Annual Report — Small Business — Form 10-KSB Filing Table of Contents
Document/ExhibitDescriptionPagesSize 1: 10KSB Annual Report -- Small Business HTML 1.01M
2: EX-10.11 Material Contract HTML 196K
3: EX-10.40 Material Contract HTML 6K
4: EX-10.41 Material Contract HTML 35K
5: EX-10.42 Material Contract HTML 162K
6: EX-10.43 Material Contract HTML 23K
7: EX-10.44 Material Contract HTML 83K
8: EX-31.1 Certification per Sarbanes-Oxley Act (Section 302) HTML 14K
9: EX-31.2 Certification per Sarbanes-Oxley Act (Section 302) HTML 14K
10: EX-32.1 Certification per Sarbanes-Oxley Act (Section 906) HTML 10K
11: EX-32.2 Certification per Sarbanes-Oxley Act (Section 906) HTML 10K
(Exact
name of registrant as specified in its charter)
Delaware
(State
or other jurisdiction of
incorporation
or organization)
84-1521955
(I.R.S.
Employer Identification No.)
Technology
Centre of New Jersey
675
US Highway One, Suite B113
North
Brunswick, New Jersey
08902
(Address
of principal executive offices)
(Zip
Code)
Registrant’s
telephone number, including area code:
(732)
545-1590
Securities
registered pursuant to Section 12(b) of the Act:
Common
Stock - $.001 par value
The
Common Stock is listed on the Over-The-Counter Bulletin Board
(OTC:BB)
Securities
registered pursuant to Section 12(g) of the Act:
[None]
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that Registrant was required
to
file such reports) and (2) has been subject to such filing requirements for
at
least the past 90 days. Yes
x No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not 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-KSB. o
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Rule
12b-2 of the Act). Yes o No x
The
aggregate market value of the voting common equity held by non-affiliates of
the
registrant as of December 31, 2006 was approximately $4,587,000 based upon
the
closing bid price of the registrant’s Common Stock on the Over the Counter
Bulletin Board, at December 29, 2006. (For purposes of determining this amount,
only directors, executive officers, and 10% or greater stockholders and their
respective affiliates have been deemed affiliates).
Registrant
had 41,147,363 shares of Common Stock, par value $0.001 per share, issued and
outstanding as of December 31, 2006.
The
Exhibits to this Annual Report have been incorporated by reference from other
filings by the Company with the Securities and Exchange Commission.
3
Table
of
Contents
Form
10-KSB Index
PART
I
PAGE
Item
1.
Description
of Business
5
Item
2.
Description
of Properties
34
Item
3.
Legal
Proceedings
34
Item
4.
Submission
of Matters to a Vote of Security Holders
34
PART
II
Item
5.
Market
for the Registrant’s Common Equity and Related Stockholder
Matters
35
Item
6.
Management’s
Discussion and Analysis of Financial
35
Item
7.
Financial
Statements and Supplementary Data
45
Item
8.
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
67
Item
8A.
Controls
and Procedures
67
Item
8B
Other
Information
67
PART
III
Item
9.
Directors,
Executive Officers, Promoters and Control Persons; Compliance
With
Section 16(a) of the Exchange Act.
68
Item
10.
Executive
Compensation
72
Item
11.
Security
Ownership of Certain Beneficial Owners and
Management and Related Stockholder
Matters
76
Item
12.
Certain
Relationships and Related Transactions
77
Item
13.
Exhibits
78
Item
14.
Principal
Accountant Fees and Services.
83
4
PART
1
FORWARD
LOOKING STATEMENTS
This
Annual Report on Form 10-KSB 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.
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’). Until November 2004, we were a publicly-traded
“shell” company without any business until November 12, 2004 when we acquired
Advaxis, Inc., a Delaware corporation (“Advaxis”), through a Share Exchange and
Reorganization Agreement, dated as of August 25, 2004 (the “Share Exchange”), by
and among Advaxis, the stockholders of Advaxis and us. As a result of such
acquisition, Advaxis 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 20, 2006 reincorporation into Delaware. Our principal
executive offices are located at Technology Centre of NJ, 675 US Highway One,
North Brunswick, NJ08902 and our telephone number is (732)
545-1590.
On
July28, 2005 we began trading on the Over-The-Counter Bulletin Board (OTC:BB) under
the ticker symbol ADXS.
Recent
Developments
Pursuant
to a Securities Purchase Agreement dated February 2, 2006, we sold to Cornell
Capital Partners, LP (“Cornell”) $3,000,000 principal amount of our 6% Secured
Convertible Debentures (the “Debentures”) due February 1, 2009 ($1,500,000 on
February 2, 2006 and $1,500,000 on March 8, 2006) 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 are 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 is 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.
In
March
2006 we began our first phase I clinical study and 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.
We
maintain a website at www.advaxis.com
which
contains descriptions of our technology, our drugs and the trial status of
each
drug.
5
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
use
the Listeria System licensed from the University of Pennsylvania (Penn) to
secrete a protein sequence containing a tumor-specific antigen. Using the
Listeria System, we believe we will force the body’s immune system to process
and recognize the antigen as if it were foreign, creating the immune response
needed to attack the cancer. We believe that the Listeria System is a broadly
enabling platform technology that can be applied to many types of cancers.
In
addition, we believe there may be useful applications in infectious diseases
and
auto-immune disorders.
The
therapeutic approach that comprises the Listeria System is based upon the
innovative work of Yvonne Paterson, Ph.D., Professor of Microbiology at Penn,
involving the creation of genetically engineered Listeria that stimulate the
innate immune system and induce an antigen-specific immune response involving
humoral and cellular components.
We
have
focused our initial development efforts upon cancer vaccines targeting cervical,
breast, prostate, ovarian, lung and other cancers. Our lead products in
development are as follows:
Product
Indication
Stage
Lovaxin
C
Cervical,
Head and Neck
Phase
I/II; Phase I anticipated to be complete in the fiscal second /third
quarter 2007. Phase II study in cervical cancer anticipated to commence
in
late 2007
Lovaxin
B
Breast
cancer
Preclinical;
Phase I study anticipated to commence in late fiscal 2007/early
2008
Lovaxin
P
Prostate
cancer
Preclinical;
Phase I study anticipated to commence in late fiscal 2008
Lovaxin
T
Cancer
through control of telomerase
Preclinical
See
“Item
1. Business - Research and Development Programs”.
Since
our
formation, we have had a history of losses that as of October 31, 2006 have
aggregated $9,662,173, and because of the long development period for new drugs,
we expect to continue to incur losses for an extended period of time. Our
business plan to date has been realized by substantial outsourcing of virtually
all-major functions of drug development including scaling up for manufacturing,
research and development, grant applications, clinical studies, and others.
The
expenses of these outsourced services account for most of our accumulated loss.
We cannot predict when, if ever, any of our product candidates will become
commercially viable or FDA approved. Even if one or more of our products
receives FDA approval or becomes commercially viable we are not certain that
we
will ever become a profitable business.
Strategy
During
the next 12 to 24 months our strategic focus will be to achieve several
objectives. The foremost of these objectives are as follows:
·
Complete
our Phase I clinical study of Lovaxin C to document the practicability
of
using this agent safely in the therapeutic treatment of cervical
cancer;
·
Initiate our Phase II clinical
study of
Lovaxin C in the therapeutic treatment of
cancers.
·
Initiate a Phase I/II clinical
study of
Lovaxin B in the therapeutic treatment of breast
cancer.
·
Initiate a Phase I/II clinical
study of
Lovaxin P in the therapeutic treatment of prostate
cancer.
·
Continue the pre-clinical development
of
our product candidates, as well as continue research to expand our
technology platform; and
·
Initiate strategic and development
collaborations with biotechnology and pharmaceutical
companies.
Complete
the Ongoing Phase I Clinical Study of Lovaxin C.
We have
had several meetings with the FDA and the Recombinant Advisory Committee of
the
National Institutes of Health (the “NIH”) and have designed and fielded a Phase
I/II clinical study, to assess the safety of Lovaxin C. We plan to complete
this
clinical study in the fiscal second/third fiscal quarter 2007. The study
includes 20 patients with advanced cervical cancer the sites are located in
Serbia, Mexico and Israel, of which 10 patients have successfully completed
the
trial.
6
We
have
demonstrated in over 100 publications in peer reviewed journals that Lovaxin
C
generates a therapeutic effect in animal cancer models. The preliminary safety
data was deemed adequate by both national and institutional regulators in
each
of the countries in which our trial is being conducted under the International
Harmonization Treaties (ICH) which govern international drug development.
A
safety panel comprised of a founder of the National Cancer Institute (NCI)
Gynecologic Oncology Group, the investigator for the phase III Merck Gardasil
trial, an oncologist, the principal investigator of the study and a
representative of the sponsor was convened according to the clinical protocol,
which states that all severe and life threatening adverse events (grade 3
&
4) are to be promptly reported to this panel who are empowered to stop the
trial
at any time in the event of a safety risk to patients. At the time of this
writing, the first two cohorts have completed dosing and no grade 3 or 4
adverse
events associated with Lovaxin C have been observed.
The
Gynecologic Oncology Group, (GOG) a collaborative treatment group associated
with the NCI has agreed to conduct the field work for the Phase II study at
their expense (an estimated value of about $1,500,000 to $2,000,000). We
estimate that we will conduct lab work valued at $250,000 to support of this
study.
Following
the completion of the Phase I study and assuming that the results of this study
are favorable, we intend to prepare Phase II clinical studies to demonstrate
therapeutic efficacy, as well as to optimize the dosage and dosing regimen,
the
tests and assessments to be performed in phase III, to characterize the
responding patient population, and to understand all factors possible for the
purpose of defining and conducting a definitive test of the safety and efficacy
of Lovaxin C for regulatory approval. Thereafter, and assuming that the results
of this Phase II study are favorable, we intend to conduct Phase III clinical
studies to demonstrate safety, efficacy and the potency of the investigational
vaccine. Such studies are expected to occur in the next five to ten years.
Throughout this process, we will be meeting with the FDA prior to and at the
conclusion of each phase to reach a consensus before initiating any studies,
in
order to minimize regulatory risks during this clinical development
process.
At
the
conclusion of the Phase III studies, we intend to prepare and file a Biologics
License Application (BLA) with the FDA. Prior to submission of the BLA,
depending upon the data, we intend to possibly seek a Special Protocol
Assessment and/or a Fast Track designation from the FDA, which shortens the
internal FDA review process. As we accrue clinical data demonstrating the
safety, efficacy and potency of Lovaxin C in Phase I and II clinical studies
we
will also explore other regulatory approval options with the FDA that could
expedite the licensure of the final vaccine.
We
intend
to continue to devote a portion of our resources to the continued pre-clinical
development of our product candidates as well as the continued research to
expand our technology platform. Specifically, we intend to focus upon research
relating to combining our Listeria System with new and additional tumor antigens
which, if successful, may lead to additional cancer vaccines and other
therapeutic products. 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 with universities, such as Penn and UCLA. See
“Item
1. Business - Partnerships and Agreements - Penn”.
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. The
American Cancer Society estimates that more than eight million Americans
were
treated for cancer in 1999. According to the HCUP, in 2000, treatment of
the top
five cancers resulted in $10.8 billion in hospital costs.
Cancer
is
the second largest cause of death in the United States, exceeded only by
heart
disease. Approximately 1,399,790 new cases of cancer were expected to be
diagnosed in 2006, and 564,830 Americans were expected to die from the disease.
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). Cervical
cancer is estimated to cause the death in the US of approximately 3,700 patients
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 by
lymphocytes is antigen processing by Antigen Processing Cells (APC). APCs
are
phagocytic cells that ingest particulate material, infectious agents and
cellular debris. This non-specific ingestion Phagocytosis by these cells
results
in their activation and the release of soluble mediators called cytokines
that
assist the immune response.
Exogenous
pathway of Adapative Immunity (Class II pathway):
Proteins
and foreign molecules ingested by APC are broken down in
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.
Endogenous
pathway of Adaptive Immunity (Class I pathway)
There
exists another pathway, called the endogenous pathway. In this system, when
one
of the body's cells begins to create unusual proteins (as happens in most
viral
infections and in cancer cells), 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 traffics 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.
7
In
clinical cancer, the body does not always recognize the cancer cells as foreign.
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 forces
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
combining elements of the endogenous and exogenous pathways utilizing a number
of biologic characteristics of the Listeria bacteria.
Mechanism
of Action
Listeria
is a bacterium well known to medical science because it can cause an infection
in humans. 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.
When
Listeria enters the body, it is seen as foreign by the antigen processing
cells
and ingested into cellular compartments called lysosomes, whose destructive
enzymes kill most of the bacteria. A certain percentage of these bacteria,
however, are able to break out of the lysosomes 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 force the cell to move
the
bacteria to its cell surface so it can push into neighboring cells and spread.
Listeria
is a
pathogen that causes food poisoning, typically in 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 tranmitted 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,
Figs
1-7.
When Listeria enters the body, it is seen as foreign by the antigen processing
cells and ingested into cellular compartments called lysosomes, 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 are 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.
This
mechanism is used by Listeria to its benefit for the Listeria is that the
LLO is
neutralized and the bacteria do not kill the host cell. Advaxis is co-opting
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 stimultus to activate cytotoxic T cells.
Thus,
Listeria vaccines stimulate every immune pathway simultaneously. It has long
been recognized that cytotoxic T lymphocytes (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.
The strength of this response is reflected in the data.
It
is
important to note that Advaxis proprietary LLO fusion protein has other salutary
actions that facilitate a therapeutic cancer killing action. We have published
findings which show that Listeria
engineered to deliver our LLO fusion protein are different from Listeria
engineered to deliver the same antigen without the fusion tag in that the
antigen-only system stimulates T regulatory cells (Tregs) and the LLO fusion
protein delivery does not. This is very important since T regulatory cells
are
activated along with other T cells during immune stimulation; however they
inhibit the anti-tumor response. It is believed that these cells serve as
a
brake on the immune system to minimize potentially dangerous autoimmune
reactions. Most vaccines stimulate Tregs, and this is currently believed
to be a
reason for less than optimal therapeutic responses. Currently there are drugs
in
development to treat cancer that function exclusively by inhibiting these
Tregs.
Also,
many investigators have shown that LLO has adjuvant effects which result
in the
release of a variety of chemicals with in the body, and within the tumor,
termed
cytokines, chemokines and co-stimulatory molecules. These agents facilitate
the
tumor killing effects of activated T cells by creating a local tumor environment
that is most conducive for these actions to occur. Taken together, this is
why
it is believed that live Listeria
which
secrete LLO and escape from the phagocytotic vacuole exerts such profound
immuno-stimulatory effects, while ingested Listeria
that are
digested within the vacuole and do not escape don’t show these
effects.
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.
Innate
immunity: the non-specific stimulation of all aspects of the immune
system
in response to a bacterial infection
2.
Exogenous
pathway: the stimulation of helper T cell function that stimulates
and
supports cytotoxic T cell function.
3.
Endogenous
pathway: the direct stimulation of cytotoxic T cells in an amplified
fashion due accelerated antigen fragment generation
4.
Lack
of Tregs: the stimulation of the facilitory aspects of an anti-tumoral
immune response without the inhibitory aspects as a result of the
LLO
antigen fusion protein
5.
Supportive
local tumor environment: the adjuvant stimulation of various chemical
factors within the tumor that support the anti-tumor effect of
the immune
system stimulated by the effective delivery of the specific
antigen.
8
Research
and Development Program
Overview
We
use
genetically engineered Listeria monocytogenes as a therapeutic agent. We start
with an attenuated strain of Listeria, and then add to this bacterium a
plasmid that encodes a protein sequence that includes a portion of the LLO
molecule (including the PEST1 sequence) and the tumor antigen of
interest. This protein is secreted by the Listeria inside the antigen processing
cells, which then results in the immune response as discussed
above.
We
can
use different tumor antigens (or other antigens: e.g. allergy or infectious
disease) in this system. By varying the antigen, we create different therapeutic
agents. Our lead agent, Lovaxin C, uses a human papillomavirus derived antigen
that is present in cervical cancers. Lovaxin B 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. The table below shows a list
of
potential products and their current status:
Product
Indication
Stage
Lovaxin
C
Cervical,
Head and Neck
Phase
I/II; Phase I anticipated to be complete in the fiscal second /third
quarter 2007
Phase
II study in cervical cancer anticipated to commence in late fiscal
2007
Lovaxin
B
Breast
cancer
Preclinical;
Phase I study anticipated to commence in late fiscal 2007/early
2008
Lovaxin
P
Prostate
cancer
Preclinical;
Phase I study in late fiscal 2008
Lovaxin
T
Cancer
through control of telomerase
Preclinical
Partnerships
and Agreements
University
of Pennsylvania
On
July
1,
2002
(effective date) we entered into a 20-year exclusive worldwide license, with
the
University of Pennsylvania (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 dentritic 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 February13, 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. The license provides us with the exclusive
commercial rights to the patent portfolio developed at Penn as of the effective
date, in connection with Dr. Paterson and requires us to raise capital, 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 16% 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, as follows: 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 payments we are not
expecting to begin paying within the next five years). In addition, under
the
license, executed on February 13, 2007 we are obligated to pay an
annual maintenance fee starting on December 31, 2008, until the first commercial
sale of a Penn licensed product. Under the amended and restated agreement
we are
also required to pay a total of $157,134 in license payments in addition
to the
$215,700 previously paid or a total of $372,834 in Penn license payments.
Under
the agreement prior to the amendment and restatement we were required to
pay
$660,000 to Penn (which amount is already reflected as an obligation on our
balance sheet) upon receiving financing or on certain dates on or before
December 15, 2007, whichever is earlier. Overall the amended and restated
agreement payment terms reflect lower near term requirements but were more
than
offset by higher longer 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 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.
9
Furthermore,
upon the achievement of the first sale of a product in certain fields, Penn
shall be entitled to certain milestone payments, as follows: $2,500,000 shall
be
due for first commercial sale of the first product in the cancer field. In
addition, $1,000,000 will be due upon the date of first commercial sale of
a
product in each
of
the secondary strategic fields sold. Therefore, the total potential
amount of milestone payments is $3,500,000 in the cancer field.
As
a
result of our payment obligations under the license assuming we have net
sales
in the aggregate amount of $100 million from our cancer products, our total
payments to Penn over the next ten years could reach an aggregate of $5,420,000.
If over the next 10 years our net sales total an aggregate amount of only
$10
million from our cancer products, total payments to Penn could reach
be
$4,445,000.
This
license also grants us exclusive negotiation and exclusive options until
June17, 2009 to obtain exclusive licenses to new inventions on therapeutic
vaccines
developed Drs’ Paterson and Fred Frankel and their lab. Each option is granted
to us at no cost and provides a six month exercise period form the date
of
disclosure. Once exercised we have a 90 day period to negotiate in good
faith a
comprehensive license agreement at licensing fees up to $10,000. We recently
exercised the option and have entered into negotiations to license approximately
18 inventions. The license fees, legal expense, and other filing expenses
for
such 18 inventions are estimated to amount to $400,000 over a period of
several
years.
Strategically
we continue 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 management of our company or in our decisions with respect
to
exploitation of the patent portfolio.
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 140
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 30 post-doctoral and doctoral
students in the fields of Biochemistry and Immunology, many of whom are research
leaders in academia and industry.
Dr.
Paterson is currently the principal investigator on grants from the federal
government and charitable trusts totaling approximately $500,000 dollars per
year and training grants totaling approximately $800,000 per year. 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.
We
entered into a renewed consulting agreement with Dr. Paterson on January 28,2005 with an initial term expiring on January 31, 2006 with automatic
renewals for up to six additional periods of six months each pursuant to which
we have had access to Dr. Paterson’s consulting services for one full day per
week. We are currently in our fourth renewal period. 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 agreement, Dr. Paterson currently receives
$5,000 per month of which $3,000 is paid in cash and $2,000 is accrued until
the
conversion of the Cornell convertible debenture provided, that upon the closing
of an additional $3 million in equity capital, Dr. Paterson’s rates will
increase to $5,000 per month; provided, further, that upon the closing of an
additional $6 million in equity capital, Dr. Paterson’s rates shall increase to
$7,000 per month; and provided, further, that upon the closing of an additional
of $9 million in equity capital, Dr. Paterson’s rates shall increase to $9,000
per month. In addition, on February 1, 2005, Dr. Paterson received options
to
purchase 400,000 shares of our common stock at an exercise price of $0.287
per
share with 40,000 fully vested when granted and the remaining 360,000 options
vesting equally over 48 months; provided that Dr. Paterson remains a consultant
over the four year period. Since February 1, 2005, Dr. Paterson is being paid
$3,000 per month, and since March 2006 we’ve accrued an additional $2,000 per
month pending the next round of financing of $3,000,000 and she holds options
to
purchase a total of 569,048 shares of Common Stock of which 360,714 are vested
as of October 31, 2006.
10
Sponsored
Research Agreement.
We
entered into a sponsored research agreement on December 6, 2006 with Penn and
Dr. Paterson under which we are obligated to pay $159,598 per year for a total
period of 2 years covering the development of potential vaccine candidate based
on our Listeria technology as well as other basic research
projects.
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. 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.
Dr.
David Filer
We
have
entered a consulting agreement with Dr. David Filer, a biotech consultant.
The
Agreement commenced on January 7, 2005 and has a six month term, which was
extended upon the agreement of both parties. Dr. Filer shall continue to provide
to us for three days per month during the term of the agreement assistance
on
our development efforts, reviewing our scientific technical and business data
and materials and introducing us to industry analysts, institutional investors
collaborators and strategic partners. In consideration for the consulting
services we pay Dr. Filer $2,000 per month. In addition, Dr. Filer
received options to purchase 40,000 shares of common stock which are
currently vested.
