neither it nor its affiliates will maintain a short
position or effect short sales of the Common Stock while the Debentures are outstanding, and (iii) no more than $300,000 principal amount of the
Debenture could be converted at the Market Conversion Price during a calendar month.
On August 24, 2007, we issued and sold an aggregate of $600,000 principal amount promissory notes bearing interest at a rate of 12% per
annum and warrants to purchase an aggregate of 150,000 shares of our common stock to three investors including Thomas Moore, our Chief
Executive Officer. Mr. Moore invested $400,000 and received warrants for the purchase of 100,000 shares of Common Stock. The promissory
note and accrued but unpaid interest thereon are convertible at the option of the holder into shares of our common stock upon the closing by the
Company of a sale of its equity securities aggregating $3,000,000 or more in gross proceeds to the Company at a conversion rate which shall be
the greater of a price at which such equity securities were sold or the price per share of the last reported trade of our common stock on the market
on which the common stock is then listed, as quoted by Bloomberg LP. At any time prior to conversion, we have the right to prepay the
promissory notes and accrued but unpaid interest thereon. Mr. Moore converted his $400,000 bridge investment into 2,666,667 shares of
common stock and 2,000,000 $0.20 Warrants based on the terms of the Private Placement. He was paid $7,101 interest in cash.
On October 17, 2007, pursuant to a Securities Purchase Agreement, we completed a private placement resulting in $7,384,235.10 in gross
proceeds, pursuant to which we sold 49,228,334 shares of common stock at a purchase price of $0.15 per share solely to institutional and
accredited investors. Each investor received a five-year warrant to purchase an amount of shares of common stock that equals 75% of the number
of shares of common stock purchased by such investor in the offering.
F-26
Concurrent with the closing of the private placement, the Company sold for $1,996,700 to CAMOFI Master LDC and CAMHZN Master LDC,
affiliates of its financial advisor, Centrecourt Asset Management (“Centrecourt”), an aggregate of (i) 10,000,000 shares of Common Stock,
(ii) 10,000,000 warrants exercisable at $0.20 (prior to anti-dilution adjustments) per share, and (iii) 5-year warrants to purchase an additional
3,333,333 shares of Common Stock at a purchase price of $0.001 per share (the “$0.001 Warrants”). The Company and the two purchasers
agreed that the purchasers would be bound by and entitled to the benefits of the Securities Purchase Agreement as if they had been signatories
thereto. The $0.20 (prior to anti-dilution adjustments) Warrants and $0.001 Warrants contain the same terms, except for the exercise price. Both
warrants provide that they may not be exercised if, following the exercise, the holder will be deemed to be the beneficial owner of more than
9.99% of the Company’s outstanding shares of Common Stock. Pursuant to a consulting agreement dated August 1, 2007 with Centrecourt with
respect to the anticipated financing, in which Centrecourt was engaged to act as the Company’s financial advisor, Registrant paid Centrecourt
$328,000 in cash and issued 2,483,333 warrants exercisable at $0.20 (prior to anti-dilution adjustments) per share to Centrecourt, which
Centrecourt assigned to the two affiliates.
All of the $0.20 (prior to anti-dilution adjustments) Warrants and $0.001 Warrants provide for adjustment of their exercise prices upon the
occurrence of certain events, such as payment of a stock dividend, a stock split, a reverse split, a reclassification of shares, or any subsequent
equity sale, rights offering, pro rata distribution, or any fundamental transaction such as a merger, sale of all of its assets, tender offer or
exchange offer, or reclassification of its common stock. If at any time after October 17, 2008 there is no effective registration statement
registering, or no current prospectus available for, the resale of the shares underlying the warrants by the holder of such warrants, then the
warrants may also be exercised at such time by means of a “cashless exercise.”
In connection with the private placement, we entered into a registration rights agreement with the purchasers of the securities pursuant to which
we agreed to file a registration statement with the Securities and Exchange Commission with an effectiveness date within 90 days after the final
closing of the offering. The registration statement was declared effective on January 22, 2008.
At the closing of this private placement, we exercised our right under an agreement dated August 23, 2007 with YA Global Investments, L.P.
f/k/a Cornell Capital Partners, L.P. (“Yorkville”), to redeem the outstanding $1,700,000 principal amount of our Secured Convertible Debentures
due February 1, 2009 owned by Yorkville, and to acquire from Yorkville warrants expiring February 1, 2011 to purchase an aggregate of
4,500,000 shares of our common stock. We paid an aggregate of (i) $2,289,999 to redeem the debentures at the principal amount plus a 20%
premium and accrued and unpaid interest, and (ii) $600,000 to repurchase the warrants.
On September 22, 2008, Advaxis, Inc. (the “Company”) entered into a Note Purchase Agreement (the “Agreement”) with the Company’s Chief
Executive Officer, Thomas Moore, pursuant to which the Company agreed to sell to Mr. Moore, from time to time, one or more senior
promissory notes (each a “Note” and collectively the “Notes”) with an aggregate principal amount of up to $800,000.
The Agreement was reviewed and recommended to the Company’s Board of Directors (the “Board”) by a special committee of the Board and
was approved by a majority of the disinterested members of the Board. The Note or Notes, if and when issued, will bear interest at a rate of 12%
per annum, compounded quarterly, and will be due and payable on the earlier of the close of the Company’s next equity financing resulting in
gross proceeds to the Company of at least $5,000,000 (the “Subsequent Equity Raise”) or February 15, 2009 (the “Maturity Date”). The Note(s)
may be prepaid in whole or in part at the option of the Company without penalty or any time prior to the Maturity Date.
