x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
ADVAXIS, INC. |
Delaware | 02-0563870 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
305 College Road East, Princeton, NJ 08540 |
(Address of principal executive offices) |
(609) 452-9813 |
(Registrant’s telephone number) |
(Former name, former address and former fiscal year, if changed since last report) |
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller Reporting Company x |
Page No. | |||
PART I | FINANCIAL INFORMATION | 2 | |
Item 1. | Condensed Financial Statements | 2 | |
Balance Sheets at | 2 | ||
Statements of Operations for the three | 3 | ||
Statements of Cash Flow for the | 4 | ||
Notes to Financial Statements | 6 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 24 | |
Item 4. | Controls and Procedures | 24 | |
PART II | OTHER INFORMATION | 25 | |
Item 1. | Legal Proceedings | 25 | |
Item 1A. | Risk Factors | 25 | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 25 | |
Item 5. | Other Information | 25 | |
Item 6. | Exhibits | 26 | |
SIGNATURES | 27 |
July 31, 2013 (unaudited) | October 31, 2012 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | 40 | $ | 232 | ||||
Prepaid expenses | 55,111 | 25,798 | ||||||
Other current assets | 33,182 | 8,182 | ||||||
Deferred expenses - current | 1,323,511 | 860,293 | ||||||
Total Current Assets | 1,411,844 | 894,505 | ||||||
Deferred expenses – long term | 289,834 | 342,007 | ||||||
Property and equipment (net of accumulated depreciation) | 61,442 | 78,068 | ||||||
Intangible assets (net of accumulated amortization) | 2,499,791 | 2,413,755 | ||||||
Deferred financing cost (net of accumulated amortization) | 62,034 | 49,024 | ||||||
Other assets | 38,438 | 38,438 | ||||||
TOTAL ASSETS | $ | 4,363,383 | $ | 3,815,797 | ||||
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 5,541,431 | $ | 5,155,797 | ||||
Accrued expenses | 1,242, 464 | 1,367,412 | ||||||
Short term convertible notes and fair value of embedded derivative | 2,037,962 | 2,089,099 | ||||||
Notes payable – former officer | 427,606 | 477,274 | ||||||
Notes payable – other | - | 250,000 | ||||||
Total Current Liabilities | 9,249,463 | 9,339,582 | ||||||
Deferred rent | - | 4,803 | ||||||
Long-term convertible note | 1,104,680 | - | ||||||
Common stock warrant liability | 736,059 | 434,136 | ||||||
Total Liabilities | 11,090,202 | 9,778,521 | ||||||
Commitments and Contingencies | ||||||||
Shareholders’ Deficiency: | ||||||||
Preferred stock, $0.001 par value; 5,000,000 shares authorized; Series B Preferred Stock; issued and outstanding 740 at July 31, 2013 and at October 31, 2012. Liquidation preference of $10,277,570 | - | - | ||||||
Common stock - $0.001 par value; authorized 25,000,000 shares, issued and outstanding 4,898,248 at July 31, 2013 and 3,158,433 at October 31, 2012. | 4,898 | 3,158 | ||||||
Additional paid-in capital | 64,083,331 | 52,119,567 | ||||||
Promissory note receivable | (10,633,584 | ) | (10,484,022 | ) | ||||
Deficit accumulated during the development stage | (60,181,464 | ) | (47,601,427 | ) | ||||
Total Shareholders’ Deficiency | (6,726,819 | ) | (5,962,724 | ) | ||||
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIENCY | $ | 4,363,383 | $ | 3,815,797 |
January 31, 2014 (unaudited) | October 31, 2013 | ||||||
ASSETS | |||||||
Current Assets: | |||||||
Cash | $ | 15,959,266 | $ | 20,552,062 | |||
Prepaid Expenses | 14,139 | 31,255 | |||||
Other Current Assets | 83,182 | 8,182 | |||||
Deferred Expenses - current | 148,882 | 218,007 | |||||
Total Current Assets | 16,205,469 | 20,809,506 | |||||
Deferred Expenses – long term | 93,149 | 129,041 | |||||
Property and Equipment (net of accumulated depreciation) | 98,077 | 80,385 | |||||
Intangible Assets (net of accumulated amortization) | 2,499,044 | 2,528,551 | |||||
Other Assets | 38,438 | 38,438 | |||||
TOTAL ASSETS | $ | 18,934,177 | $ | 23,585,921 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current Liabilities: | |||||||
Accounts Payable | $ | 2,305,859 | $ | 3,841,771 | |||
Accrued Expenses | 1,024,269 | 869,260 | |||||
Short Term Convertible Notes and Fair Value of Embedded Derivative | 62,882 | 62,882 | |||||
Notes Payable – Officer | 165,097 | 163,132 | |||||
Total Current Liabilities | 3,558,107 | 4,937,045 | |||||
Common Stock Warrant Liability | 516,268 | 646,734 | |||||
Total Liabilities | 4,074,375 | 5,583,779 | |||||
Commitments and Contingencies | |||||||
Shareholders’ Equity: | |||||||
Common Stock - $0.001 par value; authorized 25,000,000 shares, issued and outstanding 14,009,475 at January 31, 2014 and 13,719,861 at October 31, 2013. | 14,009 | 13,720 | |||||
Additional Paid-In Capital | 90,499,008 | 88,454,245 | |||||
Deficit accumulated during the Development Stage | (75,653,215) | (70,465,823) | |||||
Total Shareholders’ Equity | 14,859,802 | 18,002,142 | |||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 18,934,177 | $ | 23,585,921 |
2 | ||
Three Months Ended July 31, | Nine Months Ended July 31, | Period from March 1, 2002 (Inception) to July 31, | ||||||||||||||||||
2013 | 2012 | 2013 | 2012 | 2013 | ||||||||||||||||
Revenue | $ | - | $ | - | $ | - | $ | - | $ | 1,863,343 | ||||||||||
Research & development expenses | 1,319,936 | 1,331,415 | 4,411,793 | 5,760,158 | 34,214,629 | |||||||||||||||
General & administrative expenses | 1,733,677 | 2,251,725 | 6,299,670 | 4,297,110 | 33,168,179 | |||||||||||||||
Total Operating Expenses | 3,053,613 | 3,583,140 | 10,711,463 | 10,057,268 | 67,382,808 | |||||||||||||||
Loss from Operations | (3,053,613 | ) | (3,583,140 | ) | (10,711,463 | ) | (10,057,268 | ) | (65,519,465 | ) | ||||||||||
Other income (expense): | ||||||||||||||||||||
Interest expense | (142,842 | ) | (1,045,297 | ) | (600,004 | ) | (4,241,805 | ) | (15,585,869 | ) | ||||||||||
Other income (expense) | (17,372 | ) | 25,375 | (15,926 | ) | 25,715 | 243,783 | |||||||||||||
Gain (Loss) on note retirement | 1,723 | (932,421 | ) | 349,009 | (2,173,491 | ) | (643,933 | ) | ||||||||||||
Net changes in fair value of derivative liabilities | 1,616,919 | 2,430,914 | (2,326,843 | ) | 6,020,434 | 18,715,454 | ||||||||||||||
Net Loss before benefit for income taxes | (1,595,185 | ) | (3,104,569 | ) | (13,305,227 | ) | (10,426,415 | ) | (62,790,030 | ) | ||||||||||
Income tax benefit | - | - | 725,190 | 346,787 | 2,652,450 | |||||||||||||||
Net Loss | (1,595,185 | ) | (3,104,569 | ) | (12,580,037 | ) | (10,079,628 | ) | (60,137,580 | ) | ||||||||||
Dividends attributable to preferred shares | 185,000 | 185,000 | 555,000 | 555,000 | 2,877,570 | |||||||||||||||
Net Loss applicable to common stock | $ | (1,780,185 | ) | $ | (3,289,569 | ) | $ | (13,135,037 | ) | $ | (10,634,628 | ) | $ | (63,015,150 | ) | |||||
Net Loss per share, basic and diluted | $ | (0.37 | ) | $ | (1.19 | ) | $ | (3.13 | ) | $ | (4.45 | ) | ||||||||
Weighted average number of shares outstanding, basic and diluted | 4,775,772 | 2,774,814 | 4,190,062 | 2,387,443 |
Three Months Ended January 31, | Period from March 1, 2002 (Inception) to January 31, | |||||||||
2014 | 2013 | 2014 | ||||||||
Revenue | $ | - | $ | - | $ | 1,863,343 | ||||
Operating Expenses | ||||||||||
Research and Development Expenses | 1,559,867 | 979,103 | 36,984,690 | |||||||
General and Administrative Expenses | 4,397,836 | 1,201,951 | 40,337,959 | |||||||
Total Operating Expenses | 5,957,703 | 2,181,054 | 77,322,649 | |||||||
Loss from Operations | (5,957,703) | (2,181,054) | (75,459,306) | |||||||
Other Income (Expense): | ||||||||||
Interest Expense | (2,015) | (361,176) | (15,975,627) | |||||||
Other Income (Expense) | 8,572 | (19,898) | 197,405 | |||||||
(Loss) Gain on Note Retirement | 6,243 | 152,491 | (4,442,026) | |||||||
Net changes in Fair Value of Common Stock Warrant Liability and Embedded Derivative Liability | 131,948 | (4,023,599) | 19,669,780 | |||||||
Loss before Benefit for Income Taxes | (5,812,955) | (6,433,236) | (76,009,774) | |||||||
Income Tax Benefit | 625,563 | 725,190 | 3,278,013 | |||||||
Net Loss | (5,187,392) | (5,708,046) | (72,731,761) | |||||||
Dividends Attributable to Preferred Shares | - | 185,000 | 2,877,570 | |||||||
Net Loss Applicable to Common Stock | $ | (5,187,392) | $ | (5,893,046) | $ | (75,609,331) | ||||
Net Loss Per Share, Basic and Diluted | $ | (0.37) | $ | (1.65) | ||||||
Weighted Average Number of Shares Outstanding, Basic and Diluted | 13,842,144 | 3,565,032 |
3 | ||
(A Development Stage Company)
STATEMENTS OF CASH
FLOWS
(unaudited)
Nine Months Ended July 31, | Period from March 1, 2002 (Inception) to July 31, | |||||||||||
2013 | 2012 | 2013 | ||||||||||
OPERATING ACTIVITIES | ||||||||||||
Net loss | $ | (12,580,037 | ) | $ | (10,079,628 | ) | $ | (60,137,580 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Non-cash charges to consultants and employees for options and stock | 3,103,122 | 877,251 | 8,240,668 | |||||||||
Amortization of deferred financing costs | 28,909 | - | 342,556 | |||||||||
Amortization of discount on convertible promissory notes | 18,392 | 1,331,368 | 2,728,769 | |||||||||
Impairment of intangible assets | - | - | 26,087 | |||||||||
Non-cash interest expense | 528,023 | 2,885,053 | 11,889,712 | |||||||||
(Gain) Loss on change in fair value of derivative liabilities | 2,326,843 | (6,020,434 | ) | (18,715,454 | ) | |||||||
Warrant expense | 30,887 | - | 795,247 | |||||||||
Settlement expense | 364,335 | - | 629,335 | |||||||||
Employee Stock Purchase Plan | 21,029 | 9,727 | 39,330 | |||||||||
Value of penalty shares issued | - | - | 149,276 | |||||||||
Depreciation expense | 13,626 | 9,184 | 223,074 | |||||||||
Amortization expense of intangibles | 117,920 | 109,859 | 860,562 | |||||||||
Write off of intangible assets | - | - | 33,211 | |||||||||
Interest income | - | - | 267 | |||||||||
Loss (Gain) on note retirement | (349,009 | ) | 2,173,491 | 643,933 | ||||||||
Changes in operating assets and liabilities : | ` | |||||||||||
Decrease (increase) in prepaid expenses | (42,243 | ) | (2,452 | ) | (68,040 | ) | ||||||
(Increase) in other current assets | (25,000 | ) | (30,961 | ) | (33,182 | ) | ||||||
(Increase) in other assets | - | - | (132,271 | ) | ||||||||
(Increase) decrease in deferred expenses | (411,045 | ) | 365,925 | (1,105,617 | ) | |||||||
Increase (decrease) in accounts payable and accrued expenses | 1,914,577 | 4,445,333 | 14,418,838 | |||||||||
(Decrease) in deferred rent | (4,803 | ) | (43,228 | ) | - | |||||||
Increase in interest payable | 24,840 | 24,759 | 17,542 | |||||||||
Net cash used in operating activities | (4,919,634 | ) | (3,944,753 | ) | (39,153,737 | ) | ||||||
INVESTING ACTIVITIES | ||||||||||||
Cash paid on acquisition of Great Expectations | - | - | (44,940 | ) | ||||||||
Proceeds from sale of equipment | 3,000 | - | 3,000 | |||||||||
Purchase of property and equipment | - | (91,844 | ) | (241,937 | ) | |||||||
Cost of intangible assets | (203,955 | ) | (258,940 | ) | (3,424,600 | ) | ||||||
Net cash used in investing activities | (200,955 | ) | (350,784 | ) | (3,708,477 | |||||||
FINANCING ACTIVITIES | ||||||||||||
Proceeds from convertible notes | 2,110,500 | 500,000 | 19,969,900 | |||||||||
Repayment of convertible notes | - | (87,941 | ) | (1,649,030 | ) | |||||||
Payment of deferred offering expenses | (21,919 | ) | (58,500 | ) | (133,919 | ) | ||||||
Cash paid for deferred financing costs | - | - | (584,493 | ) | ||||||||
Proceeds from notes payable | - | 2,388,963 | 250,000 | |||||||||
Proceeds from former officer loan | 11,200 | - | 1,458,685 | |||||||||
Repayment of former officer loan | (85,700 | ) | - | (1,220,700 | ) | |||||||
Deferred investment funds | - | 50,000 | - | |||||||||
Net proceeds from issuance of Preferred Stock | - | - | 8,610,499 | |||||||||
Payment on cancellation of warrants | - | - | (600,000 | ) | ||||||||
Proceeds from exercise of warrants | 94,444 | 411,765 | 1,761,210 | |||||||||
Net proceeds of issuance of common stock | 3,011,872 | - | 15,000,102 | |||||||||
Net cash provided by financing activities | 5,120,397 | 3,204,287 | 42,862,254 | |||||||||
Net increase (decrease) in cash | (192 | ) | (1,091,250 | ) | 40 | |||||||
Cash at beginning of period | 232 | 1,096,538 | - | |||||||||
Cash at end of period | $ | 40 | $ | 5,288 | $ | 40 |
Three Months Ended January 31, | Period from March 1, 2002 (Inception) to January 31, | |||||||||
2014 | 2013 | 2014 | ||||||||
OPERATING ACTIVITIES | ||||||||||
Net Loss | $ | (5,187,392) | $ | (5,708,046) | $ | (72,731,761) | ||||
Adjustments to reconcile Net Loss to net cash used in operating activities: | ||||||||||
Non-cash charges to consultants and employees for options and stock | 1,602,423 | 369,923 | 11,128,461 | |||||||
Amortization of deferred financing costs | - | 15,291 | 424,767 | |||||||
Amortization of discount on convertible promissory notes | - | 7,979 | 2,728,769 | |||||||
Impairment of intangible assets | - | - | 26,087 | |||||||
Non-cash interest expense | 51 | 328,187 | 12,339,263 | |||||||
(Gain) Loss on change in value of warrants and embedded derivative | (131,948) | 4,023,599 | (19,669,780) | |||||||
Warrant Expense | 1,482 | 3,274 | 889,586 | |||||||
Settlement Expense | 34,125 | 131,965 | 1,063,460 | |||||||
Employee Stock Purchase Plan | 5,371 | 5,481 | 51,727 | |||||||
Value of penalty shares issued | - | - | 149,276 | |||||||
Depreciation expense | 6,903 | 4,592 | 235,650 | |||||||
Amortization expense of intangibles | 41,934 | 38,703 | 943,913 | |||||||
Write off of intangible assets | - | - | 33,211 | |||||||
Interest Income | - | - | 267 | |||||||
(Gain) Loss on note retirement | (6,243) | (152,491) | 4,442,026 | |||||||
Changes in operating assets and liabilities : | ||||||||||
Decrease (Increase) in prepaid expenses | 17,116 | 14,128 | (27,068) | |||||||
(Increase) in other current assets | (75,000) | (75,000) | (83,182) | |||||||
(Increase) in other assets | - | - | (132,271) | |||||||
Decrease in deferred expenses | 105,018 | 74,943 | 265,698 | |||||||
Increase (decrease) in accounts payable and accrued expenses | (1,371,578) | (225,360) | 9,991,782 | |||||||
(Decrease) in deferred rent | - | (4,803) | - | |||||||
Increase in interest payable | 1,964 | 9,530 | 26,297 | |||||||
Net cash used in operating activities | (4,955,774) | (1,138,105) | (47,903,822) | |||||||
INVESTING ACTIVITIES | ||||||||||
Cash paid on acquisition of Great Expectations | - | - | (44,940) | |||||||
Proceeds from sale of property and equipment | - | - | 3,000 | |||||||
Purchase of property and equipment | (24,595) | - | (291,148) | |||||||
Cost of intangible assets | (12,427) | (43,709) | (3,507,205) | |||||||
Net cash used in Investing Activities | (37,022) | (43,709) | (3,840,293) | |||||||
FINANCING ACTIVITIES | ||||||||||
Proceeds from convertible notes | - | 753,500 | 20,827,900 | |||||||
Repayment of convertible notes | - | - | (2,339,829) | |||||||
(Increase) in deferred offering expenses | - | (3,500) | (114,000) | |||||||
Cash paid for deferred financing costs | - | - | (651,412) | |||||||
Proceeds from notes payable | - | - | 250,000 | |||||||
Proceeds from Officer Loan | - | 3,800 | 1,455,685 | |||||||
Repayment of Officer Loan | - | - | (1,323,833) | |||||||
Net proceeds from issuance of Preferred Stock | - | - | 8,610,499 | |||||||
Payment on cancellation of warrants | - | - | (600,000) | |||||||
Proceeds from exercise of warrants | - | - | 1,761,210 | |||||||
Net proceeds of issuance of common stock | 400,000 | 427,882 | 39,827,161 | |||||||
Net cash provided by Financing Activities | 400,000 | 1,181,682 | 67,703,381 | |||||||
Net increase (decrease) in cash | (4,592,796) | (132) | 15,959,266 | |||||||
Cash at beginning of period | 20,552,062 | 232 | - | |||||||
Cash at end of period | $ | 15,959,266 | $ | 100 | $ | 15,959,266 |
4 | ||
Nine months ended July 31, | Period from March 1, 2002 (Inception) to July 31, | |||||||||||
2013 | 2012 | 2013 | ||||||||||
Cash paid for Interest | $ | 188 | $ | 53,027 | $ | 788,205 | ||||||
Cash paid for Taxes | - | 2,080 | 16,453 |
Three months ended January 31, | Period from March 1, 2002 (Inception) to January 31, | |||||||||
2014 | 2013 | 2014 | ||||||||
Cash paid for Interest | $ | - | $ | 188 | $ | 914,005 |
Nine months ended July 31, | Period from March 1, 2002 (Inception) to July 31, | |||||||||||
2013 | 2012 | 2013 | ||||||||||
Equipment acquired under notes payable | $ | - | $ | - | $ | 45,580 | ||||||
Common stock issued to Founders | $ | - | $ | - | $ | 40 | ||||||
Notes payable and accrued interest converted to preferred stock | $ | - | $ | - | $ | 15,969 | ||||||
Stock dividend on preferred stock | $ | - | $ | - | $ | 43,884 | ||||||
Accounts payable from consultants settled with common stock | $ | 12,307 | $ | 62,275 | $ | 126,560 | ||||||
Notes payable and embedded derivative liabilities converted to common stock | $ | 1,962,599 | $ | 4,636,255- | $ | 10,604,969 | ||||||
Intangible assets acquired with notes payable | $ | - | $ | - | $ | 360,000 | ||||||
Intangible assets acquired with common stock | $ | - | $ | - | $ | 70,000 | ||||||
Debt discount in connection with recording the original value of the embedded derivative liability | $ | $ | 306,568 | $ | 6,473,385 | |||||||