Freemind
Group LLC (“Freemind”)
We
have
entered into an agreement with Freemind to develop and manage our grant writing
strategy and application program. Advaxis will pay Freemind according to a
fee
structure based on achievement of grants awarded to us at the rate of 6-7%
of
the grant amount. Advaxis will also pay Freemind fixed consulting fees based
on
the type of grants submitted, ranging from $5,000-7,000 depending on the type
of
application submitted. Freemind has extensive experience in accessing public
financing opportunities, the national SBIR and related NIH/NCI programs.
Freemind has assisted us in the past to file grant applications with NIH
covering the use of Lovaxin C for cervical dysplasia.
University
of California
On
March14, 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 renewable by mutual
consent of the parties. Advaxis paid UCLA an initial licensee 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.
Cobra
Biomanufacturing PLC
In
July
2003, we entered into an agreement with Cobra Biomanufacturing PLC for the
purpose of manufacturing our cervical cancer vaccine Lovaxin C. 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 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 convert $300,000 of its
existing fees for manufacturing into future royalties from the sales of Lovaxin
C at the rate of 1.5% of net sales, with payments not to exceed
$1,950,000.
11
In
November 2005, in order to secure production of Lovaxin C 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 Lovaxin C, our therapeutic vaccine for the treatment
of
cervical and head and neck cancers that currently in a phase I/II study in
cervical cancer patients. The new 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.
LVEP
Management, LLC
The
Company entered into a consulting agreement with LVEP Management LLC (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. LVEP is owned by the estate of Scott Flamm (deceased January
2006) previously, one of our directors and a principal shareholder. 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.
The
term of the agreement as amended is 24 months from effective date. Mr. Appel
will devote 50% of his time over the first 12 months of the consulting period.
Also as a consultant, he will be paid at a rate of $22,500 per month in addition
to benefits as provided to other company officers. He will receive severance
payments over an additional 12 months at a rate of $10,416.67 per month and
shall be reimbursed for family health care. All his stock options vested fully
on the effective date and are exercisable over the option contract life. Also,
Mr. Appel was issued 1,000,000 shares of our common stock. He will receive
a
$250,000 bonus $100,000 paid on January 2, 2007 and the remainder to be paid
on
June 1, 2007.
David
Carpi
On
December 15, 2006 we entered into a consulting agreement with David Carpi,
whereby Mr. Carpi will assist us in the preparation and refinement of our
marketing summary and presentation materials and introduce us to pre defined
pharmaceutical and biotechnology companies which may be interested in strategic
partnerships. Mr. Carpi will receive a monthly cash fee of $1,500 and approved
expenses, and in addition success based compensation payable in cash and stock
ranging from 5% to 4% of transaction proceeds, upon completion of a transaction
with a strategic partner introduced by Mr. Carpi. The agreement will be
effective until July 12, 2007. Thereafter it will automatically renew on a
month-to-month basis unless extended by Company on the same terms or terminated.
Pharm-Olam
International Ltd. (“POI”)
In
April
2005, we entered into a consulting agreement with POI, based on which POI is
to
execute and manage our Phase 1 clinical trial in Lovaxin C with POI to receive
in consideration therefore $430,000 (50% of which is contingent on the closing
by us of a $5 million equity financing) and reimbursement of certain
expenses of $181,060. On December 13, 2006 we approved a change order reflecting
the changes to the protocol the cost of which is estimated at $92,000 for a
total contractual obligation of $522,000.
Cato
Research Israel Ltd (“CATO”)
We
have
entered into a master service agreement with Cato Research Israel Ltd, on
December 27, 2005 a contract research organization (CRO) that provides clinical
trial management services in the state of Israel in connection with our Phase
I/II clinical trial in Lovaxin C. Under the agreement we will pay CATO an
estimated amount of $40,000.
Apothecaries
Limited
We
have
entered into a master service agreement with Apothecaries Limited on September20, 2006, a contract research organization (CRO) for the purpose of providing
us
with clinical trial management services in the state of India in connection
with
our Phase I/II clinical trial in Lovaxin C. Under the agreement we will pay
Apothecaries amounts based on certain criteria detailed in the agreement such
as
clinical sites qualified ($1,500 per site), submitting and obtaining regulatory
approval ($17,000), and numbers of patients enrolled to the clinical trial
($7,500 for each treated patient). If regulatory approval shall be obtained
and
10 patients shall be recruited and treated in 6 clinical sites, we shall pay
Apothecaries a total of $101,000.
12
The
Investor Relations Group, Inc (“IRG”)
We
entered into an agreement with IRG whereby IRG is to serve as an investor
relations and public relations consultant. The term of this agreement is on
a
month to month basis. In consideration for performing its services, IRG is
to be paid $10,000 per month plus out of pocket expenses, and 200,000 common
shares over a period of 18 months commencing October 1, 2005, provided the
agreement has not terminated. Through October 31, 2006 we issued 99,999 shares
out of the 133,332 vested shares as per the agreement.
Biologics
Consulting Group, Inc. (“BCG”)
On
June1, 2006 we entered into an agreement with BCG to provide biologics regulatory
consulting services to the Company in support of the IND submission to the
FDA.
The tasks to be performed under this Agreement will be agreed to in advance
by
the Company and BCG. The term of the agreement is from June 1, 2006 to June1,2007. This is a time and material agreement.
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 (effective date) we entered into a 20-year
exclusive worldwide license and a right to grant sublicenses pursuant to our
license agreement with Penn. Penn currently has 11 issued and 15 pending patents
in the United States and other countries including Japan, Canada, Israel,
Australia, and the European Union, through the Patent Cooperation Treaty (PCT)
system pursuant to which we have an exclusive license to exploit the patents.
We
believe that these patents will allow us to take a strong lead in the field
of
Listeria-based therapy.
The
Penn
patent portfolio is currently comprised of the following:
United
States
Patents
U.S.
Patent No. 6,051,237, issued April 18, 2000. Patent Application No.
08/336,372, filed November 8, 1994 for “Specific Immunotherapy of Cancer
Using a Live Recombinant Bacterial Vaccine Vector.” Filed November 8,1994. Expires April 18, 2017.
U.S.
Patent No. 6,565,852, issued May 20, 2003, Paterson, et al., CIP
Patent
Application No. 09/535,212, filed March 27, 2000 for “Specific
Immunotherapy of Cancer Using a Live Recombinant Bacterial Vaccine
Vector.” Filed March 27, 2000. Expires November 8,2014.
U.S.
Patent No. 6,099,848, issued August 8, 2000, Frankel et al., Patent
Application No. 08/972,902 “Immunogenic Compositions Comprising DAL/DAT
Double-Mutant, Auxotrophic, Attenuated Strains of Listeria and Their
Methods of Use.” Filed November 18, 1997. Expires November 18,2017.
U.S.
Patent No. 6,504,020, issued January 7, 2003, Frankel et al. Divisional
Application No. 09/520,207 “Isolated Nucleic Acids Comprising Listeria DAL
And DAT Genes”. Filed March 7, 2000, Expires November 18,2017.
U.S.
Patent No. 6,635,749, issued October 21, 2003, Frankel, et
al. Divisional U.S. Patent Application No. 10/136,253 for “Isolated
Nucleic Acids Comprising Listeria DAL and DAT Genes.” Filed May 1,2002, Filed May 1, 2022. Expires November 18,2017.
U.S.
Patent No. 5,830,702, issued November 3, 1998, Portnoy, et al. Patent
Application No. 08/366,477, filed December 30, 1994 for “Live, Recombinant
Listeria SSP Vaccines and Productions of Cytotoxic T Cell Response” Filed
December 30, 1997. Expires November 3, 2015.
US
Patent No. 6,767,542 issued July 27, 2004, Paterson, et al. Patent
Application No. 09/735,450 for “Compositions and Methods for Enhancing
Immunogenicity of Antigens.” Filed December 13, 2000. Expires March 29,2020.
US
Patent No. 6,855,320 issued February 15, 2005, Paterson. Patent
Application No. 09/537,642 for “Fusion of Non-Hemolytic, Truncated Form of
Listeriolysin o to Antigens to Enhance Immunogenicity.” Filed March 29,2000. Expires March 29, 2020.
US
Patent No. 7,135,188 issued November 14, 2006, Paterson, Patent
Application No. 10/441,851 for “Methods and compositions for immunotherapy
of cancer.” Filed May 20, 2003. Expires November 8,2014.
13
Patent
Applications
U.S.
Patent Application No. 10/239,703 for “Compositions and Methods for
Enhancing Immunogenicity of Antigens.” Filed September 24, 2002, Paterson,
et al.
U.S.
Patent Application No. 10/660,194, “Immunogenic Compositions Comprising
DAL/DAT Double Mutant, Auxotrophic Attenuated Strains Of Listeria
And
Their Methods Of Use,” Filed September 11, 2003, Frankel et
al.
U.S.
Patent Application No. 10/835,662, “Compositions and methods for enhancing
the immunogenicity of antigens,” Filed April 30, 2004, Paterson et
al.
U.S.
Patent Application No. 10/949,667, “Methods and compositions for
immunotherapy of cancer,” Filed September 24, 2004, Paterson et
al.
U.S.
Patent Application No. 11/223,945, “Listeria-based and LLO-based
vaccines,” Filed September 13, 2005, Paterson et al.
U.S.
Patent Application No. 11/376,564, “Compositions and methods for enhancing
the immunogenicity of antigens,” Filed March 16, 2006, Paterson et
al.
U.S.
Patent Application No. 11/376,572, “Compositions and methods for enhancing
the immunogenicity of antigens,” Filed March 16, 2006, Paterson et
al.
International
Patents
Australian
Patent No. 730296, Patent Application No. 14108/99 for “Bacterial Vaccines
Comprising Auxotrophic, Attenuated Strains of Listeria Expressing
Heterologous Antigens.” Filed May 18, 2000. Frankel, et al. Expires
November 13, 2018.
Canadian
Patent Application No. 2,309,790 for “Bacterial Vaccines Comprising
Auxotrophic, Attenuated Strains of Listeria Expressing Heterologous
Antigens.” Filed May 18, 2000, Frankel, et al.
Patent
Applications
Canadian
Patent Application No. 2,204,666, for “Specific Immunotherapy of Cancer
Using a Live Recombinant Bacterial Vaccine Vector”. Filed November 3,1995, Paterson et al.
Canadian
Patent Application No. 2,404,164 for “Compositions and Methods for
Enhancing Immunogenicity of Antigens.” Filed March 26, 2001. Paterson, et
al.
14
European
Patent Application No. 01928324.1 for “Compositions and Methods for
Enhancing Immunogenicity of Antigens.” Filed March 26, 2001. Paterson, et
al.
European
Patent Application No. 98957980.0 for “Bacterial Vaccines Comprising
Auxotrophic, Attenuated Strains of Listeria Expressing Heterologous
Antigens.” Filed May 18, 2000, Frankel, et al.
Israel
Patent Application No. 151942 for “Compositions and Methods for Enhancing
Immunogenicity of Antigens.” Filed March 26, 2001, Paterson, et
al.
Japanese
Patent Application No. 515534/96, filed November 3, 1995 for “Specific
Immunotherapy of Cancer Using a Live Recombinant Bacterial Vaccine
Vector”, Paterson, et al.
Japanese
Patent Application No. 2001-570290 for “Compositions and Methods for
Enhancing Immunogenicity of Antigens.” Filed March 26, 2001, Paterson, et
al.
PCT
International Patent Application No. PCT/US06/44681 for “Methods For
Producing, Growing, And Preserving Listeria
Vaccine Vectors.” Filed November 16, 2006, Rothman, et
al.
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 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 license with Penn, we have 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 until June 17, 2009. We intend to expand our intellectual property
base by exercising this option and gaining access to 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 Penn, and we will have access to those
inventions under license agreements to be negotiated. See “Item 1.
Business -
Partnerships and agreements - Penn.”
Our
approach to the intellectual property portfolio is to aggressively 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
have
become aware of a public company, Cerus Corporation, which has issued a press
release claiming to have a proprietary Listeria-based approach to a cancer
vaccine. We believe that through our exclusive license with Penn of U.S. Patent
Nos. 5,830,702, 6,051,237 and 6,565,852, we have earliest known and dominant
patent position in the United States for the use of recombinant Listeria
monocytogenes expressing proteins or tumor antigens as a vaccine for the
treatment of infectious diseases and tumors. Based on searches of publicly
available databases, we do not believe that Cerus or The University of
California Berkeley (which is where Cerus’ consulting scientist works) or any
other third party owns any published Listeria patents or has any issued patent
claims that might materially negatively affect our freedom to operate our
business as currently contemplated in the field of recombinant Listeria
monocytogenes.
Cerus
has
filed an opposition against European Patent Application Number 0790835 (EP
835
Patent) which was granted by the European Patent Office and which is assigned
to
The Trustees of the University of Pennsylvania and exclusively licensed to
us.
Cerus’ allegations in the Opposition are that the EP 835 Patent, which claims a
vaccine for inducing a tumor specific antigen with a recombinant live Listeria,
is deficient because of (i) insufficient disclosure in the specifications of
the
granted claims, (ii) the inclusion of additional subject matter in the granted
claims, and (iii) a lack of inventive steps of the granted claims of the EP
835
Patent.
15
On
November 29, 2006, following oral proceedings, the Opposition Division of the
European Patent Office determined that the claims of the patent as granted
should be revoked due to lack of inventive step under European Patent Office
rules based on certain prior art publications. This decision has no material
effect upon our ability to conduct business as currently
contemplated.
We
will
review the formal written decision in order to evaluate whether to file an
appeal. In the event of an appeal there is no assurance that it will be
successful. If such ruling is upheld on appeal, our patent position in Europe
may be eroded. The likely result of this decision will be increased competition
for us in the European market for recombinant live Listeria based vaccines
for
tumor specific antigens. Regardless of the outcome, we believe that our freedom
to operate in Europe, or any other territory, for recombinant live Listeria
based vaccine for tumor specific antigen products will not be
diminished.
For
more
information about Cerus Corporation and its claims with respect to
Listeria-based technology, you should visit their web site at www.cerus.com
or to
view its publicly filed documents
Lovaxin
has been registered as a trademark in Israel, Australia, South Korea, Hong
Kong
and Taiwan.
The
U.S.
trademark application for Lovaxin has been allowed by the United States Patent
and Trademark Office and is pending. Trademark applications in China and in
the
European Union for Lovaxin are also pending. The Chinese application was
recently published for opposition, and the European Union application has passed
through the opposition stage.
The
Canadian trademark application for Lovaxin has been opposed by Aventis Pharma
S.A. That opposition proceeding is pending.
In
2006,
Nycomed Pharma, of Sweden, claimed owner of the mark Levaxin, filed an
opposition to our CTM (European Union) application to register
Lovaxin. The opposition was refused solely on procedural
grounds. If our CTM application is ultimately granted,
Nycomed Pharma may file to cancel such registration of Lovaxin.
Nycomed Pharma has also demanded that we cease to use Lovaxin in
Sweden.
The
U.S.
trademark applications for Advaxis and for Advaxis and design, Serial Nos.
78/252527 and 78/252586, have been withdrawn. Oppositions to those applications
have been terminated in favor of Aventis, Inc.
Governmental
Regulation
The
Drug Development Process
The
FDA
requires that pharmaceutical and certain other therapeutic products undergo
significant clinical experimentation and clinical testing prior to their
marketing or introduction to the general public. Clinical testing, known
as
clinical trials or clinical studies, is either conducted internally by
pharmaceutical or biotechnology companies or is conducted on behalf of these
companies by contract research organizations.
The
process of conducting clinical studies is highly regulated by the FDA, as
well
as by other governmental and professional bodies. Below, we describe the
principal framework in which clinical studies are conducted, as well as describe
a number of the parties involved in these studies.
Protocols.
Before
commencing human clinical studies, the sponsor of a new drug must typically
receive governmental and institutional approval. In the US Federal approval
is
obtained by submitting an investigational new drug application, or IND, to
the
FDA. The application contains what 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;
· how
often to administer the drug;
· what
tests to perform on the participants;
and
16
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, but its records are audited by the FDA. Its
members are not appointed 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 the company or 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 through 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 healthy
participants, typically 24 to 100 people at a time. 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. Cancer drugs,
however, are a special case, as they are not given to normal healthy people.
Typically, cancer therapeutics are initially tested on very late stage cancer
patients.
Phase
II.
Phase
II trials involve testing up to 200 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 a new drug
application (“NDA”) or Biologics License Application (BLA).Following
the completion of Phase III studies, assuming the sponsor of a potential product
in the United States 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 United States, subject to any conditions imposed by the
FDA.
Phase
IV.
The FDA
may require that the sponsor conduct additional clinical trials following new
drug approval. The purpose of these trials, known as Phase IV studies, is to
monitor long-term risks and benefits, study different dosage levels or evaluate
safety and effectiveness. In recent years, the FDA has increased its reliance
on
these trials. Phase IV studies usually involve thousands of participants. Phase
IV studies also may be initiated by the company sponsoring the new drug to
gain
broader market value for an approved drug. For example, large-scale trials
may
also be used to prove effectiveness and safety of new forms of drug delivery
for
approved drugs. Examples may be using an inhalation spray versus taking tablets
or a sustained-release form of medication versus capsules taken multiple times
per day.
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.
17
On
November 21, 1997, former President Clinton signed into law the Food and Drug
Administration 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 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.
The
Orphan Drug Act provides incentives to develop and market drugs (“Orphan Drugs”)
for rare disease conditions in the United States. A drug that receives Orphan
Drug designation and is the first product to receive FDA marketing approval
for
its product claim is entitled to a seven-year exclusive marketing period in
the
United States for that product claim. A drug which is considered by the FDA
to
be different than such FDA-approved Orphan Drug is not barred from sale in
the
United States during such exclusive marketing period even if it receives
approval for the same claim. We can provide no assurance that the Orphan Drug
Act’s provisions will be the same at the time of the approval, if any, of our
products.
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 United States
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.
Manufacturing
The
FDA
requires that any drug or formulation to be tested in humans be manufactured
in
accordance with its Good Manufacturing Practices (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 Biomanufacturing
PLC 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 trial.
18
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 from biotechnology firms
and
from major pharmaceutical and chemical companies, including Antigenics, Inc.,
Avi BioPharma, Inc., Biomira, Inc., Cerus Corporation, Dendreon Corporation,
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 relative 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. See “Business - Research
and Development Programs” and “Business - Competition”.
We
have
become aware of a public company, Cerus Corporation, which has issued a press
release claiming to have a proprietary Listeria-based approach to a cancer
vaccine. We believe that through our exclusive license with Penn, we have
earlier priority filing dates of certain applications and a dominant patent
position for the use of recombinant Listeria monocytogenes expressing proteins
or tumor antigens as a vaccine for the treatment of infectious diseases and
tumors. Based on searches of publicly available databases, we do not believe
that Cerus or The University of California Berkeley (which is where Cerus’
consulting scientist works) or any other third party owns any published Listeria
patents or has any issued patent claims that might materially negatively affect
our freedom to operate our business as currently contemplated in the field
of
recombinant Listeria monocytogenes.
Cerus
has
filed an opposition against European Patent Application Number 0790835 (EP
835
Patent) which was granted by the European Patent Office and which is assigned
to
The Trustees of the University of Pennsylvania and exclusively licensed to
us.
Cerus’ allegations in the Opposition are that the EP 835 Patent, which claims a
vaccine for inducing a tumor specific antigen with a recombinant live Listeria,
is deficient because of (i) insufficient disclosure in the specifications of
the
granted claims, (ii) the inclusion of additional subject matter in the granted
claims, and (iii) a lack of inventive steps of the granted claims of the EP
835
Patent.
On
November 29, 2006, following oral proceedings, the Opposition Division of the
European Patent Office determined that the claims of the patent as granted
should be revoked due to lack of inventive step under European Patent Office
rules based on certain prior art publications. This decision has no material
effect upon our ability to conduct business as currently
contemplated.
We
will
review the formal written decision in order to evaluate whether to file an
appeal. In the event of an appeal there is no assurance that it will be
successful. If such ruling is upheld on appeal, our patent position in Europe
may be eroded. The likely result of this decision will be increased competition
for us in the European market for recombinant live Listeria based vaccines
for
tumor specific antigens. Regardless of the outcome, we believe that our freedom
to operate in Europe, or any other territory, for recombinant live Listeria
based vaccine for tumor specific antigen products will not be
diminished.
For
more
information about Cerus Corporation and its claims with respect to
Listeria-based technology, you should visit their web site at www.cerus.com
or to
view its publicly filed documents.
19
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 periodically 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. and David Weiner, Ph.D.
Dr.
Yvonne Paterson.
For a
description of our relationship with Dr. Paterson, please see “Item 1. Business
- Partnerships and Agreements”.
Carl
June, M.D. Dr.
June is currently Director of Translational Research at the Abramson Cancer
Center at Penn, and is an 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. 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 (1994
to 1999). He serves presently on the Board of Directors of two privately held
companies: Ikonisys (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 20 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 serves as the Chief of the Section of
Infectious Diseases. 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. On two
occasions the graduating medical school class dedicated their yearbook to Dr.
Lorber. 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 the University of
Pennsylvania 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 the University of Pennsylvania 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 the University of
Pennsylvania. 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 28+ awarded US patents as well
as
their international counterparts. He has served and still serves on many
national and international review boards and panels including NIH Study section,
WHO advisory panels, the NIBSC, Department of Veterans Affairs Scientific Review
Panel, as well as the FDA Advisory panel - CEBR, and AACTG 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 14 Doctoral Student Committees.