In consideration of Mr. Moore’s agreement to purchase the Notes, the Company agreed that concurrently with the Subsequent Equity Raise, the
Company will issue to Mr. Moore a warrant to purchase the Company’s common stock, which will entitle Mr. Moore to purchase a number of
shares of the Company’s common stock equal to one share per $1.00 invested by Mr. Moore in the purchase of one or more Notes. Such warrant
would contain the same terms and conditions as warrants issued to investors in the Subsequent Equity Raise.
As of October 31, 2008 and pursuant to the Agreement, Mr. Moore has loaned the Company $475,000. Mr. Moore informed the Company that
based on the funds generated by the NOL received on December 12, 2008 (see Note 11) and personal considerations that he may not make full
funding. On December 15, 2008 the Board approved an amendment of the Agreements repayment terms from February 15, 2009 to June 15,
2009. In consideration for revising the repayment term the Company repaid Mr. Moore $50,000 from the $475,000 outstanding Notes thus
reducing the balance to $425,000.
F-27
11. SUBSEQUENT EVENTS:
From November 1, 2009 through February 16, 2010, we issued to certain accredited investors (i) junior unsecured convertible
promissory notes in the aggregate principal face amount of $673,529, for an aggregate net purchase price of $572,500 and (ii) warrants to
purchase1,431,250 shares of our common stock at an exercise price of $0.20 ( prior to anti-dilution adjustments) per share, subject to adjustments
upon the occurrence of certain events. Each of these bridge notes were issued with an original issue discount of 15% (OID) and are convertible
into shares of our common stock. The maturity dates of these notes range between April 16, 2009 and July 30, 2010. The indebtedness
represented by the bridge notes is expressly subordinate to our currently outstanding senior secured indebtedness (including the June 2009 bridge
notes), as well as any future senior indebtedness of any kind. We will not make any payments to the holders of the bridge notes until the earlier
of the repayment in full or conversion of the senior indebtedness.
During January 2010 and February, the Company repaid $834,852 of the $1,131,353 in face value of our June 2009 bridge notes. In
addition, holders of the remaining $296,501 of our June 2009 bridge notes agreed to extend the maturity dates from December 31, 2009 to
periods into February and March 2010. The Company has agreed to issue additional consideration, including warrants to those note holders that
extended the maturity period of their notes.
On February 15, 2010, we agreed to amend the terms of the Moore Notes such that (i) Mr. Moore may elect, at his option, to receive
accumulated interest thereon on March 17, 2010 (which we expect will amount to approximately $130,000), (ii) we will begin to make monthly
installment payments of $100,000 on the outstanding principal amount beginning on April 15, 2010; provided, however, that the balance of the
principal will be repaid in full on consummation of our next equity financing resulting in gross proceeds to us of at least $6.0 million and (iii) we
will retain $200,000 of the repayment amount
On January 11, 2010, the Company issued and sold 145.0 shares of non-convertible, redeemable Series A preferred stock to Optimus Life
Sciences Capital Partners LLC (“ Optimus ”) pursuant to the terms of a Preferred Stock Purchase Agreement between the Company and Optimus
dated September 24, 2009 (the “ Purchase Agreement ”). The aggregate purchase price for the Series A preferred stock was $1.45 million (less
$130,000 representing an administrative fee and the balance of a commitment fee due and owing to Optimus under the Purchase Agreement).
In connection with the foregoing transaction, an affiliate of Optimus exercised warrants to purchase 11,563,000 shares of common stock at an
adjusted exercise price of $0.17 per share. As permitted by the terms of such warrants, the aggregate exercise price of $1,965,710 received by
the Company is payable pursuant to a 4 year full recourse promissory note bearing interest at the rate of 2% per year.
As a result of anti-dilution protection provisions contained in certain of the Company’s outstanding warrants, the Company has (i) reduced the
exercise price from $0.20 (prior to anti-dilution adjustments) per share to $0.17 per share with respect to an aggregate of approximately 62.0
million warrant shares to purchase the Company’s Common Stock and (ii) correspondingly adjusted the amount of warrant shares issuable
pursuant to certain warrants such that approximately 11.0 million additional warrant shares are issuable at $0.17 per share.
The company received $278,978 from the New Jersey Economic Development Authority. Under the State of New Jersey Program for small
business we received this cash amount on January 15, 2010 from the sale of our State Net Operating Losses (“NOL”) and research tax credits
through October 31, 2008.
F-28
$__________
February___, 2010
Exhibit 4.17
ADVAXIS, INC.
AMENDED AND RESTATED SENIOR PROMISSORY NOTE
THIS AMENDED AND RESTATED SENIOR PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW. NO SALE, TRANSFER, PLEDGE OR
ASSIGNMENT OF THIS SENIOR PROMISSORY NOTE SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS
MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE
WITH ANY APPLICABLE STATE SECURITIES LAW, OR (B) SUCH TRANSFER IS MADE PURSUANT TO AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND OF ANY APPLICABLE STATE SECURITIES
LAW.
FOR VALUE RECEIVED, Advaxis, Inc., a Delaware corporation (the “Company”), promises to pay to the order of Thomas A.
Moore, the joint registered holder or registered assigns hereof (the “Holder”), the principal amount of up to __________ dollars ($______),
payable on the earlier of (i) the date of consummation of an equity financing by the Company in an amount of $6,000,000 or more and (ii) the
occurrence of any event described in Section 2 hereof (“Maturity Date”), together with interest on the outstanding principal amount of this Note,
accruing at the rate of twelve percent (12%) per annum, compounded daily, commencing on the date hereof, subject to Section 2 hereof. All
interest shall be calculated on the basis of a 360-day year counting the actual days elapsed. Accrued interest shall be payable upon the maturity of
this Note and at the time of any prepayment, as provided below. Capitalized terms used but not defined herein shall have the meanings ascribed
to such terms in the Note Purchase Agreement, dated September 22, 2008, as may be amended, between the Company and the Holder (the “Note
Purchase Agreement”).