Allocation of the original secured convertible debentures to warrants | $ | - | $ | - | $ | 214,950 | ||||||
Allocation of the warrants on convertible notes as debt discount | $ | $ | 279,807 | $ | 2,710,406 | |||||||
Cancellation of note receivable in connection with preferred stock redemption | $ | - | $ | - | $ | (3,051,000 | ) | |||||
Note receivable in connection with exercise of warrants | $ | - | $ | - | $ | 9,998,210 | ||||||
Common stock issued in exchange for warrants | $ | - | 134,796 | 134,796 | ||||||||
Warrants Issued in connection with issuance of common stock | $ | - | $ | - | $ | 1,505,550 | ||||||
Warrants Issued in connection with issuance of preferred stock | $ | - | $ | - | $ | 3,587,625 |
Three months ended January 31, | Period from March 1, 2002 (Inception) to January 31, | |||||||||
2014 | 2013 | 2014 | ||||||||
Equipment acquired under notes payable | $ | - | $ | - | $ | 45,580 | ||||
Common Stock issued to Founders | $ | - | $ | - | $ | 40 | ||||
Notes payable and accrued interest converted to Preferred Stock | $ | - | $ | - | $ | 15,969 | ||||
Stock dividend on Preferred Stock | $ | - | $ | - | $ | 43,884 | ||||
Accounts Payable from vendors settled with Common Stock | - | - | 3,249,990 | |||||||
Accounts Payable from consultants settled with Common Stock | $ | 3,000 | $ | - | $ | 893,555 | ||||
Notes payable and embedded derivative liabilities converted to Common Stock | $ | - | $ | 765,599 | $ | 19,806,369 | ||||
Intangible assets acquired with notes payable | $ | - | $ | - | $ | 360,000 | ||||
Intangible assets acquired with Common Stock | $ | - | $ | - | $ | 70,000 | ||||
Debt discount in connection with recording the original value of the embedded derivative liability | $ | — | $ | — | $ | 6,473,385 | ||||
Allocation of the original secured convertible debentures to warrants | $ | - | $ | - | $ | 214,950 | ||||
Allocation of the warrants on convertible notes as debt discount | $ | - | $ | — | $ | 3,001,806 | ||||
Cancellation of Note Receivable in connection with Preferred Stock Redemption | $ | - | $ | - | $ | (13,684,584) | ||||
Note receivable in connection with exercise of warrants | $ | - | $ | - | $ | 9,998,210 | ||||
Common Stock issued in exchange for warrants | - | - | 2,443,296 | |||||||
Warrants issued in connection with issuance of Common Stock | $ | - | $ | - | $ | 2,023,247 | ||||
Warrants issued in connection with issuance of Preferred Stock | $ | - | $ | - | $ | 3,587,625 |
5 | ||
ORGANIZATION
The Company’s lead construct,women with recurrent cervical cancer. ADXS-HPV is being evaluated in fourthree ongoing clinical trials for human papilloma virus (“HPV”)-associated diseasesHPV-associated cancer as follows: recurrent/refractory cervical cancer (India), locally advanced cervical cancer (with the Gynecologic Oncology Group (“GOG”), largely underwritten by the National Cancer Institute (“NCI”);head and neck cancer (with the Cancer Research, United KingdomIchan School of Medicine at Mount Sinai (“CRUK”MSSM”), (U.K); (U.S); and anal cancer (Brown University, Oncology Group (“BrUOG”), U.S.). In addition, the Company has developed immunotherapies for prostate cancer and HER2 overexpressing cancers (such as breast, gastric and other cancers in humans and osteosarcoma in canines). Over fifteen distinct constructs are in various stages of development, developed directly by the Company and through strategic collaborations with recognized centers of excellence.
If the Company fails to raise a significant amount of capital, it may need to significantly curtail or cease operations in the near future. Any sale of common stock below $3.16 per share (as may be further adjusted) with respectin October 2013, resulting in approximately $24 million in net proceeds. The Company believes its current cash position is sufficient to certain offund its outstanding debt instruments or $15.11 per share (as may be further adjusted) with respect to certain of its outstanding warrants will trigger significant dilution due tobusiness plan for the anti-dilution protection provisions contained therein.
next eighteen months.
Accordingly, the
6 | ||
Basis of Presentation
information and footnotes required by U.S. GAAP for complete financial statements. The accompanying unaudited interim financial statements includefurnished reflect all adjustments (consisting only of those of a normal recurring nature)accruals) which are, in the opinion of management, necessary forto a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the interim period. The October 31, 2012 balance sheet is derived from the audited balance sheet included in the Company’s Annual Report on Form 10-Kresults for the fiscal year ended October 31, 2012 (the “Form 10-K”).full year. These unaudited interim financial statements should be read in conjunction with the Company’s financial statements and notesof the Company for the fiscal year ended October 31, 2012 included2013 and notes thereto contained in the Company’s annual report on Form 10-K. The Company believes these financial statements reflect all adjustments and reclassifications that are necessary for a fair presentation of its financial position and results of operations10-K for the periods presented.
year ended October 31, 2013, as filed with the SEC on January 29, 2014.
Estimates
Reverse Stock Split
At the Annual Meeting of Stockholders held on June 14, 2013, the Company’s stockholders approved the filing of a Certificate of Amendment to effect a reverse stock split of its issued and outstanding common stock, and the filing of a Certificate of Amendment to decrease the total number of its authorized shares of common stock. On July 11, 2013, the Company’s Board of Directors authorized a reverse stock split at a ratio of 1-for-125 and approved the implementation of the authorized share capital decrease after the effectiveness of the reverse stock split. Accordingly, the Company amended its Amended and Restated Certificate of Incorporation by the filing of two Certificates of Amendment with the Delaware Secretary of State as follows:(a) on July 11, 2013, to effect a 1-for-125 reverse stock split of its outstanding common stock, par value $0.001 per share, to take effect on July 12, 2013 at 4:30 p.m. EDT, and (b) on July 12, 2013, to decrease the total number of authorized shares of common stock on a post-reverse stock split basis, so that the total number of shares that the Company has the authority to issue is 30,000,000 shares, of which 25,000,000 shares are common stock and 5,000,000 shares are ‘‘blank check’’ preferred stock. The reverse stock split was effective at approximately 4:30 p.m. EDT on July 12, 2013, and the share capital decrease took effect thereafter upon filing with the Delaware Secretary of State. All references in this Report to number of shares, price per share and weighted average number of shares of common stock outstanding prior to this reverse stock split have been adjusted to reflect the reverse stock split on a retroactive basis, unless otherwise noted.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue from license fees and grants is recognized when the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) services have been rendered, (iii) the contract price is fixed or determinable, and (iv) collection 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, all of the Company’s revenues have been from multiple research grants. For the three and nine months ended July 31, 2013 and 2012, the Company did not receive any revenue from such grants.
For revenue contracts that contain multiple elements, revenue arrangements with multiple deliverables are divided into separate units of accounting if the delivered item has value to the customer on a standalone basis and there is objective and reliable evidence of the fair value of the undelivered item.
Cash
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. As of July 31, 2013 and October 31, 2012, the Company did not have any cash equivalents.
Concentration of Credit Risk
Approximately $15.2 million is subject to credit risk at January 31, 2014. However, these cash balances are maintained at creditworthy financial institutions. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk.
As of July 31, | ||||||||
2013 | 2012 | |||||||
Warrants | 899,494 | 917,910 | ||||||
Stock Options | 467,923 | 358,459 | ||||||
Convertible Debt (using the if-converted method) | 478,695 | 92,759 | ||||||
Total | 1,846,112 | 1,369,128 |
As of January 31, | |||||||
2014 | 2013 | ||||||
Warrants | 4,360,441 | 1,001,236 | |||||
Stock Options | 467,923 | 355,890 | |||||
Convertible Debt (using the if-converted method) | 3,354 | 390,566 | |||||
Total | 4,831,718 | 1,747,692 |
Stock-based
The carrying amounts of financial instruments, including cash, accounts payable and accrued expenses approximated fair value as of the balance sheet date presented, because of the relatively short maturity dates on these instruments. The carrying amounts of the financing arrangements issued approximate fair value as of the balance sheet date presented, because interest rates on these instruments approximate market interest rates after consideration of stated interest rates, anti-dilution protection and associated warrants.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company used the Black Scholes valuation model which approximated the binomial lattice options pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the instrument could be required within 12 months of the balance sheet date.
Hybrid Financial Instruments
For certain hybrid financial instruments, the Company elected to apply the fair value option to account for these instruments. The Company made an irrevocable election to measure such hybrid financial instruments at fair value in their entirety, with changes in fair value recognized in earnings at each balance sheet date. The election may be made on an instrument by instrument basis.
Debt Discount and Amortization of Debt Discount
Debt discount represents the fair value of embedded conversion options of various convertible debt instruments and attached convertible equity instruments issued in connection with debt instruments. The debt discount is amortized over the earlier of (i) the term of the debt or (ii) conversion of the debt, using the straight-line method which approximates the interest method. The amortization of debt discount is included as a component of other expenses in the accompanying statements of operations.
Recent Accounting Pronouncements
In July 2012, the FASB issued ASU 2012-02, “Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment." This ASU simplifies how entities test indefinite-lived intangible assets for impairment which improve consistency in impairment testing requirements among long-lived asset categories. These amended standards permit an assessment of qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. For assets in which this assessment concludes it is more likely than not that the fair value is more than its carrying value, these amended standards eliminate the requirement to perform quantitative impairment testing as outlined in the previously issued standards. The guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, early adoption is permitted. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows.
In February 2013, the FASB issued ASU No. 2013-02, "Reporting of Amounts Reclassified Out of Other Comprehensive Income." ASU 2013-02 finalized the reporting for reclassifications out of accumulated other comprehensive income, which was previously deferred, as discussed below. The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, they do require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. An entity is also required to present on the face of the financials where net income is reported or in the footnotes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. Other amounts need only be cross-referenced to other disclosures required that provide additional detail of these amounts. The amendments in this update are effective for reporting periods beginning after December 15, 2012. Early adoption is permitted. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows.
In March 2013, the FASB issued ASU No. 2013-05, “Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” This ASU addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The guidance outlines the events when cumulative translation adjustments should be released into net income and is intended by the FASB to eliminate some disparity in current accounting practice. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows.
In March 2013, the FASB issued ASU 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.” The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception. The amendments require financial statements prepared using the liquidation basis of accounting to present relevant information about an entity’s expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation. The entity should include in its presentation of assets any items it had not previously recognized under U.S. GAAP but that it expects to either sell in liquidation or use in settling liabilities (for example, trademarks). The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows.
In July 2013, the FASB issued ASU 2013-11,“Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” Under this new guidance, companies must present this unrecognized tax benefit in the financial statements as a reduction to deferred tax assets created by net operating losses or other tax credits from prior periods that occur in the same taxing jurisdiction. If the unrecognized tax benefit exceeds such credits it should be presented in the financial statements as a liability. This update is effective for annual and interim reporting periods for fiscal years beginning after December 15, 2013. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company will classify as income tax expense any interest and penalties. The Company has no material uncertain tax positions for any of the reporting periods presented. The Company files tax returns in U.S. federal and state jurisdictions, including New Jersey, and is subject to audit by tax authorities beginning with the year ended October 31, 2009.
7 | ||
July 31, 2013 (Unaudited) | October 31, 2012 | |||||||
Laboratory equipment | $ | 284,516 | $ | 287,516 | ||||
Accumulated depreciation | (223,074 | ) | (209,448 | ) | ||||
Net Property and Equipment | $ | 61,442 | $ | 78,068 |
January 31, 2014 (Unaudited) | October 31, 2013 | ||||||
Laboratory Equipment | $ | 333,727 | $ | 309,132 | |||
Accumulated Depreciation | (235,650) | (228,747) | |||||
Net Property and Equipment | $ | 98,077 | $ | 80,385 |
4. INTANGIBLE ASSETS
July 31, 2013 (Unaudited) | October 31, 2012 | |||||||
License | $ | 651,992 | $ | 651,992 | ||||
Patents | 2,626,365 | 2,422,409 | ||||||
Total intangibles | 3,278,357 | 3,074,401 | ||||||
Accumulated amortization | (778,566 | ) | (660,646 | ) | ||||
Intangible Assets | $ | 2,499,791 | $ | 2,413,755 |
January 31, 2014 (Unaudited) | October 31, 2013 | ||||||
License | $ | 651,992 | $ | 651,992 | |||
Patents | 2,708,970 | 2,696,543 | |||||
Total intangibles | 3,360,962 | 3,348,535 | |||||
Accumulated Amortization | (861,918) | (819,984) | |||||
Intangible Assets | $ | 2,499,044 | $ | 2,528,551 |
Year ended October 31, | ||||
2013, remainder | $ | 35,000 | ||
2014 | 140,000 | |||
2015 | 140,000 | |||
2016 | 140,000 | |||
2017 | 140,000 |
Year ended October 31, | |||
2014 (Remaining) | 125,500 | ||
2015 | 167,500 | ||
2016 | 167,500 | ||
2017 | 167,500 | ||
2018 | 167,500 |
January 31, 2014 | October 31, | ||||||
(Unaudited) | 2013 | ||||||
Salaries and Other Compensation | $ | 721,672 | $ | 752,248 | |||
Consultants | 2,000 | 2,000 | |||||
Legal | 15,000 | 15,000 | |||||
Withholding Taxes Payable | 185,585 | - | |||||
Share Purchase | 100,012 | 100,012 | |||||
$ | 1,024,269 | $ | 869,260 |
8 | ||
July 31/ 2013 (Unaudited) | October 31, 2012 | |||||||
October 2011 Note Financing | $ | - | $ | 58,824 | ||||
December 2011 Note Financing | - | 131,928 | ||||||
May 2012 Note Financing | 83,333 | 588,313 | ||||||
Bridge Notes | 62,882 | 185,758 | ||||||
JMJ Financial | 995,166 | 73,590 | ||||||
Hanover Holdings Note | - | 362,791 | ||||||
Magna | - | 333,086 | ||||||
Chris French | - | 25,950 | ||||||
Asher | 507,830 | 150,687 | ||||||
Yvonne Paterson | - | 103,804 | ||||||
James Patton | - | 78,909 | ||||||
Redwood Management LLC | 388,751 | - | ||||||
Total Convertible Notes | 2,037,962 | 2,093,640 | ||||||
Unamortized discount – Original Issue Discount (OID) | - | (4,541 | ) | |||||
Current Portion of Convertible Notes | $ | 2,037,962 | $ | 2,089,099 |
Convertible Notes payable consist
October 2011 Note Financing
The notes issued by the Company in the offering completed in October 2011, which it refers to as the October 2011 Notes, matured on OctoberJanuary 31, 2012. At2014 and October 31, 2012, there was one remaining October 2011 Note with an outstanding principal balance of $58,824.