20
EMPLOYEES:
As
of
January 6, 2007, we employ nine employees, all of whom are on a full-time basis.
Of these nine employees six employees hold the following degrees: (1 MD, PhD,
4
PhD’s & 1 BS) five serve in the research and one serves in the clinical
development areas and three serve in the general and administration area.
Our
Chairman and Chief Executive Officer, Mr. Tom Moore joined our company on
December 15, 2006. Mr. Roni Appel previously served as our President and Chief
Executive Officer during the fiscal year 2006 resigned from this position on
December 15, 2006. Mr. Appel still serves as a board of director member and
remains as consultant to the company.
Dr. John
Rothman serves as our Vice President of Clinical and Officer and joined the
company on March 7, 2005. Fred Cobb who serves as our Vice President, Finance
and Principal Financial Officer and joined the company on February 20,2006. Doctor Vafa Shahabi serves as our Director of Research and Development
and joined the company on March 1, 2005. Two of our Senior Scientists
joined the company from Doctor Paterson’s lab at Penn.
We
anticipate increasing the number of employees in the: clinical area and the
research and development area to support clinical requirements, and in the
general and administrative and business development areas over the next two
years.
Compensation
of Officers and Directors
The
aggregate compensation paid to our directors and executive officers, including
stock based compensation but excluding option value, for the ten months ended
October 31, 2004 and for the twelve months ended October 31, 2005 and 2006
was
approximately $235,000, $669,250 and $1,169,620, respectively. This amount
includes $0 set aside or accrued to provide pension, severance, retirement,
or
similar benefits or expenses, but does not include business travel, relocation,
professional and business association dues and expenses reimbursed to office
holders and other benefits commonly reimbursed or paid by similarly situated
companies. With the exception of Mr. Berman who receives $2,000 a month in
company stock at a set price of $0.50 per share, none of our directors so far
has received any compensation for his services as a director other than stock
options and reimbursement of expenses.
Compensation
Committee Interlocks And Insider Participation
There
were no interlocking relationships between us and other entities that might
affect the determination of the compensation of its directors and executive
officers.
21
RISK
FACTORS
Risks
Specific to Us
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
losses are expected to continue, due to the substantial investment in research
and development, for the next five to ten or more years. At October 31, 2006,
we
had an accumulated deficit of $9,663,173 and stockholders’ equity deficit of
$3,707,141. We expect to spend substantial additional sums on the continued
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.
We
will require substantial additional financing in order to meet our business
objectives.
Although
we believe that the net proceeds received from private placements (i) in
November 2004 of the Units of shares of our common stock and of our warrants,
and (ii) in February 2006 of our $3,000,000 Debenture will be sufficient to
finance our currently planned operations for the near-term (approximately 12
months), such amounts will not be sufficient to meet our longer-term cash
requirements or cash requirements for the commercialization of certain products
currently in development. We will be required to find additional equity or
debt
securities or enter into other financial arrangements, including relationships
with corporate and other partners, in order to raise substantial additional
capital during the five to ten year period of product development and the United
States Food and Drug Administration (“FDA”) testing through Phase III testing.
Depending upon market conditions, we may not be successful in raising sufficient
additional capital for our long-term requirements. If we fail to raise
sufficient additional financing we will not be able to develop our product
candidates, we will be required to reduce staff, reduce or eliminate research
and development, slow the development of our product candidates and outsource
or
eliminate several business functions. Even if we are successful in raising
such
additional financing, we may not be able to successfully complete planned
clinical trials, development, and marketing of all, or of any, of our product
candidates. In such event, our business, prospects, financial condition and
results of operations could be materially adversely affected. We may be required
to reduce our staff, discontinue certain research or development programs of
our
future products, and cease to operate. We may not be able to conduct clinical
trial in Lovaxin C. See Item 6. “Management’s Discussion and Analysis of
Financial Condition and Plan of Operations”.
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 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. We may not be able to conduct our next
Lovaxin C clinical trial.
22
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. 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 complete successfully the development
or
marketing of any new products. See Item 1. “Business - Research and Development
Program”.
Our
research and development expenses are subject to
uncertainty.
Factors
affecting our research and development (or R&D) expenses include, but are
not limited to:
·
The
number of and the outcome of clinical studies we are planning to
conduct.
For example, our R&D expenses will significantly increase based on the
number of late-stage clinical studies which we may be required to
conduct;
·
The
number of products entering into development from late-stage research.
For
example, there is no guarantee that internal research efforts will
succeed
in generating sufficient data for us to make a positive development
decision or that an external candidate will be available on terms
acceptable to us. Some promising candidates may not yield sufficiently
positive preclinical results to meet our stringent development
criteria;
·
In-licensing
activities, including the timing and amount of related development
funding
or milestone payments. For example, we may enter into agreements
requiring
us to pay a significant up-front fee for the purchase of in-process
research and development which we may record as an R&D
expense;
·
Market
conditions. For example when we raise our next round of financing
the
market conditions may not provide adequate
funding.
·
As
part of our strategy, we invest in R&D. R&D as a percent of future
potential revenues can fluctuate with the changes in future levels
of
revenue. Lower revenues can lead to more limited spending on R&D
efforts; and
·
Future
levels of revenue.
We
are subject to numerous risks inherent in conducting clinical
trials.
We
must
outsource our clinical trials and are in the process of negotiating with third
parties to accelerate the completion of our current trial. We are not certain
that we will successfully conclude our recruitment for the completion of our
clinical trials. Delay in concluding recruitment and such agreements would
delay
the conclusion of the Phase 1 Trial of Lovaxin C.
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 could result in delays in, or
termination of, our clinical trials if these parties fail to perform as
expected. 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 Lovaxin C.
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 that 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.
23
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 BLA preparation,
discussions with the FDA, an FDA request for additional preclinical
or
clinical data, or unexpected safety or manufacturing
issues.
·
Manufacturing
costs, 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
United States 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 drug or biological
product to be marketed in the United States 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 (“INDA”), 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 New Drug Application ("NDA") for a
drug
product or a "BLA" for a biological product to allow commercial distribution
of
the drug or biologic. 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 the Advaxis products will obtain regulatory
approval or that the results of clinical studies will be
favorable.
We
received in February 2006 permission from the appropriate governmental agencies
in Israel, Mexico and Serbia to conduct in those countries Phase I clinical
testing of Lovaxin C, our Listeria based cancer vaccine which targets cervical
cancer in women. However, the testing, marketing and manufacturing of any
product for sale or distribution in the United States will require filing with
and the approval of the FDA. We cannot predict with any certainty the amount
of
time necessary to obtain such FDA approval or further approval, if any, from
Israel, Mexico or Serbia and whether any such approval will ultimately be
granted. Preclinical and clinical trials may reveal that one or more products
is
ineffective or unsafe, in which event further development of such products
could
be seriously delayed or terminated. Moreover, obtaining approval for certain
products may require the testing on human subjects of substances whose effects
on humans are not fully understood or documented. 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 United States which perform roles
similar to that of the FDA, uncertainties similar to those stated above will
also exist. See “Item 1. Business - Governmental Regulation”.
24
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. We have licensed eleven patents and fifteen patents are pending
from
Penn. 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 right.
We
believe that our technology and the technology licensed from Penn do not
infringe the rights of others; however, we cannot assure you that the technology
licensed from Penn will not, in the future be found to infringe upon the rights
of others. We have become aware of a public company, Cerus Corporation, which
has issued a press release claiming to have a proprietary Listeria-based
approach to a cancer vaccine. We believe that through our exclusive license
with
Penn, we have earlier priority filing dates of certain applications and a
dominant patent position for the use of recombinant Listeria monocytogenes
expressing proteins or tumor antigens as a vaccine for the treatment of
infectious diseases and tumors. Based on searches of publicly available
databases, we do not believe that Cerus or The University of California Berkeley
(which is where Cerus’ consulting scientist works) or any other third party owns
any published Listeria patents or has any issued patent claims that might
materially negatively affect our freedom to operate our business as currently
contemplated in the field of recombinant Listeria monocytogenes.
Cerus
has
filed an opposition against European Patent Application Number 0790835 (EP
835
Patent) which was granted by the European Patent Office and which is assigned
to
The Trustees of the University of Pennsylvania and exclusively licensed to
us.
Cerus’ allegations in the Opposition are that the EP 835 Patent, which claims a
vaccine for inducing a tumor specific antigen with a recombinant live Listeria,
is deficient because of (i) insufficient disclosure in the specifications of
the
granted claims, (ii) the inclusion of additional subject matter in the granted
claims, and (iii) a lack of inventive steps of the granted claims of the EP
835
Patent.
On
November 29, 2006, following oral proceedings, the Opposition Division of the
European Patent Office determined that the claims of the patent as granted
should be revoked due to lack of inventive step under European Patent Office
rules based on certain prior art publications. This decision has no material
effect upon our ability to conduct business as currently
contemplated.
We
will
review the formal written decision in order to evaluate whether to file an
appeal. In the event of an appeal there is no assurance that it will be
successful. If such ruling is upheld on appeal, our patent position in Europe
may be eroded. The likely result of this decision will be increased competition
for us in the European market for recombinant live Listeria based vaccines
for
tumor specific antigens. Regardless of the outcome, we believe that our freedom
to operate in Europe, or any other territory, for recombinant live Listeria
based vaccine for tumor specific antigen products will not be
diminished.
25
Regardless
of the outcome, we believe that our freedom to operate in Europe, or any other
territory, for recombinant live Listeria based vaccine for tumor specific
antigen products will not be diminished. See “Item 1. Partnerships and
Agreements-Penn.
For
more
information about Cerus Corporation and its claims with respect to
listeria-based technology, you should visit their web site at www.cerus.com
or to
view its publicly filed documents, www.sec.gov.
Others
may assert infringement claims against us, and should we be found to infringe
upon their patents, or otherwise impermissibly utilize their intellectual
property, our ability to continue to use our technology or the licensed
technology could be materially restricted or prohibited. If this event occurs,
we may be required to obtain licenses from the holders of our intellectual
property, enter into royalty agreements or redesign our products so as not
to
utilize this intellectual property, each of which may prove to be uneconomical
or otherwise impossible. Licenses or royalty agreements required in order for
us
to use this technology may not be available on acceptable terms, or at all.
These claims could result in litigation, which could materially 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 right. See Item 1. “Business—Patents and Licenses”.
We
are dependent upon our license agreement with Penn, as well as proprietary
technology of others.
The
manufacture and sale of any products developed by us will involve the use of
processes, products or information, the rights to certain of which are owned
by
others. Although we have obtained licenses with regard to the use of Penn’s
patents as described herein and certain of such processes, products and
information of others, 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.
If
we are
unable to maintain and/or obtain licenses, we may have to develop alternatives
to avoid infringing or the patents of others, potentially causing increased
costs and delays in product development and introduction or preclude 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, we call to your
attention that 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 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. See “Item 1. Business - Patents and Licenses”. 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. See “Item 1.
Business - Partnerships and Agreements - Penn”.
For
more
information about Cerus Corporation and its claims with respect to
Listeria-based technology, you should visit their web site at www.cerus.com
or to
view its publicly filed documents.
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 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, including the
clinical testing program, could not go forward and our entire business plan
could fail.
26
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 Lovaxin C, 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 research and development activities. In addition, we have not yet marketed
or sold any of our product candidates or entered into successful collaborations
for these services in order to ultimately commercialize our product candidates.
Establishing strategic collaborations is difficult and time-consuming. Our
discussion with potential collaborators may not lead to the establishment of
collaborations on favorable terms, if at all. For example, potential
collaborators may reject collaborations based upon their assessment of our
financial, regulatory or intellectual property position. If we successfully
establish new collaborations, these relationships may never result in the
successful development or commercialization of our product candidates or the
generation of sales revenue. To the extent that we enter into co-promotion
or
other collaborative arrangements, our product revenues are likely to be lower
than if we directly marketed and sold any products that we may
develop.
Management
of our relationships with our collaborators will require:
·
significant
time and effort from our management team;
·
coordination
of our research and development programs with the research and development
priorities of our collaborators; and
·
effective
allocation of our resources to multiple
projects.
If
we
continue to enter into research and development collaborations at the early
phases of product development, our success will in part depend on the
performance of our corporate collaborators. We will not directly control the
amount or timing of resources devoted by our corporate collaborators to
activities related to our product candidates. Our corporate collaborators may
not commit sufficient resources to our research and development programs or
the
commercialization, marketing or distribution of our product candidates. If
any
corporate collaborator fails to commit sufficient resources, our preclinical
or
clinical development programs related to this collaboration could be delayed
or
terminated. Also, our collaborators may pursue existing or other
development-stage products or alternative technologies in preference to those
being developed in collaboration with us. Finally, if we fail to make required
milestone or royalty payments to our collaborators or to observe other
obligations in our agreements with them, our collaborators may have the right
to
terminate those agreements.
We
may incur substantial liabilities from any product liability claims if our
insurance coverage for those claims is inadequate.
We
face an inherent risk of product liability exposure related to the testing
of
our product candidates in human clinical trials, and will face an even greater
risk if the product candidates are sold commercially. An individual may bring
a
liability claim against us if one of the product candidates causes, or merely
appears to have caused, an injury. If we cannot successfully defend ourselves
against the product liability claim, we will incur substantial liabilities.
Regardless of merit or eventual outcome, liability claims may result in:
·
decreased
demand for our product candidates,
·
injury
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.
27
We
currently have insurance covering our clinical
trial sites. We
do not
have product liability insurance because
we do not have products on the market. We intend to obtain 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. 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
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.
At
the
date of this report, we have nine employees. We intend to expand our operations
and staff as needed. 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 expect the expansion of our
business to place a significant strain on our limited managerial, operational
and financial resources. 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 our new employees into our operations could have a material adverse
effect on our business, prospects, financial condition and results of
operations. 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 of Lovaxin C and other products, and
unable to adequately address the management needs of the Company. See “Item
6. Management’s Discussion and Analysis of Financial Condition and Results
of Operations and Plan of Operations”, “Item 1. Business - Strategy”, and
“Business--Employees.”
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 executive, 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. See “Item 10.
Executive Compensation—Employment Agreements”.
28
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 United States, 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 Cerus Corporation, in particular, Dandreon Corporation and
CancerVax Corporation, are developing cancer vaccines which would be directly
competitive with our product candidates. In addition, numerous other companies,
many of which have greater financial resources than we do, are actively engaged
in the research and development of cancer vaccines, and are in Stage II and
Stage III Testing of such products. Such companies include: Antigenics, Inc.;
Avi BioPharma, Inc.; Biomira, Inc.; Corixa Corporation; Dendreon Corporation;
Epimmune, Inc.; Genzyme Corp.; Progenics Pharmaceuticals, Inc.; Vical
Incorporated; CancerVax Corporation; Genitope Corporation; and Xcyte Therapies,
Inc.
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 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. See “Item 1. Business -
Research and Development Programs” and “Business - Competition”.
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
the
common stock that will prevail in the market after the sale of the shares of
common stock by the selling stockholders may be higher or lower than the price
you have paid, depending on many factors, some of which are beyond our control
and may not be related to our operating performance. These fluctuations could
cause you to lose part or all of your investment in our common stock. Those
factors that could cause fluctuations include, but are not limited to, the
following:
·
price
and volume fluctuations in the overall stock market from time to
time;
·
fluctuations
in stock market prices and trading volumes of similar companies;
·
actual
or anticipated changes in our earnings or fluctuations in our operating
results or in the expectations of securities analysts;
·
general
economic conditions and trends;
·
major
catastrophic events;
·
sales
of large blocks of our stock;
·
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 United States and other countries;
·
failure
of our common stock to be listed quoted on the Nasdaq Small Cap Market,
American Stock Exchange or other national market
system;
·
changes
in accounting principles; and
·
discussion
of the company or our stock price by the financial and scientific
press
and in online investor communities.
·
The
impact of the embedded conversion feature in the secured convertible
debenture.
29
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.
If
additional authorized shares of our common stock available for issuance or
shares eligible for future sale were introduced into the market, it could hurt
our stock price.
We
are
authorized to issue 500,000,000 shares of common stock. As of December 31,2006,
there were an aggregate of 41,147,363 shares of our common stock issued and
outstanding on a fully diluted basis. In addition, 6,959,077 shares of our
common stock may be issued upon the exercise of currently outstanding stock
options and 25,009,220 shares of common stock may be issued upon the exercise
of
current outstanding warrants subject to certain restrictions and or dilution
clauses. There is a significant amount of additional shares that may be issued
as a result of: i. raising of additional funds in the near future at terms
that
may trigger existing anti-dilutive clauses in certain outstanding warrants
and
future options awards, ii. the conversion of the remaining $2,575,000 principal
amount existing convertible secured debenture. Of the $3,000,000 convertible
secured debenture the outstanding principal balance as of December 31, 2006
was
$2,575,000. The $425,000 principal amount of the debenture conversion converted
into 2,641,940 common shares at an overage of $0.161 per share since inception
of the debenture. The future dilution of this conversion due to the embedded
conversion and warrants features of this instrument along with the actions
of
Cornell Capital Partners to hold or sell the shares converted will materially
affect the market price as well as the dilution of the other outstanding
instruments that may trigger anti-dilutive clauses. We are unable to estimate
the amount, timing or nature of future sales of outstanding common stock. Sales
of substantial amounts of the common stock in the public market by these holders
or perceptions that such sales may take place may lower the common stock’s
market price.
Our
common stock is consideredto
be “penny
stock”.
Our
common stock may be deemed to be “penny stock” as that term is defined in Rule
3a51-1, promulgated under the Securities and Exchange Act of 1934, as amended
(the “Exchange Act”). Penny stocks are stocks:
·
with
a price of less than $5.00 per share;
·
that
are not traded on a “recognized” national exchange;
·
whose
prices are not quoted on the NASDAQ automated quotation system; or
·
of
issuers with net tangible assets less than $2,000,000 (if the issuer
has
been in continuous operation for at least three years) or $5,000,000
(if
in continuous operation for less than three years), or with average
revenue of less than $6,000,000 for the last three years.
Section
15(g) of the Exchange Act and Rule 15g-2 promulgated thereunder require
broker-dealers dealing in penny stocks to provide potential investors with
a
document disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document before effecting any transaction
in a
“penny stock” for the investor’s account. We urge potential investors to obtain
and read this disclosure carefully before purchasing any shares that are deemed
to be “penny stock.”
Rule
15g-9 promulgated under the Exchange Act requires broker-dealers in penny stocks
to approve the account of any investor for transactions in such stocks before
selling any “penny stock” to that investor. This procedure requires the
broker-dealer to:
·
obtain
from the investor information about his or her financial situation,
investment experience and investment objectives;
·
reasonably
determine, based on that information, that transactions in penny
stocks
are suitable for the investor and that the investor has enough knowledge
and experience to be able to evaluate the risks of “penny stock”
transactions;
·
provide
the investor with a written statement setting forth the basis on
which the
broker-dealer made his or her determination; and
·
receive
a signed and dated copy of the statement from the investor, confirming
that it accurately reflects the investor’s financial situation, investment
experience and investment objectives.
30
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 the common stock for an indefinite period of time.
We
will incur increased costs as a result of recently enacted and proposed changes
in laws and regulations relating to corporate governance matters.
Recently
enacted and proposed changes in the laws and regulations affecting public
companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules
adopted or proposed by the SEC and by the Nasdaq Stock Market, will result
in
increased costs to us as we evaluate the implications of these laws and
regulations and respond to their requirements. These laws and regulations could
make it more difficult or more costly for us to obtain certain types of
insurance, including director and officer liability insurance, and we may be
forced to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. The impact of these events
could also make it more difficult for us to attract and retain qualified persons
to serve on our board of directors, our board committees or as executive
officers. We are presently evaluating and monitoring developments with respect
to these laws and regulations and cannot predict or estimate the amount or
timing of additional costs we may incur to respond to their requirements.
A
limited public trading market may cause volatility in the price of our common
stock.
Our
common stock began trading on the OTC:BB on July 28, 2005 and is quoted under
the symbol ADXS. The quotation of our common stock on the OTC:BB does not assure
that a meaningful, consistent and liquid trading market currently exists, and
in
recent years such market has experience 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 shareholders could
suffer losses or be unable to liquidate their holdings. Our stock is thinly
traded due to the limited number of shares available for trading on the market
thus causing large swing is 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
NASD
has enacted recent changes that limit quotation on the OTC Bulletin Board to
securities of issuers that are current in their reports filed with the SEC.
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 are those for
the NASDAQ Stock Market. Therefore, prices for securities traded solely on
the
OTC:BB may be difficult to obtain and holders of common stock may be unable
to
resell their securities at or near their original offering price or at any
price. Market prices for our common stock will be influenced by a number of
factors, including:
·
The
issuance of new equity securities pursuant to a future
offering;
·
Changes
in interest rates;
·
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.
Our
common stock is quoted on the OTC:BB. In addition we are subject to a covenant
to use our best efforts to apply to be listed on the American Stock Exchange
or
quoted on the Nasdaq National Stock Market.
31
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 approved for trading on the Nasdaq National Market
or
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
United States in addition to federal securities law. This regulation covers
any
primary offering we might attempt and all secondary trading by our stockholders.
While we intend to take appropriate steps to register our common stock or
qualify for exemptions for our common stock, in all of the states and
jurisdictions of the United States, if we fail to do so 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.
Our
executive officers, directors and principal stockholders control our business
and may make decisions that are not in our best interests.