1. Payments and Prepayments.
Purchase Agreement, or such other place or places as may be specified by the Holder of this Note in a written notice to the Company.
(a) Payments of principal and interest on this Note shall be made at the Holder’s address as set forth in the Note
(b) Principal shall be paid commencing April 15, 2010 and on the 15th day of each consecutive month thereafter in the
amount of $100,000 plus interest until there is a balance of $200,000 which shall remain outstanding and paid at the option of the
Holder. Accrued and unpaid interest on the outstanding principal amount of this Note may, at the option of the Holder, be paid by the Company
on or after March 17, 2010.
wire transfer of immediately available funds so as to be received by the Holder on the due date of such payment.
(c) Payments of principal and interest on this Note shall be made in lawful money of the United States of America by
(d) If any payment on this Note becomes due and payable on a Saturday, Sunday or other day on which commercial
banks in New York, New York are authorized or required by law to close, the maturity thereof shall be extended to the next succeeding business
day and, with respect to payments of principal, interest thereon shall be payable during such extension.
(e) This Note may be prepaid in whole or in part at the option of the Company at any time prior to the Maturity Date
without penalty or premium. Accrued interest on any amount of principal prepaid shall be due and payable at the time of such prepayment. All
amounts due hereunder shall be due and payable on the Maturity Date.
2. Events of Default. In the event that any one or more of the following occurs and upon written notice to the Company of such
event (each, an “Event of Default”):
made on this Note and such default in the payment of interest shall continue for a period of ten (10) days;
(a) the Company defaults in the payment of principal on the date due or defaults in the payment of interest required to be
(b) the Company ceases all or substantially all of its business activities other than by reason of natural disaster; material
fire or other casualty; quarantine or epidemic or other cause beyond the Company’s reasonable control, and the Company does not resume all or
substantially all of its business activities within sixty (60) days thereafter;
(c) the Company hereafter makes an assignment for the benefit of creditors, or files a petition in bankruptcy as to itself, is
adjudicated insolvent or bankrupt, petitions a receiver of or any trustee for the Company or any substantial part of the property of the Company
under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether or
not hereafter in effect; or if there is hereafter commenced against the Company any such proceeding and an order approving the petition is entered
or such proceeding remains undismissed for a period of sixty (60) days, or the Company by any act or omission to act indicates its consent to the
approval of or acquiescence in any such proceeding or the appointment of any receiver of, or trustee for, the Company or any substantial part of
its properties, or suffers any such receivership or trusteeship to continue undischarged for a period of sixty (60) days;
then, and in any such event, and at any time thereafter, if such event shall then be continuing, the Holder of this Note may (x) upon written
demand to the Company, declare this Note (including the Premium) immediately due and payable, whereupon the same shall be immediately due
and payable and/or (y) pursue any and all available remedies against the Company for the collection of outstanding principal and interest under
this Note. Upon the occurrence and during the continuance of any Event of Default, the interest rate per annum set forth on the first page hereof
shall be increased by 0.1% per day until the cure of such Event of Default; provided, that in no event shall such interest rate be increased above
the maximum amount permitted by applicable law.
2
3. Miscellaneous.
(a) Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this
Note and of a letter of indemnity reasonably satisfactory to the Company, and upon reimbursement to the Company of all reasonable expenses
incident thereto, and upon surrender or cancellation of this Note, if mutilated, the Company will make and deliver a new Note of like tenor in lieu
of such lost, stolen, destroyed or mutilated Note.
payment, protest, dishonor, nonpayment, default, and notice of any and all of the foregoing.
(b) Except as otherwise expressly provided in this Note, the Company hereby waives diligence, demand, presentment for
(c) Neither any provision of this Note nor any performance hereunder may be amended or waived orally, but only by an
agreement in writing and signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. All rights
and remedies conferred upon the Holder under this Note shall be cumulative and may be exercised singly or concurrently.
(d) No course of dealing between the Company and the Holder, or any failure or delay on the part of the Holder in
exercising any rights or remedies, or any single or partial exercise of any rights or remedies, shall operate as a waiver or preclude the exercise of
any other rights or remedies available to the Holder.
(e) In the event that the Holder shall, during the continuance of an Event of Default, turn this Note over to an attorney for
collection, the Company shall further be liable for and shall pay to the Holder all collection costs and expenses incurred by the Holder, including
reasonable attorneys’ fees and expenses; and the Holder may take judgment for all such amounts in addition to all other sums due hereunder.
any principles of conflict of laws.
(f) This Note shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to
2009 in the principal amount of $_______.
(g) This Note is an amendment and restatement of, but not in satisfaction of, that Senior Promissory Note dated June 15,
[Signature Page Follows]
3
duly authorized officer as of the date and year first written above.
IN WITNESS WHEREOF, the Company has duly caused this Note to be signed on its behalf, in its corporate name and by its
ADVAXIS, INC.
By:
Name:
Title:
4
Exhibit 10.62
ADVAXIS, INC.
2009 STOCK OPTION PLAN
1. Purpose. The purpose of this Plan is to advance the interests of ADVAXIS, INC., a Delaware corporation (the “Company”),
and its Related Entities by providing an additional incentive to attract and retain qualified and competent persons who provide services to the
Company and its Related Entities, and upon whose efforts and judgment the success of the Company and its Related Entities is largely dependent,
through the encouragement of stock ownership in the Company by such persons.
2. Definitions. As used herein, the following terms shall have the meanings indicated:
(a) “Board” shall mean the Board of Directors of the Company.