During the nine months ended July 31, 2013, pursuant to the terms of an Assignment Agreement, the Company delivered a convertible note, which we refer to as the Second Magna Exchange Note, to Magna Group, LLC, an affiliate of Hanover, which it refers to as Magna, in an aggregate principal amount of $58,824, convertible into shares of common stock, which bears interest at a rate of 6% per annum, which interest accrues, but does not become payable until maturity.
During the nine months ended July 31, 2013, the Company converted the $58,824 in principal into 18,224 shares of common stock at conversion prices ranging from $3.16 to $3.25, recording non-cash expense of approximately $70,000 to the loss on retirement account, on the statement of operations, for the difference between the amount of the principal converted and the fair value of the shares issued as a result of the conversion.
As of July 31, 2013, there were no outstanding October 2011 Notes.
December 2011 Note Financing
At October 31, 2012, there was one remaining note that was issued by the Company in the offering completed in December 2011, which it refers to as the December 2011 Note, with an outstanding principal balance of $158,824, having an unamortized debt discount of $26,896.
During the nine months ended July 31, 2013, pursuant to the terms of an Assignment Agreement, the Company delivered a convertible note to Magna in an aggregate principal amount of $170,589 (including the above $158,824 and a junior subordinated convertible promissory note in the amount of $11,765), convertible into shares of common stock, which bears interest at a rate of 6% per annum, which interest accrues, but does not become payable until maturity.
Accretion of the discount was $26,896 for the three months ended January 31, 2013, resulting in the December 2011 Note being recorded at its principal value of $158,824, on the balance sheet, prior to its assignment. During the nine months ended July 31, 2013, the Company converted the $170,589 in principal into 48,888 shares of its common stock at a conversion price of $3.49, recording non-cash expense of approximately $104,000 to the loss on retirement account, on the statement of operations, for the difference between the amount of principal converted and the fair value of the shares issued as a result of the conversion.
As of July 31, 2013, there were no outstanding December 2011 Notes.
May 2012 Note Financings
Effective May 14, 2012, the Company entered into a Note Purchase Agreement, which it refers to as the May 2012 Notes, in which investors acquired $953,333 of convertible promissory notes for an aggregate purchase price of approximately $715,000 in cash, representing an original issue discount of 25%. The May 2012 Notes are convertible into shares of common stock at $18.75 per share. Additionally, investors received warrants, which the Company refers to as the May 2012 Warrants, to purchase such number of shares of common stock equal to 50% of the number of shares of our common stock that would be issuable upon conversion of their May 2012 Notes at an exercise price of $18.75 per share. The May 2012 Notes matured on May 18, 2013. The Company may redeem the May 2012 Notes under certain circumstances. The May 2012 Warrants are exercisable at any time on or before May 18, 2017. The May 2012 Warrants may be exercised on a cashless basis under certain circumstances. As of July 31, 2013 the conversion price of the May 2012 Notes was $3.16 due to the anti-dilution provisions contained therein and the exercise price of the May 2012 Warrants was $10.625 as a result of the price reset provisions contained therein.
The Company elected to apply the fair-value option to account for the May 2012 Notes and has recorded the May 2012 Notes at a fair value of $454,680 upon issuance. Unrealized losses on the mark-to-market of the May 2012 Notes which amounted to $266,332 for the period from the date of issuance or May, 14, 2012 through July 31, 2013 were recognized as a non-cash expense in the changes in fair value account on the statement of operations. Accretion of the discount, related to the original fair value of the associated warrants, was recognized through interest expense, amounting to $291,400 for the period from the date of issuance or May 14, 2012 through July 31, 2013.
In addition, as a result of the reset provisions discussed above, the May 2012 Warrants, which have been recorded at a fair value of $291,400 on May 14, 2012, are being reflected as a warrant liability as of the date of issuance. At October 31, 2012, the warrant liability amounted to $112,487. As of July 31, 2013, the warrant liability amounted to $18,426, which resulted in a non-cash income of $65,294 for the three months ended July 31, 2013 and non-cash expense of $7,717 for the nine months ended July 31, 2013, being recorded in the changes in fair value account on the statement of operations.
During the nine months ended July 31, 2013, the Company converted $870,000 in principal into 275,240 shares of its common stock at a conversion price of $3.16, recording non-cash expense of approximately $25,200 to the loss on retirement account, on the statement of operations, for the difference between the amount of the principal converted and the fair value of the shares issued as a result of the conversion.
As of July 31, 2013, approximately $83,000 in principal remained outstanding on one May 2012 Note. As of July 31, 2013, this May 2012 Note, which matured on May 18, 2012, was recorded on the balance sheet, as a current liability, at its remaining principal value of $83,333.
On August 8 , 2013, the remaining May 2012 Note holder converted $83,333 in principal into 26,371 shares of common stock at a conversion rate of $3.16.
Currently, there are no remaining May 2012 Notes. (See Note 14:Subsequent Events for more information on these conversions after the balance sheet date).
Junior Subordinated Convertible Promissory Notes
The Company refers to all Junior Subordinated Convertible Promissory Notes as “Bridge Notes”.
The Bridge Notes are convertible into shares of the Company’s common stock at a fixed exercise price. For every dollar invested in the Company’s Bridge Notes, each investor received warrant coverage ranging from approximately 23% to 75%, subject to adjustments upon the occurrence of certain events as more particularly described below and in the form of warrant. As of October 31, 2012, substantially all of the Bridge Warrants had an exercise price of $18.75 per share. The Bridge Notes may be prepaid in whole or in part at the option of the Company without penalty at any time prior to the maturity date. The warrants may be exercised on a cashless basis under certain circumstances.
As of October 31, 2012, the Company had approximately $186,000$63,000 in principal outstanding on its junior subordinated convertible promissory notes with maturity dates ranging to May 12, 2012.
During the three and nine months ended July 31, 2013, pursuant to the terms of various Assignment Agreements, the Company delivered convertible notes to Magna in aggregate principal amounts of $170,589 (including $11,765 of junior subordinated convertible promissory notes plus the above December 2011 Note in the principal amount of $158,824) and $111,111(consisting of one junior subordinated convertible promissory note), convertible into shares of common stock, which bears interest at a rate of 6% per annum, which interest accrues, but does not become payable until maturity. The Company converted the exchange note, which it refers to as the Third Magna Exchange Note, in the principal amount of $111,111 into 34,241 shares of its common stock at a conversion price of $3.25 per share, recording non-cash expense of approximately $106,000 to the loss on retirement account, on the statement of operations, for the difference between the amount of the principal converted and the fair value of the shares issued as a result of the conversion.
As of July 31, 2013, approximately $63,000 in principal remained outstanding on the junior unsubordinated convertible promissory notes, with maturity dates ranging to October 22, 2011. These notesthat are currently in defaultoverdue and are recorded as current liabilities on theour balance sheet at JulyJanuary 31, 2014 and October 31, 2013.
JMJ Financial
On August 27, 2012, in a private placement pursuant to a Note Purchase Agreement, the Company issued JMJ Financial a convertible promissory note in the aggregate principal amount of $100,000 for a purchase price of $100,000, which it refers to as the JMJ August 2012 Note.
During the nine months ended July 31, 2013, the Company converted the JMJ August 2012 Note totaling $100,000 into 24,744 shares of its common stock. The Company recorded non-cash income of approximately $96,000 upon conversion. This non-cash income was recorded to the gain on retirement account, on the statement of operations, representing the difference between the fair value of the JMJ August 2012 Note, as reported on the balance sheet, and the fair value of the shares issued as a result of the conversion.
On December 28, 2012,owed $163,132 in a private placement pursuant to a note purchase agreement, the Company issued JMJ Financial a one month convertible promissory note, which it refers to as the JMJ December 2012 Note, in the aggregate principal amount of $100,000 for a purchase price of $100,000. If repaid before January 31, 2013, the principal amount of the JMJ December 2012 Note would be $125,000. If the JMJ December 2012 Note was to be rolled into a future financing, the principal amount would be $115,000.
On April 26, 2013, in a private placement, the Company issued JMJ Financial a convertible promissory note (“JMJ April 2013 Note”). The face amount of the note reflects an aggregate principal amount of $800,000 for total consideration of $720,000 (or a 10% original issue discount). As of April 26, 2013, the Company had only borrowed $425,000 from JMJ Financial under this convertible promissory note. JMJ Financial paid $300,000 in cash and exchanged the JMJ December 2012 Note with an aggregate principal amount of $125,000 as consideration for the note. The exchange was analyzed and management concluded that the exchange qualifies for modification accounting. On June 27, 2013, the Company borrowed an additional $100,000 under the convertible promissory note. JMJ Financial has no obligation to lend the Company the remaining $195,000 of available principal amount under the note and may never do so. The Company has no obligation to pay JMJ Financial any amounts on the unfunded portion of the note. The Company may not prepay any portion of the note without JMJ Financial’s consent.
The convertible promissory note matures April 26, 2014 and, in addition to the 10% original issue discount, provides for payment of a one-time interest charge of 5% on funded amounts. The convertible promissory note is convertible at any time, in whole or in part, at JMJ Financial’s option into shares of the Company’s common stock at the lesser of $8.75 or 70% of the average of the lowest two closing prices in the 20-day pricing period preceding a conversion. However, at no time will JMJ Financial be entitled to convert any portion of the note to the extent that after such conversion, JMJ Financial (together with its affiliates) would beneficially own more than 4.99% of the Company’s outstanding shares of common stock as of such date. The Company agreed to reserve at least 160,000 shares of its common stock for conversion of the note. The note also provides for penalties and rescission rights if the Company does not deliver shares of its common stock upon conversion within the required timeframes.
The convertible promissory note includes customary event of default provisions, and provides for a default rate of the lesser of 18% or the maximum permitted by law. Upon the occurrence of an event of default, the lender may require the Company to pay in cash the “Mandatory Default Amount” which is defined in the note to mean the greater of (i) the outstanding principal amount of the note plus all interest, liquidated damages and other amounts owing under the note, divided by the conversion price on the date payment of such amount is demanded or paid in full, whichever is lower, multiplied by the volume-weighted-average price, or VWAP, on the date payment of such amount is demanded or paid in full, whichever has a higher VWAP, or (ii) 150% of the outstanding principal amount of the note plus 100% of all interest, liquidated damages and other amounts owing under the note.
The Company also granted JMJ Financial the right, at its election, to participate in the next public offering of its securities by exchanging, in whole or in part, the funded portion of this note for a subscription to such public offering in an amount equal to 125% of the sum of the funded portion of the principal amount of being exchanged plus all accrued and unpaid interest, liquidated damages, fees, and other amounts due on such exchanged principal amount. However, the note was subsequently amended in September 2013 to remove this right. See Note 14 -Subsequent Events. If the Company completes a public offering of $10,000,000 or more, JMJ Financial has the right, at its election, to require repayment of the note, in whole or in part, in amount equal to 125% of the sum of the funded principal amount being repaid plus all accrued and unpaid interest liquidated damages, fees, and other amounts due on such principal amount. In September 2013, this note was amended to lower this threshold to $5,000,000 in connection with the sale of the new convertible promissory note to JMJ Financial. See Note 14 -Subsequent Events.
At July 31, 2013, the outstanding JMJ April 2013 Note was recorded on the balance sheet at its fair value of $995,166.
Hanover Holdings Notes
On September 19, 2012, in a private placement pursuant to a Note Purchase Agreement, the Company issued Hanover Holdings I, LLC, which the Company refers to as Hanover, a convertible promissory note in the aggregate principal amount of $132,500, for a purchase price of $132,500, which the Company refers to as the Initial Hanover PIPE Note. On October 19, 2012, in a private placement pursuant to a note purchase agreement, the Company issued Hanover a convertible promissory note in the aggregate principal amount of $132,500, for a purchase price of $132,500, which the Company refers to as the Second Hanover PIPE Note, which, together with the Initial Hanover PIPE Note the Company refers to as the Hanover PIPE Notes.
On December 6, 2012, in a private placement pursuant to a note purchase agreement, the Company issued Hanover a convertible promissory note in the aggregate principal amount of $100,000 for a purchase price of $100,000, which the Company refers to as the Hanover December 2012 Note. The Hanover December 2012 Note bears interest at a rate of 12% per annum, which interest accrues, but does not become payable until maturity or acceleration of the principal of such Hanover December 2012 Note. The Hanover December 2012 Note is convertible into shares of the Company’s common stock at a conversion price of $3.75 per share. On December 5, Hanover exchanged the Initial Hanover PIPE Notes for convertible notes in the form of the Hanover December 2012 Note in all material respects (other than date of issuance, exchange date, the maturity date of May 19, 2013 solely with respect to the exchanged Hanover PIPE Note issued in exchange for the Initial Hanover PIPE Note and the maturity date of June 19, 2013 solely with respect to the exchanged Hanover PIPE Note issued in exchange for the Second Hanover PIPE Note) that also are convertible into shares of its common stock at a conversion price of $3.75 per share, which the Company refers to as the Exchanged Hanover PIPE Notes. In addition, on December 6, 2012, the Company issued Hanover a convertible promissory note in the aggregate principal amount of $100,000, which the Company refers to as the Hanover December 2012 Note. Each of the Hanover December 2012 Note and the Exchanged Hanover PIPE Notes are subject to limitations on conversion if after giving effect to such conversion Hanover would beneficially own more than 4.99% of the Company’s common stock.
Due to the fixed conversion price of $3.75, the Company reversed fair value adjustments taken in the period ended October 31, 2012 resulting in the Hanover PIPE Notes being recorded on the balance sheet at principal value. Then, the Company recorded beneficial conversion features in the aggregate principal amount of $122,092 as a discount to these notes. Accretion of the discounts amounted to $10,055 and $122,092 for the three and nine months ended July 31, 2013, respectively.
During the nine months ended July 31, 2013, the note-holder converted principal of $365,000 into 97,333 shares of the Company’s common stock at a conversion rate of $3.75 per share. During the nine months ended July 31 2013, the Company recognized interest expense of approximately $72,000 in order to accrete the unamortized debt discount back to the notes’ principal through the dates of conversion.
As of July 31, 2013, there were no remaining Hanover Notes.
Magna Note
As of October 31, 2012, the Magna Exchange Note was recorded at a fair value of $333,086 on the balance sheet.
During the nine months ended July 31, 2013, Magna converted the remaining approximately $300,000 in principal into 80,992 shares of the Company’s common stock at prices ranging from $3.21 to $4.14, resulting in non-cash expense for the period of approximately $44,000 resulting from the difference between the amount of principal converted and the fair value of the shares issued as a result of the conversion.
As of July 31, 2013, the Magna Exchange Note had been converted in full.
Chris French
During the nine months ended July 31, 2013, the Company converted principal of $25,000 of a note issued to Chris French plus accrued interest of approximately $633, into 4,527 shares of its common stock at a conversion price of $5.625 per share. In addition, the Company issued a warrant to acquire 2,263 shares, which expires on October 26, 2015 and revalued the warrant liability, at July 31, 2013, with an exercise price of $5.625, resulting in non-cash expense of approximately $21,000 resulting from the difference between the fair value of the note as shown on the balance sheet plus accrued interest to-date and the fair value of the shares issued as a result of the conversion.
As of July 31, 2013, this note no longer remained outstanding.
Asher
On September 11, 2012, in a private placement pursuant to a Note Purchase Agreement, the Company issued Asher Enterprises, Inc, which it refers to as Asher, a convertible promissory note in the aggregate principal amount of $103,500, for a purchase price of $100,000, which it refers to as the Asher Note. The Asher Note bears interest at a rate of 8%, which interest accrues, but does not become payable until maturity or acceleration of the principal of the Asher Note. The Asher Note is convertible into shares of the Company’s common stock at a conversion price equal to 61% of the arithmetic average of the five lowest closing trading prices for the common stock during the 10 trading day period ending on the latest complete trading day prior to the applicable conversion date. The Asher Note matured on June 13, 2013, nine months from its issuance date. The Asher Note was able to be converted by Asher, at its option, in whole or in part and included a limitation on conversion, which provided that at no time would Asher be entitled to convert any portion of the Asher Note, to the extent that after such conversion, Asher (together with its affiliates) would beneficially own more than 4.99% of the outstanding shares of the common stock of the Company as of such date.
Unrealized losses on the mark-to-market of the Asher Note which amounted to $47,187, for the period from the date of issuance were recorded as non-cash expense for the period ended October 31, 2012. During the nine months ended July 31, 2013, Asher converted principal of $103,500 and accrued interest into approximately 16,439 shares of the Company’s common stock at a conversion rate of approximately $6.50/share.
On November 12, 2012, in a private placement pursuant to a note purchase agreement, the Company issued Asher a convertible promissory note in the aggregate principal amount of $153,500, for a purchase price of $150,000, which it refers to as the Second Asher Note. The Second Asher Note bears interest at a rate of 8%, which interest accrues, but does not become payable until maturity or acceleration of the principal of the Second Asher Note. The Second Asher Note is convertible into shares of the Company’s common stock at a conversion price equal to 65% of the arithmetic average of the five lowest closing trading prices for the common stock during the 10 trading day period ending on the latest complete trading day prior to the applicable conversion date. The Second Asher Note matured on August 14, 2013, nine months from its issuance date. The Second Asher Note may be converted by Asher, at its option, in whole or in part and included a limitation on conversion, which provides that at no time would Asher be entitled to convert any portion of the Second Asher Note, to the extent that after such conversion, Asher (together with its affiliates) would beneficially own more than 4.99% of the outstanding shares of the common stock of the Company as of such date.