Our
officers, directors and principal stockholders, and their affiliates, in the
aggregate, beneficially own, as of October 31, 2006, more than one-third of
the
outstanding shares of our common stock on a fully diluted basis. 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 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 in order to satisfy our funding requirements, we will need to sell
additional equity securities, which may be subject to registration rights.
The
sale or the proposed sale of substantial amounts of our common stock in the
public markets may adversely affect the market price of our common stock and
our
stock price may decline substantially. Our stockholders may experience
substantial dilution and a reduction in the price that they are able to obtain
upon sale of their shares. Also, new equity securities issued may have greater
rights, preferences or privileges than our existing common stock.
Additional
authorized shares of common stock available for issuance may adversely affect
the market.
We
are
authorized to issue 500,000,000 shares of our common stock. As of December31,2006, we had 41,147,363 shares of our common stock issued and outstanding,
excluding shares issuable upon exercise of our outstanding warrants and options.
As of December 31, 2006, we had outstanding 6,959,077 options to purchase shares
of our common stock at a weighted exercise price of $0.25 per share and
outstanding warrants to purchase 25,009,220 shares of our common stock, with
exercise prices ranging from $0.1952 to $0.40 per share. In addition we have
reserved 12,334,495 shares of common stock for an issuance upon conversion
of
principal of and payment of interest on our Debenture at the Fixed Conversion
Price of $0.287 per share (larger amounts given the embedded conversion feature
and the lower than the Market Conversion Price rather than the Fixed Conversion
Price). There are 4,200,000 shares upon exercise A Warrants at a price of $0.287
and 300,000 shares upon exercise B Warrants at a price of $0.344 per share
subject to dilution included in the warrants outstanding. Pursuant to our 2004
Stock Option Plan, 2,381,525 shares of common stock are reserved for issuance
under the plan. Pursuant to our 2005 Stock Option Plan, 5,600,000 shares of
common stock are reserved for issuance under the plan. 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.
Shares
eligible for future sale may adversely affect the market.
From
time
to time, certain of our stockholders may be eligible to sell all or some of
their shares of common stock by means of ordinary brokerage transactions in
the
open market pursuant to Rule 144 (“Rule 144”) promulgated under the Securities
Act of 1933, as amended (the “Securities Act of 1933”), subject to certain
limitations. In general, pursuant to Rule 144, a stockholder (or stockholders
whose shares are aggregated) who has satisfied a one-year holding period may,
under certain circumstances, sell within any three-month period a number of
securities which does not exceed the greater of 1% of the then outstanding
shares of common stock or the average weekly trading volume of the class during
the four calendar weeks prior to such sale. Rule 144 also permits, under certain
circumstances, the sale of securities, without any limitations, by a
non-affiliate of our company who has satisfied a two-year holding period. Any
substantial sale of our common stock pursuant to Rule 144 or pursuant to any
resale prospectus may have an adverse effect on the market price of our
securities.
32
An
aggregate of 47,841,513 shares of common stock are registered under the
Securities Act under the registration statement filed on April 19, 2006 for
reoffering by a selling stockholder upon conversion of principal and interest
on
Debentures and exercise of the warrants subject to its agreement not to acquire
shares upon conversion or exercise if it would result in it and its affiliates
owning more than 4.9% of our then outstanding shares. 56,730,045 shares of
common stock are also registered with the SEC for reoffering by other selling
stockholders of which 18,961,113shares
are to be offered for resale upon exercise of warrants. These shares would
otherwise be eligible for future sale under Rule 144 after passage of the
minimum one year holding period for holders who are not officers, directors
or
affiliates of the Company. The registration and subsequent sales of such shares
of common stock will likely have an adverse effect on the market price of our
common stock.
Our
Articles of Incorporation provide for the authorization of 5,000,000 shares
of
“blank check” preferred stock. Pursuant to our Articles 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. 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.
However, we have agreed not to issue without the consent of the Debenture holder
any shares of preferred stock or common stock at a price less than the closing
bid price of a share of our common stock as long as there is outstanding at
least $500,000 principal amount of the Debenture.
The
conversion of the Debentures could encourage short sales by third parties,
which
could contribute to the future decline of our stock price and materially dilute
existing stockholders' equity and voting rights.
The
conversion of the Debentures into common stock has the potential to cause
significant downward pressure on the price of our common stock. This is
particularly the case if the shares being placed into the market following
conversion exceed the market's ability to absorb the increased number of shares.
Such an event could place further downward pressure on the price of our common
stock, presenting an opportunity to short sellers and others to contribute
to
the future decline of our stock price. If there are significant short sales
of
our stock, the price decline that would result from this activity will cause
the
share price to decline more so, which, in turn, may cause long holders of the
stock to sell their shares thereby contributing to sales of stock in the market.
If there is an imbalance on the sell side of the market for the stock, our
stock
price will decline. If this occurs, the number of shares of our common stock
that is issuable upon conversion of the Debentures issued in February 2, 2006
and March 8, 2006 will increase, which will materially dilute existing
stockholders' equity and voting rights. See Financial Footnotes Secured
Convertible Debenture.
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 provide 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.
We
do not intend to pay dividends.
We
have
never declared or paid any dividends on our securities. We currently intend
to
retain our earnings for funding growth and, therefore, do not expect to pay
any
dividends in the foreseeable future.
33
Item
2: Description of Property.
Our
corporate offices are currently located at a biotech industrial park located
at
675 Rt. 1, Suite B113, North Brunswick, NJ08902. We have entered into a lease
effective June 1, 2005: and certain lease amendments as of November 15, 2005
and
a second Lease Amendment as of March 15, 2006 and a third lease amendment as
of
October 1, 2006 with the NEW JERSEY ECONOMIC DEVELOPMENT AUTHORITY (NJEDA)
which
will continue on a monthly basis at for two research and development Laboratory
units (total of 1,600 s.f.) and two offices (total of 250 s.f.). Our facility
will be sufficient for our near term purposes and the facility offers additional
space for our foreseeable future. Our monthly payment on this facility is
approximately $6,000 per month. The term of the lease expires on May 31, 2007
and upon mutual consent, this lease may be renewed for one year. NJEDA is
allowed to bill the company for a one time Milestone Rent based on raising
greater than $1MM but less than $5MM equity raise. They billed the company
$2,500 for this milestone in anticipation of the conversion of the debenture
into the equity. 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.
There
are
no material legal proceedings threatened against us. 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. Aventis, Inc. has
filed
trademark opposition proceedings in Canada against our trademark application
for
Lovaxin. That opposition is still pending.
The
U.S.
trademark application for Lovaxin has been allowed by the United States Patent
and Trademark Office and is pending. Trademark applications in China and in
the
European Union for Lovaxin are also pending. The Chinese application was
recently published for opposition, and the European Union application has
passed through the opposition stage. This action will impact the naming of
our
products.
The
U.S.
trademark applications for Advaxis and for Advaxis and design, Serial Nos.
78/252527 and 78/252586, have been withdrawn. Oppositions to those applications
have been terminated in favor of Aventis, Inc.
In
2006,
Nycomed Pharma, of Sweden, claimed owner of the mark Levaxin, filed an
opposition to our CTM (European Union) application to register
Lovaxin. The opposition was refused solely on procedural
grounds. If our CTM application is ultimately granted,
Nycomed Pharma may file to cancel such registration of Lovaxin.
Nycomed Pharma has also demanded that we cease to use Lovaxin in
Sweden.
Cerus
has
filed an opposition against European Patent Application Number 0790835 (EP
835
Patent) which was granted by the European Patent Office and which is assigned
to
The Trustees of the University of Pennsylvania and exclusively licensed to
us.
Cerus’ allegations in the Opposition are that the EP 835 Patent, which claims a
vaccine for inducing a tumor specific antigen with a recombinant live Listeria,
is deficient because of (i) insufficient disclosure in the specifications of
the
granted claims, (ii) the inclusion of additional subject matter in the granted
claims, and (iii) a lack of inventive steps of the granted claims of the EP
835
Patent.
On
November 29, 2006, following oral proceedings, the Opposition Division of the
European Patent Office determined that the claims of the patent as granted
should be revoked due to lack of inventive step under European Patent Office
rules based on certain prior art publications. This decision has no material
effect upon our ability to conduct business as currently
contemplated.
We
will
review the formal written decision in order to evaluate whether to file an
appeal. In the event of an appeal there is no assurance that it will be
successful. If such ruling is upheld on appeal, our patent position in Europe
may be eroded. The likely result of this decision will be increased competition
for us in the European market for recombinant live Listeria based vaccines
for
tumor specific antigens. Regardless of the outcome, we believe that our freedom
to operate in Europe, or any other territory, for recombinant live Listeria
based vaccine for tumor specific antigen products will not be
diminished.
For
more
information about Cerus Corporation and its claims with respect to
Listeria-based technology, you should visit their web site at www.cerus.com
or to
view its publicly filed documents
Item
4: Submission of Matters to a Vote of Security Holders.
At
our Annual Meeting of Stockholders held on June 6, 2006, stockholders took
the
following actions:
Votes
For
Votes
Against
Election
of Directors:
J.
Todd Derbin
28,450,225
233,990
Roni
Appel
28,629,515
54,700
James
Patton
28,629,515
54,700
Thomas
McKearn
28,629,515
54,700
Martin
Wade
28,629,515
54,700
Richard
Berman
28,629,515
54,700
34
Votes
For
Votes
Against
Abstentions
Broker
Non-votes
Approved
and adopted the 2005 Stock Option Plan
18,543,773
66,200
6,374,683
Approved
the reincorporation of the Company from the state of Colorado to
the state
of Delaware
24,966,456
6,200
7,000
Ratified
the appointment by the Board of Directors of Goldstein Golub Kessler
LLP
as auditor of the Company’s financial statements for the year ending
October 31, 2006
22,320,326
1,200
6,362,688
PART
II
Item
5: Market for Registrant’s Common Equity and Related Stockholder
Matters
Since
July 28, 2005, our Common Stock has quoted on the OTC:BB symbol ADXS. The
following table shows, for the periods indicated, the high and low sales prices
per share of our Common Stock as reported by the OTC:BB. As of January 16,2007
there were approximately 83 stockholders of record and the closing sale price
of
Advaxis common stock $0.163 per share as reported by the OTC:BB.
Common
Stock
Fiscal
2006
Fiscal
2005
High
Low
High
Low
First
Quarter November 1-January 31
$0.27
$0.16
N/A
N/A
Second
Quarter February 1- April 30………………………
$0.37
$0.21
N/A
N/A
Third
Quarter…May 1 -July 31……………………
$0.30
$0.17
$1.25
$0.35
Fourth
Quarter August 1, - October 31………………………………
$0.25
$0.13
$0.52
$0.15
Item
6: Management’s Discussion and Analysis or Plan of
Operations
This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations and Plan of Operations and other portions of this Annual 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 Annual Report
under the heading “Risk Factors”. This Management’s Discussion and Analysis of
Financial Condition and Results of Operations and Plan of Operations should
be
read in conjunction with our financial statements and the related notes included
elsewhere in this Annual Report.
Overview
We
are a
biotechnology company utilizing multiple mechanisms of immunity with the intent
to develop cancer vaccines that are more effective and safer than existing
vaccines. We believe that by using our licensed Listeria System to engineer
a
live attenuated Listeria monocytogenes bacteria to secrete a protein sequence
containing a tumor-specific antigen, we will force the body’s immune system to
process and recognize the antigen as if it were foreign, creating the immune
response needed to attack the cancer. The licensed Listeria System, developed
at
Penn over the past 10 years, provides a scientific basis for believing that
this
therapeutic approach induces a significant immune response to the tumor.
Accordingly, we believe that the Listeria System is a broadly enabling platform
technology that can be applied in many cancers, infectious diseases and
auto-immune disorders.
Our
therapeutic approach is based upon, and we have obtained an exclusive license
with respect to, the innovative work of Yvonne Paterson, Ph.D., Professor of
Microbiology at Penn involving the creation of genetically engineered Listeria
that stimulate the innate immune system and induce an antigen-specific immune
response involving humoral and cellular components.
35
We
have
focused our initial development efforts on four lead compounds and anticipate
completing a Phase I clinical study of Lovaxin C, a potential cervical cancer
vaccine, mid 2007. See Item 1. “Business - Research and Development
Program”.
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 restated on June 18, 1998 under the name Great Expectations and Associates,
Inc. In 1999, we became a reporting company under the Securities Exchange Act
of
1934, as amended. We were a publicly-traded “shell” company without any business
until November 12, 2004, when we acquired Advaxis through the Share Exchange,
as
a result of which Advaxis become our wholly-owned subsidiary and our sole
operating company. We then changed our name to Advaxis. On March 29, 2006,
we
merged into Advaxis (the subsidiary) and thereby changed our state in
incorporation from the state of Colorado to the state of Delaware. For financial
reporting purposes, we have treated the Share Exchange as a recapitalization.
As
a result of the foregoing as well as the fact that the Share Exchange is treated
as a recapitalization of Advaxis rather than as a business combination, the
historical financial statements of Advaxis became our historical financial
statements after the Share Exchange.
On
November 12, 2004, December 8, 2004 and January 4, 2005 (the “Three Tranche
Private Placement) we effected a private placement to “accredited investors”, as
defined in Rule 501(a) of Regulation D under the Securities Act of 1933 of
an
aggregate of 11,334,495 shares of our common stock and warrants to purchase
an
aggregate of 11,334,495 additional shares for net proceeds of approximately
$3,253,000.
On
November 12, 2004, $595,000 of our promissory notes plus accrued interest was
converted into an aggregate of 2,136,441 shares of our common stock and warrants
to purchase 2,223,549 shares of our common stock.
On
January 12, 2005, we effected a private placement to an accredited investor
for
approximately $1,100,000 of 3,832,753 shares of our common stock and warrants
to
purchase 3,832,753 additional shares.
We
sold
to Cornell Capital Partners (“Cornell”), $3,000,000 principal amount of our
Secured Convertible Debentures due February 1, 2009 ($1,500,000 on February2,2006 and $1,500,000 on March 8, 2006) bearing interest at 6% per annum payable
at maturity and issued it warrants to purchase 4,500,000 shares or our common
stock. The net proceeds were approximately $2,740,000. The value of the warrants
will be charged as interest expense over the three year term of the
Debentures.
In
accounting for the convertible debentures and the warrants described above
and
warrants, the Company considered the guidance contained in EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed To, and Potentially
Settled In, a Company’s Own Common Stock,” and SFAS 133 “Accounting for
Derivative Instruments and Hedging Activities.” In accordance with the guidance
provided in EITF 00-19, the Company determined that the conversion feature
of
the Debentures represents an embedded derivative since the debenture is
convertible into a variable number of shares upon a conversion formula and
the
conversion clause allows cash or shares of common stock in payment to the
debenture holders. Accordingly, the convertible debentures are not considered
to
be “conventional” convertible debt under EITF 00-19 and thus the embedded
conversion feature must be bifurcated from the debt host and accounted for
as a
derivative liability.
Plan
of Operations
We
intend
to use a portion of the proceeds of the sales described above to conduct a
Phase
I clinical trial in cervical cancer using Lovaxin C, one of our lead product
candidates in development using our Listeria System. We also have used the
funds
to further expand our clinical, research and development teams to further
develop the product candidates and to expand our manufacturing capabilities
and
strategic activities. Our corporate staff will be responsible for the general
and administrative activities.
During
the next 12 to 24 months, we anticipate that our strategic focus will be to
achieve several objectives described under “Item 1. Business - Strategy” and as
follows:
·
Complete
Phase I clinical study of Lovaxin C;
·
Initiate
a Phase II clinical study of Lovaxin C Cervical
Cancer
·
Initiate
Preclinical Studies and a Phase I study of Lovaxin B Breast
Cancer
·
Initiate
Preclinical Studies and a Phase I study of Lovaxin P Prostate
Cancer
·
Continue
preclinical development of Lovaxin T
·
Continue
research to expand our technology
platform.
36
The
annual cost to maintain our current staff, overhead and preclinical expense
is
estimated to be $2.0 to $2.4 million in fiscal year 2007. We estimate the cost
of our current phase I clinical study in therapeutic treatment of cervical
cancer to be in the range of $0.2 to $0.3 million for the same period. Therefore
we anticipate our current cash will be adequate to meet our needs over the
2007
fiscal year. Our phase II Lovaxin C clinical study is estimated to commence
in
late fiscal year 2007 or early fiscal 2008 to cost from $2.5 to $4.0 million.
We
hope to commence the work in breast and prostate cancer in 2007. The timing
and estimated costs of these projects are difficult to predict. In fiscal 2007
our anticipated needs for equipment, personnel and space should not be
significant. We do plan on adding a few key employees in 2007 to address
our growing clinical, regulatory and reporting needs.
Overall
given the clinical stage of our business our financial needs are driven in
large
part by the outcomes of clinical trials and preclinical findings. The cost
of
these clinical trial projects is significant. As a result we will be required
to raise additional debt or equity in the near future and may attempt to
negotiate the restructure of certain existing instruments. If the clinical
outcomes are successful and the value of the Company increases it is more than
likely we will attempt to accelerate the timing of the required financing and,
conversely if the trial or trials aren’t successful or are slow spending will be
deferred. While we will attempt to attract a corporate partnership we have
not
assumed the receipt of any additional financial resources.
For
more
information about Penn and committments see “Item 1.
Business
Partnerships and agreements - University of Pennsylvania.”
Accounting
Policies; Impact of Growth
Below
is
a brief description of basic accounting principles which we have adopted in
determining our recognition of expenses, as well as a brief description of
the
effects that our management believes that our anticipated growth will have
on
our revenues and expenses in the 12 months ended October 31, 2007.
Revenues.
We do
not anticipate that we will record any material revenues during at least the
twelve months ending October 31, 2007. When we recognize revenues, we anticipate
that they will be principally grants and licensing fees.
Expenses.
We
recorded operating expenses for the years ended October 31, 2005 and 2006 of
$2,395,328, and $3,481,226, respectively.
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 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 carrying value of intangible asset (trade marks, patents
and licenses) the fair value of options, the fair value of embedded conversions
features, warrants, recognition of on-going clinical trial, 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 under different assumptions or
conditions.
We
believe the following critical accounting policy involves significant estimate
and judgment. We amortize trademark, license and patent costs over their
estimated useful lives. We may be required to adjust these lives based on
advances in science and competitor actions. We review the recorded amounts
of
trademarks and patents at each period end to determine if their carrying amount
is still recoverable based on expectations regarding potential licensing of
the
intangibles or sales of related products. Such an assessment, in the future,
may
result in a conclusion that the assets are impaired, with a corresponding charge
against earnings.
37
In
accordance with Securities and Exchange Commission Staff Accounting Bulletin
(SAB) No. 104, revenue from license fees and grants is recognized when the
following criteria are met; persuasive evidence an arrangement exists, services
have been rendered, the contract price is fixed or determinable, and
collectibility 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.
For
revenue contracts that contain multiple elements, we will determine whether
the
contract includes multiple units of accounting in accordance with EITF No.
00-21, Revenue Arrangements with Multiple Deliverables. Under that guidance,
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.
Research
and Development.
During
the years ended October 31, 2005 and 2006, we recorded research and development
expenses of $1,175,536 and $1,404,164, respectively. Such expenses were
principally comprised of manufacturing scale up and process development, license
fees, sponsored research, clinical trial and consulting expenses. We recognize
research and development expenses as incurred.
Commencing
with the year ending October 31, 2006, we anticipate that our research and
development expenses will increase 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
four of our product candidates as major research and development projects.
The
timing, costs and uncertainties of those projects are as follows:
Lovaxin
C - Phase I/II trial Summary Information (Cervical Cancer)
·
Cost
incurred to date: approximately
$1,000,000
·
Estimated
future costs: $500,000 Phase I and $2,500,000 - $4,000,000 Phase
II
·
Anticipated
completion date: second/third quarter fiscal 2007 Phase I and Phase
II
2008 and beyond.
·
Uncertainties:
-
the
FDA (or relevant foreign regulatory authority) may not approve the
study
-
One
or more serious adverse events in patients enrolled in the
trial
-
difficulty
in recruiting patients
-
delays
in the program
-
Commencement
of material cash flows:
-
Unknown
at this stage and dependent upon a licensing deal or pursuant to
a
marketing collaboration subject to regulatory approval to market
and sell
the product.
Lovaxin
B - Phase I trial Summary Information (Breast Cancer)
·
Cost
incurred to date: $300,000
·
Estimated
future costs: $1,800,000
·
Anticipate
completion dates: fourth quarter of fiscal 2008 or
beyond
·
Risks
and uncertainties:
-
Obtaining
favorable animal data
-
Proving
low toxicity in animals
-
Manufacturing
scale up to GMP level
-
FDA
(or foreign regulatory authority) may not approve the
study
-
The
occurrence of a severe or life threatening adverse event in a
patient
-
Delays
in the program
-
Commencement
of material cash flows:
-
Unknown
at this stage, dependent upon a licensing deal or to a marketing
collaboration subject to regulatory approval to market and sell the
product.
38
Lovaxin
P - Pre Clinical and Phase I Trial Summary Information (Prostate
Cancer)
·
Cost
incurred to date: $100,000
·
Estimated
future costs: $1,500,000
·
Anticipate
completion dates: fourth quarter of fiscal 2008 or
beyond
·
Risks
and uncertainties: See Lovaxin in B
(above)
General
and Administrative Expenses.