(b) “Cause” shall, with respect to any Optionee, have the equivalent meaning (or the same meaning as “cause” or “for
cause”) set forth in any employment agreement, consulting, or other agreement for the performance of services between the Optionee, and the
Company or a Related Entity or, in the absence of any such agreement or any such definition in such agreement, such term shall mean (i) the
failure by the Optionee to perform, in a reasonable manner, his or her duties as assigned by the Company or a Related Entity, (ii) any violation or
breach by the Optionee of his or her employment agreement, consulting or other similar agreement with the Company or a Related Entity, if any,
(iii) any violation or breach by the Optionee of any non-competition, non-solicitation, non-disclosure and/or other similar agreement with the
Company or a Related Entity, (iv) any act by the Optionee of dishonesty or bad faith with respect to the Company (or a Related Entity), (v) use of
alcohol, drugs or other similar substances in a manner that adversely affects the Optionee’s work performance, or (vi) the commission by the
Optionee of any act, misdemeanor, or crime reflecting unfavorably upon the Optionee or the Company or any Related Entity. The good faith
determination by the Committee of whether the Optionee’s Continuous Service was terminated by the Company for “Cause” shall be final and
binding for all purposes hereunder.
(c) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
(d) “Committee” means a committee designated by the Board to administer the Plan; provided, however, that if the
Board fails to designate a committee or if there are no longer any members on the committee so designated by the Board, then the Board shall
serve as the Committee. The Committee shall consist of at least two directors, and each member of the Committee shall be (i) a “non-employee
director” within the meaning of Rule 16b-3 (or any successor rule) under the Exchange Act, unless administration of the Plan by “non-employee
directors” is not then required in order for exemptions under Rule 16b-3 to apply to transactions under the Plan, (ii) an “outside director” within
the meaning of Section 162(m) of the Code, and (iii) "Independent".
(e) “Common Stock” shall mean the Company’s common stock, par value $.001 per share.
(f) “Company” shall mean Advaxis, Inc., a Delaware corporation and its successors or assigns.
(g) “Consultant” shall mean any person (other than an Employee or a Director, solely with respect to rendering services
in such person’s capacity as a Director) who is engaged by the Company or any Related Entity to render consulting or advisory services to the
Company or such Related Entity.
(h) “Continuous Service” shall mean the continuous service to the Company or any Related Entity, without interruption
or termination, in any capacity of Employee, Director or Consultant. Continuous Service shall not be considered interrupted in the case of (i) any
approved leave of absence (including, without limitation, sick leave, military leave, or any other authorized personal leave), (ii) transfers among
the Company, any Related Entity, or any successor, in any capacity of Employee, Director or Consultant, or (iii) any change in status as long as
the individual remains in the service of the Company or any Related Entity in any capacity of Employee, Director or Consultant (except as
otherwise provided in the Option Agreement).
(i) “Director” shall mean a member of the Board or the board of directors of any Related Entity.
(j) “Disability” means a permanent and total disability (within the meaning of Section 22(e) of the Code), as determined
by a medical doctor satisfactory to the Committee.
(k) “Effective Date” shall mean July 19, 2009.
(l) “Employee” shall mean any person, including an officer or Director, who is an employee of the Company or any
Related Entity. The payment of a Director’s normal compensation and fee (as applicable to all Directors or Committee members, as the case may
be) by the Company or a Related Entity shall not be sufficient to constitute “employment” by the Company.
2
(m) “Fair Market Value” of a Share on any date of reference shall mean the “Closing Price” (as defined below) of the
Common Stock on the business day immediately preceding the date of reference, unless the Committee in its sole discretion shall determine
otherwise in a fair and uniform manner. For the purpose of determining Fair Market Value, the “Closing Price” of the Common Stock on any
business day shall be (i) if the Common Stock is listed or admitted for trading on any United States national securities exchange, or if actual
transactions are otherwise reported on a consolidated transaction reporting system, the last reported sale price of Common Stock on such
exchange or reporting system, as reported in any newspaper of general circulation, (ii) if the Common Stock is quoted on the National
Association of Securities Dealers Automated Quotations System (“NASDAQ”), the Over-The-Counter Bulletin Board or any similar system of
automated dissemination of quotations of securities prices in common use, the last reported sale price of Common Stock on such system or, if
sales prices are not reported, the mean between the closing high bid and low asked quotations for such day of Common Stock on such system, as
reported in any newspaper of general circulation or (iii) if neither clause (i) or (ii) is applicable, the mean between the high bid and low asked
quotations for the Common Stock as reported by the National Quotation Bureau, Incorporated if at least two securities dealers have inserted both
bid and asked quotations for Common Stock on at least five of the ten preceding days. If neither (i), (ii), or (iii) above is applicable, then Fair
Market Value shall be determined by the Committee in a fair and uniform manner.
(n) “Incentive Stock Option” shall mean an incentive stock option as defined in Section 422 of the Internal Revenue
Code.
(o) “Independent”, when referring to either the Board or members of the Committee, shall have the same meaning as
used in the rules of any national securities exchange on which any securities of the Company are listed for trading, and if not listed for trading, by
the rules of Nasdaq Stock Market.
(p) “Non-Qualified Stock Option” shall mean an Option that is not an Incentive Stock Option.
(q) “Option” (when capitalized) shall mean any option granted under this Plan.
(r) “Option Agreement” shall mean the agreement between the Company and the Optionee for the grant of an option.
(s) “Optionee” shall mean a person to whom a stock option is granted under this Plan or any person who succeeds to
the rights of such person under this Plan by reason of the death of such person.
(t) “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Securities Exchange Act and used in
Sections 13(d) and 14(d) thereof, and shall include a “group” as defined in Section 13(d) thereof.
(u) “Plan” shall mean this Advaxis, Inc. 2009 Stock Option Plan, as may be amended from time to time.