Unrealized gains on the mark-to-market of the Second Asher Note which amounted to $63,980, for the period from the date of issuance were recorded as non-cash income for the period ended July 31, 2013.former Chairman. During the three months ended JulyJanuary 31, 2013, Asher converted principal of $153,5002014 and accrued interest into approximately 44,161 shares of the Company’s common stock at a conversion prices ranging from $3.43/share to $3.90/share.
On May 1, 2013, in a private placement pursuant to a note purchase agreement, the Company issued Asher a convertible promissory note in the aggregate principal amount of $203,500, for a purchase price of $200,000, which it refers to as the Third Asher Note. The Third Asher Note bears interest at a rate of 8%, which interest accrues, but does not become payable until maturity or acceleration of the principal of the Third Asher Note. The Third Asher Note is convertible into shares of the Company’s common stock at a conversion price equal to 65% of the arithmetic average of the five lowest closing trading prices for the common stock during the 10 trading day period ending on the latest complete trading day prior to the applicable conversion date. The Third Asher Note matures on February 3, 2014, nine months from its issuance date. The Third Asher Note may be converted by Asher, at its option, in whole or in part and included a limitation on conversion, which provides that at no time would Asher be entitled to convert any portion of the Third Asher Note, to the extent that after such conversion, Asher (together with its affiliates) would beneficially own more than 4.99% of the outstanding shares of the common stock of the Company as of such date.
Unrealized losses on the mark-to-market of the Third Asher Note which amounted to $131,462 for the period from the date of issuance were recorded as non-cash expense for the period ended July 31, 2013. As of July 31, 2013, the Third Asher Note was recorded on the balance sheet at its fair value of $334,962.
On July 12, 2013, in a private placement pursuant to a note purchase agreement, the Company issued Asher a convertible promissory note in the aggregate principal amount of $103,500, for a purchase price of $100,000, which it refers to as the Fourth Asher Note. The Fourth Asher Note bears interest at a rate of 8%, which interest accrues, but does not become payable until maturity or accelerations of the principal of the Fourth Asher Note. The Fourth Asher Note is convertible into shares of the Company’s common stock at a conversion price equal to 65% of the arithmetic average of the five lowest closing trading prices for the common stock during the 10 trading day period ending on the latest complete trading day prior to the applicable conversion date. The Fourth Asher Note matures on April 16, 2014, nine months from its issuance date. The Fourth Asher Note may be converted by Asher, at its option, in whole or in part and included a limitation on conversion, which provides that at no time will Asher be entitled to convert any portion of the Fourth Asher Note, to the extent that after such conversion, Asher (together with its affiliates) would beneficially own more than 4.99% of the outstanding shares of the common stock of the Company as of such date.
Unrealized losses on the mark-to-market of the Fourth Asher Note which amounted to $69,368, for the period from the date of issuance were recorded as non-cash expense for the period ended July 31, 2013. As of July 31, 2013, the Fourth Asher Note was recorded on the balance sheet at its fair value of $172,868.
Yvonne Paterson
During the nine months ended JulyJanuary 31, 2013, the Company converted principal of $100,000 of a note issued to Yvonne Paterson plus accruedincurred approximately $5,000 and $9,500 in interest of approximately $2,532, into 18,107 shares of its common stock at a conversion price of $5.625 per share. In addition,on these notes respectively. On February 4, 2014, the Company issued a warrant to acquire 9,054 shares, which expires on October 26, 2015 and revalued the warrant liability, at July 31, 2013, with an exercise price of $5.625, resulting in non-cash expense of approximately $32,000 resulting from the difference between the fair value of the note as shown on the balance sheet plus accrued interest to-date and the fair value of the shares issued as a result of the conversion.
As of July 31, 2013, this note no longer remained outstanding.
James Patton
On August 2, 2012, in a private placement pursuant to a Note Purchase Agreement, the Company issued Dr. James Patton, a member of our board of directors, a convertible promissory note, which it refers to as the Patton Note in the principal amount of $66,667 for a purchase price of $50,000. The Patton Note was issued with an original issue discount of 25%. Dr. Patton paid $0.75 for each $1.00 of principal amount of the Patton Note purchased. The Patton Note is convertible into shares of the Company’s common stock at a per share conversion price equal to $3.16 and is subject to “full ratchet” anti-dilution protection upon certain equity issuances below $3.16 per share (as may be further adjusted). Additionally, Dr. Patton received a warrant, which the Company refers to as the Patton Warrant, to purchase such number of shares of its common stock equal to 50% of such number of shares of common stock issuable upon conversion of the Patton Note at an exercise price of $10.625 per share. The Patton Note matured on August 2, 2013 and was redeemable under certain circumstances. The Patton Warrant is exercisable at any time on or before August 2, 2017 and may be exercised on a cashless basis under certain circumstances. The Patton Note and the Patton Warrant each include a limitation on conversion or exercise, as applicable, which provides that at no time will Dr. Patton be entitled to convert any portion of the Patton Note or Patton Warrant, to the extent that after such conversion or exercise, as applicable, Dr. Patton (together with his affiliates) would beneficially own more than 4.99% of the outstanding shares of the common stock as of such date.
As of July 31, 2013, the Patton Warrants had a fair value of $2,304, resulting in non-cash income of approximately $8,400 and $5,700 for the three and nine months ended July 31, 2013, respectively.
During the three months ended July 31, 2013, the Company converted the principal amount of the Patton Note, of $66,667, into 21,092 shares at a conversion price of $3.16. The Company recorded non-cash income of approximately $94,000 and $3,590 for the three and nine months ended July 31, 2013, respectively.
Accretion of the discount amounted to $3,355, for the three and nine months ended July 31, 2013.
As of July 31, 2013, the Patton Note no longer remained outstanding and the number of shares of common stock to be acquired upon the exercise of the Patton Warrant remained at 1,778 .
Redwood Management LLc
On June 21, 2013, the Company entered into a bridge financing arrangement with Redwood Management, LLC (“Redwood”), an accredited investor, for which Aegis Capital Corp. acted as placement agent and received an 8% fee based on the consideration paid to to the Company. Accordingly, on June 21, 2013, the Company entered into a Securities Purchase Agreement with Redwood Management LLC, which it refers to as Redwood, and in a private placement thereunder issued Redwood a convertible promissory note in the aggregate principal amount of $277,777, for a purchase price of $250,000 ( or a 10% original issue discount), which it refers to as the Redwood Note. The Redwood Note bears interest at a rate of 5%, which interest accrues, but does not become payable until maturity or acceleration of the principal of the Redwood Note. The Redwood Note is convertible into shares of the Company’s common stock at a conversion price equal to the lesser of (i) $6.25, or (ii) 70% of the ten day average value weighted average price (“VWAP”) for the ten trading days immediately preceding the conversion date. The Redwood Note matures on December 30, 2013, six months from its issuance date. The Redwood Note may be converted by Redwood, at its option, in whole or in part. The Redwood Note includes a limitation on conversion, which provides that at no time will Redwood be entitled to convert any portion of the Redwood Note, to the extent that after such conversion, Redwood (together with its affiliates) would beneficially own more than 4.99% of the outstanding shares of the common stock as of such date.
The Company agreed to reserve at least 2.5 times the number of shares of its common stock actually issuable upon full conversion of the Redwood Note, and not to take certain actions without Redwood’s consent and granted Redwood the right, at its election, to participate in future financings subject to certain limited exceptions. So long as the Company is not in default, and provided it has given 20 days prior written notice, it may prepay the Redwood Note in full at any time at a premium of 110% of the amount owed (which multiple increases 4 months after the issuance date). In addition, if the Company completes a financing of $7,000,000 or more, Redwood has the right, at its election, to require the Company to repay the Redwood Note in full on the closing date of such financing on the same payment terms as noted in the preceding sentence. The Redwood Note includes customary event of default provisions, and provide for a default rate of 14%.
Unrealized losses on the mark-to-market of the Redwood Note which amounted to $110,972, for the period from the date of issuance were recorded as non-cash expense for the period ended July 31, 2013. As of July 31, 2013, the Redwood Note was recorded on the balance sheet at its fair value of $388,751.
6. NOTES PAYABLE- FORMER OFFICER:
Moore Notes
The Company has agreed to sell senior promissory notes, which it refers to as the Moore Notes, to Mr. Moore, a Director of the Company and its former chief executive officer, from time to time, under an agreement which we refer to as the Moore Agreement. The Moore Notes bear interest at the rate of 12% per annum. Currently, under the terms of the amended and restated Moore Notes, the maturity date is the earlier of (i) the date of consummation of an equity financing in an amount of $6.0 million or more or (ii) the occurrence of any event of default as defined in the Moore Notes. As of October 31, 2012, the Company owed Mr. Moore approximately $477,000 in principal and interest under the Moore Notes.
For the nine months ended July 31, 2013, Mr. Moore loaned the Company $11,200 under the Moore Notes. The Company paid Mr. Moore $85,700 principal on the Moore Notes for the nine months ended July 31, 2013. For the three and nine months ended July 31, 2013 as well as the period from inception, the Company recorded interest expense of $7,198, 24,841, $324,862 respectively. As of July 31, 2013 and October 31, 2012, respectively, the Company was not in default under the terms of the Moore Agreement. The Company intends to repay Mr. Moore when funds are sufficiently available. As of July 31, 2013, the Company owed Mr. Moore approximately $428,000$168,280 in principal and accrued interest, under the Moore Notes.
In August 2013, Mr. Moore resigned as Chairman of the Board of Directors and as Chief Executive Officer and entered into a consulting agreement with the Company, which provided for a $100,000 payment towards the Moore Notes in the event the Company closes a financing greater than $5,000,000 during the initial term of the consulting agreement (which amount may be increased to $429,076.59 at the Company’s discretion if the financing exceeds $15,000,000). The consulting agreement also provides that if the Company closes any financing equal to or greater than $15,000,000 but does not fully satisfy its cumulative outstanding financial obligations, if any, to Mr. Moore as described above, then the Company must pay the remaining balance of any such outstanding financial obligations on the earlier of: (i) six months from the date of closing; or (ii) upon the completion of an underwritten financing (not currently contemplated). See Note 14 – Subsequent Events.
7. NOTES PAYABLE-OTHER:
JLSI, LLC
On July 21, 2012, the Company received $250,000 from JLSI, LLC in return for issuing a promissory note in the principal amount of $250,000, which bears interest at 33% per annum, compounded annually and which matured on December 31, 2012 (“July 2012 Note”). The Company has recorded approximately $37,000 in interest related to this promissory note, through December 31, 2012.
On March 10, 2013 the Company entered into an Exchange Agreement with JLSI, LLC to exchange the July 2012 Note in the principal amount of $250,000 plus interest of approximately $37,000 for common stock, par value $.001 per share . On December 31, 2012 the parties agreed to prepare the Exchange Agreement with a fixed conversion price of $3.75 per share, the market closing price of the Company’s common stock on December 31, 2012. The Company issued 76,491 shares during the second fiscal quarter of 2013 to settle the note and interest.
As of July 31, 2013, this note no longer remained outstanding.
8. LONG-TERM CONVERTIBLE NOTE
Tonaquint Note
On December 13, 2012, the Company entered into a securities purchase agreement with Tonaquint, Inc., the Tonaquint Purchase Agreement, whereby the Company issued Tonaquint a convertible promissory note for the initial principal sum of $890,000. The Company refers to this note as the Tonaquint Note. The Tonaquint Note bears interest at a rate of 8% and is due 26 months after its issue date. The Tonaquint Note can currently be converted at any time, from time to time, at the option of the holder, in whole or in part, a fixed price of $20.00 per share but is subject to adjustment if and whenever on or after six months from the issue date the Company issues shares of its common stock or other securities convertible into or exchangeable for shares of its common stock below the current conversion price of $20.00.
On the closing date, Tonaquint (i) funded $400,000 in cash, (ii) issued a secured mortgage note in the principal amount of $200,000, which is referred to as Mortgage Note 1, and (iii) issued an additional secured mortgage note in the principal amount of $200,000, which is referred to as Mortgage Note 2. Mortgage Note 1 bore interest at a rate of 5% and was due on the earlier of (i) 60 days following the maturity date under the Tonaquint Note, and (ii) the later of (A) eight months after the closing date under the Tonaquint Purchase Agreement and (B)full satisfaction of certain payment conditions. Mortgage Note 2 bore interest at a ratethese Notes.
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Beginningchanges in June 2013, the Company began making monthly installment payments on the Tonaquint Note as required by the terms of the note, which contemplates 18 installment payments equal to approximately $50,000. These installment payments may be made at the Company’s option in cash or in stock although they must be made in cash if certain conditions are not met. If it chooses to make installment payments in stock, then such stock will be issued at a price per share equal to 80% of the average of the 5 lowest daily closing bid prices for the common stock during the 20 consecutive trading days prior to the installment date (which is adjusted to 70% if the average of the 3 lowest volume weighted average prices during such 20-day period is less than $1.25 per share). Tonaquint has the right to receive additional shares or the Company’s common stock if the market price of the common stock is lower than the price per share on the installment date.
During the three months ended July 31, 2013, the Company issued 27,583 shares of its common stock, in lieu of a cash installment payment, to satisfy $49,444 of principal and approximately $49,000 in accrued interest. This principal payment was converted into shares of common stock at a conversion price of $3.57.
Unrealized losses on the mark-to-market of the Tonaquint Note, which amounted to $264,124, were recorded as a non-cash expense,warrants for the three months ended JulyJanuary 31, 2013. As of July2014 is as follows:
Number of | Weighted-Average | |||||
Warrants | Exercise Price | |||||
Outstanding Warrants at October 31, 2013: | 4,265,262 | $ | 6.71 | |||
Issued | 101,704 | $ | 5.58 | |||
Exercised | - | - | ||||
Expired | (6,525) | $ | 21.25 | |||
Outstanding Warrants at January 31, 2014 | 4,360,441 | $ | 6.66 |
On December 13, 2012, the Company also issued Tonaquint a warrant to purchase the number of shares equal to 75% of the principal sum of $890,000 under the Tonaquint Note divided by market price as of the issue date as defined in the warrant agreement. This warrant expires 5-years from the issue date and provides for a variable exercise price per share as defined in the warrant agreement. On March 14, 2013, the Company issued 170,624 shareshad approximately3.8 million of its common stock resulting from the partial cashless exercise of the warrant issued to Tonaquint in December 2012. Additionally, on March 13, 2013 and March 19, 2013 Tonaquint made accelerated payments (including interest income) of $202,493 and $202,657 respectively owed to the Company under Mortgage Note 1 and Mortgage Note 2 described above. Accordingly, the Company recorded an increase to cash, interest income and short-term convertible notes received during the second fiscal quarter of 2013. Warrants to purchase up to 86,283 shares of the Company’s common stock issued to Tonaquint remain outstanding.