During
the years ended October 31, 2005, and 2006, we recorded general and
administrative expenses of $1,219,792 and $2,077,062, respectively. General
and
administrative costs primarily include the salaries and expenses for executive,
consultants, finance, facilities, insurances, accounting and legal assistance,
as well as other corporate and administrative functions that serve to support
Advaxis’ current and our future operations and provide an infrastructure to
support this anticipated future growth. For the year ending October 31, 2007
and
beyond, we anticipate that our general and administrative costs will increase
significantly due to the increased compliance requirements, including, without
limitation, legal, accounting, and insurance expenses, to comply with periodic
reporting and other regulations applicable to public companies.
Other
Income (Expense).
We
recorded interest expense during the year ended October 31, 2005 of ($7,307)
and
during the year ended October 31, 2006 of ($437,299). Interest expense, relates
primarily to our outstanding secured convertible debenture commencing at the
closing dates of our Two Tranche Private Placement on February 2 and March8,2006. Other income during the years ended October 31, 2005, and 2006 represented
interest of $43,978 and $90,899, respectively earned on investments. In the
year
ended October 31, 2006 the net change in fair value of common stock warrants
and
embedded derivative liabilities in expense represents a reduction of
($2,802,078) of fair value as of October 31, 2006 reporting date compared to
the
original value for the secured convertible debenture.
Recently
Issued Accounting Pronouncements.
In
December 2004, the Financial Accounting Standards Board issued FASB Statement
No. 123 (revised 2004), share-based payment. This statement requires that
compensation cost relating to share based payment transactions be recognized
in
financial statements. The cost will be measured based on the fair value of
the
equity or liability instruments issued. Refer to Item 7. Note 2. to the
Financial Statement - Share-based Compensation Expense for a summary of the
impact.
In
July
2006, the FASB issued FASB Interpretation No. 48 “Accounting for Uncertainty in
Income Taxes (an interpretation of FASB Statement No. 109)” (“FIN 48”). FIN 48
clarifies the accounting for uncertainty in tax positions and requires that
companies recognize in their financial statements the impact of a tax position,
if that position is more likely than not of being sustained on audit, based
on
the technical merits of the position. The Company will be required to adopt
the
provisions of FIN 48 beginning in fiscal 2008, with the cumulative effect of
the
change in accounting principle recorded as an adjustment to opening retained
earnings as well as requiring additional disclosures. The Company is currently
assessing the impact of the adoption of FIN 48 on its Financial
Statements.
Revenue.
Our
revenue decreased by $120,907, or 22%, from $552,868 for the year ended October31, 2005 to $431,961 for the year ended October 31, 2006 primarily due to the
decrease in the FLAIR grant money received by the Company.
Research
and Development Expenses. Research
and development expenses increased by $228,628, or 19%, from $1,175,536 for
the
twelve months ended October 31, 2005 to $1,404,164 for the twelve months ended
October 31, 2006. This increase was principally attributable to the
following:
·
Clinical
trial expenses increased $328,389, or 351%, from $93,525 to $421,915
due
to the start-up of our clinical trial in March
2006.
·
Wages,
salaries and related lab costs increased by $409,524, or 215%, from
$190,804 to $600,329 principally due to our expanded research and
development staffing in early 2006.
·
Subcontracted
expenses increased by $107,949, or 76.3%, from $141,366 to $249,315
reflecting the additional subcontract work performed by Dr. Paterson
at
Penn, pursuant to certain grants.
·
Manufacturing
expenses decreased $383,387, or 93.6%, from $409,542 to $26,155;
the
result of the fiscal 2005 manufacturing program in anticipation of
the
Lovaxin C for toxicology and clinical trials required in early
2006.
·
Toxicology
study expenses decreased $259,548, or 88.6%, from $293,105 to $33,558;
principally as a result of the initiation in the earlier period of
toxicology studies by Pharm Olam in connection with our Lovaxin C
product
candidates in anticipation of the clinical studies in
2006.
39
General
and Administrative Expenses. General
and administrative expenses increased by $857,270, or 70.3%, from $1,219,792
for
the year ended October 31, 2005 to $2,077,062 for the year ended October 31,2006, primarily attributable to the following:
·
Consulting
fees and related expenses increased by $580,197, or 190%, from $305,153
for the twelve months ended October 31, 2005 to $885,349 for the
same
period in 2006 arising from a higher bonus expense, stock expense,
consulting fees and the fair value of options primarily for the Chief
Executive Officer(s) and consultants.
·
An
increase in legal fees and public relations expenses of $391,611,
or 364%,
from $107,370 for the twelve-months ended October 31, 2005 to $498,611
for
the same period in 2006, primarily as a result of an increase in
the costs
arising from being publicly held.
·
A
decrease in offering and analyst expenses of $132,498 incurred in
fiscal
2005 while none were incurred in
2006.
Other
Income (expense). Other
Income (expense) increased by ($3,185,149) from income of $36,671 for the twelve
months ended October 31, 2005 to ($3,148,478) recorded as expense for the twelve
months ended October 31, 2006. During the years ended October 31, 2005 and
2006
we recorded interest expense of ($7,307), and ($437,299) respectively. Interest
expense, relates primarily to our outstanding secured convertible debenture
commencing at the closing dates on February 2 and March 8, 2006. Interest earned
on investments amounted to $43,978 and $90,899, respectively. In the year ended
October 31, 2006 there is a net change of ($2,802,078) in fair value of common
stock warrants and embedded derivative liabilities in expense (non-cash item)
as
of October 31, 2006 compared to the original value for the secured convertible
debenture.
No
provision for income taxes was made for the year ended October 31, 2005 or
2006
due to significant tax losses during and prior to such periods.
Revenue.
Our
revenue increased by $436,462, or 375%, from $116,406 for the year ended October31, 2004 to $552,868 for the year ended October 31, 2005 due to the increase
in
grant money received by the Company in these periods.
Research
and Development Expenses. Research
and development expenses increased by $1,049,594, or 833%, from $125,942 for
the
twelve months ended October 31, 2004 to $1,175,536 for the twelve months ended
October 31, 2005, principally attributable to the following:
·
An
increase in our related manufacturing expenses of $416,842, from
$(7,300)
to $409,542; such increase reflects the delay in the manufacturing
program
during 2004 because of delays in funding, and the manufacturing in
2005 of
Lovaxin C in for toxicology and clinical
trials;
·
Expenses
in fiscal 2005 of $293,105 reflecting the initiation of toxicology
studies
by Pharm Olam in connection with our Lovaxin C product candidates,
and the
payment of deferred license fees to Penn; none were incurred in the
prior
year.
·
Wages
and salaries related to our research and development program of $166,346
reflecting the recruitment of our R&D management team in early 2005;
none were incurred in the prior year.
·
Subcontracted
work of $141,366, reflecting the subcontract work performed by Dr.
Paterson at Penn, pursuant to certain grants; none were incurred
in the
prior year.
General
and Administrative Expenses. General
and administrative expenses increased by $695,424, or 133%, from $524,368 for
the year ended October 31, 2004 to $1,219,792 for the year ended October 31,2005, primarily attributable to the following:
·
employee
related expenses increased by $123,157, or 56.4%, from $218,482 for
the
twelve months ended October 31, 2004 to $341,639 for the twelve months
ended October 31, 2005 arising from a bonus to Mr. Derbin, the Chief
Executive Officer, in stock, an increase in the salary of Mr. Derbin,
and
the cost of health insurance initiated in 2005;
·
offering
expenses increased by $117,498, or 100%, from $0 for the twelve months
ended October 31, 2004 to $117,498 for the twelve months ended October31,2005 arising from legal and banking expenses relating to the private
placement closed in November 2004;
·
an
increase in professional fees from $231,686 for the twelve-months
ended
October 31, 2004 to $460,691 for the twelve months ended October31, 2005,
primarily as a result of an increase in legal fees, public relations
fees,
consulting fees and accounting fees.
40
Interest
(Expenses). Interest
expense decreased by $5,825 or 44.4%, to ($7,307) for the year ended October31,2005 from ($13,132) for the year ended October 31, 2004. The decrease results
primarily from a reduction on interest payable on certain notes which were
converted on November 12, 2004.
Other
Income. Other
Income increased by $43,907 to 43,978 from $71 for the twelve months ended
October 31, 2004. The increase results primarily from an increase in interest
paid to the company on cash deposits held by the Company.
No
provision for income taxes was made for the year ended October 31, 2004 or
2005
due to significant tax losses during and prior to such periods.
Liquidity
and capital resources
At
October 31, 2004, 2005 and 2006, our cash was $32,279, $2,075,206 and
$2,761,166, respectively, and we had a working capital deficit of $1,396,062
at
October 31, 2004, and working capital of $1,365,742 and $1,254,651 at October31, 2005 and 2006, respectively.
To
date,
our principal source of liquidity has been cash provided by private placements
of our securities. Some of these offerings have been structured so as to be
exempt from the prospectus delivery requirements under the Securities Act of
1933 (the “Securities Act”). Principal uses of our cash have been to support
research and development, clinical study, financing and working capital. We
anticipate these uses will continue to be our principal uses in the future.
On
November 12, 2004, we acquired Advaxis, Inc., a Delaware corporation through
the
Share Exchange. The transaction was accounted for as a recapitalization.
Accordingly, the historical financial statements of Advaxis are our financial
statements for reporting purposes. Advaxis, Inc has changed its fiscal year
to
the year ended October 31st and as a result is providing herein its audited
financial statements for the ten months ended October 31, 2004 and for the
years
ended October 31, 2005 and 2006.
Although
we believe that the net proceeds received by us from the private placement
to
Cornell will be sufficient to finance our currently planned operations for
approximately the next 12 months, they will not be sufficient to meet our
longer-term cash requirements or our cash requirements for the commercialization
of any of our existing or future product candidates. We will be required to
sell
equity or debt securities or to enter into other financial arrangements,
including relationships with corporate and other partners, in order to raise
additional capital. Depending upon market conditions, we may not be successful
in raising sufficient additional capital for our long-term requirements. In
such
event, our business, prospects, financial condition and results of operations
could be materially adversely affected.
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, 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 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.
On
November 12, 2004, we sold to accredited investors at a closing of the first
tranche of the Three Tranche Private Placement 117 Units at $25,000 per unit
for
an aggregate purchase price of $2,925,000. Each Unit is comprised of (i) 87,108
shares of our 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. At the
initial closing, the accredited investors received an aggregate of 10,191,638
shares of common stock and warrants to purchase 10,191,638 shares of common
stock. In addition, on November 12, 2004, $595,000 aggregate principal amount
of
outstanding convertible promissory notes including accrued interest, were
converted into units on the same terms as those upon which the Units sold,
accordingly, an aggregate of 2,136,441 shares of common stock and
additional warrants to purchase 2,136,441 shares of common
stock.
41
On
December 8, 2004, we sold to accredited investors at the closing of the second
tranche 8 units for an aggregate purchase price of $200,000 and the investors
received an aggregate of 696,864 shares of common stock and
additional warrants to purchase 696,864 shares of Common Stock.
On
January 4, 2005, we sold to accredited investors at a third tranche 5.12 Units
for an aggregate purchase price of $128,000, 445,993 shares of common stock
and
additional warrants to purchase 445,993 shares of Common Stock were issued.
Pursuant
to the terms of a investment banking agreement, dated March 19, 2004, by and
between us and Sunrise Securities, Corp. (“Sunrise” or the “Placement Agent”),
we 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 securities were issued along with a cash fee of
$50,530 in consideration for the services of Sunrise, as our placement agent
in
the Private Placement.
On
January 12, 2005, we sold an accredited investor at a closing the third tranche
44 units for an aggregate purchase price of $1,100,000 and therefore an
aggregate of 3,832,752 shares of common stock and warrants to purchase 3,832,752
shares of common stock.
Pursuant
to a Securities Purchase Agreement dated February 2, 2006 and March 8, 2006
we
sold to Cornell $3,000,000 principal amount of our 6%Secured Convertible
Debentures due February 1, 2009 (the “Debentures”) at face amount (before
commissions and related fees of $260,000), along with five year A 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
6 %
per annum interest due at maturity will be charged to expense over the
three-year term of the Debentures. The investment-banking fee paid to Yorkville
Advisors in connection with the Debentures in the amount of $240,000 will be
charged, in view its relationship with Cornell, as additional interest expense
over the three-year term of the Debentures. The remaining transaction fees
of
$20,000 will be capitalized.
The
Company calculated the fair value of the embedded conversion of the Company’s
above mentioned warrants to be recorded as a warrant liability at the end of
the
fiscal year 2006. As a result of this calculation at the end of October 31,2006
included in the Statement of Operations for the Company is a $2,802,078 non-cash
expense in the establishment of the liabilities related to the warrants and
embedded conversion feature for the entire year.
Upon
full
satisfaction of the Debentures (whether though its repayment or conversion
to
equity), the fair value of the remaining warrants on that date will be
reclassified to equity.
We
are
party to a license agreement, dated July 1, 2002 (effective date), as amended
and restated, between Advaxis and The Trustees of the University of
Pennsylvania.
For
more
information about Penn and committments see “Item
1. Business
Partnerships and agreements - University of Pennsylvania.”
42
For
a
description of material employment agreements to which we are party, see “Item
12. Certain Relationships and Related Party Transactions”.
Critical
Accounting Policies
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 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 carrying value of intangible asset (trademarks, patents
and licenses) the fair value of options, the fair value of embedded conversions
features, warrants, recognition of on-going clinical trial, 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 under different assumptions or
conditions.
We
believe the following critical accounting policy involves significant estimate
and judgment. We amortize trademark, license and patent costs over their
estimated useful lives. We may be required to adjust these lives based on
advances in science and competitor actions. We review the recorded amounts
of
trademarks and patents at each period end to determine if their carrying amount
is still recoverable based on expectations regarding potential licensing of
the
intangibles or sales of related products. Such an assessment, in the future,
may
result in a conclusion that the assets are impaired, with a corresponding charge
against earnings.
Accounting
for Warrants and Convertible Securities
The
Company evaluates whether warrants issued should be accounted for as liabilities
or equity based on the provisions of EITF 00-19, Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in,
a
Company’s Own Stock.
The
EITF lists conditions under which warrants are required to be classified as
liabilities, including the existence of registration rights where significant
penalties could be required to be paid to the holder of the instrument in the
event the issuer fails to register the shares under a preset time frame, or
where the registration statement fails to remain effective for a preset time
period. Warrants accounted for as liabilities are required to be recorded at
fair value, with changes in fair value recorded in operations.
For
convertible debt instruments, the Company determines whether the conversion
feature must be bifurcated and accounted for as a derivative liability in
accordance with the provisions of EITF 00-19. The first step of the analysis
is
to determine whether the debt instrument is a conventional convertible
instrument, in which case the embedded conversion option would qualify for
equity classification and would not be bifurcated from the debt instrument.
If
the debt does not meet the definition of a conventional convertible instrument,
the Company will analyze whether the conversion feature should be accounted
for
as a liability or equity under the provisions of EITF 00-19. The most common
reason a debt instrument would not be considered to be a conventional
convertible instrument is where the conversion price is variable. If the
conversion feature does qualify for equity classification, the Company will
assess whether there is a beneficial conversion feature that must be accounted
for under the provisions of EITF 98-5, Accounting
for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios,
and
EITF 00-27, Application
of Issue No. 98-5 to Certain Convertible Instruments.
In
February 2006, the FASB issued Statement No. 155, Accounting
for Certain Hybrid Financial Instruments, an amendment of FASB Statements No.
133 and 140.
Among
other matters, that statement provides that where a company is required to
bifurcate a derivative from its host contract, the company may irrevocably
elect
to initially and subsequently measure that hybrid financial instrument in its
entirety at fair value, with changes in fair value recognized in operations.
The
statement is effective for financial instruments issued after the beginning
of
an entity’s first fiscal year that begins after September 15, 2006. Earlier
adoption is permitted as of the beginning of an entity’s fiscal year, provided
the entity has not yet issued financial statements, including financial
statements for any interim period for that fiscal year.
Due
to
the limited nature of the Company’s operations, the Company has not identified
any other accounting policies involving estimates or assumptions that are
material due to the levels of subjectivity and judgment necessary to account
for
highly uncertain matters or the susceptibility of such matters to change, and
where the impact of the estimates and assumptions on financial condition or
operating performance is material.
Impact
of Inflation
We
believe that our results of operations are not dependent upon moderate changes
in inflation rates.
43
ADVAXIS,
INC.
FINANCIAL
STATEMENTS
INDEX
Advaxis,
Inc.
Page
Report
of Independent Registered Public Accounting Firm
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors
Advaxis,
Inc.
We
have
audited the accompanying balance sheet of Advaxis, Inc. (a development stage
company) as of October 31, 2006 the related statements of operations,
shareholders' equity (deficiency), and cash flows for the years ended October31, 2006, and 2005 and the period from March 1, 2002 (inception) to October31,2006. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Advaxis, Inc. as of October 31,2006 the results of its operations and its cash flows for the years ended
October 31, 2006 and 2005 and the period from March 1, 2002 (inception) to
October 31, 2006 in conformity with United States generally accepted accounting
principles.
As
discussed in Note 2, the Company changed its method of accounting for stock
based compensation, effective November 1, 2005.
Notes
payable and accrued interest converted to Preferred Stock
$
15,969
Stock
dividend on Preferred Stock
43,884
Notes
payable and accrued interest converted
to Common Stock
$
613,158
$
300,000
$
913,158
Intangible
assets acquired with notes payable
$
360,000
Debt
discount in connection with recording the original value of the
embedded derivative liability
$
$
512,865
$
512,865
Allocation
of the original secured convertible debentures to
warrants
$
$
214,950
$
214,950
The
accompanying notes and the report of independent registered public accounting
firm should be read in conjunction with the financial statements.
53
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.
As
shown
in the financial statements, the Company has incurred losses from operations.
These losses are expected to continue for an extended period of time. Although
we believe that the net proceeds received by us from the Private Placement
and
the private offerings will be sufficient to finance our currently planned
operations for approximately the next 12 months, they will not be sufficient
to
meet our longer-term cash requirements or our cash requirements for the
commercialization of any of our existing or future product candidates. We will
be required to issue equity or debt securities or to enter into other financial
arrangements, including relationships with corporate and other partners, in
order to raise additional capital. Depending upon market conditions, we may
not
be successful in raising sufficient additional capital for our long-term
requirements. In such event, our business, prospects, financial condition and
results of operations could be materially adversely affected.
In
accordance with Securities and Exchange Commission (SEC) Staff Accounting
Bulletin (SAB) No. 104, 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
collectibility 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, 2006, all
of
the Company’s revenues have been from grants. For the year ended October 31,
2006 100% of the Company’s revenues were received from four grants. For the
twelve month period ended October 31, 2005, all of the Company’s revenue was
received from two grants.
For
revenue contracts that contain multiple elements, the Company will determine
whether the contract includes multiple units of accounting in accordance with
EITF No. 00-21, Revenue
Arrangements with Multiple Deliverables .
Under
that guidance, revenue arrangements with multiple deliverables are divided
into
separate units of accounting if the delivered item has value to the customer
on
a standalone basis and there is objective and reliable evidence of the fair
value of the undelivered item.
The
Company maintains its cash in bank deposit accounts (money market) that exceed
federally insured limits.
Intangible
assets, which consist primarily of legal costs in obtaining trademarks, patents
and licenses and are being amortized on a straight-line basis over 20
years.
The
Company reviews long-lived assets for impairment whenever events or changes
in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An asset is considered to be impaired when the sum of the
undiscounted future net cash flows expected to result from the use of the asset
and its eventual disposition exceeds its carrying amount. The amount of
impairment loss, if any, is measured as the difference between the net book
value of the asset and its estimated fair value.
Basic
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, outstanding stock
options and convertible debt are not included in the computation of diluted
loss per share, as the effect would be anti-dilutive. The table sets forth
the
number of potential shares of common stock that have been excluded from diluted
net loss per share
(1.)
Conversion of the outstanding principal of $2,700,000 converted at 95% of
the
October 31, 2006 closing price of $0.20 per share or $0.19 per
share.
54
No
deferred income taxes are provided for the differences between the bases of
assets and liabilities for financial reporting and income tax purposes.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the use of estimates
by management. Actual results could differ from these estimates.
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
July
2006, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 48 “Accounting for Uncertainty in Income Taxes, and
interpretation of FASB Statement No. 109 (“FIN48”), which provides criteria for
the recognition, measurement, presentation and disclosure of uncertain position
may be recognized only if it is “more likely than not” that the position is
sustainable based on its technical merits. The provisions of FIN 48 are
effective for fiscal years beginning after December 15, 2006. We do not expect
that FIN 48 will have a material effect on our financial condition or results
of
operations.
Management
does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
2.SHARE-BASED
COMPENSATION EXPENSE
Effective
November 1, 2005, the Company adopted the fair value based method of accounting
for share-based employee compensation under the provisions of Statement of
Financial Accounting Standards (“SFAS”) No. 123 (revised 2004),
Accounting
for Stock-Based Payment
(“SFAS
123(R)”) which requires the measurement and recognition of compensation expense
for all share-based payment awards made to employees and directors for employee
stock options based on estimated fair values. SFAS 123(R) supersedes the
Company’s previous accounting under the Accounting Principles Board Option No.
25, Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning
in fiscal 2006. The adoption of SFAS 123R resulted in a charge to operations
of
$71,667 for the year ended October 31, 2006.
The
Company adopted SFAS 123(R) using 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. The Company’s Financial
Statements for the twelve months ended October 31, 2006 reflect the impact
of
SFAS 123(R). In accordance with the modified prospective transition method,
the
Company’s Financial Statements for prior periods have not been restated to
reflect, and do not include the impact of SFAS 123(R). Stock-based compensation
expense for fiscal year ended October 31, 2006 was $71,667 that consists of
stock-based compensation expense related to employee and director stock options.