(v) “Related Entity” shall mean any Subsidiary, and any business, corporation, partnership, limited liability company or
other entity in which the Company or a Subsidiary holds a substantial ownership interest, directly or indirectly.
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(w) “Securities Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.
(x) “Share” shall mean a share of Common Stock.
(y) “Subsidiary” shall mean any corporation or other entity in which the Company has a direct or indirect ownership
interest of 50% or more of the total combined voting power of the then outstanding securities or interests of such corporation or other entity
entitled to vote generally in the election of directors or in which the Company has the right to receive 50% or more of the distribution of profits or
50% or more of the assets on liquidation or dissolution.
3. Shares Available for Option Grants. The Committee may grant to Optionees from time to time Options to purchase an
aggregate of up to 14,001,399 Shares from the Company’s authorized and unissued Shares. If any Option granted under the Plan shall terminate,
expire, or be canceled or surrendered as to any Shares, new Options may thereafter be granted covering such Shares.
4. Incentive and Non-Qualified Options.
(a) An Option granted hereunder shall be either an Incentive Stock Option or a Non-Qualified Stock Option as
determined by the Committee at the time of grant of the Option and the Option Agreement relating to the Option shall clearly state whether it is an
Incentive Stock Option or a Non-Qualified Stock Option. All Incentive Stock Options shall be granted within 10 years from the Effective
Date. Incentive Stock Options may not be granted to any person who is not an Employee of the Company or a Related Entity.
(b) Options otherwise qualifying as Incentive Stock Options hereunder will not be treated as Incentive Stock Options to
the extent that the aggregate fair market value (determined at the time the Option is granted) of the Shares with respect to which Options meeting
the requirements of Section 422(b) of the Code are exercisable for the first time by any individual during any calendar year (under all plans of the
Company and its parent corporation or subsidiary corporation, as those terms are defined in Sections 424(e) and (f) of the Code, respectively,
exceeds $100,000.
5. Conditions for Grant of Options.
(a) Each Option shall be evidenced by an Option Agreement that may contain any term deemed necessary or desirable by
the Committee, provided such terms are not inconsistent with this Plan or any applicable law. Optionees shall be those persons who are selected
by the Committee from the class of all Employees, Directors and Consultants of the Company or any Related Entity.
4
(b) In granting Options, the Committee shall take into consideration the contribution the person has made to the success
of the Company or any Related Entities and such other factors as the Committee shall determine. The Committee shall also have the authority to
consult with and receive recommendations from officers and other personnel of the Company and its Related Entities with regard to these
matters. The Committee may from time to time in granting Options under the Plan prescribe such other terms and conditions concerning such
Options as it deems appropriate, including, without limitation, (i) prescribing the date or dates on which the Option becomes exercisable, (ii)
providing that the Option rights accrue or become exercisable in installments over a period of years, or upon the attainment of stated goals or
both, or (iii) relating an Option to the Continuous Service or continued employment of the Optionee for a specified period of time, provided that
such terms and conditions are not more favorable to an Optionee than those expressly permitted herein.
(c) The Options granted to Optionees under this Plan shall be in addition to regular salaries, pension, life insurance or
other benefits related to their Continuous Service with the Company or its Related Entities. Neither the Plan nor any Option granted under the
Plan shall confer upon any person any right to continuance of any Continuous Service by the Company or its Related Entities.
(d) The Committee shall have the discretion to grant Options that are exercisable for unvested Shares. Should the
Optionee’s Continuous Service cease while holding such unvested Shares, the Company shall have the right to repurchase, at the exercise price
paid per share, any or all of those unvested Shares. The terms upon which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Committee and set forth in the
Option Agreement for the relevant Option.
(e) Notwithstanding any other provision of this Plan, an Incentive Stock Option shall not be granted to any person
owning directly or indirectly (through attribution under Section 424(d) of the Code) at the date of grant, stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company (or of any parent corporation or subsidiary corporation of the Company (as
those terms are defined in Sections 424(e) and 424(f) of the Code, respectively) at the date of grant) unless the exercise price of such Option is at
least 110% of the Fair Market Value of the Shares subject to such Option on the date the Option is granted, and such Option by its terms is not
exercisable after the expiration of five years from the date such Option is granted.
(f) Notwithstanding any other provision of this Plan, and in addition to any other requirements of this Plan, the aggregate
number of Options granted to any one Optionee may not exceed 4,200,420, subject to adjustment as provided in Section 10 hereof.
6. Exercise Price. The exercise price per Share of any Option shall be any price determined by the Committee but shall not be less
than the par value per Share; provided, however, that in no event shall the exercise price per Share of any Incentive Stock Option be less than the
Fair Market Value of the Shares underlying such Option on the date such Option is granted.
5
7. Exercise of Options.
(a) An Option shall be deemed exercised when (i) the Company has received written notice of such exercise in
accordance with the terms of the Option, (ii) full payment of the aggregate exercise price of the Shares as to which the Option is exercised has
been made, and (iii) arrangements that are satisfactory to the Committee in its sole discretion have been made for the Optionee’s payment to the
Company of the amount that is necessary for the Company or Related Entity employing the Optionee to withhold in accordance with applicable
Federal or state tax withholding requirements.