9.COMMON STOCKWARRANT LIABILITY
Warrants
As of July 31, 2013, there weretotal4.4 million outstanding warrants to purchase 899,494 shares of the Company’s common stock with exercise prices ranging from $4.375 to $21.25 per share. Information on the outstanding warrants is as follows:
Type | Exercise Price | Amount | Expiration Date | Type of Financing | ||||||||
Exchange Warrants - Nonexercisable | $ | 18.75 | 278,329 | October 2014 | July 2012 Exchanges | |||||||
Common Stock Purchase Warrant | $ | 18.75 | 28,632 | May 2015 | May 2011 Convertible Debt Financing | |||||||
Common Stock Purchase Warrant | $ | 18.75 | 11,628 | October 2014 - October 2015 | Oct 2011 Convertible Debt Financing | |||||||
Common Stock Purchase Warrant | $ | 18.75 | 17,706 | May 2015 - January 2016 | December 2011 Convertible Debt Financing | |||||||
Common Stock Purchase Warrant | $ | 18.75 | 13,333 | May 2017 | May 2012 Convertible Debt Financing | |||||||
Common Stock Purchase Warrant | $ | 15.11-21.25 | 214,416 | December 2013-April 2015 | Bridge Notes | |||||||
Common Stock Purchase Warrant | $ | 4.375 | 1,333 | December 2015 | Stock Purchase Agreement | |||||||
Common Stock Purchase Warrant | $ | 18.75 | 376 | N/A | Vendor & Other | |||||||
Common Stock Purchase Warrant | $ | 10.625-18.75 | 29,883 | May 2014 – May 2017 | Placement Agent – Convertible Debt Financing | |||||||
Common Stock Purchase Warrant | 5.625-10.625 | 13,095 | October 2015-August 2017 | August – September 2012 Convertible Promissory Notes | ||||||||
Common Stock Purchase Warrant | 3.57 | 86,283 | December 2014 | Tonaquint Promissory Note | ||||||||
Subtotal: | 695,014 | |||||||||||
Common Stock Purchase Warrant | TBD (1) | 204,480 | April 2014 | Preferred Stock Agreement (4/04/2011) | ||||||||
Grand Total | 899,494 |
As of October 31, 2012, there were outstanding warrants to purchase 802,580 shares of the Company’s common stock with exercise prices ranging from $6.625 to $21.25 per share. Information on the outstanding warrants is as follows:
Type | Exercise Price | Amount | Expiration Date | Type of Financing | ||||||||
Exchange Warrants- Nonexercisable | $ | 18.75 | 278,329 | October 2014 | July 2012 Warrant Exchanges | |||||||
Common Stock Purchase Warrant | $ | 18.75 | 28,632 | May 2015 | May 2011 Convertible Debt Financing | |||||||
Common Stock Purchase Warrant | $ | 18.75 | 11,628 | October 2014-October 2015 | October 2011 Convertible Debt Financing | |||||||
Common Stock Purchase Warrant | $ | 18.75 | 17,706 | January 2015-January 2016 | December 2011 Convertible Debt Financing | |||||||
Common Stock Purchase Warrant | $ | 18.75 | 22,222 | May 2017 | May 2012 Convertible Debt Financing | |||||||
Common Stock Purchase Warrant | $ | 14.95-21.25 | 198,036 | January 2013-April 2015 | Bridge Notes | |||||||
Common Stock Purchase Warrant | $ | 18.75 | 376 | N/A | Vendor & Other | |||||||
Common Stock Purchase Warrant | $ | 18.75 | 29,883 | May 2014 – May 2017 | Placement Agent – Convertible Debt Financing | |||||||
Common Stock Purchase Warrant | 6.625-18.75 | 11,288 | October 2015-August 2017 | August – September 2012 Convertible Promissory Notes | ||||||||
Subtotal: | 598,100 | |||||||||||
Common Stock Purchase Warrant | TBD (1) | 204,480 | April 2014 | Preferred Stock Agreement (4/04/2011) | ||||||||
Grand Total | 802,580 |
At both July 31, 2013 and October 31, 2012, the Company had approximately 122,000 and 121,000 of its outstanding warrants, respectively, classified as equity (equity warrants). At issuance, equity warrants are recorded at their relative fair values, using the Relative Fair Value Method, in the shareholders’ equity section of the balance sheet. ItsThe equity warrants can only be settled through the issuance of shares and are not subject to anti-dilution provisions.
AsDuring the three months ended January 31, 2014, the Company issued100,000 equity warrants to an entity pursuant to a Stock Purchase Agreement. These warrants expire in December2018 and have an exercise price of July$5.52.
(Unaudited) July 31, 2013 | October 31, 2012 | |||||||
Exercise Price: | $ | 4.375-21.25 | $ | 6.625-21.25 | ||||
Stock Price | 3.50 | 5.625 | ||||||
Expected Term: | 153-1588 days | 81-1736 days | ||||||
Expected Volatility | 93.73%-153.00 | % | 66.51%-146.78 | % | ||||
Risk Free Rate: | .08%-.0995 | % | 0.09-.056 | % |
BSM Model:
01/31/2014 | 10/31/2013 | |||||||
Exercise Price: | $ | 2.76-21.25 | $ | 2.76-21.25 | ||||
Stock Price | $ | 4.49 | $ | 3.74 | ||||
Expected term: | 41-1203 days | 61-1371 days | ||||||
Volatility % | 91%-186 | % | 99%-186 | % | ||||
Risk Free Rate: | ..035%-.69 | % | ..035%-.94 | % |
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As of July
11 | ||
During the nine months ended July 31, 2013, an accredited investor exercised 8,889 warrants at an exercise price of $10.625, resulting in net proceeds to the Company of $94,444. During the nine months ended July 31, 2012, investors in the Company exercised 21,961 warrants at a price of $18.75 per share, resulting in total proceeds to the Company of approximately $412,000.
Warrants with Anti-Dilution Provisionsanti-dilution provisions
10.
The Company has one active stock and cash-based incentive plan,
The Incentive Plan supersedes all of the Company’s previous stock option plans, which include the 2004 Stock Option Plan, the 2005 Stock Option Plan and the 2009 Stock Option plan under which the Company had options to purchase 19,052, 42,952 and 142,735 shares of common stock outstanding. The terms and conditions of the options outstanding under these plans remain unchanged. As of Julyfor three months ended January 31, 2013, the Company had total outstanding options of 467,923.
2014 is as follows:
Number of | Weighted-Average | ||||||
Options | Exercise Price | ||||||
Outstanding at October 31, 2013: | 467,923 | $ | 15.86 | ||||
Granted | - | $ | - | ||||
Exercised | - | $ | - | ||||
Expired | - | $ | - | ||||
Outstanding at January 31, 2014 | 467,923 | $ | 15.86 | ||||
Vested and Exercisable at January 31, 2014 | 403,567 | $ | 16.22 |
The fair value of options granted for the nine months ended July 31, 2013 and 2012 amounted to $1,657,500 and $2,539,792, respectively.
2014 or 2013.
A summary
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Number of | Weighted-Average | |||||||
Options | Exercise Price | |||||||
Outstanding at October 31, 2012: | 358,459 | $ | 20.00 | |||||
Granted | 134,600 | $ | 9.375 | |||||
Exercised | - | — | ||||||
Expired | (25,136 | ) | 18.75 | |||||
Outstanding at July 31, 2013 | 467,923 | $ | 17.50 | |||||
Vested and Exercisable at July 31, 2013 | 290,300 | $ | 17.50 |
2011 Employee Stock Purchase Plan
The Company’s boardCompany and each of directors adopted the Advaxis, Inc. 2011 Employee Stock Purchase Plan, which it refers to as the ESPP, on August 22, 2011,Daniel J. O’Connor, Chief Executive Officer and its stockholders approved the ESPP on September 27, 2011. The ESPP allows employees to purchase common stockPresident, Gregory T. Mayes, Executive Vice President and Chief Operating Officer, Mark J. Rosenblum, Senior Vice President, Chief Financial Officer and Secretary, Robert G. Petit, Executive Vice President and Chief Scientific Officer, and Chris L. French, Vice President and Executive Director, Medical Affairs, of the Company at(each, an 85% discount“Executive”), voluntarily entered into an amendment (each, an “Amendment” and collectively, the “Amendments”) to their respective employment agreements (each, an “Employment Agreement”).
% of base salary | % of base salary | ||||
Executive | in cash | in stock | |||
Daniel J. O’Connor | 75.0 | 25.0 | |||
Gregory T. Mayes, III | 92.5 | 7.5 | |||
Mark J. Rosenblum | 92.5 | 7.5 | |||
Robert G. Petit | 91.5 | 8.5 | |||
Chris L. French | 95.0 | 5.0 |
During the nine months ended July 31, 2013, approximately $22,575 was withheld from employees, on an after-tax basis, in order to purchase approximately 5,290 shares of common stock in February, May and August 2013. During the nine months ended July, 2012, approximately $18,300 was withheld from employees, on an after-tax basis, in order to purchase 1,657 shares of common stock.
11. COMMITMENTS AND CONTINGENCIES
NASDAQ (or such other applicable exchange).
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On March 22,
· | Management Team Bonuses: Executive officers received a portion of their year-endperformance bonus (with a total fair market value of approximately $129,000) in the aggregate amount of31,846 shares of the Company’s Common Stock. |
· | Equity grant to executive officers: The Company granted525,000 shares of its Common Stock to its executive officers. Of these shares,20% (105,000 shares) vested immediately, with a total fair market value of $423,150, and were issuedand recorded as a charge to income during the current period. The remaining80% of the grant (420,000 shares) represent restricted stock units (RSUs) and are to vest in equal installments over twelve quarters such that100% of the RSUs have vested by the third anniversary of the grant date. The first quarterly vesting, totaling an aggregate of35,000 shares of our common stock are subject to availability of shares under the 2011 Omnibus Incentive Plan and are subject to forfeiture under certain conditions. Currently, these shares are not available under the 2011 Omnibus Plan and accordingly, have not been issued. |
· | Equity grant to non-executive employees:The Company granted approximately $101,250 of the aggregate base salary compensation, to be issued in the form of Common Stock to its non-executive employees. Of this grant,20% (an aggregate value of $20,250) vested immediately and 5,025 shares of common stock were issued to non-executive employees. The remaining80% of the grant (shares with an aggregate value of $81,000) represent restricted stock units (RSUs) and are to vest in equal installments over twelve quarters such that100% of the RSUs have vested by the third anniversary of the grant date. The first quarterly vesting, totaled a fair market value of $7,520and was recorded as a charge to income, representing1,675 shares of our common stock, which remain unissued as of January 31, 2014. All of these non-executive equity grants are currently available under the 2011 Omnibus Incentive Plan. |
14 | ||
financial condition or results of operations.
University of Pennsylvania
Numoda
On June 19, 2009 As of January 31, 2014, the Company entered into a Master Agreement and on July 8, 2009, it entered into a Project Agreement with Numoda Corporation, which it refers to as Numoda, a leading clinical trial and logistics management company, to oversee Phase II clinical activity with ADXS11-001 for the treatmentowed Penn approximately $127,000 under all licensing agreements. As of invasive cervical cancer and CIN. Numoda is responsible globally for integrating oversight and logistical functions with the clinical research organizations, contract laboratories, academic laboratories and statistical groups involved. The scope of this agreement covers over three years and is estimated to cost approximately $12.2 million for both trials. Pursuant to the Master Agreement, the Company is permitted to pay a portion of outstanding charges to Numoda in the formJanuary 31, 2014, Penn owned28,468 shares of the Company’s common stock and during May 2010, the Company issued 28,000 shares of its common stock to an affiliate of Numoda in satisfaction of $350,000 in services rendered by Numoda to the Company under the Master Agreement. The Company has recorded deferred expenses on the balance sheet for this amount and amortizes this amount to expense over the life of the agreement. As the Company is billed by Numoda on a monthly basis, these costs are capitalized to deferred expenses. As the clinical trials progress in terms of patient enrollment and time, the Company reduces the deferred expense balance and recognizes clinical trials expense on the statement of operations. From inception through July 31, 2013, the Company has paid Numoda approximately $7.65 million.
As of July 31, 2013, the Company owed Numoda approximately $1.4 million, which is recorded in Accounts Payable.
Common Stock.
Numoda- Socius Stock Issuance
On July 24, 2012, the Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County, Florida entered an Order Approving Stipulation for Settlement of Claim, which the Company refers to as the Order, in the matter titled Socius CG II, Ltd. v. Advaxis, Inc. The Order, together with the Stipulation for Settlement Claim, which the Company refers to as the Stipulation, provide for the full and final settlement of Socius’s $2,888,860 claim against the Company ($1.8 million claim from Numoda plus approximately $1 million in transaction related costs) in connection with past due invoices relating to clinical trial services, which the Company refers to as the Claim. Socius purchased approximately $1.8 million of the Claim against the Company from Numoda Corporation.
Pursuant to the terms of the Order and the Stipulation, the Company issued and delivered to Socius an aggregate of 197,449 shares of its common stock for the entire Claim in the period from July to November 2012, which were subject to adjustment as described in the Stipulation. During the three and nine months ended July 31, 2013, the Company recorded non-cash income of approximately $0 and $615,000 related to the issuance of stock to Socius in settlement of the Claim.
Separation Agreement
Office & Laboratory Lease
In April 2011,
General Release.
Other
Pursuant to a Clinical Research Service Agreement, executed in April 2005, the Companythis consulting agreement is obligated to pay Pharm–Olam International for service fees related to a Phase I clinical trial. As of July 31,one year.
Moore Notes, which no longer remain outstanding.
12.2014.
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In consideration for Hanover’s execution and delivery of the Hanover Purchase Agreement, in connection with the execution and delivery of the Hanover Purchase Agreement, the Company issued Hanover 28,000 Commitment Fee Shares in November 2012. The Company recognized non-cash expense of approximately $157,000 related to the issuance of the Commitment Fee Shares in the nine months ended July 31, 2013. The Company has also agreed to issue Hanover additional Maintenance Fee Shares of its common stock in the event that no shares of common stock have been purchased or sold pursuant to the Hanover Purchase Agreement during any calendar quarter during the 24 month term per the terms of the Hanover Purchase Agreement.
The Hanover Purchase Agreement provides for indemnification of Hanover and its affiliates in the event that the Company breaches any of its representations and warranties under the Hanover Purchase Agreement.
In connection with the Hanover Purchase Agreement, on October 26, 2012, the Company entered into a registration rights agreement, which it refers to as the Hanover Registration Rights Agreement, with Hanover, and granted to Hanover certain registration rights related to the Commitment Fee Shares, the Maintenance Fee Shares, and the shares issuable under the Hanover Purchase Agreement. Under the Hanover Registration Rights Agreement, the Company filed with the SEC a registration statement for the purpose of registering the resale of the common stock issued to Hanover.
closing. During the three months ended JulyJanuary 31, 2013,2014, the Company sold 3,200and Hanover agreed to terminate the Common Stock Purchase Agreement in exchange for the issuance of7,080 shares of its common stock for proceeds totaling $23,940. Common Stock.
Stock Purchase Agreements
During the nine months ended July 31, 2013, the Company sold 17,658 shares of its common stock, to accredited investors, for proceeds totaling approximately $77,250.
Ironridge Settlement
On December 20, 2012, the Superior Court of the State of California for the County of Los Angeles Central District entered an Order for Approval of Stipulation for Settlement of Claims, which the Company refers to as the Order, in the matter titledIronridge Global IV, Ltd. vs. Advaxis, Inc. The Order, together with the Stipulation for Settlement of Claims, which the Company refers to as the Stipulation, dated December 19, 2012, between the Company and Ironridge Global IV, Ltd., which it refers to as Ironridge, provides for full and final settlement of Ironridge’s $692,761 claim against the Company in connection with past due invoices relating to attorney fees, which Ironridge purchased pursuant to$400,000 under a Receivable Purchase Agreement, dated December 14, 2012, which the Company refers to as the Claim. Pursuant to the terms of the Order and the Stipulation, the Company was obligated to issue 267,117 shares of its common stock to settle the $692,761 owed. On December 21, 2012, the Company issued and delivered to Ironridge 360,000 shares of its common stock, par value $0.001 per share. Accordingly, Ironridge returned 92,883 shares of its common stock on January 30, 2013.
Series B Preferred Stock Financing
On July 19, 2010, the Company entered into a Series B Preferred Stock Purchase Agreement with Optimus (the “Series B Purchase Agreement”), pursuant to which Optimus agreed to purchase, upon the terms and subject to the conditions set forth therein and described below, up to $7.5 million of the Company’s newly authorized, non-convertible, redeemable Series B preferred stock (“Series B Preferred Stock”) at a price of $10,000 per share. Under the terms of the Series B Purchase Agreement, subject to the Company’s ability to maintain an effective registration statement for the Warrant Shares (as defined below), the Company may from time to time until July 19, 2013, present Optimus with a notice to purchase a specified amount of Series B Preferred Stock. Subject to satisfaction of certain closing conditions, Optimus is obligated to purchase such shares of Series B Preferred Stock on the 10th trading day after the date of the notice. The Company will determine, in its sole discretion, the timing and amount of Series B Preferred Stock to be purchased by Optimus, and may sell such shares in multiple tranches. Optimus will not be obligated to purchase the Series B Preferred Stock upon the Company’s notice (i) in the event the average closing sale price of the Company’s common stock during the nine trading days following delivery of such notice falls below 75% of the closing sale price of the Company’s common stock on the trading day prior to the date such notice is delivered to Optimus, or (ii) to the extent such purchase would result in the Company and its affiliates beneficially owning more than 9.99% of the Company’s outstanding common stock. The Series B Preferred Stock is only redeemable at the option of the Company as set forth in the Company’s Certificate of Designations of Preferences, Rights and Limitations of Series B Preferred Stock and not otherwise subject to redemption or repurchase by the Company in any circumstances.
Pursuant to the Series B Purchase Agreement, on July 19, 2010,Global BioPharma Inc. (GBP). During February 2014, the Company issued to an affiliate of Optimus a three-year warrant to purchase up to 324,000GBP108,724 shares of the Company’s common stock (the “Warrant Shares”), at an initial exercise price of $31.25 per share, subject to adjustment as described below. The warrant consists of and is exercisable in tranches, with a separate tranche being created upon each delivery of a tranche notice under the Series B Purchase Agreement. On each tranche notice date, that portion of the warrant equal to 135% of the tranche amount will vest and become exercisable, and such vested portion may be exercised at any time during the exercise period on or after such tranche notice date. On and after the first tranche notice date and each subsequent tranche notice date, the exercise price of the warrant will be adjusted to the closing sale price of a share of the Company’s common stock on the applicable tranche notice date. The exercise price of the warrant may be paid (at the option of the affiliate of Optimus) in cash or by its issuance of a four-year, full-recourse promissory note, bearing interest at 2% per annum, and secured by a specified portfolio of assets. However, such promissory note is not due or payable at any time that (a) the Company is in default of any preferred stock purchase agreement for Series B Preferred Stock or any warrant issued pursuant thereto, any loan agreement or other material agreement or (b) there are any shares of the Series B Preferred Stock issued or outstanding. In addition, the Company redeemed two hundred twenty-six (226) shares of Series B Preferred Stock held by the Investor for an aggregate redemption price of $3,141,004 consisting of (i) cash in an amount of $76,622 and (ii) cancellation of certain promissory notes issued by an affiliate of the Investor to the Company in the aggregate amount of $3,051,000 and accrued interest of approximately $13,382. This resulted in a net promissory note receivable of $9,998,210 as of October 31, 2011. The Company also recorded $50,402, $149,562 and $485,812 in accrued interest on the promissory notes through the three and nine months ended July 31, 2013 and the twelve months ended October 31, 2012, respectively. The value of the Promissory Note and Interest Receivable was $10,633,584 and $10,484,022 as of July 31, 2013 and October 31, 2012, respectively. The promissory bears interest at 2 % per annum which is credited directly to capital.