Stock-based compensation expense was not reflected for the twelve months ended
October 31, 2005 for employee stock based awards in which goods or services
were
the consideration received for the equity instrument issued based on the fair
value of the equity instrument in accordance with the previous accounting
standard.
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
request 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. In the
twelve months ended and 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 $200,942 for the year ended October 31, 2005 and $328,176
for
the period March 1, 2002 (date of inception) to October 31, 2005, and the effect
on the Company’s net loss and net loss per share would have been as
follows:
Add:
Stock based option expense included in recorded net loss
64,924
89,217
Deduct
stock option compensation expense determined under fair value based
method
(200,942
)
(328,176
)
Adjusted
Net Loss
$
(1,941,807
)
$
(9,379,330
)
Basic
and Diluted Net Loss per share as reported
$
(0.05
)
Basic
and Diluted Net Loss per share pro forma
$
(0.05
)
The
fair
value of each option granted from the Company’s stock option plans during the
years ended October 31, 2005 and 2006 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 as well as those of comparable companies in determining the
volatility to be used. Various factors and events may have a significant impact
on the market price of our common stock as such factors out of management
control may lead to swings in the estimated volatility and fair
value. Expected lives are based 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 and does not currently anticipate paying any
in
the foreseeable future.
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, 2006 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
estimated in accordance with the provisions of SFAS 123 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 twelve months of 2006 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.
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 in accordance with the guidance provided
in
the consensus opinion of the Emerging Issues Task Force ("EITF") Issue 96-18,
Accounting
for Equity Instruments that Are Issued to Other than Employees for Acquiring,
or
in Conjunction With Selling Goods or Services.
Two
notes payable with interest at 8% per annum, due on December 17,2008. The
lender has served notice demanding payment pursuant to the November
2004
recapitalization and financing agreement
$
61,577
Note
payable with no interest payable at the time of the closing of the
Company's contemplated $5,000,000 equity financing
75,000
Note
payable with no interest payable at the time of the closing of the
Company's contemplated $5,000,000 equity financing
8,000
Note
payable with no interest payable at December 15, 2006, or at the
time of
the closing of the Company's contemplated $5,000,000 equity financing
130,000
Note
payable with no interest payable at December 15, 2007 or at the time
of
the closing of the Company's contemplated $8,000,000 equity financing
230,000
Total
504,577
Less
current portion
191,577
$
313,000
57
Aggregate
maturities of notes payable at October 31, 2006 are as follows:
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 are 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 is 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
has agreed that (i) it will 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 may be converted
at the Market Conversion Price during a calendar month.
The
Company may call the Debentures for redemption at the Redemption Price at any
time or from time to time but not more than $500,000 principal amount may be
called during any 30 consecutive day period. The Redemption Price will be 120%
of the principal redeemed plus accrued interest. The Company has also granted
the holder an 18-month right of first refusal assuming the Debentures are still
outstanding with respect to the Company’s issuance or sale of shares of capital
stock, options, warrants or other convertible securities. Pursuant to
Registration Rights Agreement, the Company has registered at its expense under
the Securities Act of 1933, as amended (the “Act”) for reoffering by the holders
of the Debentures and of the Warrants and B Warrants shares of Common Stock
received upon conversion or exercise.
The
Company has granted the holders a first security interest on its assets as
security for payment of the Company’s obligations.
The
Company has also agreed that as long as there is outstanding at least $500,000
principal amount of Debentures it would not, without the consent of the
Debenture holder, issue or sell any securities at a price or warrants, options
or convertible securities with an exercise or conversion price less than the
bid
price, as defined, immediately prior to the issuance; grant a further security
interest in its assets or file a registration statement on Form
S-8.
In
the
event of a Debenture default the Debenture shall, at the holder’s election,
become immediately due and payable in cash or, at the holder’s option, may be
converted into shares of Common Stock. Events of default include failure to
pay
principal when due or interest within five days following due date; failure
to
cure breaches or defaults of covenants, agreements or warrants within 10 days
following written notice of such breach or default; the entry into a change
of
control transaction meaning (A) the acquisition of effective control of more
than 50% of the outstanding voting securities by an individual or group (not
including the holder or its affiliates), or (B) the replacement of more than
one-half of the Directors not approved by a majority of the Company’s directors
as of February 2, 2006 or by directors appointed by such directors or (C) the
Company entering into an agreement to effect any of the foregoing; bankruptcy
or
insolvency acts; breach or default which results in acceleration of the maturity
of other debentures, mortgages or credit facilities, indebtedness or factor
agreements involving outstanding principal of at least $100,000; breach of
the
Registration Rights Agreement as to the maintaining effectiveness of the
registration statement which results in an inability to sell shares by holder
for a designated period; failure to maintain the eligibility of the Common
Stock
to trade on at least the Over-the-Counter Bulletin Board, and failure to make
delivery within five trading days of certificates for shares to be issued upon
conversion or the date the Company publicly announces its intention not to
comply with requests for conversion in accordance with the Debenture
terms.
58
The
Company paid Yorkville Advisor, LLC a fee of 8% of the principal amount of
the
Debentures sold or $240,000 and structuring and due diligence fees of $15,000
and $5,000, respectively. The amount paid to Yorkville Advisor, LLC in
connection with the Debentures was capitalized and charged to interest expense
over the three-year term of the Debentures since Yorkville is related to the
holders of the Debentures by virtue of common ownership. The amount charged
as
interest since inception to October 31, 2006 was $82,313. The
net
proceeds after deducting legal and accounting fees and other expenses, will
be
used for working capital including Phase I and initiation of Phase II testing
of
its Lovaxin C, its first Listeria cancer immunotherapy in cervical cancer
patients, and acceleration of preclinical testing for several pipeline vaccines
including Lovaxin B and Lovaxin S for breast and ovarian cancer,
respectively.
In
accounting for the Debentures and the warrants described above the Company
considered the guidance contained in EITF 00-19, "Accounting for Derivative
Financial Instruments Indexed To, and Potentially Settled In, a Company's Own
Common Stock," and SFAS 133 “Accounting for Derivative Instruments and Hedging
Activities.” In accordance with the guidance provided in EITF 00-19, the Company
determined that the conversion feature of the convertible debentures represents
an embedded derivative since the debenture is convertible into a variable number
of shares based upon the conversion formula which could require the Company
to
issue shares in excess of its authorized amount. The convertible debentures
are
not considered to be “conventional” convertible debt under EITF 00-19 and thus
the embedded conversion feature must be bifurcated from the debt host and
accounted for as a derivative liability.
The
Company is required to measure the fair value of the warrants and the embedded
conversion feature to be calculated using the Black-Scholes valuation model
on
the date of each reporting period until the debt is extinguished. The Company
allocated the proceeds from the sale of the Debentures between the relative
fair
values at the date of origination of the sale for the warrants, embedded
derivative and the debenture. The fair value of the warrants was calculated
by
using the Black-Scholes valuation model with the following assumptions: (i)
4,200,000 warrants at market price of common stock on the date of sale of $0.21
per share, exercise price of $0.287 and (ii) 300,000 warrants at the market
price of common stock of $0.21 per share, exercise price of $0.3444 both at
risk-free interest rate of 4.5%, expected volatility of 25% and expected life
of
five years. The fair value of the warrants of $214,950 was recorded as a
reduction to the Debenture liability and will be amortized over the loan period
and charged to interest expense. The portion of the fair value of the warrants
charged to interest expense for the since inception to October 31, 2006 was
$53,738.
The
fair
value of the embedded conversion feature allocated to the Debentures liability
was based on the Black-Scholes valuation model with the following
assumptions: (i) the market price convertible at the price equal to 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 or $0.2293 on the date of origination (most beneficial
conversion rate), (ii) the conversion price of $0.287, (iii) the risk free
interest rate of 4.5%, (iv) expected volatility of 30% and (v) expected life
of
three years. The fair value of the embedded conversion feature of $512,865
was
recorded as a reduction to the Debenture liability and will be amortized over
the loan period and charged to interest expense. The portion of the fair value
of the embedded conversion feature charged to interest expense for the twelve
months ended October 31, 2006 was $176,481.
Convertible
Secured Debentures due February 1, 2009: 6% per annum
$
3,000,000
Common
Stock Warrant liability
$
(214,950
)
Embedded
derivative liability
$
(512,865
)
Convertible
Debenture as the date of sale
$
2,272,185
Amortization
of discount on warrants & embedded feature as of October 31,2006
Convertible
Secured Debentures and Fair Value of Embedded Derivative
Liability
$
5,017,696
59
On
the
following dates Cornell converted the following dollars of convertible notes
into shares of the Company’s common stock from inception to October 31, 2006
since inception:
On
the
following dates Cornell Capital Partners LP converted the following dollars
of
convertible notes into shares of the Company’s common stock since October31, 2006:
Company
will continue to measure the fair value of the warrants and embedded conversion
features at each reporting date using the Black-Scholes valuation model based
on
the current assumptions at that point in time. This calculation has resulted
in
a fair market value significantly different than the previous reporting period.
The increase or decrease in the fair market value of the warrants and embedded
conversion feature at each period results in a non-cash income or loss to the
other income or loss line item in the Statement of Operations along with a
corresponding change in liability.
The
Company is required to measure the fair value of the warrants calculated using
the Black-Scholes valuation model on the date of each reporting period until
the
debt is extinguished. On October 31, 2006 the fair value of the warrants was
calculated by using the Black-Scholes valuation model with the following
assumptions: (i) 4,200,000 warrants at market price of common stock on the
date
of sale of $0.20 per share, exercise price of $0.287 and (ii) 300,000 warrants
at the market price of common stock of $0.20 per share, exercise price of
$0.3444 both at risk-free interest rate of 4.56%, expected volatility of 122%
and expected life of 4.33 years. The fair value of the warrants was $714,600
or
an increase of $499,650 over the $214,950 recorded at inception. This increase
of the fair value of the warrants was charged to the Statements of Operations
as
expenses to Net Change in Fair Value of Common Stock Warrant and Embedded
Derivative Liability and credited to Condensed Balance Sheet: Common Stock
Warrants Liabilities.
Likewise
the Company is also required to measure the fair value of the embedded
conversion feature allocated to the Debentures liability based upon the
Black-Scholes valuation model on the date of each reporting period. On October31, 2006 the fair value of this feature was based on the following assumptions:
(i) the market price convertible at the price equal to 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 or $0.141 on October 31, 2006, (ii) the conversion price of $0.20,
(iii) the risk free interest rate of 4.62%, (iv) expected volatility of 127.37%
and (v) expected life of 2.333 years. The fair value of the embedded conversion
feature was $2,815,293 or an increase of $2,302,428 over the $512,865 recorded
at inception. This increase of the fair value of the embedded conversion feature
was charged to the Consolidated Statements of Operations expensed as Net Change
in Fair Value of Common Stock Warrant and Embedded Derivative Liability and
credited to Condensed Balance Sheet was credited to the Embedded Derivative
Liability.
Upon
full
payment of the Debentures (through repayment or conversion to equity) the fair
value of the warrants on that date will be reclassified to equity.
60
6.
STOCK OPTIONS:
The
Company has adopted the Advaxis, Inc. 2002 Stock Option Plan (the "Plan"),
which
allows for grants up to 8,000 shares of the Company's common stock. This Plan
was replaced by the Advaxis 2004 Option Plan, which allows for grants up to
2,381,525 shares of the Company's common stock. The board of directors adopted
and the shareholders approved the Company’s 2005 stock option plan on June6, 2006, which allows for grants up to 5,600,000 shares of the Company's common
stock. Both the 2004 plan and the 2005 plan shall be administered and
interpreted by the Company's board of directors
Stock
option activity during the periods indicated is as follows:
On
November 12, 2004, in connection with the recapitalization (see Note 8), 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 4 reflects the options on a post
recapitalization basis.
A
summary
of the grants, cancellations and expirations (none were exercised) of the
Company’s outstanding options for the periods starting with October 31, 2004
through October 31, 2006 is as follows:
The
fair
value of options granted for the year ended October 31, 2006 amounted to
$301,015.
The
following table summarizes significant ranges of outstanding and exercisable
options as of October 31, 2006 (number outstanding and exercisable in
thousands):
Options
Outstanding
Options
Exercisable
Range
of
Exercise
Prices
Number
Outstanding
Weighted-
Average
Remaining
Contractual
Life (in Years)
Weighted-
Average
Exercise
Price
per
Share
Aggregate
Intrinsic
Value
Number
Exercisable
Weighted-
Average
Exercise
Price
per
Share
Aggregate
Intrinsic
Value
$
0.16-0.18
300
9.9
$
0.16
$
12,000
0
$
0.16
0
0.19-0.21
2,607
6.7
0.20
6,867
1,899
0.20
$
6,867
0.24-0.26
760
9.4
0.26
0
50
0.26
0
0.28-0.29
2,970
8.3
0.29
0
1,485
0.29
0
0.35-0.43
322
6.3
0.37
322
0.37
Total
6,959
7.7
$
0.25
$
18,867
3,756
$
0.25
$
6,867
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 $0.20 as of October 31, 2006, which would have been
received by the option holders had those option holders exercised their options
as of that date.
As
of
October 31, 2006, there was approximately $381,000 of unrecognized compensation
cost related to non-vested stock option awards, which is expected to be
recognized over a remaining average vesting period of 2.8 years.
7.
COMMITMENTS AND CONTINGENCIES:
Pursuant
to multiple consulting agreements and a licensing agreement, the Company is
contingently liable for the following:
The
Company is obligated to pay $75,000 to its former patent counsel upon receiving
financing of $5,000,000 or greater.
The
Company is obligated to pay $8,000 to a consultant upon receiving financing
of
$5,000,000 or greater.
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, 2008the 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. (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 extend until June17,2009. 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. We recently exercised the option and
have
entered into negotiations to license up to 18 inventions. The license fees,
legal expense, and other filing expenses for such 18 inventions are estimated
to
amount to $400,000 over a period of several years. With each patent the
Licensor
can negotiate an initiation fee up to $10,000 for each
license.
62
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.
We
entered into a sponsored research agreement on December 6, 2006 with Penn and
the consultant under which we are obligated to pay $159,598 per year for a
total
period of 2 years covering the development of potential vaccine candidate based
on our Listeria technology as well as other basic research
projects.
Under
a
partial deferral fee payment agreement with the Company’s attorney they have
agreed to defer one half of an invoice for $56,826 until the Company’s closing
of the next round of financing, whether debt or equity.
Pursuant
to a Clinical Research Service Agreement, the Company is obligated to pay
$522,000 to a vendor, of which $215,000 shall be paid upon the occurrence of
a
$5,000,000 equity financing.
The
Company is obligated under a non-cancelable operating lease for laboratory
and
office space expiring in May 2007 with aggregate future minimum payments due
amounting to $39,200.
We
have
entered a consulting agreement with a biotech consultant. The Agreement
commenced on January 7, 2005 and has a six month term, which was extended upon
the agreement of both parties. The consultant provides three days per month
service during the term of the agreement assistance on its development efforts,
reviewing our scientific technical and business data and materials and
introducing us to industry analysts, institutional investors collaborators
and
strategic partners. In consideration for the consulting services we will pay
the
consultant $2,000 per month.
We
have
entered into an agreement with a consultant to develop and manage our grant
writing strategy and application program. Advaxis will pay consultant according
to a fee structure based on achievement of grants awarded to us at the rate
of
6-7% of the grant amount. Advaxis will also pay a fixed consulting fees based
on
the type of grants submitted, ranging from $5,000-7,000 depending on the type
of
application submitted to the national SBIR and related NIH/NCI programs.
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 renewable by mutual consent of the
parties. Advaxis is to pay UCLA an initial licensee 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.
In
July
2003, we entered into an agreement with a biomanufacturing company for the
purpose of manufacturing our cervical cancer vaccine Lovaxin C. The agreement
to
expired in December 2005 upon the delivery and completion of stability testing
of the GMP material for the Phase I trial. The company has agreed to convert
$300,000 of its existing fees for manufacturing into future royalties from
the
sales of Lovaxin C at the rate of 1.5% of net sales, with payments not to exceed
$1,950,000. In
November 2005, in order to cover Lovaxin C on a long-term basis and to cover
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 the company agreed to manufacture experimental and
commercial supplies of our Listeria
cancer
vaccines.
The
Company entered into a consulting agreement with LVEP Management LLC (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. LVEP is owned by the estate of Scott Flamm (deceased January
2006) previously, one of our directors and a principal shareholder. 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.
The
term of the agreement as amended is 24 months from effective date. Mr. Appel
will devote 50% of his time to the company over the first 12 months of the
consulting period. Also as a consultant, he will be paid at a rate of $22,500
per month in addition to benefits as provided to other company officers. He
will
receive severance payments over an additional 12 months at a rate of $10,416.67
per month and shall be reimbursed for family health care. All his stock options
vested fully on the effective date and are exercisable over the option contract
life. The Company will record a charge to its statement of operation in 2007
for
the effect of the modification of these options. Also, Mr. Appel was issued
1,000,000 shares of our common stock. He will receive a $250,000 bonus $100,000
paid on January 2, 2007 and the remainder to be paid on June 1,2007.
63
We
have
entered into a consulting agreement with a consultant, whereby he will assist
us
in the preparation and refinement of our marketing summary and presentation
materials and introduce us to pre defined pharmaceutical and biotechnology
companies which may be interested in strategic partnerships. The consultant
will
receive a monthly cash fee of $1,500 and approved expenses, and in addition
success based compensation payable in cash and stock ranging from 5% to 4%
of
transaction proceeds, upon completion of a transaction with a strategic partner
introduced by the consultant. The agreement will be effective until July 12,2007.
We
have
entered into a master service agreement with Apothecaries Limited on September20, 2006, a contract research organization (CRO) for the purpose of providing
us
with clinical trial management services in the country of India in
connection with our Phase I/II clinical trial in Lovaxin C. Under the agreement
we will pay Apothecaries amounts based on certain criteria detailed in the
agreement such as clinical sites qualified ($1,500 per site), submitting and
obtaining regulatory approval ($17,000), and numbers of patients enrolled to
the
clinical trial ($7,500 for each treated patient). If regulatory approval shall
be obtained and 10 patients shall be recruited and treated in 6 clinical sites,
we shall pay Apothecaries a total of $101,000.
We
entered into an agreement with Investor Relations Group (IRG) whereby IRG will
serve as an investor relations and public relations consultant. The term of
this
agreement is on a month to month basis. In consideration for performing its
services, SGI is to be paid $10,000 per month plus out of pocket expenses,
and
200,000 common shares over a period of 18 months commencing October 1, 2005,
provided the agreement has not terminated. Through October 31, 2006 we issued
99,999 shares out of the 133,332 vested shares as per the
agreement.
We
entered into an agreement with a consulting firm to provide biologics regulatory
consulting services to the Company in support of the IND submission to the
FDA.
The tasks to be performed under this Agreement will be agreed to in advance
by
the Company and consulting firm. The term of the agreement is from June 1,2006
to June 1, 2007. This is a time and material agreement.
Thomas
Moore effective December 15, 2006 agreed to terms with the Company
whereby he was named CEO
and
Chairman. He may also nominate one additional Board Member of his choice subject
to the By-Laws. Mr. Moore will receive a salary of $250,000 annually to increase
to $350,000 subject to a financial raise of $4,000,000. He will receive a grant
of 750,000 shares upon the successful raise of $4,000,000. He will receive
an
additional grant of 750,000 shares upon the raise of an additional $6,000,000.
He will also receive a grant of 2,400,000 options at the price of $0.143 per
share as of December 15, 2006 to vest monthly over 2 years. If he doesn’t raise
at least $4,000,000 by June 2007 he will tender his resignation and return
all
options and receive no severance. Moore is eligible to receive an additional
grant of 1,500,000 shares if the company stock is $0.40 per share or higher
over
40 consecutive days. He will receive a health care plan at no cost to him.
In
the event of a change of control and his termination by the company he will
receive one year severance at the existent level. Mr. Moore will personally
contribute a minimum of up to $250,000 in 2007.
The
Company entered into an employment agreement with Dr. Vafa Shahabi PhD to become
Head of Director of Science effective March 1, 2005, terminable on 30 days
notice. Her current compensation is $115,000 per annum with a potential bonus
of
$20,000. In January 2006 she was paid a bonus in stock with a market value
of
$14,800. In addition, Dr. Shahabi received, commencing July 1st
2006, a
$20,000 pay increase annually payable in shares to be issued every July
1st
and
January 1st
(limited
to conversion at $0.20 share as minimum). She was granted 150,000 options on
hire plus 250,000 options in fiscal year 2006.
64
The
Company entered into an employment agreement with Dr. John Rothman, PhD to
become Vice President of Clinical Development effective March 7, 2005 for a
term
of one year ending February 28, 2006 and terminable on 30 days notice. His
compensation is $170,000 per annum, to increase to $180,000 upon the closing
of
a $15 million equity financing. Upon meeting incentives to be set by the
Company, he will receive a bonus of up to $45,000. In fiscal year 2006 he was
paid a bonus of $10,000 in cash plus $14,800 in company stock. Effective January1, 2006 his salary increased by $30,000 annually payable in stock to be issued
every July 1st
and
January 1st
(limited
to conversion at $0.20 share as minimum). In addition, Dr. Rothman was granted
360,000 stock options per his employment agreement and was granted 150,000
options in March 2006.