(b) The consideration to be paid for the Shares to be issued upon exercise of an Option, as well as the method of
payment of the exercise price and of any withholding and employment taxes applicable thereto, shall be determined by the Committee and may in
the discretion of the Committee consist of: (1) cash, (2) certified or official bank check, (3) money order, (4) Shares that have been held by the
Optionee for at least six (6) months (or such other Shares as the Committee determines will not cause the Company to recognize for financial
accounting purposes a charge for compensation expense), (5) the withholding of Shares issuable upon exercise of the Option, (6) pursuant to a
“cashless exercise” procedure, by delivery of a properly executed exercise notice together with such other documentation, and subject to such
guidelines, as the Committee shall require to effect an exercise of the Option and delivery to the Company by a licensed broker acceptable to the
Company of proceeds from the sale of Shares or a margin loan sufficient to pay the exercise price and any applicable income or employment
taxes, or (7) in such other consideration as the Committee deems appropriate, or by a combination of the above. In the case of an Incentive Stock
Option, the permissible methods of payment shall be specified at the time the Option is granted. The Committee in its sole discretion may accept a
personal check in full or partial payment of any Shares. If the exercise price is paid, and/or the Optionee’s tax withholding obligation is satisfied,
in whole or in part with Shares, or through the withholding of Shares issuable upon exercise of the Option, the value of the Shares surrendered
or withheld shall be their Fair Market Value on the date the Option is exercised.
(c) The Committee in its sole discretion may, on an individual basis or pursuant to a general program established in
connection with this Plan, cause the Company to lend money to an Optionee, guarantee a loan to an Optionee, or otherwise assist an Optionee to
obtain the cash necessary to exercise all or a portion of an Option granted hereunder or to pay any tax liability of the Optionee attributable to such
exercise; provided that such loan, loan guaranty, or assistance in obtaining a loan is not in violation of the Sarbanes-Oxley Act of 2002, or any
rule or regulation adopted thereunder or any other applicable law. If the exercise price is paid in whole or part with the Optionee’s promissory
note, such note shall (i) provide for full recourse to the maker, (ii) be collateralized by the pledge of the Shares that the Optionee purchases upon
exercise of the Option, (iii) bear interest at the prime rate of the Company’s principal lender, and (iv) contain such other terms as the Committee in
its sole discretion shall reasonably require.
(d) No Optionee shall be deemed to be a holder of any Shares subject to an Option unless and until a stock certificate or
certificates for those Shares are issued to that person(s) under the terms of this Plan. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date the stock
certificate is issued, except as expressly provided in Section 10 hereof.
6
8. Exercisability of Options. Any Option shall become exercisable in such amounts, at such intervals and upon such terms and/or
conditions as the Committee shall provide in the Option Agreement for that Option, except as otherwise provided in this Section 8:
Option be exercisable after the expiration of 10 years from the date of grant of the Option.
(a) The expiration date of an Option shall be determined by the Committee at the time of grant, but in no event shall an
(b) The Option Agreement relating to any Option may provide that the Option shall become immediately fully
exercisable in the event of a “Change in Control” and/or shall become fully exercisable in the event that the Committee exercises its discretion to
provide a cancellation notice with respect to the Option pursuant to Section 9(b) hereof. For this purpose, the term “Change in Control” shall
mean the occurrence of any of the following:
(i) The acquisition by any Person of Beneficial Ownership (as defined in Rule 13d-3 under the Securities
Exchange Act), of fifty percent (50%) or more of either (A) the value of the then outstanding shares of common stock of the Company (the
“Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of
this Section 8(b), the following acquisitions shall not constitute a Change of Control: (w) any acquisition directly from the Company; (x) any
acquisition by the Company; (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any
Subsidiary; or (z) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii)
below; or
(ii) Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate
transaction involving the Company or any of its Subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or
the acquisition of assets or stock of another entity by the Company or any of its Subsidiaries (each a “Business Combination”), in each case,
unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the Beneficial Owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be,
of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, fifty percent (50%) or more
of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business
Combination and (C) at least a majority of the members of the Board of Directors of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such
Business Combination; or
7
(iii) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
accelerate the vesting of any Shares subject to any Option or previously acquired by the exercise of any Option.
(c) The Committee may in its sole discretion, accelerate the date on which any Option may be exercised and may
9. Termination of Option Period.
without notice terminate and become null and void at the time of the earliest to occur of the following:
(a) Unless otherwise provided in any Option Agreement, the unexercised portion of any Option shall automatically and
of (A) Cause, (B) a Disability of the Optionee as determined by a medical doctor satisfactory to the Committee, or (C) death of the Optionee;
(i) three months after the date on which the Optionee’s Continuous Service is terminated other than by reason
(ii) immediately upon the termination of the Optionee’s Continuous Service for Cause;
Disability as determined by a medical doctor satisfactory to the Committee;
(iii) twelve months after the date on which the Optionee’s Continuous Service is terminated by reason of a
(iv) (A) twelve months after the date of termination of the Optionee’s Continuous Service by reason of the death
of the Optionee, or, if later, (B) three months after the date on which the Optionee shall die if such death shall occur during the one year period
specified in Subsection 9(a)(iii) hereof; or
(v) The tenth anniversary of the date of grant of the Option.
8
(b) To the extent not previously exercised, (i) each Option shall terminate immediately in the event of (1) the liquidation
or dissolution of the Company, or (2) any reorganization, merger, consolidation or other form of corporate transaction in which either the
Company does not survive or the Shares are exchanged for or converted into securities issued by another entity, unless the successor or acquiring
entity, or an affiliate thereof, assumes the Option or substitutes an equivalent option or right pursuant to Section 10(c) hereof, and (ii) the
Committee in its sole discretion may by written notice (“cancellation notice”) cancel, effective upon the consummation of any Business
Combination described in Subsection 8(b)(iii) hereof, any Option that remains unexercised on the effective date of that Business
Combination. The Committee shall give written notice of any proposed transaction referred to in this Section 9(b) a reasonable period of time
prior to the closing date for such transaction (which notice may be given either before or after approval of such transaction), in order that
Optionees may have a reasonable period of time prior to the closing date of such transaction within which to exercise any Options that then are
exercisable (including any Options that may become exercisable upon the closing date of such transaction). An Optionee may condition his
exercise of any Option upon the consummation of a transaction referred to in this Section 9(b).