On April 4, 2011, the Company and Optimus entered into an amendment to the Preferred Stock Purchase Agreement dated July 19, 2010 between the Company and Optimus. Under the amendment, Optimus remains obligated, from time to time until July 19, 2013, to purchase up to an additional 284 shares of non-convertible, redeemable Series B Preferred Stock, $0.001 par value per share at a purchase price of $10,000 per share upon notice from the Company to the Investor, subject to the satisfaction of certain conditions set forth in the Purchase Agreement. This agreement shall automatically terminate on the later of the date that (i) is three years after the Effective Date of the Additional Purchase Agreement and (ii) no Notes remain outstanding (the ‘Termination Date’)
In order to satisfy certain conditions set forth in the Preferred Stock Purchase Agreement that would allow the Company to require the Investor to purchase the remaining shares of Series B Preferredour Common Stock under the Preferred Stock Purchase Agreement, the Amendment provides that, among other things, the Company will issue to the Holder a three-year warrant (the “ Additional Warrant ”) to purchase up to an additional 204,480 shares of the Company’s common stock, at an initial exercise price of $18.75 per share, subject to adjustment as described below. The Additional Warrant will become exercisable on the earlier of (i) the date on which a registration statement registering for resale the shares of the Company’s common stock issuable upon exercise of the Additional Warrant (the “Warrant Shares”) becomes effective and (ii) the first date on which such Warrant Shares are eligible for resale without limitation under Rule 144 (assuming a cashless exercise of the Additional Warrant). The Additional Warrant consists of and is exercisable in tranches, with a separate tranche being created upon each delivery of a tranche notice under the Preferred Stock Purchase Agreement. On each tranche notice date, that portion of the Additional Warrant equal to 135% of the tranche amount will vest and become exercisable, and such vested portion may be exercised at any time during the exercise period on or after such tranche notice date. On and after the first tranche notice date and each subsequent tranche notice date, the exercise price of the Additional Warrant will be adjusted to the closing sale price of a share of the Company’s common stock on the applicable tranche notice date. The exercise price of the Additional Warrant may be paid (at the option of the Investor) in cash or by the Investor’s issuance of a four-year, full-recourse promissory note (each, a “Promissory Note ”), bearing interest at 2% per annum, and secured by specified portfolio of assets. However, no Promissory Note will be due or payable at any time that (a) the Company is in default of any preferred stock purchase agreement for Series B Preferred Stock or any warrant issued pursuant thereto, any loan agreement or other material agreement or (b) there are any shares of the Company’s Series B Preferred Stock issued or outstanding. The Additional Warrant also provides for cashless exercise in certain circumstances. If a “Funding Default” (as such term is defined in the Additional Warrant) occurs and the Additional Warrant has not previously been exercised in full, the Company has the right to demand surrender of the Additional Warrant (or any remaining portion thereof) without compensation, and the Additional Warrant will automatically be cancelled.
Holders of Series B preferred stock will be entitled to receive dividends, which will accrue in shares of Series B preferred stock on an annual basis at a rate equal to 10% per annum from the issuance date. Accrued dividends will be payable upon redemption of the Series B preferred stock or upon the liquidation, dissolution or winding up of our Company. In the event the Company redeems all or a portion of any shares of the Series B Preferred Stock then held by Optimus, Optimus shall apply, and the Company may offset, the proceeds of any such redemption to pay down the accrued interest and outstanding principal of the Promissory Note from Optimus.
As of July 31, 2013, the Series B preferred stock had a liquidation preference of $10,277,570 comprised of $10,000 per share plus the total of the cumulative accrued dividends in the amount of $2,877,570. At October 31, 2012 the Series B preferred stock had a liquidation preference of $9,722,570 comprised of $10,000 per share plus the total of the cumulative accrued dividends in the amount of $2,322,570. During the three and nine months ended July 31, 2013 and 2012 and the period from March 1, 2002 (date of inception) to July 31, 2013, the Company accrued dividends of $185,000, $555,000 and $2,877,570 respectively.
On April 4, 2011, the Company and the Holder also entered into an Amended and Restated Security Agreement to ensure that any Promissory Note issued upon exercise of the Additional Warrant will be entitled to the benefits of the security and collateral provisions of the Security Agreement dated as of July 19, 2010.
During the nine months ended July 31, 2013 and 2012, the Company did not sell any preferred shares to Optimus.
As of both July 31, 2013 and October 31, 2012, the Company continued to have 284 shares of its Series B Preferred Stock available for sale to Optimus at a gross purchase price of $10,000.
13.
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July 31, 2013 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common stock warrant liability, warrants exercisable at $5.625 - $21.25 from May 2013 through August 2017 | $ | - | $ | $ | 736,059 | $ | 736,059 | |||||||||
July 31, 2013 | ||||||||||||||||
Short-term Convertible Notes Payable at fair value | ||||||||||||||||
May 2012 Notes | $ | - | $ | $ | 83,333 | $ | 83,333 | |||||||||
Asher Notes –May and July 2013 | 507,830 | 507,830 | ||||||||||||||
Redwood Management LLC | 388,751 | 388,751 | ||||||||||||||
JMJ Financial | 995,166 | 995,166 | ||||||||||||||
Short-term convertible Notes Payable at fair value | $ | 1,975,080 | $ | 1,975,080 |
October 31, 2012 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common stock warrant liability, warrants exercisable at $6.625 - $21.25 from October 2012 through August 2017 | $ | - | $ | $ | 434,136 | $ | 434,136 | |||||||||
October 31, 2012 | ||||||||||||||||
Short term Convertible Notes Payable | ||||||||||||||||
May 2012 Notes | $ | - | $ | $ | 588,313 | $ | 588,313 | |||||||||
Hanover PIPE Notes – September & October 2012 | 362,791 | 362,791 | ||||||||||||||
Magna Exchange Note | 333,086 | 333,086 | ||||||||||||||
Asher Note | 150,687 | 150,687 | ||||||||||||||
French, Patton & Paterson Notes | 208,664 | 208,664 | ||||||||||||||
Short-term convertible Notes and fair value of Embedded Derivative | $ | 1,643,541 | $ | 1,643,541 |
January 31, 2014 | Level 1 | Level 2 | Level 3 | Total | |||||||||
Common stock warrant liability, warrants exercisable at $2.76 - $21.25 from October 2012 through August 2017 | $ | - | $ | $ | 516,268 | $ | 516,268 |
October 31, 2013 | Level 1 | Level 2 | Level 3 | Total | |||||||||
Common stock warrant liability, warrants exercisable at $2.76 - $21.25 from October 2012 through August 2017 | $ | - | $ | $ | 646,734 | $ | 646,734 |
July 31, 2013 (Unaudited) | ||||
Beginning balance: October 31, 2012 | $ | 434,136 | ||
Issuance of common stock warrants | 1,460,867 | |||
Reclassification of warrant liability to equity | - | |||
Exercise of warrants | (795,411 | ) | ||
Issuance of additional warrants due to anti-dilution provisions | 30,887 | |||
Change in fair value | (394,420 | ) | ||
Balance at July 31, 2013 | $ | 736,059 |
January 31, 2014 (Unaudited) | ||||
Beginning balance: October 31, 2013 | $ | 646,734 | ||
Issuance of additional warrants due to anti-dilution provisions | 1,482 | |||
Change in fair value | (131,948) | |||
Balance at January 31, 2014 | $ | 516,268 |
July 31, 2013 | ||||
(Unaudited) | ||||
Beginning balance – October 31, 2012 | 1,643,541 | |||
Issuance of notes | 1,238,277 | |||
Transfer-out | (1,808,454 | ) | ||
Change in Fair Value of notes | 901,716 | |||
Ending balance – July 31, 2013 | $ | 1,975,080 |
14.13. SUBSEQUENT EVENTS
Subsequent events have been evaluated through the date that the financial statements were issued. All appropriate subsequent event disclosures, if any, have been made in the notes
Executives
On August 8, 2013,approximately $18,000 (representing the remaining May 2012 note-holder converted its remaining $83,333 in principal into 26,371aggregate value of total shares acquired) on the statement of operations during the Company’squarter and issued3,134 shares (on a net basis after employee payroll taxes) of our common stock during February 2014.
On August 12, 2013,$5.00 per warrant. Accordingly, the Company issued 3,600 shares of common stock for consulting services valued at $15,000.
On August 12, 2013, the Company issued 2,330 shares of its common stock to employees under the Employee Stock Purchase Plan (ESPP) for an aggregate purchase price of $7,027.
On August 14, 2013, the Company issued 15,723 shares of common stock for consulting services valued at $50,000.
JMJ Financial
On August 14, 2013, the Company borrowed an additional $100,000 under the JMJ April 2013 convertible promissory note. At this date, the Company has borrowed $625,000 under the JMJ April 2013 Note. JMJ Financial has no obligation to lend the Company the remaining $95,000 of available principal amount under the note and may never do so. The Company has no obligation to pay JMJ Financial any amounts on the unfunded portion of the note and may not prepay any portion of the note without JMJ Financial’s consent. On August 9, 2013 and September 5, 2013, JMJ Financial converted $67,515 and $39,600 in principal and interest, respectively on its April 2013 Note into 51,000 shares of common stock at conversion rates ranging from $1.89 to $2.20. After these conversions, approximately $525,000 in principal remained outstanding under the JMJ April 2013 Note.
Tonaquint
On August 14, 2013, in lieu of a cash installment payment on the outstanding Tonaquint Note, the Company issued 33,309 shares of common stock. Of the 33,309 shares issued to Tonaquint, 21,843 were issued to satisfy the second installment payment consisting of principal in the amount of $49,444 and interest of $5,810 for a total conversion amount of $55,254. This amount was converted at a conversion price of approximately $2.53. The remaining 11,466 shares were issued related to the installment payment, made by the Company in shares, in July 2013 pursuant to a true-up provision in the convertible promissory note agreement that allows Tonaquint to receive additional shares if the conversion price, used at the time of the installment payment, decreases in a stated period of time following said payment.
On August 15, 2013, the Company issued 10,500 shares of its common stock to Hanover Holdings in connection with the settlement of a draw down pursuant to the Hanover Purchase Agreement, at a price of approximately $2.81 per share. The per share price for such shares was established under the terms of the Hanover Purchase Agreement. The Company received total net proceeds of $29,516 in connection with this draw down.
On August 20, 2013, in a private placement pursuant to a note purchase agreement, the Company$250 and issued an accredited investor a secured convertible promissory note in the aggregate principal amount of $108,000, for a purchase price of $100,000. This note bears interest at a rate of 20% per annum and is convertible into50 shares of the Company’sour common stock at a conversion price equalstock.
Resignation of Thomas A. Moore and Appointment of Dan O’Connor as Chief Executive Officer
At a meeting of the Company’s Board of Directors held on August 14, 2013, Thomas A. Moore indicated his intent to resign as Chairman of the Board of Directors and President and Chief Executive Officer (“CEO”) effective August 19, 2013 in line with the previously contemplated succession plan. Thomas A. Moore continues to serve on the Board of Directors and is acting as a consultant to the Companyour common stock pursuant to the terms of a consulting agreement dated August 19, 2013, the terms of which are described below. In light of Mr. Moore’s notification to the Board of his intent to resign as President and CEO and the Board’s succession plan, the Board appointed Daniel J. O’Connor (formerly Executive Vice President), to the position of President and CEO, effective August 19, 2013. Mr. O’Connor’s appointment as President and CEO is the outcomenon-executive equity grant. These shares represent20% of the succession planning initiatives over the past year by Mr. Mooreequity grant to non-executive employees that immediately vested but had not been issued as of January 31, 2014. (See Footnote 10: Commitments and the Board of Directors. The Board of Directors also fixed the number of Board members at seven and appointed Mr. O’Connor as a Director to fill the newly created vacancy in accordance with the the Company’s Bylaws, all effective August 19, 2013. Mr. O’Connor will hold office as a Director until the next annual meeting of stockholders ofContingencies, Stock Awards). Accordingly, the Company subject to his earlier resignation or removal. Mr. O’Connor has not currently been appointed to any standing committeerecorded stock compensation expense of the Board of Directors.
Dr. James Patton, Chairman of the Audit Committee, was elected to serve as Non- executive Chairman of the Board effective August 19, 2013.
Thomas A. Moore Consulting and Severance Agreements
On August 19, 2013, the Company entered into a consulting agreement with Mr. Moore, which took effect as of such date. Under the consulting agreement, Mr. Moore will assist the development of the Company’s veterinary program and perform the duties assigned by the CEO, the Chairman of the Board and/or Board of Directors related to strategic planning and business development, or any other matter so delegated. Mr. Moore is required to be able to commit at least 20 hours per week to his consulting duties under the agreement. The consulting agreement provides for an initial term of one year, after which it terminates unless the Company notifies Mr. Moore of its intent to renew prior to the expiration of the initial term, following which it will be renewed upon such terms and conditions as they may mutually agree. If the Company elects to continue beyond the initial term, either Mr. Moore or the Company may terminate, at any time for any reason with or without cause upon 90 days written notice.
Pursuant to the terms of the consulting agreement, Mr. Moore is entitled to: (i) annualized compensation of $350,000 (payable monthly, with thefirst payment due September 20, 2013), with 12% per annum interest accruing on payments not made in accordance with the agreed terms; (ii)reimbursement for any COBRA costs, (iii) a one-time $100,000 payment if the Company closes a financing greater than $5,000,000$20,250 during the initial termquarter (representing the aggregate value of the agreement (which one-time payment may be increased to $429,076.59 at the Company’s discretion if the financing exceeds $15,000,000), which amounts are to be in repaymenttotal shares earned) and issued3,685 shares (on a net basis after employee payroll taxes) of loans extended by Mr. Moore to the Company (iv) be treated as non-employee Director for purposes of attendance fees under the Company’s Director compensation program (but not for purposes of the annual retainer), (v) receive a one-time grant of 30,000 options under the Incentive Plan on or around November 1, 2013, and be considered in “Continuous Service” for purposes of his outstanding option awards under the Incentive Plan (as such term is defined in the Incentive Plan) and (v) reimbursement of reasonable documented travel expenses as contemplated by the consulting agreement.
Termination Agreement
On August 19, 2013, the Company entered into an agreement with a financial advisor to terminate a July 2012 engagement agreement between the parties, pursuant to which the advisor asserted claims for unpaid fees related to the introduction of investors to the Company and services provided. As consideration for terminating the agreement the Company agreed to pay the advisor approximately $589,000 in monthly installment payments in either cash or shares of the Company’sour common stock and a 3-year warrant to purchase 30,154 shares of the Company’s common stock at an exercise price of $4.90 per share. Additionally, the Company agreed to pay the advisor $150,000 upon the completion of a contemplated public offering of securities.
Yenson Co. Ltd.
On August 28, 2013, the Company entered into a Securities Purchase Agreement with Yenson Co. Ltd (“Investor”). Investor purchased $100,000 of the Company’s common stock at a purchase price of approximately $2.21per share, resulting in 45,353 shares of its common stock being issued. In addition, the investor received 50% warrant coverage, resulting in the issuance of a warrant to purchase 22,161 shares of the Company’s common stock, at an exercise price of $2.76 per warrant. The warrant expires 3 years from the date of the agreement.
JMJ Financial
On September 4, 2013, the Company entered into a securities purchase agreement with JMJ Financial pursuant to which it issued JMJ Financial, in a private placement, an $800,000 convertible promissory note and 19,231 restricted shares of its common stock as a $50,000 origination fee for the note. The securities agreement provides that the Company will “true up” JMJ Financial by issuing additional shares of its common stock if JMJ Financial does not receive at least $50,000 of net proceeds from the sale of such shares of common stock when, and if, it disposes of such shares.
The face amount of the note reflects an aggregate principal amount of $800,000 for total consideration of $720,000 (or a 10% original issue discount). However, the Company has currently only borrowed $500,000 from JMJ Financial under this convertible promissory note, all of which JMJ Financial paid in cash. JMJ Financial has no obligation to lend the remaining $220,000 of available principal amount under the note and may never do so. The Company has no obligation to pay JMJ Financial any amounts on the unfunded portion of the note and may not prepay any portion of the note without JMJ Financial’s consent.
The convertible promissory note matures September 4, 2014 and, in addition to the 10% original issue discount, provides for payment of a one time interest charge of 5% on funded amounts. The convertible promissory note is convertible at any time, in whole or in part, at JMJ Financial’s option into shares of the Company’s common stock at the lesser of $2.65 or 70% of the average of the lowest two closing prices in the 20-day pricing period preceding a conversion. However, at no time will JMJ Financial be entitled to convert any portion of the note to the extent that after such conversion, JMJ Financial (together with its affiliates) would beneficially own more than 4.99% of the Company’s outstanding shares common stock as of such date. The Company agreed to reserve at least 2,000,000 shares of its common stock for conversion of the note. The note also provides for penalties and rescission rights if the Company does not deliver shares of its common stock upon conversion with the require timeframes.