The
Company entered into an employment agreement with Fred Cobb to become Vice
President of Finance effective February 20, 2006 terminable on 30 days notice.
His compensation is $140,000 per annum. Upon meeting incentives to be set by
the
Company, he will receive a bonus of up to $28,000. In July 1, 2006 his salary
increased
by $20,000 annually payable in stock to be issued every July 1st
and
January 1st.
In
addition, Mr. Cobb was granted 150,000 stock options per his employment
agreement and was granted and additional 150,000 options in March
2006.
Cerus
has
filed an opposition against European Patent Application Number 0790835 (EP
835
Patent) which was granted by the European Patent Office and which is assigned
to
The Trustees of the University of Pennsylvania and exclusively licensed to
us.
Cerus’ allegations in the Opposition are that the EP 835 Patent, which claims a
vaccine for inducing a tumor specific antigen with a recombinant live Listeria,
is deficient because of (i) insufficient disclosure in the specifications of
the
granted claims, (ii) the inclusion of additional subject matter in the granted
claims, and (iii) a lack of inventive steps of the granted claims of the EP
835
Patent. On
November 29, 2006, following oral proceedings, the Opposition Division of the
European Patent Office determined that the claims of the patent as granted
should be revoked due to lack of inventive step under European Patent Office
rules based on certain prior art publications. This decision has no material
effect upon our ability to conduct business as currently contemplated.
We
will
review the formal written decision in order to evaluate whether
to file an appeal. In the event of an appeal there is no assurance that it
will
be successful. If such ruling is upheld on appeal, our patent position in Europe
may be eroded. The likely result of this decision will be increased competition
for us in the European market for recombinant live Listeria based vaccines
for
tumor specific antigens. Regardless of the outcome, we believe that our freedom
to operate in Europe, or any other territory, for recombinant live Listeria
based vaccine for tumor specific antigen products will not be
diminished.
The
Company is involved in various claims and legal actions arising in the ordinary
course of business. Management is of the opinion that the ultimate outcome
of
these matters would not have a material adverse impact on the financial position
of the Company or the results of its operations.
8.INCOME
TAXES:
The
Company has a net operating loss carry forward of approximately $5,227,000
at
October 31, 2006 available to offset taxable income through 2026.
The
tax
effects of loss carry forwards give rise to a deferred tax asset and a related
valuation allowance at October 31, 2006 as follows:
Net
operating losses
$
2,090,711
Stock
based compensation
182,086
Less
valuation allowance
(2,272,797
)
Deferred
tax asset
$
-0-
The
difference between income taxes computed at the statutory federal rate of 34%
and the provision for income taxes relates to the following:
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.
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.
66
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 are 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 is 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
has agreed that (i) it will 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 may be converted
at the Market Conversion Price during a calendar month.
Item
8: Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure
NONE
Item
8A: Controls And Procedures
Evaluation
of Disclosure Controls And Procedures.
As
of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our principal executive officer
and principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Our disclosure controls
and
procedures are designed to provide a reasonable level of assurance that our
disclosure control objectives are achieved. Our principal executive officer
and
principal financial officer has concluded that our disclosure controls and
procedures are, in fact, effective at providing this reasonable level of
assurance as of the period covered.
Changes
In Internal Controls Over Financial Reporting
In
connection with the evaluation of our internal controls during our last fiscal
quarter, our principal executive officer and principal financial officer has
determined that there are no changes to our internal controls over financial
reporting that has materially affected, or is reasonably likely to materially
effect, our internal controls over financial reporting.
Item
8 B: Other Information.
NONE
67
PART
III
Item
9: Directors, Executive Officers, Promoters and Control Persons; Compliance With
Section 16(a) of the Exchange Act.
Executive
Officers, Directors, and Key Employees
The
following are our executive officers and directors and their respective ages
and
positions as of January 23, 2007:
Name
Age
Position
Thomas
Moore (3)
55
Chief
Executive Officer and Chairman of the Board of
Directors
Dr.
James Patton (1)
48
Director
Roni
A. Appel (3) (4) (5)
39
Director
Dr.
Thomas McKearn (2)
56
Director
Richard
Berman (1) (2) (4)
63
Director
Martin
R. Wade III
56
Director
Dr.
John Rothman
58
Vice
President, Clinical Development
Fred
Cobb
59
Vice
President, Finance and Principal Financial
Officer
(1)
Member
of the Audit Committee.
(2)
Member
of the Compensation Committee.
(3)
Member
of the Nominating and Corporate Governance Committee.
(4)
Member
of the Finance Committee
(5)
Mr.
Appel resigned as President, Chief Executive Officer on December15, 2006
Thomas
A. Moore.Effective
December 15, 2006, Thomas Moore was named our Chairman and Chief Executive
Officer . He is currently also Director at Alteon, Inc., a publicly traded
developer of pharmaceuticals for the treatment of diabetes and age-related
diseases, El Dorado Inc., a targeted marketer to unassimilated Hispanics,
Medmeme, which measures medical education effectiveness, 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. Previously, Mr. Moore had
a
23-year career with the Procter & Gamble Company in multiple managerial
positions, including president of Health Care Products where he was responsible
for prescription and over-the-counter medications worldwide, and group vice
president of the Procter & Gamble Company.
Mr.
Moore
is a
defendant in a civil enforcement action captioned Securities
& Exchange Commission v. Biopure Corp. et al.,
No.
05-11853-PBS (D. Mass.), filed on September 14, 2005, which alleges 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 has vigorously defended the action. On December11, 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 have approved the terms of the settlement, which has been
submitted to the Court for its formal adoption. Mr. Moore is also a
defendant in a purported class action lawsuit, styled In
reBiopure Corp. Securities Litigation, No.
1:03-cv-12628 (D. Mass), which is based upon similar allegations. The
parties have reached an agreement in principle for the settlement of this action
subject to the Court’s approval.
68
Dr.
James Patton.Dr.
Patton, a Director since February 2002 served 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 President of Comprehensive Oncology Care, LLC, which owns
and operates a cancer treatment facility in Exton, Pennsylvania and as Vice
President of Millennium Oncology Management, Inc., which provides technical
services for oncology care to four sites. 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 (“LibertyView”). From
July 2000 to December 2002, Dr. Patton served as a director of Pinpoint Data
Corp. From February 2000 to November 2000, Dr. Patton served as a director
of
Healthware Solutions. From June 2000 to June 2003, Dr. Patton served as a
director of LifeStar Response. He earned his B.S. from the University of
Michigan, his Medical Doctorate from Medical College of Pennsylvania, and his
M.B.A. from the University of Pennsylvania’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 been a Director 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 Chief Financial Officer on
September 7, 2006 and as President, Chief Executive Officer and Secretary on
December 15, 2006. He has provided consulting services to us through LVEP
Management, LLC, since January 19, 2005. From 1999 to 2004, he has been a
partner and managing director of LVEP 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. Prior
thereto he served as an Advaxis director since July 2002. He brings to Advaxis
a
20 plus year experience in the
translation of biotechnology science into innovative products that address
unmet
medical needs in oncology. 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. Medical Affairs at GPC-Biotech, McKearn has always
worked at bringing the most innovative scientific findings into the clinic
and
through the FDA regulatory process for the ultimate benefit of patients who
need
better ways to cope with their afflictions. Prior to entering the then-nascent
biotechnology industry in 1981, 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.
Martin
R. Wade III.
Mr. Wade was appointed to the Board on March 29, 2006. Since
August 2001, he has been Chief Executive Officer (CEO) of International
Microcomputer Software Inc. Since May 2000 Mr. Wade has also been CEO
of Bengal Capital Partners, LLC, a merger and acquisition firm. Mr. Wade
currently serves as a Director of the following publicly traded companies:
International Microcomputer Software Inc., Alliance One, Inc., Nexmed and
Command Security Corp. He is a Director and the Chairman of the Audit Committee
of Command Security Corp. From April 2000 until December 2001,
Mr. Wade served as Chief Executive Officer, Executive Vice President and
Director of Digital Creative Development Corporation, an acquisition and
investment company. From June 1998 until April 2000, Mr. Wade was as
Managing Director of Investment Banking for Prudential Securities, Inc. Prior
to
joining Prudential Securities, Inc. in 1998, Mr. Wade served in progressive
management roles with Bankers Trust Company, Lehman Brothers, CJ Lawrence,
Morgan Grenfell, Price Waterhouse Company and Salomon Brothers over a 23 year
period. Mr. Wade has been deeply involved in mergers and acquisitions,
corporate finance and investment banking throughout his career. Mr. Wade
received a Master of Business Administration in Finance from the University
of
Wyoming in 1975 and a Bachelor of Science in Business Administration from West
Virginia University in 1971. From 1971 through 1975, Mr. Wade also served
as a Captain in the United States Air Force.
Richard
Berman. Mr.
Bermana
Director since
September 1, 2005. In the last five years, Mr. Berman has served as a
professional director and/or officer of about a dozen public and private
companies.
He
is
currently CEO of Nexmed, a public biotech company. He is Chairman of: National
Investment Managers, Candidate Resources, and Fortress Technology Systems.
Mr.
Berman is a director of eight public companies: Dyadic International, Inc.,
Broadcaster, Inc., Internet Commerce Corporation, MediaBay, Inc., NexMed, Inc.,
National Investment Managers, Advaxis, Inc., and NeoStem, Inc. Previously,
Mr.
Berman worked at Goldman Sachs; 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 NYU 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.
69
John
Rothman, Ph.D.
Dr.
Rothman joined the Company in March of 2005 as Vice President of
Clinical Development. Prior to that between 2001 and 2003 he and a colleague
purchased a 180 bed hospital from the University of Ohio system, sold it to
an
African Chief, and moved the facility to Ibaden Nigeria. 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 Kaposis’ Sarcoma became the clinical basis
for the first filed BLA which involved the treatment of AIDS patients with
interferon.
Fredrick
D. Cobb.
Mr.
Cobb
joined Advaxis Inc. in February 2006 as the Vice President of Finance and on
September 7, 2006 was appointed Principal Financial Officer (PFO) and Assistant
Secretary. He was the PFO and Corporate Controller for Metaphore Pharmaceuticals
Inc., a private company, from June 2004 to December 2005 and PFO and Corporate
Controller at the public company Emisphere Technologies, Inc. from 2001 until
2004 Prior thereto he served as Vice President and Chief Financial Officer
at
MetaMorphix, Inc from 1997 to 2000. Mr. Cobb holds an M.S. in Accounting from
Seton Hall University in 1997 and a B.S. degree in Management from Cornell
University.
Board
of Directors and Officers
Each
director is elected for a period of one year at our annual meeting of
stockholders and serves until the next such meeting and until his or her
successor is duly elected and qualified. Officers are elected by, and serve
at
the discretion of, our board of directors. Our directors, other than Mr. Berman
who since joining the Board received a fee of $2,000 per month payable in shares
of our common stock (at $0.50 per share), do not presently receive any
compensation for their services as directors. The board of directors may also
appoint additional directors up to the maximum number permitted under our
by-laws, currently nine. A director appointed will hold office until the next
annual meeting of stockholders. Each of our executive officers serves at the
discretion of its board of directors subject to the terms of his employment
agreement and holds office until his or her successor is elected or until his
or
her earlier resignation or removal in accordance with our articles of
incorporation and by-laws.
Meetings
and Committees of the Board of Directors
During
each of the years ended October 31, 2006, and October 31, 2005, our board of
directors held three meetings and took action by written consent on
threeoccasions.
Audit
Committee
The
Audit
Committee of the board of directors was established in November 2004. The
Committee now consists of Mr. Berman and Dr. Patton with Mr. Berman serving
as
the Audit Committee’s financial expert. The Audit Committee held four meetings
during the year ended October 31, 2006.
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 the board of directors was established in November
2004. The committee now consists of Mr. Berman and Dr. McKearn. The Compensation
Committee held four meetings during the year ended October 31, 2006. The
Compensation Committee determines the salaries, 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.
70
Compensation
Issuance and Analyses
The
Committee’s goal is to structure our compensation program to attract, motivate,
reward and retain the management talent required to achieve corporate objectives
and thereby increase stockholder value. Its policy is to provide incentives
to
our senior management to achieve both short-term and long-term objectives and
to
reward exceptional performance and contributions to the development of our
business. Accordingly, the program seeks to provide a competitive base salary,
cash incentive bonuses and stock-based compensation.
Stock
options have been granted to our senior executive officer by the board of
directors or the Compensation Committee under the Stock Option Plans. The
Committee believes that stock options provide an incentive that focuses the
executive’s attention on managing us from the perspective of an owner with an
equity stake in the business. Options are awarded with an exercise price equal
to the market value of common stock on the date of grant, have a maximum term
of
ten years and generally become exercisable, in whole or in part, starting one
year from the date of grant. Among our executive officers, the number of shares
subject to options granted to each individual generally depends upon the level
of that officer’s responsibility. The largest grants are awarded to the most
senior officers who, in our view, have the greatest potential impact on our
profitability and growth. Previous grants of stock options are reviewed but
are
not considered the most important factor in determining the size of any
executive’s stock option award in a particular year. The Compensation Committee
reserves the right to engage services of independent consultants to perform
analyses and to make recommendations to the committee relative to executive
compensation matters. None have been retained to date.
The
Compensation Committee will annually establish, subject to the approval of
the
board of directors and any applicable employment agreements, the salaries to
be
paid to our executive officers during the coming year.
In
setting salaries, the Committee takes into account several factors, including
competitive compensation data, the extent to which an individual may participate
in the stock plans maintained by us, and qualitative factors bearing on an
individual’s experience, responsibilities, management and leadership abilities
and job performance.
Nominating
and Corporate Governance Committee
The
Nominating and Corporate Governance Committee of the board of directors
established in November 2004. presently consists of Mr. Appel and Mr. Moore.
The
functions of the nominating and corporate governance include the
following:
·
identifying
and recommending to the board of directors individuals qualified
to serve
as directors of the Company and on the committees of the board;
·
advising
the board with respect to matters of board composition, procedures
and
committees;
·
developing
and recommending to the board a set of corporate governance principles
applicable to us and overseeing corporate governance matters generally
including review of possible conflicts and transactions with persons
affiliated with Directors or members of management; and
·
overseeing
the annual evaluation of the board and our management.
The
Nominating and Corporate Governance Committee shall 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, 2006 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, except
with
respect to the following: (i) the Trustees of the University of Pennsylvania,
were late in filing their Form 3; (ii) James Patton, who was late in filing
his
Form 3; (iii) Roni Appel, who was late in filing a Form 3 and three Form 4s;
(iii) Scott Flamm, was late in filing his amended Form 3; (iv) J. Todd Derbin,
has not filed three Form 4s; and (v) Thomas McKearn, was late filing a Form
3
and 4.
71
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
10: Executive Compensation
The
following table sets forth the information as to compensation paid to or earned
by a Chief Executive Officer during the ten month ended October 31, 2004 and
the
twelve months ended October 31, 2005 and 2006 by our former and current
executive management: It also provides similar information for the other
executive officers and employees, each of whom received total compensation
in
excess of $100,000 for the year ended October 31, 2006:
**None
of
the officers listed received prerequisites from us which exceed more than the
lesser of $50,000 or 10% of the officer’s total compensation in 2004 and
2005.
(1)
Mr.
Appel served as consultant (LVEP) in the capacity of Secretary and
CFO in
2004 and 2005. He was appointed President and CEO on January 1, 2006.
He
resigned his position of President, CEO and Secretary on December15, 2006
and resigned from his CFO position on September 7, 2006. Persuant
to the
consulting agreement, dated as of January 19, 2005, and amended on
April15, 2005, October 31, 2005, and December 15, 2006, LVEP is to provide
various financial and strategic consulting services to
us.
(2)
Mr.
Appel’s compensation in 2005 and 2006 was paid through our consulting
agreement with LVEP. The option awards were the result of grants
of
options at $0.217 per share in fiscal 2006 and 0.287 per share in
fiscal
2005.
(3)
Represents
consulting fees of $50,000 in the ten months ended October 31, 2004
paid
to Carmel Ventures, Inc., of which he is a principal stockholder.
He
assigned $35,000 of such fees to Mr. Scott Flamm.
(4)
Represents
2005 bonus of $70,000 ($20,000 cash and $50,000 in stock) paid in
2006, a
2006 bonus of $250,000 paid in cash January 2, 2007. It does not
include
the 1,000,000 shares of common stock awarded on December 15, 2006
and
issued on January 3, 2007
(5)
Other:
reimbursements for payroll taxes, healthcare cost, workers compensation,
401K match and employment related cost.
Mr. Derbin’s 2003 bonus of $60,000 was paid in 2004 by
the issuance of 307,377 shares of common Stock of the Company on the
basis
of a price of $0.1952 per share and was two-third’s of the maximum amount
of $90,000 he could have been awarded.
In determining Mr. Derbin’s bonus, the Board acted in
part on a discretionary basis. His 2004 bonus of 45,000 was paid in
2005
by issuance of 156,794 shares of the company’s Common Stock based on
$0.287 per share. His 2005 bonus of $3,850 was paid in 2006 by issuance
of
17,422 shares of Company’s Common Stock based on $0.22 per
share.
(8)
Health
care insurance
(9)
Pursuant
to an employment agreement, only 928,441 of the options granted in
2003
had vested, and only 427,796 of the options granted in 2005 had vested
on
termination of the agreement on December 31, 2005. The balance of
the
options were cancelled.
(10)
Included
in his base compensation is $25,000 payable in
stock.
(11)
Options
granted at $0.26 share
(12)
Options
granted at $0.287 per share.
(13)
Dr.
Rothman entered employment on March 7, 2005 and included in his salary
was
in the issuance of 80,000 shares of common stock or
$14,800.
(14)
Included
in base compensation is $6,667 payable in
stock.
(15)
Includes
150,000 options at $0.26 plus shares as part of employment agreement
and
includes 150,000 options at $0.16 per share granted on September21,2006.
(16)
Dr.
Shahabi entered employment on March 1, 2005 and included in her base
is
80,000 shares of common stock or
$14,800.
(17)
Represents
401K match
(18)
Represents
100,000 options granted at $0.24 per share and 150,000 options granted
at
$0.16 per share
(19)
Represents
150,000 options granted at $0.287 per share as part of her employment
agreement
Option
Grants In Recent FiscalYears
The
following table sets forth each grant of stock options during the ten month
period ended October 31, 2004 and the years ended October 31, 2005 and 2006
to
our current and former executive officers under the 2004 stock option plan.
The
assumed 5% and 10% rates of stock price appreciation are provided in accordance
with rules of the SEC and do not represent our estimate or projection of our
common stock price. Actual gains, if any, on stock option exercises are
dependent on the future performance of our common stock, overall market
conditions and the option holders’ continued employment through the vesting
period. Unless the market price of our common stock appreciates over the option
term, no value will be realized from the option grants made to these executive
officers. The potential realizable values shown in the table are calculated
by
assuming that the estimated fair market value of our common stock on the date
of
grant increases by 5% and 10%, respectively, during each year of the option
term.
The
outstanding stock options described above became options for our common stock
upon the Share Exchange.
72
Individual
Grants
Name
Year
Number
Of Securities Underlying Options
Granted
Percent
Of Total Options Granted To Employees In
Fiscal Period
Exercise
Price
Expiration
Date
Potential
Realizable Value At Assumed Annual Rates of Stock Price Appreciation
For
Option
Term($)
5%
10%
Roni Appel
2006
1,173,179
(2)
53
%
$
0.217
12/31/2015
$
160,113
$
405,809
Secretary
and
Chief
2005
1,114,344
(3)
34
%
$
0.29
3/31/2015
$
201,165
$
509,788
Executive
Officer
2004
35,218
27
%
$
0.35
11/1/2012
$
7,753
$
19,648
J. Todd
Derbin(1)
2006
-
-
-
-
-
-
President,
Chief
Executive Officer,
2005
427,796
(4)
13
%
$
0.29
2/1/2015
$
78,034
$
197,753
and
Director
2004
-
-
-
-
-
Dr.
John Rothman
2006
150,000
7
%
$
.026
3/29/2016
$
24,528
$
62,167
Vice
President Clinical
2005
360,000
11
%
$
0.29
3/1/2015
$
64,988
$
164,692
Fred
Cobb
2006
150,000
7
%
$
0.26
2/20/2016
$
19,811
$
50,212
Vice
President Finance
2006
150,000
7
%
$
0.16
9/20/2016
$
15,094
$
38,257
Dr. Vafa
Shahabi
2006
100,000
5
%
$
0.24
7/1/2016
$
15,094
$
38,257
Director
of Research
&
2006
150,000
7
%
$
0.16
9/20/2016
$
15,094
$
38,257
Development
2005
150,000
5
%
$
0.29
3/1/2015
$
22,641
$
57,385
(1)
As
of January 1, 2007, 1,356,237 previously granted and vested but
unexercised options were forfeited.
(2)
Reflects
a grant in January 2006 post fiscal year end increasing the number
of
options to 5% of the outstanding shares and options of the Company
as of
December 31, 2005.
(3)
Reflects
the grant in April 2005 equal to 3% of the outstanding shares and
other
options made.
(4)
684,473
options were granted to Mr. Derbin under the 2005 option plan of
which
256,677 options were surrendered pursuant to a termination of employment
agreement.
Aggregate
Option Exercises In Last Fiscal Year And Fiscal Year-End Option
Values
No
options were exercised by an executive officer in the 10 months ended October31, 2004 and the 12 months ended October 31, 2005 and 2006. The following table
sets forth the value of unexercised options with respect to each of the named
executive and former executive officers.