10. Adjustment of Shares.
(a) If at any time while the Plan is in effect or unexercised Options are outstanding, there shall be any increase or
decrease in the number of issued and outstanding Shares through the declaration of a stock dividend or through any recapitalization resulting in a
stock split-up, combination or exchange of Shares, then and in that event, the Committee shall make:
(i) appropriate adjustment in the maximum number of Shares available for grant under the Plan, or available for
grant to any person under the Plan, so that the same percentage of the Company’s issued and outstanding Shares shall continue to be subject to
being so optioned; and
(ii) appropriate adjustment in the number of Shares and the exercise price per Share thereof then subject to any
outstanding Option, so that the same percentage of the Company’s issued and outstanding Shares shall remain subject to purchase at the same
aggregate exercise price.
(b) Unless otherwise provided in any Option Agreement, the Committee may change the terms of Options outstanding
under this Plan, with respect to the exercise price or the number of Shares subject to the Options, or both, when, in the sole discretion of the
Committee, such adjustments become appropriate to preserve benefits under the Plan.
(c) In the event of any proposed sale of all or substantially all of the Company’s assets or any reorganization, merger,
consolidation, or other form of corporate transaction in which the Company does not survive, or in which the Shares are exchanged for or
converted into securities issued by another entity, the successor or acquiring entity or an affiliate thereof may, with the consent of the Committee,
assume each outstanding Option or substitute an equivalent option or right. If the successor or acquiring entity or an affiliate thereof, does not
cause such an assumption or substitution of any Option, then that Option shall terminate pursuant to Section 9(d) hereof upon consummation of
the sale, merger, consolidation, or other corporate transaction, with or without consideration as determined by the Committee. The Committee
shall give written notice of any proposed transaction referred to in this Section 10(c) a reasonable period of time prior to the closing date for such
transaction (which notice may be given either before or after the approval of such transaction), in order that Participants may have a reasonable
period of time prior to the closing date of such transaction within which to exercise any Options that are then exercisable (including any Options
that may become exercisable upon the closing date of such transaction). A Participant may condition his exercise of any Options upon the
consummation of the transaction.
9
(d) Except as otherwise expressly provided herein, the issuance by the Company of shares of its capital stock of any
class, or securities convertible into shares of capital stock of any class, either in connection with a direct sale or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall
not affect, and no adjustment by reason thereof shall be made to, the number of or exercise price for Shares then subject to outstanding Options
granted under the Plan.
(e) Without limiting the generality of the foregoing, the existence of outstanding Options granted under the Plan shall not
affect in any manner the right or power of the Company to make, authorize or consummate (i) any or all adjustments, recapitalizations,
reorganizations or other changes in the Company’s capital structure or its business; (ii) any merger or consolidation of the Company; (iii) any
issue by the Company of debt securities, or preferred or preference stock that would rank above the Shares subject to outstanding Options; (iv)
the dissolution or liquidation of the Company; (v) any sale, transfer or assignment of all or any part of the assets or business of the Company; or
(vi) any other corporate act or proceeding, whether of a similar character or otherwise.
11. Transferability. No Incentive Stock Option, and unless the prior written consent of the Committee is obtained (which consent
may be withheld for any reason) and the transaction does not violate the requirements of Rule 16b-3 promulgated under the Securities Exchange
Act no Non-Qualified Stock Option, shall be subject to alienation, assignment, pledge, charge or other transfer other than by the Optionee by will
or the laws of descent and distribution, and any attempt to make any such prohibited transfer shall be void. Each Option shall be exercisable
during the Optionee’s lifetime only by the Optionee, or in the case of a Non-Qualified Stock Option that has been assigned or transferred with the
prior written consent of the Committee, only by the permitted assignee.
In addition, no Shares acquired by an officer or Director pursuant to the exercise of an Option may be sold, assigned, pledged
or otherwise transferred prior to the expiration of the six-month period following the date on which the Option was granted, unless the
transaction does not violate the requirements of Rule 16b-3 promulgated under the Securities Exchange Act.
12. Issuance of Shares.
(a) Notwithstanding any other provision of this Plan, the Company shall not be obligated to issue any Shares unless it is
advised by counsel of its selection that it may do so without violation of the applicable Federal and State laws pertaining to the issuance of
securities, and may require any stock so issued to bear a legend, may give its transfer agent instructions, and may take such other steps, as in its
judgment are reasonably required to prevent any such violation.
10
(b) As a condition to any sale or issuance of Shares upon exercise of any Option, the Committee may require such
agreements or undertakings as the Committee may deem necessary or advisable to facilitate compliance with any applicable law or regulation
including, but not limited to, the following:
(i) a representation and warranty by the Optionee to the Company, at the time any Option is exercised, that he is
acquiring the Shares to be issued to him for investment and not with a view to, or for sale in connection with, the distribution of any such Shares;
and
(ii) a representation, warranty and/or agreement to be bound by any legends endorsed upon the certificate(s) for
the Shares that are, in the opinion of the Committee, necessary or appropriate to facilitate compliance with the provisions of any securities laws
deemed by the Committee to be applicable to the issuance and transfer of those Shares.
13. Administration of the Plan.
(a) The Plan shall be administered by the Committee which shall be composed of two or more Directors. The
membership of the Committee shall be constituted so as to comply at all times with the then applicable requirements for “non-employee directors”
under Rule 16b-3 promulgated under the Securities Exchange Act and “outside directors” under Section 162(m) of the Code. The Committee
shall serve at the pleasure of the Board and shall have the powers designated herein and such other powers as the Board may from time to time
confer upon it.
of the Committee at a meeting or (ii) without a meeting by the unanimous written approval of the members of the Committee.
(b) Any and all decisions or determinations of the Committee shall be made either (i) by a majority vote of the members
(c) The Committee, from time to time, may adopt rules and regulations for carrying out the purposes of the Plan.
Option Agreement, shall be final and binding on all persons, unless determined otherwise by the Board.
(d) The determinations of the Committee, and its interpretation and construction of any provision of the Plan or any
14. Withholding or Deduction for Taxes. If at any time specified herein for the making of any issuance or delivery of any Option
or Shares to any Optionee, any law or regulation of any governmental authority having jurisdiction in the premises shall require the Company or
a Related Entity to withhold, or to make any deduction for, any taxes or to take any other action in connection with the issuance or delivery then
to be made, the issuance or delivery shall be deferred until the withholding or deduction shall have been provided for by the Optionee or
beneficiary, or other appropriate action shall have been taken.
11
15. Interpretation.
(a) As it is the intent of the Company that the Plan shall comply in all respects with Rule 16b-3 promulgated under the
Securities Exchange Act (“Rule 16b-3”), any ambiguities or inconsistencies in construction of the Plan shall be interpreted to give effect to such
intention, and if any provision of the Plan is found not to be in compliance with Rule 16b-3, such provision shall be deemed null and void to the
extent required to permit the Plan to comply with Rule 16b-3. The Committee may from time to time adopt rules and regulations under, and
amend, the Plan in furtherance of the intent of the foregoing.
(b) The Plan and any Option Agreements entered into pursuant to the Plan shall be administered and interpreted so that
all Incentive Stock Options granted under the Plan will qualify as Incentive Stock Options under Section 422 of the Code. If any provision of the
Plan or any Option Agreement relating to an Incentive Stock Option should be held invalid for the granting of Incentive Stock Options or illegal
for any reason, that determination shall not affect the remaining provisions hereof, but instead the Plan and the Option Agreement shall be
construed and enforced as if such provision had never been included in the Plan or the Option Agreement.
principals thereof.
(c) This Plan shall be governed by the laws of the State of Delaware, without reference to the conflict of laws rules or
(d) Headings contained in this Plan are for convenience only and shall in no manner be construed as part of this Plan.
(e) Any reference to the masculine, feminine, or neuter gender shall be a reference to such other gender as is appropriate.
16. Amendment and Discontinuation of the Plan. The Committee may from time to time amend, suspend or terminate the Plan or
any Option; provided, however, that, any amendment to the Plan shall be subject to the approval of the Company’s shareholders if such
shareholder approval is required by any applicable federal or state law or regulation (including, without limitation, Rule 16b-3 or to comply with
Section 162(m) of the Code) or the rules of any stock exchange or automated quotation system on which the Common Stock may then be listed
or granted. Except to the extent provided in Sections 9 and 10 hereof, no amendment, suspension or termination of the Plan or any Option issued
hereunder shall substantially impair the rights or benefits of any Optionee pursuant to any Option previously granted without the consent of the
Optionee.
17. Effective Date and Termination Date. The effective date of the Plan is the Effective Date, and the Plan shall terminate on the
10th anniversary of the Effective Date. This Plan shall be submitted to the shareholders of the Company for their approval and adoption and
Options hereunder may be granted prior to such approval and adoption; provided, however, that any Incentive Stock Options granted hereunder,
and if but only to the extent otherwise required by law or the rules of any stock exchange or automated quotation system on which the Common
Stock may be listed, any Non-Qualified Stock Options granted hereunder, prior to such approval and adoption shall be contingent upon obtaining
such approval and adoption.
12
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Advaxis, Inc.
We hereby consent to incorporation by reference in the Registration Statement (No. 333-147752) on Amendment number 1 to Form SB-2
and the Registration Statement (No. 333-162632) on Amendment number 1 to Form S-1 of our report dated February 19, 2010 on the balance
sheet of Advaxis, Inc. (a development stage company) as of October 31, 2009 and 2008, 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, 2009
which appear in this Annual Report on Form 10-K of Advaxis, Inc. for the year ended October 31, 2009. Our report dated February 19, 2010,
relating to the financial statements includes an emphasis paragraph relating to an uncertainty as to the Company's ability to continue as a going
concern.
/s/ MCGLADREY & PULLEN, LLP
New York, New York
February 19, 2010
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18.U.S.C. 7350
(SECTION 302 OF THE SARBANES OXLEY ACT OF 2002)
EXHIBIT 31.1
I, Thomas Moore, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the year ended October 31, 2009 of Advaxis, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
February 19, 2010
/s/ Thomas Moore
Name: Thomas Moore
Title: Chief Executive Officer
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18.U.S.C. 7350
(SECTION 302 OF THE SARBANES OXLEY ACT OF 2002)
EXHIBIT 31.2
I, Mark J. Rosenblum, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the year ended October 31, 2009 of Advaxis, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
February 19, 2010
/s/ Mark J. Rosenblum
Name: Mark J. Rosenblum
Title: Chief Financial Officer, Senior Vice President and Secretary
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Advaxis, Inc., a Delaware corporation (the “Company”), on Form 10-K for the year ended October 31,
2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chief Executive Officer,
hereby certifies pursuant to 18 U.S.C. Sec. 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 that, to the
undersigned’s knowledge:
(1) the Report of the Company filed today fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the
Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.
Date: February 19, 2010
/s/ Thomas Moore
Name: Thomas Moore
Title: Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Advaxis, Inc., a Delaware corporation (the “Company”), on Form 10-K for the year ended October 31,
2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chief Financial Officer,
hereby certifies pursuant to 18 U.S.C. Sec. 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 that, to the
undersigned’s knowledge:
(1) the Report of the Company filed today fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the
Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.
Date: February 19, 2010
/s/ Mark J. Rosenblum
Name: Mark J. Rosenblum
Title: Chief Financial Officer, Senior Vice President and
Secretary