The convertible promissory note includes customary event of default provisions, and provides for a default rate of the lesser of 18% or the maximum permitted by law. Upon the occurrence of an event of default, the lender may require the Company to pay in cash the “Mandatory Default Amount,” which is defined in the note to mean the greater of (i) the outstanding principal amount of the note plus all interest, liquidated damages and other amounts owing under the note, divided by the conversion price on the date payment of such amount is demanded or paid in full, whichever is lower, multipled by the volume-weighted-average price, or VWAP, on the date payment of such amount is demanded or paid in full, whichever has a higher VWAP, or (ii) 150% of the outstanding principal amount of the note plus 100% of all interest, liquidated damages and other amounts owing under the note.
If the Company completes a public offering of $5,000,000 or more, JMJ Financial has the right, at its election, to require it to repay the note, in whole or in part, in amount equal to 125% of the sum of the funded principal amount being repaid plus all accrued and unpaid interest liquidated damages, fees, and other amounts due on such principal amount.
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We have
Such factors include the risk factors included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2013 and other factors discussed in connection with any forward-looking statement.
Overview
Our lead construct, ADXS-HPV, is being evaluated in four ongoing clinical trials for human papillomavirus, or HPV, -associated diseases as follows: recurrent/refractory cervical cancer (India); locally advanced cervical cancer (withattack stimulating the Gynecologic Oncology Group (GOG), largely underwritten by the National Cancer Institute (NCI)); head and neck cancer (with the Cancer Research, United Kingdom (CRUK), (UK)) and anal cancer (Brown University, Oncology Group (BrUOG), U.S.). In addition, we have developed immunotherapies for prostate cancer and HER2 overexpressing cancers (such as breast, gastric and other cancers in humans and osteosarcoma in canines). Over fifteen distinct constructs are in various stagesdevelopment of development, developed directly by us and through strategic collaborations with recognized centers of excellence.
specific blood cells that underlie a strong therapeutic immune response.
If we fail to raise a significant amount of capital, we may need to significantly curtail operations or cease operations in the near future. Any sale of our common stock or issuance of rights to acquire our common stock below $3.16 per share (as may be further adjusted), with respect to certain of our outstanding debt instruments, or $15.11 per share (as may be further adjusted), with respect to certain of our outstanding warrants, will trigger significant dilution due to the anti-dilution protection provisions contained therein.
We have sustained losses from operations in each fiscal year since our inception, and we expect these losses to continue for the indefinite future, due to the substantial investment in research and development. As of July 31, 2013 and October 31, 2012, we had an accumulated deficit of $60,181,464 and $47,601,427, respectively and stockholders’ deficiency of $6,726,819 and $5,962,724, respectively. Our projected annual staff, overhead, laboratory and nonclinical expenses are estimated to be approximately $4.1 million for the current fiscal year ended October 31, 2013. We expect to incur significant additional costs. The timing and estimated costs of these projects are difficult to predict. We may attempt to accelerate the timing of the required financing and, conversely, if the trial or trials are not successful we may slow our spending and defer the timing of additional financing. While we will attempt to attract a corporate partnership and grants, we have not assumed the receipt of any additional financial resources in our cash planning.
To date, we have outsourced many functions of drug development including manufacturing and clinical trial management. Accordingly, the expenses of these outsourced services account for a significant amount of our accumulated loss. We cannot predict when, if ever, any of our immunotherapies will become commercially viable or approved by the U.S. Food and Drug Administration, or FDA. We expect to spend substantial additional sums on the continued research and development of proprietary products and technologies, including conductingfour Phase II clinical trialsand prepare to advance this immunotherapy to registrational Phase III trials for our immunotherapies, with no certainty that our immunotherapies will become commercially viable or profitable as a result of these expenditures.
Recent Developments
Orphan Drug Designation
In June 2013, we submitted three applications for Orphan Drug Designation with the FDA for ADXS-HPV for use in the treatment of invasivewomen with recurrent cervical cancer, headcancer.
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JMJ Financial
On August 14, 2013, we borrowed an additional $100,000 In addition, the Agreement may be terminated by either party upon thirty days’ written notice (i) in the event of a material breach by the other party of its obligations under the convertible promissory note sold to JMJ FinancialAgreement, (ii) if the other party becomes bankrupt or insolvent or (iii) if the other party undergoes a change in April 2013, which matures in April 2014. At this date, we have borrowed an aggregate $625,000 under the JMJ April 2013 Note. JMJ Financial has no obligation to lend us the remaining $95,000control.
On September 4, 2013, we entered into a securities purchaseclinical trial agreement with JMJ Financial pursuantthe Icahn School of Medicine at Mount Sinai to whichevaluate the safety, effectiveness, and immunogenicity of ADXS-HPV in 25 patients with head and neck cancer. This clinical trial will be the first study to evaluate the effects of ADXS-HPV in patients when they are initially diagnosed with HPV-associated head and neck cancer, prior to receiving any standard of care (surgery, chemotherapy, radiation or a combination thereof) to remove and/or treat their tumors. This study will be an important first step toward understanding ADXS-HPV's potential to treat this type of cancer before chemotherapy and/or radiation and its potential to reduce the need for these treatments.
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The face amount of the note reflects an aggregate principal amount of $800,000 for total consideration of $720,000 (or a 10% original issue discount). However, we have currently only borrowed $500,000 from JMJ Financial under this convertible promissory note, all of which JMJ Financial paid us in cash. JMJ Financial has no obligation to lend us the remaining $220,000 of available principal amount under the note and may never do so. We have no obligation to pay JMJ Financial any amounts on the unfunded portion of the note. We may not prepay any portion of the note without JMJ Financial’s consent. For additional information regarding this note, see “-Liquidity and Capital Resources-JMJ Financial.”
Tonaquint
On August 14, 2013, in lieu of a cash installment payment on the outstanding Tonaquint Note, we issued 33,309 shares of common stock. Of the 33,309 shares issued to Tonaquint, 21,843 were issued to satisfy the second installment payment consisting of principalAdvaxis in the amount of $49,444 and interest of $5,810 for a total conversion amount of $55,254. This amount was converted at a conversion price of approximately $2.53. The remaining 11,466 shares were issued related to the installment payment we made in July 2013 pursuant to a true-up provision in the convertible promissory note agreement that allows Tonaquint to receive additional shares if the conversion price, used at the time of the installment payment, decreases in a stated period of time following said payment.
Hanover
On August 15, 2013, we issued 10,500 shares of our common stock to Hanover Holdings in connection with the settlement of a draw down pursuant to the Hanover Purchase Agreement, at a price of approximately $2.81 per share. The per share price for such shares was established underfuture. Under the terms of the Hanover Purchase Agreement. We received total net proceedsagreement, Advaxis will exclusively license the rights to ADXS-HPV to GBP for the Asia, Africa, and former USSR territory, exclusive of $29,516 in connection with this draw down.
IssuanceIndia and certain other countries, for all HPV-associated indications. Advaxis will retain exclusive rights to ADXS-HPV for the rest of Promissory Note Secured by Sale of NOLsthe world.
Resignation of Thomas A. Moore and Appointment of Dan O’Connorhis new position as Chief Executive Officer
At a meeting of our Board of Directors held on August 14, 2013, Thomas A. Moore indicated his intent to resign as ChairmanDirector of the Board of DirectorsGeorgia Health Sciences University Cancer Center (“GRU”) in Augusta, Georgia. Dr. Khleif and President and Chief Executive Officer (“CEO”) effective August 19, 2013 in line with the previously contemplated succession plan. Thomas A. Moorehis laboratory will continue to serve onelaborate the Boardmolecular immunologic mechanisms by which live, attenuated strains of DirectorsLm can effect therapeutic changes in cancer and will act as a consultant toother diseases.
Dr. James Patton, Chairman of the Audit Committee, was elected to serve as Non- executive Chairman of the Board effective August 19, 2013.
Thomas A. Moore Consulting and Severance Agreements
On August 19, 2013, Advaxis, Inc. enteredentering into a consultingmaster clinical trial agreement with Mr. Moore, which took effect as of such date. Under the consulting agreement, Mr. MooreGRU Cancer Center to conduct four Phase 1/2 clinical trials. The trials will assist the development of Advaxis Inc.’s veterinary program and perform the duties assigned by the CEO, the Chairman of the Board and/or Board of Directors related to strategic planning and business development, or any other matter so delegated. Mr. Moore is required to be able to commit at least 20 hours per week to his consulting dutiesconducted under the agreement.supervision of Dr. Khleif. The consulting agreement providesplanned trials will further develop Advaxis’ two lead immunotherapies: ADXS-HPV for an initial termcervical cancer and ADXS-cHER2 for breast cancer. The four clinical trials will be designed to assess:
Pursuant to the terms of the consulting agreement, Mr. Moore is entitled to: (i) annualized compensation of $350,000 (payable monthly, with thefirst payment due September 20, 2013), with 12% per annum interest accruing on payments not made in accordance with the agreed terms; (ii)reimbursement for any COBRA costs, (iii) a one-time $100,000 payment if Advaxis, Inc. closes a financing greater than $5,000,000 during the initial term of the agreement (which one-time payment may be increased to $429,076.59 at Advaxis, Inc.’s discretion if the financing exceeds $15,000,000), which amounts are to be in repayment of loans extended by Mr. Moore to Advaxis, Inc., (iv) be treated as non-employee Director for purposes of attendance fees under Advaxis, Inc.’s Director compensation program (but not for purposes of the annual retainer), (v) receive aone-time grant of 30,000 options under the Advaxis, Inc. 2011 Omnibus Incentive Plan (the “Plan”surgically treatable cervical cancer.
Yenson Co. Ltd.
In April 2013, we signed a memorandum of understanding with FusionVax, which was subsequently re-executed between uscommercial manufacturing processes for ADXS-HPV bulk drug substance and Yenson Company, Ltd., or Yenson. The memorandum of understanding sets out the framework for entry into a definitive agreement to license ADXS-HPV for commercialization in Asia (except India). Under the terms of the memorandum of understanding, we agreed to work towards drafting a definitive agreement that exclusively licenses the rights to ADXS-HPV to Yenson (or NewCo) for the Asia territory, exclusive of India, for all indications. Subject to the entry into a definitive agreement, Yenson will pay us an up-front payment, certain event-based financial milestones, an annual exclusive licensing fee, and an annual net sales royalty in countries with issued patents. In exchange for the up-front payment, we will provide Yenson an equal amount worth of our common stock. Yenson will be responsible for conducting clinical trials and pursuing commercialization of ADXS-HPV in Asia and, in exchange, we will pay Yenson net sales annual royalty on ADXS-HPV in the United States of less than 1%. Yenson, accompanied with Taiwan Biotech Co., Ltd. and several Taiwanese venture capital funds plan to form a new company (NewCo) and transfer all rights to the NewCo to execute the obligations and commitments described in the memorandum of understanding.
On August 28,drug product.
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Results of operations for the three months ended July 31, 2013 and 2012
Revenue
2013.
lower domestic clinical costs.
candidates.
For the three months ended July 31, 2013, interest expense decreased significantly to approximately $143,000 from $1,045,000 in the same period a year ago, which decrease is largely a result of the May 2012 exchange of approximately $4.5 million aggregate principal value of convertible promissory notes for shares of our common stock and warrants and the conversion of approximately $1.8 million aggregate principal value of various convertible promissory notes into shares of our common stock during 2012 and 2013. In addition, in the period a year ago, we recorded interest expense of approximately $500,000 related the issuance of shares to JMJ Financial under a Settlement Agreement, resulting in noncash expense from the recognition of a beneficial conversion feature.
Other Income/Income / (Expense)
vendors.
(Loss) Gain on Note Retirement and Accounts Payable
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Common Stock, resulting in non-cash income of approximately $576,000, offset by non-cash charges to income of approximately $424,000 resulting from the extinguishment of debt instruments during the period.
Changes in Fair Values
For the three months ended July 31, 2013, we recorded non-cash income from changes in the fair value of of approximately $1.6 million. Approximately $1.8 million of non-cash income resulted from a decrease in the fair value of each liability warrant due to a decrease in our share price from $8.31, at April 30, 2013 to $3.50 at July 31, 2013 in addition to a decrease in overall volatility used in calculating the fair value of each liability warrant. This was slightly offset by non-cash expenses related to the mark-to-market of convertible notes, accounted for under Fair Value accounting.
For the three months ended July 31, 2012, we recorded income from changes in the fair value of the warrant liability and embedded derivative liability of approximately $2.4 million primarily resulting from$132,000 due to a decrease in the fair value of each liability warrant primarily due to a decrease in our share price from $16.25, at April 30, 2012 to $8.75, at July 31, 2012.
Potential future increases or decreases in our stock price will result in increased or decreased warrant and embedded derivative liabilities, respectively, on our balance sheet and therefore increased or decreased expenses being recognized in our statement of operations in future periods.
Results of operations for the nine months ended July 31, 2013 and 2012
Revenue
We did not record any revenue for the nine months ended July 31, 2013 and 2012.
Research and Development Expenses
Research and development expenses decreased by approximately $1,348,000 to approximately $4,412,000 for the nine months ended July 31, 2013 as compared with approximately $5,760,000 for the same period a year ago. This is primarily attributable to decreased clinical trial expenses due to the near completion of dosing patients in our India trial and less clinical trial activity as compared with the same period a year ago. This was slightly offset by an increase in overall compensation in the current periodwarrants primarily resulting from higher stock-based compensation for options granted to employees as compared with the same period a year ago.
We anticipate a significant increase in research and development expenses as a resultsmaller range of our intended expanded development and commercialization efforts primarily related to clinical trials and product development. In addition, we expect to incur expensesshare prices used in the developmentcalculation of strategic and other relationships required to license manufacture and distribute our product candidates when they are approved.
General and Administrative Expenses
General and administrative expenses increased by approximately $2,003,000 to approximately $6,300,000 for the nineBSM Model volatility input.
Interest Expense
For the nine months ended July 31, 2013, interest expense decreased significantly to approximately $600,000 from $4,242,000 in the same period a year ago, which decrease is largely a result of the significant reduction in overall debt. These reductions included the May 2012 exchange of approximately $4.5 million aggregate principal value of convertible promissory notes for shares of our common stock and warrants and the conversion of approximately $1.8 million aggregate principal value of various convertible promissory notes into shares of our common stock during 2012 and 2013. In addition, in the period a year ago, we recorded interest expense of approximately $500,000 related the issuance of shares to JMJ Financial under a previously disclosed Settlement Agreement, resulting in non-cash expense from the recognition of a beneficial conversion feature. This decrease was slightly offset by approximately $157,000 in non-cash interest expense, recorded in the current period, related to the issuance of 28,000 shares of our common stock (Commitment Fee Shares) under the Hanover Purchase Agreement.
Other Income/(Expense)
Other expense was approximately $15,926 for the nine months ended July 31, 2013 as a result of approximately $5,100 in interest income from payments made to us under the terms of a convertible promissory note, more than offset by expense of approximately $21,077 related to unfavorable changes in foreign exchange rates relating to transactions with certain vendors.
Other income was approximately $26,000 for the nine months ended July 31, 2012 as compared with other expense of approximately $49,000 in the same period a year ago as a result of favorable changes in foreign exchange rates relating to transactions with certain vendors.
(Loss) Gain on Note Retirement and Accounts Payable
For the nine months ended July 31, 2013, we recorded non-cash income of approximately $349,000 primarily resulting from the settlement of outstanding payables with shares of our common stock or at a discount. This income was partially offset by charges incurred related to the conversion of notes into shares of our common stock by investors.
For the nine months ended July 31, 2012, we recorded a charge to income of approximately $2,173,000 primarily resulting from entering into exchange agreements with May, October and December 2011 investors in which these investors exchanged convertible promissory notes in the aggregate principal amount of approximately $4.5 million for (i) an aggregate of approximately 418,000 shares of our common stock and (ii) warrants to purchase up to approximately 46,000 shares of common stock at an exercise price of $18.75 per share. In addition,we recognized non-cash expense resulting from the conversion of promissory notes, by investors, during the nine months ended July 31, 2012. These expenses were partially offset by non-cash income resulting from the issuance of shares to Numoda under a stock purchase agreement and the July 2012 warrant exchanges.
Changes in Fair Values
For the nine months ended July 31, 2013, weCompany recorded non-cash expense of approximately $2.3 million. This was primarily the result of non-cash expense of approximately $1.2 million from the mark-to-market of our convertible promissory notes, accounted for under fair value accounting. In addition, we recorded non-cash expense of approximately $1.1 million from changes in the fair value of the warrant liability resultingof approximately $4,000,000. In the current period, the increase in expense of approximately $4,000,000 resulted from an increase in the fair value of each liability warrant due to an increase in our share price from $5.63,$0.045, at October 31, 2012 to $9.00$0.072 at January 31, 2013 and an increase in addition to a larger range of share prices used in the calculation of the BSM Model volatility input and the number of outstanding liability warrants increasing during the current period compared to the same period a year ago.
For the nine months ended July 31, 2012, we recorded income from changes in the fair value of the warrant liability and embedded derivative liability of approximately $6.0 million primarily resulting from a decrease in the fair value of each liability warrant due primarily to a decrease in our share price from $18.75, at October 31, 2010 to $8.75, at July 31, 2012. In addition, there was a decrease in the fair value of each liability warrant due to a smaller range of share prices used in the calculation of the BSM Model volatility input
Potential future increases or decreases in our stock price will result in increased or decreased warrant and embedded derivative liabilities, respectively, on our balance sheet and therefore increased or decreased expenses being recognized in our statement of operations in future periods.
period.
We
In the nine months ended July 31, 2012, we received a net cash amount of $346,787 from the sale of our state NOLs for the periods through October 31, 2010.
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We do not have adequate
Discussion of Cash Flows
Cash used in operating activities, for the nine months ended July 31, 2013, was approximately $4.9 million resulting primarily from spending associated with our clinical trial programs and general & administrative expenses.
Cash used in investing activities, for the nine months ended July 31, 2013, was approximately $201,000 resulting primarily from legal spending in support of our patents.
Cash provided byto execute its business plan. There is no assurance that additional financing activities, for the nine months ended July 31, 2013, was approximately $5.1 million, primarily consisting of net proceeds received from the sale of convertible promissory notes ($2.0 million), the sale of our common stock primarily from the use of the Hanover Equity Enhancement Program ($3.0 million) and the exercise of warrants resulting in proceeds of approximately $94,000.
For the nine months ended July 31, 2013, we issuedwill be available when needed or that management will be able to certain accredited investors (including JMJ Financial as described below) convertible promissory notes in the aggregate principal amount of approximately $2,138,277 for an aggregate net purchase price of approximately $2,110,500. These convertible promissory notes were issued with either original issue discounts ranging from 15% to 25% or are interest-bearing and are convertible into shares of our common stock. Some of these convertible promissory notes were issued along with warrants. These convertible promissory notes mature between January and December of 2014. In addition, during the nine months ended July 31, 2013, Mr. Moore loaned our company $11,200 under the Moore Notes (see Note 6 to our financial statements appearing elsewhere in this Quarterly Reportobtain financing on Form 10-Q for more information regarding the Moore Notes).
During the nine months ended July 31, 2013, we issued 17,657 shares of our common stock, to accredited investors, at a price per share of $4.375, resulting in total net proceeds of $77,250.
During the nine months ended July 31, 2013, we issued 348,724 shares of our common stock to Hanover in connection with the settlement of drawdowns pursuantterms acceptable to the Hanover Purchase Agreement, at prices ranging from approximately $3.32Company or whether the Company will become profitable and generate positive operating cash flow. If the Company is unable to $7.48 per share. The per share price forraise sufficient additional funds, it will have to scale back its business plan, extend payables and reduce overhead until sufficient additional capital is raised to support further operations. There can be no assurance that such shares was established under the terms of the Hanover Purchase Agreement. We received total net proceeds of approximately $2,934,624 in connection with these drawdowns.
JMJ Financial
On April 26, 2013, in a private placement, we issued JMJ Financial a convertible promissory note. The face amount of the note reflects an aggregate principal amount of $800,000 for total consideration of $720,000 (or a 10% original issue discount). As of April 26, 2013, we had only borrowed $425,000 from JMJ Financial under this convertible promissory note. JMJ Financial paid us $300,000 in cash and exchanged a promissory note with an aggregate principal amount of $125,000 that we issued to JMJ Financial on December 26, 2012 as consideration for the note. The exchange was analyzed and management concluded that the exchanged qualifies for modification accounting. On June 27, 2013, the we borrowed an additional $100,000 under the above convertible promissory note. JMJ Financial has no obligation to lend us the remaining $195,000 of available principal amount under the note and may never do so. We have no obligation to pay JMJ Financial any amounts on the unfunded portion of the note. We may not prepay any portion of the note without JMJ Financial’s consent.
The convertible promissory note matures April 26, 2014 and, in addition to the 10% original issue discount, provides for payment of a one-time interest charge of 5% on funded amounts. The convertible promissory note is convertible at any time, in whole or in part, at JMJ Financial’s option into shares of our common stock at the lesser of $8.75 or 70% of the average of the lowest two closing prices in the 20-day pricing period preceding a conversion. However, at no time will JMJ Financial be entitled to convert any portion of the note to the extent that after such conversion, JMJ Financial (together with its affiliates) would beneficially own more than 4.99% of our outstanding shares of common stock as of such date. We agreed to reserve at least 160,000 shares of our common stock for conversion of the note. The note also provides for penalties and rescission rights if we do not deliver shares of our common stock upon conversion with the require timeframes.
The convertible promissory note includes customary event of default provisions, and provides for a default rate of the lesser of 18% or the maximum permitted by law. Upon the occurrence of an event of default, the lender may require us to pay in cash the “Mandatory Default Amount” which is defined in the note to mean the greater of (i) the outstanding principal amount of the note plus all interest, liquidated damages and other amounts owing under the note, divided by the conversion price on the date payment of such amount is demanded or paid in full, whichever is lower, multiplied by the volume-weighted-average price, or VWAP, on the date payment of such amount is demanded or paid in full, whichever has a higher VWAP, or (ii) 150% of the outstanding principal amount of the note plus 100% of all interest, liquidated damages and other amounts owing under the note.
We also granted JMJ Financial the right, at its election, to participate in the next public offering of our securities by exchanging, in whole or in part, the funded portion of this note for a subscription to such public offering in an amount equal to 125% of the sum of the funded portion of the principal amount of being exchanged plus all accrued and unpaid interest, liquidated damages, fees, and other amounts due on such exchanged principal amount. However, in September 2013, JMJ Financial agreed to amend the April 2013 note to remove this right. If we complete a public offering of $10,000,000 or more, JMJ Financial has the right, at its election, to require us to repay the note, in whole or in part, in amount equal to 125% of the sum of the funded principal amount being repaid plus all accrued and unpaid interest liquidated damages, fees, and other amounts due on such principal amount. In September 2013, we agreed to lower this threshold to $5,000,000 in connection with the sale of the new convertible promissory not to JMJ Financial.
On September 4, 2013, we entered into a securities purchase agreement with JMJ Financial pursuant to which we issued JMJ Financial, in a private placement, an $800,000 convertible promissory note and 19,231 restricted shares of our common stock as a $50,000 origination fee for the note. The securities agreement provides that we will “true up” JMJ Financial by issuing additional shares of our common stock if JMJ Financial does not receive at least $50,000 of net proceeds from the sale of such shares of common stock when, and if, it disposes of such shares.
The face amount of the note reflects an aggregate principal amount of $800,000 for total consideration of $720,000 (or a 10% original issue discount). However, we have currently only borrowed $500,000 from JMJ Financial under this convertible promissory note, all of which JMJ Financial paid us in cash. JMJ Financial has no obligation to lend us the remaining $220,000 of available principal amount under the note and may never do so. We have no obligation to pay JMJ Financial any amounts on the unfunded portion of the note. We may not prepay any portion of the note without JMJ Financial’s consent.
The convertible promissory note matures September 4, 2014 and, in addition to the 10% original issue discount, provides for payment of a one time interest charge of 5% on funded amounts. The convertible promissory note is convertible at any time, in whole or in part, at JMJ Financial’s option into shares of our common stock at the lesser of $2.65 or 70% of the average of the lowest two closing prices in the 20-day pricing period preceding a conversion. However, at no time will JMJ Financial be entitled to convert any portion of the note to the extent that after such conversion, JMJ Financial (together with its affiliates) would beneficially own more than 4.99% of our outstanding shares common stock as of such date. We agreed to reserve at least 2,000,000 shares of our common stock for conversion of the note. The note also provides for penalties and rescission rights if we do not deliver shares of our common stock upon conversion with the require timeframes.
The convertible promissory note includes customary event of default provisions, and provides for a default rate of the lesser of 18% or the maximum permitted by law. Upon the occurrence of an event of default, the lender may require us to pay in cash the “Mandatory Default Amount,” which is defined in the note to mean the greater of (i) the outstanding principal amount of the note plus all interest, liquidated damages and other amounts owing under the note, divided by the conversion price on the date payment of such amount is demanded or paid in full, whichever is lower, multipled by the volume-weighted-average price, or VWAP, on the date payment of such amount is demanded or paid in full, whichever has a higher VWAP, or (ii) 150% of the outstanding principal amount of the note plus 100% of all interest, liquidated damages and other amounts owing under the note.
If we complete a public offering of $5,000,000 or more, JMJ Financial has the right, at its election, to require us to repay the note, in whole or in part, in amount equal to 125% of the sum of the funded principal amount being repaid plus all accrued and unpaid interest liquidated damages, fees, and other amounts due on such principal amount.
Issuance of a convertible promissory note
On August 20, 2013, in a private placement pursuant to a note purchase agreement, we issued an accredited investor a secured convertible promissory note in the aggregate principal amount of $108,000, for a purchase price of $100,000. This note bears interest at a rate of 20% per annum and is convertible into shares of our common stock at a conversion price equal to the lower of $3.00 or 80% of the volume weighted average price for the five days preceding conversion, with a floor price of $2.50. To secure prompt payment under the note, we granted the holder a continuing security interest in all net proceeds we receive up to the aggregate amount of $108,000 plus accrued interest from the sale of our NOLs and or research and development tax credits through the New Jersey Economic Development Program. This note matures on February 21, 2014, nine months after its issuance, and may not be converted prior to maturity although we may prepay this note at any time. In addition, We are required to repay this note within three business days of closing any financing greater than $2,000,000.
Yenson Company Ltd.
In April 2013, we signed a memorandum of understanding with FusionVax, which was subsequently re-executed between us and Yenson Company, Ltd., or Yenson which memorandum of understanding sets out the framework for entry into a definitive agreement to license ADXS-HPV for commercialization in Asia(except India). Under the terms of the memorandum of understanding, we agreed to work towards drafting a definitive agreement that exclusively licenses the rights to ADXS-HPV to Yenson (or NewCo) for the Asia territory, exclusive of India, for all indications. Subject to the entry into a definitive agreement, Yenson will pay us an up-front payment, certain event-based financial milestones, an annual exclusive licensing fee, and an annual net sales royalty in countries with issued patents. In exchange for the up-front payment, we will provide Yenson an equal amount worth of our common stock. Yensonplan will be responsible for conducting clinical trials and pursuing commercialization of ADXS-HPV in Asia and, in exchange, we will pay Yenson net sales annual royalty on ADXS-HPV in the United States of less than 1%. Yenson, accompanied withTaiwan Biotech Co., Ltd. and several Taiwanese venture capital funds plan to form a new company (NewCo) and transfer all rights to the NewCo to execute the obligations and commitments described in the memorandum of understanding.
On August 28, 2013, pursuant a Securities Purchase Agreement, Yenson Company Ltd purchased $100,000 of our common stock at a purchase price of approximately $2.21, resulting in 45,353 shares of our common stock being issued. In addition, Yenson received 50% warrant coverage, resulting in the issuance of a warrant to purchase 22,161 shares of our common stock, at an exercise price of $2.76 per warrant. The warrant expires 3 years from the date of the agreement.
successful.
Critical Accounting and New Accounting Pronouncements
23 | ||
Hybrid Financial Instruments
For certain hybrid financial instruments, we elected to apply the fair value option to account for certain instruments. We made an irrevocable election to measure such hybrid financial instruments at fair value in their entirety, with changes in fair value recognized in earnings at each balance sheet date. The election may be made
Debt Discount and Amortization of Debt Discount
Debt discount represents the fair value of embedded conversion options of various convertible debt instruments and attached convertible equity instruments issued in connection with debt instruments. The determination of fair value requires the use of judgment and estimates by management. The debt discount is amortized over the earlier of (i) the term of the debt or (ii) conversion of the debt, using the straight-line method, which approximates the interest method. The amortization of debt discount is included as a component of other expenses in the accompanying statements of operations.
New Accounting Pronouncements
For a full description of recent accounting pronouncements, including the anticipated dates of adoption and the estimated effects on our consolidated financial position and results of operations, see Note 2 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q.
24 | ||
Not applicable.
Not applicable.
On May 1, 2013, weregistrant issued and sold an aggregate 1,2891,781 shares of ourits common stock to certain employees, including Mark J. RosenblumChristy L. French and Robert G. Petit, Ph.D,Ph.D., two of ourits executive officers, pursuant to its Employee Stock Purchase Plan for an aggregate purchase price of $6,779$5,371 in cash.
On May 22, 23, 28 and 29, 2013,we issued 6,410, an aggregate 13,244, 7,092 and an aggregate 17,412 shares of our common stock, respectively, to Asher, upon conversion of $25,000, an aggregate $50,000, $25,000 and an aggregate $59,640, respectively, of principal amount of a convertible promissory note with an aggregate principal face amount of $153,500 that we issued to Asher on November 12, 2012.
On June 11, 2013, we issued Hanover 26,667 shares of our common stock upon conversion of the principal amount of a convertible promissory ntoe with an aggregate principal face amount of $100,000 that we issued to Hanover on December 6, 2012.
On June 12, 2013,weregistrant issued an aggregate 54,47551,546 shares of ourits common stock to ourits non-employee Directors, which shares had been earned under our Directorthe registrant’s Directors’ compensation program but not previously issued.
as payment for consulting services rendered.
On July 24, 2013, in a private placement pursuant to a note purchase agreement, we issued Asher a convertible promissory note in the aggregate principal amount of $103,500, for a purchase price of $100,000.
On July 25, 2013, we issued Tonaquint an aggregate 27,583registrant granted Daniel J. O’Connor, it’s Chief Executive Officer, 37,050 shares of ourits common stock upon partial conversion of the notes issued to Tonaquint in December 2012.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
None
25 | ||
3.1 | Amended and Restated Certificate of Incorporation. Incorporated by reference to Annex C to DEF 14A Proxy Statement filed with the SEC on May 15, 2006. | |
3.2 | Certificate of Designations of Preferences, Rights and Limitations of Series A Preferred Stock of the registrant, dated September 24, 2009. Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed with the SEC on September 25, 2009. | |
3.3 | Certificate of Designations of Preferences, Rights and Limitations of Series B Preferred Stock of the registrant, dated July 19, 2010. Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed with the SEC on July 20, 2010. | |
3.4 | Certificate of Amendment to Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on August 16, 2012. Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed with the SEC on August 17, 2012. | |
3.5 | Certificate of Amendment of the Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on July 11, 2013 (reverse stock split). Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed with the SEC on July 15, 2013. | |
3.6 | Certificate of Amendment of the Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on July 12, 2013 (reverse stock split). Incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K filed with the SEC on July 15, 2013. | |
3.7 | Amended and Restated Bylaws. Incorporated by reference to Exhibit 10.4 to Quarterly Report on Form 10-QSB filed with the SEC on September 13, 2006. | |
10.1*** | Exclusive License and Technology Transfer Agreement by and between Advaxis, Inc. and Global BioPharma, Inc., dated December 9, 2013. Incorporated by reference to Exhibit 10.79 to Annual Report on Form 10-K/A filed with the SEC on February 6, 2014. | |
10.2‡ | Amendment No. 1, dated as of December 19, 2013, to the Employment Agreement by and between Advaxis, Inc. and Daniel J. O’Connor. Incorporated by reference to Exhibit 10.80 to Annual Report on Form 10-K/A filed with the SEC on February 6, 2014. | |
10.3‡ | Amendment No. 1, dated as of December 19, 2013, to the Employment Agreement by and between Advaxis, Inc. and Gregory T. Mayes, III. Incorporated by reference to Exhibit 10.81 to Annual Report on Form 10-K/A filed with the SEC on February 6, 2014. | |
10.4‡ | Amendment No. 1, dated as of December 19, 2013, to the Employment Agreement by and between Advaxis, Inc. and Mark J. Rosenblum. Incorporated by reference to Exhibit 10.82 to Annual Report on Form 10-K/A filed with the SEC on February 6, 2014. | |
10.5‡ | Amendment No. 1, dated as of December 19, 2013, to the Employment Agreement by and between Advaxis, Inc. and Robert G. Petit. Incorporated by reference to Exhibit 10.83 to Annual Report on Form 10-K/A filed with the SEC on February 6, 2014. | |
10.6‡ | Amendment No. 1, dated as of December 19, 2013, to the Employment Agreement by and between Advaxis, Inc. and Chris L. French. Incorporated by reference to Exhibit 10.84 to Annual Report on Form 10-K/A filed with the SEC on February 6, 2014. | |
10.7**** | Distribution and Supply Agreement, dated as of January 20, 2014, by and between Advaxis, Inc. and Biocon, Limited |
31.1* | Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2* | Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1* | Certification of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2* | Certification of Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS** | XBRL INSTANCE DOCUMENT | |
101.SCH** | XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT | |
101.CAL** | XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT | |
101.DEF** | XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT | |
101.LAB** | XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT | |
101.PRE** | XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT |
Advaxis’ Periodic Report on Form 10-Q for the period ended July 31, 2013, at the time of filing with the Securities and Exchange Commission, shall modify and supersede all prior documents filed pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934 for purposes of any offers or sales of any securities after the date of such filing pursuant to any Registration Statement or Prospectus filedSEC pursuant to the Securities Act of 1933, which incorporates by reference such Periodic Report on Form 10-Q.
confidential treatment request.
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ADVAXIS, INC. | ||
Registrant | ||
Date: | By: | /s/ Daniel J. O’Connor |
Daniel J. O’Connor | ||
Chief Executive Officer | ||
By: | /s/ Mark J. Rosenblum | |
Mark J. Rosenblum | ||
Chief Financial Officer, Senior Vice President and Secretary |
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