Number
Of Securities
Underlying
Unexercised Options
At
Fiscal
Year-End(1)
Value
Of Unexercised
In-The-Money
Options
At
Fiscal Year-End($)(2)
Name
Year
Shares
Acquired On
Exercise
Exercisable
Unexercisable
Exercisable
Unexercisable
Roni
Appel (3)
2006
0
997,045
1,382,045
$
-
$
-
Secretary,
Chief
Financial
2005
0
254,075
951,835
$
-
$
-
Officer,
and Director
2004
0
91,567
-
$
-
$
-
J. Todd
Derbin
2006
0
1,356,236
(4)
-
$
4,445
-
President,
Chief
Executive Officer, and
2005
0
1,273,135
83,101
$
47,033
$
4,017
Director
2004
0
586,382
586,382
$
53,947
$
51,015
Dr. John Rothman
2006
0
135,000
375,000
$
-
$
-
VP
Clinical Development
2005
0
-
360,000
$
-
$
-
Fred Cobb
2006
0
-
300,000
$
-
$
6,000
Vice
President Finance
Dr. Vafa
Shahabi
2006
0
56,250
343,750
$
-
$
6,000
Head
Director of Science
2005
0
150,000
$
-
$
-
73
(1)
Certain of the options are immediately exercisable
of the
date of grant but any shares purchased are subject to repurchase by
us at
the original exercise price paid per share if the optionee ceases service
with us before vesting in such shares
(2)
The
price at end of fiscal year ending October 31, 2006 is based on the
closing price of $0.20 per share. In 2005 the price is based on a
price
per share of $0.25, the highest-bid price on October 31, 2005 quoted
on
the OTC:BB. The price for previous years is based on the fair market
value
of our common stock at fiscal year end of $0.195 per share prior
to
November 11, 2004, and $0.287 per share post November 11, 2004, determined
by the board to be equal to our Private Placement price per share
less the
exercise price payable for such
shares.
(3)
As
of December 15, 2006 all Mr. Appel’s options become fully vested and are
exercisable until the end of the
contract.
(4)
As
of January 1, 2007 all these options were unexercised and
forfeited.
Board
of Directors Compensation
With
the
exception of Mr. Berman who receives $2,000 a month in shares of Common Stock
at
a set price of $0.50 per share (4,000 shares), none of our directors so far
has
received any compensation for his services as a director other than stock
options and reimbursement of expenses. Each director is granted options upon
joining the board and as the compensation Committee so directs.
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.
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.
74
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 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.
Employment
Agreements
Thomas
Moore. Effective December 15, 2006 agreed to terms with the Company to
be embodied in an employment agreement whereby he was named CEO and
Chairman. He may also nominate one additional Board Member of his choice subject
to the By-Laws. Mr. Moore will receive a salary of $250,000 annually to increase
to $350,000 subject to a financial raise of $4,000,000. He will receive a grant
of 750,000 shares upon the successful raise of $4,000,000. He will receive
an
additional grant of 750,000 shares upon the raise of an additional $6,000,000.
He will also receive a grant of 2,400,000 options at the price of $0.143 per
share as of December 15, 2006 to vest monthly over 2 years. If he doesn’t raise
at least $4,000,000 by June 2007 he will tender his resignation and return
all
options and receive no severance. Moore is eligible to receive an additional
grant of 1,500,000 shares if the company stock is $0.40 per share or higher
over
40 consecutive days. He will receive a health care plan at no cost to him.
In
the event of a change of control and his termination by the company he will
receive one year severance at the existent level. Mr. Moore will personally
contribute a minimum of up to $250,000 in 2007.
75
In
the
event of termination of Mr. Moore's employment by the Company following a $4
million raise, Moore will also receive a severance payment equal to one year
of
salary at his then compensation level.
Vafa
Shahabi, Ph.D. Dr.
Shahabi has been Head of Director of Science effective March 1, 2005, terminable
on 30 days. Her duties are to work on and/or manage research and development
projects as specified by the Company. The compensation is $115,000 per annum
with a potential bonus of $20,000. In addition, Dr. Shahabi was granted 150,000
options per her employment agreement, 100,000 in July 2006 and 150,000 in
September. In July 1, 2006 his salary increased by $20,000 annually payable
in
stock to issued every July 1st
and
January 1st.
Dr.
John Rothman.
The
Company entered into an employment agreement with Dr. Rothman, Ph.D to become
Vice President of Clinical Development effective March 7, 2005 for a term of
one
year ending February 28, 2006 and terminable thereafter 30 days notice. His
compensation is $170,000 per annum, to increase to $180,000 upon the closing
of
a $15 million equity financing. Upon meeting incentives to be set by the
Company, he will receive a bonus of up to $45,000. In fiscal year 2006 he was
paid a bonus of $10,000 in cash plus $14,800 in company stock. Effective January1, 2006 his salary increased by $30,000 annually payable in stock to issued
every July 1st
and
January 1st
(limited
to conversion at $0.20 share as minimum). In addition, Dr. Rothman was granted
360,000 stock options per his employment agreement and was granted 150,000
options in March 2006.
Fred
Cobb.
The
Company entered into an employment agreement with Fred Cobb to become Vice
President of Finance effective February 20, 2006 terminable on 30 days notice.
His compensation is $140,000 per annum. Upon meeting incentives to be set by
the
Company, he will receive a bonus of up to $28,000. In July 1, 2006 his salary
increased by $20,000 annually payable in stock to issued every July
1st
and
January 1st.
In
addition, Mr. Cobb was granted 150,000 stock options per his employment
agreement and was granted 150,000 options in March 2006.
Roni
Appel. Mr.
Appel
served as our Chief Executive Officer and Chief Financial Officer (until
September 7, 2006) pursuant to the terms of the Consulting Agreement between
us
and LVEP Managment LLC described under “Item 12 Certain Relationships and
Related Party Transactions.”
J.
Todd Derbin.
Pursuant to his agreement dated December 31, 2005 to resign as our President
and
Chief Executive Officer, Mr. Derbin served following his resignation on December31, 2005 as a consultant to the Company for a fee of $6,250. per month for
6
months ending June 30, 2006. Mr. Derbin continued to serve as Chairman and
a
member of the Board of directors of the Company until his resignation on
September 7, 2006.
Item
11: Security Ownership of Certain Beneficial Owners and Management and
Stockholders Matters
each
person
who is known by us to be the owner of record or beneficial owner
of more
than 5% of our
outstanding Common Stock
and each person who owns less than 5% but is significant
nonetheless;
·
each
of our directors;
·
our
chief executive officer and each of our executive officers;
and
·
all
of
our directors and executive officers as
a group.
Except
as otherwise noted below, the address of each of the persons in the table in
Technology Center of NJ, 675 Route One, Suite B113, North Brunswick, NJ08902.
*
Based
on 40,238,992 shares of common stock outstanding as of October 31,2006.
(1)
Director,
except for Mr. Derbin who served as a Director until his resignation
on
September 6, 2006 and Mr. Flamm served as a Director until his
death in January 2006
Reflects
469,982 shares, and 1,356,236 options and 368,815 warrants to purchase
shares. Mr. Derbin resigned from the board effective September 6,2006 and
his unexercised options expired January 1,2007.
(4)
Represents
2,976,288 shares, and 2,379,090 options owned by Mr. Appel but
does not reflect 486,470 warrants because such warrants are not
exercisable within 60 days due to the ownership in 4.99% restriction
under
the current circumstances, exercisable within the 60 Day
Period.
Per the Third Amended LVEP Consulting agreement dated December 15,2006
Mr. Appel was authorized to be issued 1,000,000 shares and all his
previously granted options unvested became fully vested and exercisable
for the remainder of their term.
76
(5)
Reflects
52,000 shares issued, 24,000 shares earned and 400,000
options.
(6)
Reflects
2,820,576 shares, and 73,253 options but does not reflect 184,267
warrants
because such warrants under the current circumstances due to the
ownership
in 4.99% restriction, are not exercisable within 60
days.
(7)
Reflects
179,290 shares, 232,763 options and 112,823
warrants.
(8)
Reflects
options
(9)
Reflects
80,000 shares issued, 134,732 shares earned and 510,000
options
(10)
Reflects
49,641 shares earned and 300,000
options
(11)
Reflects
125,772 shares and 91,567 options and owned by the estate and 2,621,325
shares beneficially owned by Flamm Family Partners LP, of which the
estate
is a partner but does not reflect 202,097 warrants because such
warrants
under the current circumstances due to the ownership in 4.99% restriction,
are not exercisable within the 60 Day Period. It
also excludes 98,664 shares owned by a family
member.
(12)
Reflects
1,124,253 shares owned by Mr. Low, 1,220,998 shares and held by SEP,
but
does not include 761,971 warrants held by Mr. Low and 1,742,160 warrants
held by SEP because such warrants are not, under current circumstances,
exercisable within the 60 Day Period due to the ownership in 4.99%
restriction. Mr. Low is a manager of LC, the general partner of SEP,
and
as such, is deemed to have beneficial ownership of the securities
held by
SEP. However, Mr. Low disclaims beneficial interest in such shares
except
to the extent of his pecuniary interest therein. Also includes 383,275
shares held by Sunrise Securities Corp., of which Mr. Low is sole
stockholder and director, but does not include 636,370 warrants owned
by
Mr. Mandelbaum and 348,432 warrants held by Sunrise Securities Corp.,
because such warrants are not, under current circumstances, exercisable
within the 60 Day Period due to the ownership in 4.99% restriction.
Mr.
Low’s beneficial ownership does not also include 71,497 shares held by
Sunrise Foundation Trust, a charitable trust of which Mr. Low is
a
trustee. Mr. Low disclaims beneficial ownership of shares held by
Sunrise
Foundation Trust.
(13)
Reflects
1,094,020 shares owned by Mr. Mandelbaum and 1,220,998 shares held
by SEP,
but does not include 1,742,160 warrants held by SEP or 636,370
warrants
held by Mr. Mendelbaum because such warrants are not, under the
current
circumstances, exercisable within the 60 Day Period due to the
ownership
in 4.99% restriction.Mr.
Mandelbaum is a manager of LC, the general partner of SEP, and
as such, is
deemed to have beneficial ownership of the securities held by SEP.
However, Mr. Mandelbaum disclaims beneficial interest in such shares
except to the extent of his pecuniary interest therein.
(14)
Reflects
1,777,003 shares and 234,947 warrants, but does not include 1,507,213
warrants because such warrants are not, under current circumstances,
exercisable within the 60 Day Period due to the ownership in 4.99%
restriction. Mr. Howard Milstein is the Chairman and CEO and Mr.
John Hart
is the President of Emigrant.
(15)
Reflects
2,011,950 warrants but does not reflect 1,820,803 warrants because
such
warrants are not currently exercisable within the 60 Day Period
due to the
ownership in 4.99% restriction. Mr. Robert Harvey is the manager
of
Harvest Advaxis LLC.
(16)
Reflects
185,874 shares in addition to 1,826,076 warrants but excludes 2,673,924
warrants which Cornell has agreed that it will not exercise its
conversion
and warrant exercise rights to the extent it would result in Cornell
and
its affiliates owning in the aggregate more than 4.9% of the outstanding
voting shares. But does not include shares issueable upon conversion
of
convertible debentures along with 4,500,000 warrants of which $450,000
were converted as of January 19, 2007 converted into 2,825,628
additional
shares at an average conversion price of $0.159 per share. Therefore
if
the outstanding balance of $2,550,000 is converted into shares
at the
average conversion price of $0.159 per share it could be converted
into
16,037,736 shares. If the market price decreases or increases the
actual
number of shares converted can change materially from the actual
average
price above.
(17)
Includes
an aggregate of 7,182,920 options, warrants and earned but not
issued
shares.
Item
12: Certain Relationships and Related Transactions
Our
policy is to enter into transactions with related parties on terms that, on
the
whole, are no more favorable, or no less favorable, than those available from
unaffiliated third parties. Based on our experience in the business sectors
in
which we operate and the terms of our transactions with unaffiliated third
parties, we believe that all of the transactions described below met this policy
standard at the time they occurred.
The
Company entered into a consulting agreement with LVEP Management LLC (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. LVEP is owned by the estate of Scott Flamm (deceased January
2006) previously, one of our directors and a principal shareholder. 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.
The
term of the agreement as amended is 24 months from effective date. Mr. Appel
will devote 50% of his time over the first 12 months of the consulting period.
Also as a consultant, he will be paid at a rate of $22,500 per month in addition
to benefits as provided to other company officers. He will receive severance
payments over an additional 12 months at a rate of $10,416.67 per month and
shall be reimbursed for family health care. All his stock options vested fully
on the effective date and are exercisable over the option contract life. Also,
Mr. Appel was issued 1,000,000 shares of our common stock. He will receive
a
$250,000 bonus $100,000 paid on January 2, 2007 and the remainder to be paid
on
June 1, 2007.
77
J.
Todd
Derbin has served as Chairman and a director since January 1, 2006. Prior
thereto he served as President and Chief Executive Officer from December 20,2004 to January 1, 2006. On October 31, 2005 we entered into a Termination
of
Employment Agreement effective December 31, 2005 pursuant to which Mr. Derbin’s
employment by the Company ended on December 31, 2005. Pursuant to such agreement
Mr. Derbin’s salary was paid until the end of 2005 at the rate of $225,000 plus
a bonus for 2005 equal to $5,000 in shares of Common Stock of the Company priced
at $0.287 per share. Following his resignation Mr. Derbin served as a consultant
to the Company for a fee of $6,250 per month for 6 months ending June 30, 2006.
Mr. Derbin ceased serving as Chairman and Member of the Board of Directors
on
September 1, 2006.
Sentinel
Consulting, Inc.
Sentinel
Consulting Inc. is owned by Robert Harvey, an observer to our Board and the
manager of Harvest Advaxis LLC, one of our principal stockholders. Sentinel
provided financial consulting, scientific validation and business strategy
advice to us. The term of the agreement was for six months commencing as of
September 5, 2004 with each party having the right to terminate it after four
months under the agreement. The agreement was terminated in August, 2005. We
have paid Sentinel $33,000 for services performed and we have the obligation
to
issue to them a warrant to purchase 191,638 shares of our common stock at an
exercise price of an $0.40 per share, plus 287,451 shares of our common stock,
a
retainer of $5,000, a video preparation fee of $10,000 and expenses of $6,000
in
connection with the preparation of a scientific review.
Item
13: Exhibits
List
of
Exhibits
See
Index
of Exhibits below. The Exhibits are filed with or incorporated by reference
in
this report.
Amended
and restated Certificate of Incorporation of Advaxis. Incorporated
by
reference to Exhibit Annex C to report on Schedule DEF 14A Proxy
Statement
filed with the SEC on May 15,2006.
Exhibit
4.1
Form
of common stock certificate incorporated
by reference to Exhibit 4.1 filed with the SEC on March 9, 2006 to
the Registration Statement on Form SB-2 (File No.
333-132298)
Exhibit
4.2
Form
of Secured Convertible Debenture issued in February 2006 to Cornell
Capital Partners, LP. Incorporated
by reference to Exhibit 10.2 to Report on Form 8K filed with the
SEC on
February 8, 2006.
Exhibit
4.3
Form
of Warrant issued in February 2006 to Cornell Capital Partners, LP
to
purchase 4,200,000 shares of common stock. Incorporated
by reference to Exhibit 10.3 to Report on Form 8K filed with the
SEC on
February 8, 2006.
Exhibit
4.4
Form
of Warrant issued in February 2006 to Cornell Capital Partners, LP
to
purchase 300,000 shares of common stock. Incorporated
by reference to Exhibit 10.4 to Report on Form 8K filed with the
SEC on
February 8, 2006.
Exhibit
4.5
Form
of Warrant issued to purchasers in the Private Placement. Incorporated
by reference to Exhibit 4.1 to Report on Form 8K filed with the SEC
on
November 18, 2004.
Exhibit
4.6
Form
of Warrant issued to November 2004 Private Placement Agent. Incorporated
by reference to Exhibit 4.2 to Report on Form 8K filed with the SEC
on
November 18, 2004.
78
Exhibit
10.1
Share
and Exchange Agreement, dated as of August 25, 2004, by and among
the
Company, Advaxis and the shareholders of Advaxis. Incorporated
by reference to Exhibit 10.1 to Report on Form 8K filed with the
SEC on
November 18, 2004.
Exhibit
10.2
Securities
Purchase Agreement dated February 2, 2006 between Company and Cornell
Capital Partners, LP. Incorporated
by reference to Exhibit 10.1 to Report on Form 8K filed with the
SEC on
February 8, 2006.
Exhibit
10.3
Security
Agreement dated February 2, 2006 between Company and Cornell Capital
Partners, LP. Incorporated
by reference to Exhibit 10.6 to Report on Form 8K filed with the
SEC on
February 8, 2006.
.
Exhibit
10.4
Security
Agreement dated February 2, 2006 between Advaxis, Inc., a Delaware
corporation (subsidiary of the Company) and Cornell Capital Partners,
LP.
Incorporated
by reference to Exhibit 10.7 to Report on Form 8K filed with the
SEC on
February 8, 2006.
Exhibit
10.5
Investor
Registration Rights Agreement dated February 2, 2006 between Company
and
Cornell Capital Partners, LP. Incorporated
by reference to Exhibit 10.5 to Report on Form 8K filed with the
SEC on
February 8, 2006.
Exhibit
10.6
Form
of Securities Purchase Agreement related to the November 2004 Private
Placement, by and among the Company and the purchasers listed as
signatories thereto. Incorporated by reference to Exhibit 10.2 to
Report
on Form 8K filed with the SEC on November 18,2004.
Form
of Standstill Agreement, by and among the Company and persons listed
on
Schedule 1 attached thereto. Incorporated by reference to Exhibit
10.4 to
Report on Form 8K filed with the SEC on November 18,2004.
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 Post-Effective Amendment filed on January 5, 2006
to
Registration Statement on Form SB-2 (File No.
333-122504).
Government
Funding Agreement, dated as of April 5, 2004, by and between David
Carpi
and Advaxis, Inc. Incorporated by reference to Exhibit 10.10 to
Post-Effective Amendment filed on January 5, 2006 to Registration
Statement on Form SB-2 (File No.
333-122504).
79
Exhibit
10.15
Amended
and Restated Consulting and Placement Agreement, dated as of May28, 2003,
by and between David Carpi and Advaxis, Inc., as amended. Incorporated
by
reference to Exhibit 10.11 to Post-Effective Amendment filed on January5,2006 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
Post-Effective Amendment filed on January 5, 2006 to Registration
Statement on Form SB-2 (File No.
333-122504).
Exhibit
10.18
Grant
Writing Agreement, dated June 19, 2003, by and between DNA Bridges,
Inc.
and Advaxis, Inc. Incorporated by reference to Exhibit 10.14 to
Post-Effective Amendment filed on January 5, 2006 to Registration
Statement on Form SB-2 (File No.
333-122504).
Exhibit
10.19
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 Post-Effective Amendment filed on January 5, 2006 to Registration
Statement on Form SB-2 (File No.
333-122504).
Second
Amendment dated October, 31, 2005 to Consultancy Agreement between
LVEP
Management LLC and the Company. Incorporated by reference to Exhibit
10.2
to Report on Form 8K filed with the SEC on November 9,2005.
Strategic
Collaboration and Long Term Vaccine Supply Agreement between the
Company
and Colera BioManufacturing PLC, dated October 31, 2005. Incorporated
by
reference to Exhibit 10.33 to Post-Effective Amendment No. 2 to
Registration Statement on Form SB-2 (File No.
333-122504).*
Advaxis,
Inc., a Delaware corporation. Incorporated by reference to Exhibit
21.1 to
post-effective amendment no. 1 to Form SB-2 filed with the SEC on
January5, 2006
Exhibit
24.1
Power
of Attorney (Included on the signature
page)
Certification
by the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
Certification
by the Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
The
following is a summary and description of the fees recorded by the Company
to
Goldstein Golub Kessler, LLP (GGK) during the twelve month fiscal years ended
October 31, 2005 and 2006:
Fiscal
Year 2006
Fiscal
year 2005
Audit
Fees
$
35,000
$
29,500
Audit-Related
Fees
20,855
61,992
Tax
Fees
0
0
All
Other Fees
0
0
Total
$
55,855
$
91,492
Audit
Fees: The Company recorded fees of $35,000and
$29,500 respectively,for
GGK
in connection with its audit of the Company’s financial statements for the
fiscal years ended October 31, 2006 and 2005 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 $20,855 and $61,992 respectively, to GGK
to
perform audit-related services for the fiscal years ended October 31, 2006
and
2005, 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:
Preparation of the corporate tax returns were not performed by GGK.
Other
fees: No fees were classified outside the recorded Audit and Audit Related
fees.
83
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report
has been
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 the 13th day of February, 2007.
ADVAXIS,
INC.
By:
/s/ Thomas
Moore
Thomas
Moore, Chief
Executive Officer and Chairman of the Board
POWER
OF ATTORNEY
If
not
filed herewith, filed as an exhibit to the document referred to by letters
as
follows:
KNOW
ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas
Moore as his true and lawful attorney-in-fact and agent, with full power
of substitution for him in any and all capacities (1), to sign any and all
amendments to this report on Form 10-KSB and (2) to file the same with the
Securities and Exchange Commission pursuant to Rule 462(b) under the Securities
Exchange Act of 1934, and to file the same, with all exhibits thereto, and
other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent all power and authority to
do and
to perform each and every act and thing requisite and necessary to be done
in
connection therewith, as fully to all intents and purposes as he might or
could
do in person, hereby ratifying and affirming all that said attorney-in-fact
and
agent, or his substitutes may 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: