NOTES
TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1.
NATURE OF OPERATIONS
Advaxis,
Inc. (“Advaxis” or the “Company”) is a late-stage biotechnology company focused on the discovery, development
and commercialization of proprietary
Listeria monocytogenes
(“
Lm
”) based antigen delivery products.
The Company is using its
Lm
platform directed against tumor-specific targets in order to engage the patient’s immune
system to destroy tumor cells. Through a license from the University of Pennsylvania, Advaxis has exclusive access to this proprietary
formulation of attenuated
Lm
called
Lm
Technology
TM
. Advaxis’ proprietary approach is designed
to deploy a unique mechanism of action that redirects the immune system to attack cancer in three distinct ways:
|
●
|
Alerting
and training the immune system by activating multiple pathways in Antigen-Presenting Cells (“APCs”) with the equivalent
of multiple adjuvants;
|
|
|
|
|
●
|
Attacking
the tumor by generating a strong, cancer-specific T cell response; and
|
|
|
|
|
●
|
Breaking
down tumor protection through suppression of the protective cells in the tumor microenvironment (“TME”) that shields
the tumor from the immune system. This enables the activated T cells to begin working to attack the tumor cells.
|
Advaxis’
proprietary
Lm
platform technology has demonstrated clinical activity in several of its programs and has been dosed in
over 470 patients across multiple clinical trials and in various tumor types. The Company believes that
Lm
Technology immunotherapies
can complement and address significant unmet needs in the current oncology treatment landscape. Specifically, our product candidates
have the potential to work synergistically with other immunotherapies, including checkpoint inhibitors, while having a generally
well-tolerated safety profile.
Going
Concern and Management’s Plans
The
Company has not yet commercialized any human products and the products that are being developed have not generated significant
revenue. As a result, the Company has suffered recurring losses and requires significant cash resources to execute its business
plans. These losses are expected to continue for an extended period of time. The aforementioned factors raise substantial doubt
about the Company’s ability to continue as a going concern within one year from the date of filing. The accompanying financial
statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification
of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going
concern within one year after the date the financial statements are issued.
Historically,
the Company’s major sources of cash have been comprised of proceeds from various public and private offerings of its common
stock, clinical collaborations, option and warrant exercises, and interest income. From October 2013 through April 2019, the Company
raised approximately $275 million in gross proceeds from various public and private offerings of our common stock.
As
of April 30, 2019, the Company had approximately $33.7 million in cash and cash equivalents. Management’s plans to mitigate
an expected shortfall of capital, to support future operations, include obtaining additional funds through partnerships, strategic
or financing investors. The actual amount of cash that it will need to operate is subject to many factors.
The
Company recognizes it will need to raise additional capital in order to continue to execute its business plan in the future. There
is no assurance that additional financing will be available when needed or that management will be able to obtain financing on
terms acceptable to the Company or whether the Company will become profitable and generate positive operating cash flow. If the
Company is unable to raise sufficient additional funds, it will have to scale back its operations.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Basis
of Presentation/Estimates
The
accompanying unaudited interim condensed financial statements and related notes have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and
in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) with respect to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S.
GAAP for complete financial statements and the accompanying unaudited condensed balance sheet as of April 30, 2019 has been derived
from the Company’s October 31, 2018 audited financial statements. In the opinion of management, the unaudited interim condensed
financial statements furnished include all adjustments (consisting of normal recurring accruals) necessary for a fair statement
of the results for the interim periods presented.
Operating
results for interim periods are not necessarily indicative of the results to be expected for the full year. The preparation of
financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during
the reporting period. Significant estimates include the timelines associated with revenue recognition on upfront payments received,
fair value and recoverability of the carrying value of property and equipment and intangible assets, fair value of warrant liability,
grant date fair value of options, deferred tax assets and any related valuation allowance and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates its estimates, based on historical experience and on various
other assumptions that it believes to be reasonable under the circumstances. Actual results could materially differ from these
estimates.
These
unaudited interim condensed financial statements should be read in conjunction with the financial statements of the Company as
of and for the year ended October 31, 2018 and notes thereto contained in the Company’s annual report on Form 10-K, as filed
with the SEC on January 11, 2019.
Reclassification
Certain
amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial
statements. These reclassifications had no effect on the previously reported net loss.
Concentration
of Credit Risk
Financial
instruments which potentially subject the Company to concentration of credit risk, consist principally of cash and cash equivalents.
All of the Company’s cash and cash equivalents are deposited in accounts with financial institutions that management believes
are of high credit quality and at times exceed the federally insured limits. The Company had not experienced losses in such accounts
and believes it is not exposed to any significant credit risk.
Restricted
Cash and Letters of Credit
During
July 2017 and January 2018, the Company established two letters of credit with a financial institution as security for the purchase
of custom equipment and as security for application fees associated with the Company’s Marketing Authorization Application
(“MAA”) in Europe. The letters of credit were collateralized by cash which was unavailable for withdrawal or for usage
for general obligations. During the six months ended April 30, 2019, the two letters of credit were terminated and as of April
30, 2019 the Company has no restricted cash balance.
Revenue
Recognition
Effective
November 1, 2018, the Company adopted ASC Topic 606, Revenue form Contracts with Customers (ASC 606), using the modified retrospective
transition method. Under this method, results for reporting periods beginning on November 1, 2018 are presented under ASC 606,
while prior period amounts are not adjusted and continue to be reported in accordance with ASC Topic 605,
Revenue Recognition
(ASC 605). The Company only applied the modified retrospective transition method to contracts that were not completed as of
November 1, 2018, the effective date of adoption for ASC 606. This standard applies to all contracts with customers, except for
contracts that are within the scope of other standards. Under ASC 606, an entity recognizes revenue when its customer obtains
control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange
for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope
of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance
obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations
in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies
the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange
for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the
scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance
obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount
of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is
satisfied.
The
Company enters into licensing agreements that are within the scope of ASC 606, under which it may exclusively license rights to
research, develop, manufacture and commercialize its product candidates to third parties. The terms of these arrangements typically
include payment to the Company of one or more of the following: non-refundable, upfront license fees; reimbursement of certain
costs; customer option exercise fees; development, regulatory and commercial milestone payments; and royalties on net sales of
licensed products.
In
determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company
performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether
the promised goods or services are performance obligations including whether they are distinct in the context of the contract;
(iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction
price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
As part of the accounting for these arrangements, the Company must use significant judgment to determine: (a) the number of performance
obligations based on the determination under step (ii) above; (b) the transaction price under step (iii) above; and (c) the stand-alone
selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv)
above. The Company uses judgment to determine whether milestones or other variable consideration, except for royalties, should
be included in the transaction price as described further below. The transaction price is allocated to each performance obligation
on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations
under the contract are satisfied.
Amounts
received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the
12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated
balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified
as deferred revenue, net of current portion.
Exclusive
Licenses.
If the license to the Company’s intellectual property is determined to be distinct from the other performance
obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license
when the license is transferred to the customer and the customer is able to use and benefit from the license. In assessing whether
a performance obligation is distinct from the other performance obligations, the Company considers factors such as the research,
development, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated
expertise in the general marketplace. In addition, the Company considers whether the collaboration partner can benefit from a
performance obligation for its intended purpose without the receipt of the remaining performance obligation, whether the value
of the performance obligation is dependent on the unsatisfied performance obligation, whether there are other vendors that could
provide the remaining performance obligation, and whether it is separately identifiable from the remaining performance obligation.
For licenses that are combined with other performance obligation, the Company utilizes judgment to assess the nature of the combined
performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and,
if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure
of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. The measure
of progress, and thereby periods over which revenue should be recognized, are subject to estimates by management and may change
over the course of the research and development and licensing agreement. Such a change could have a material impact on the amount
of revenue the Company records in future periods.
Research
and Development Services.
The performance obligations under the Company’s collaboration agreements may include research
and development services to be performed by the Company on behalf of the partner. Payments or reimbursements resulting from the
Company’s research and development efforts are recognized as the services are performed and presented on a gross basis because
the Company is the principal for such efforts.
Milestone
Payments.
At the inception of each arrangement that includes research or development milestone payments, the Company evaluates
whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price
using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone
value is included in the transaction price. An output method is generally to measure progress toward complete satisfaction of
a milestone. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals,
are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific,
clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment.
There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur.
At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject
to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a
cumulative catch-up basis, which would affect revenue and earnings in the period of adjustment.
Royalties.
For arrangements that include sales-based royalties, including milestone payments based on a level of sales, which are the
result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties
relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation
to which some or all of the royalty has been allocated has been satisfied or partially satisfied.
Collaborative
Arrangements
The
Company analyzes its collaboration arrangements to assess whether such arrangements involve joint operating activities performed
by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial
success of such activities and therefore within the scope of ASC Topic 808,
Collaborative Arrangements
(ASC 808). This
assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the
arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines
which elements of the collaboration are deemed to be within the scope of ASC 808 and which elements of the collaboration are more
reflective of a vendor-customer relationship and therefore within the scope of ASC 606. For elements of collaboration arrangements
that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally
by analogy to ASC 606. Amounts that are owed to collaboration partners are recognized as an offset to collaboration revenue as
such amounts are incurred by the collaboration partner. For those elements of the arrangement that are accounted for pursuant
to ASC 606, the Company applies the five-step model described above under ASC 606.
Recent
Accounting Standards
In
February 2016, the Financial Accounting Standards Board, (“FASB”), issued Accounting Standards Update, (“ASU”),
No. 2016-02, Leases (Topic 842), which establishes a comprehensive new lease accounting model. The new standard: (a) clarifies
the definition of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and
(c) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases
with a lease-term of more than 12 months. The new standard is effective for fiscal years and interim periods beginning after December
15, 2018, with early adoption permitted. A modified retrospective transition approach is required for leases existing at, or entered
into after, the beginning of the earliest comparative period presented in the financial statements, including a number of optional
practical expedients that entities may elect to apply. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted
Improvements, an update which provides another transition method, in addition to the existing modified retrospective transition
method, by allowing entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect
adjustment to the opening balance of retained earnings in the period of adoption. The Company is currently evaluating the impact
of adopting ASU 2016-02 on the Company’s financial statements.
Recently
Adopted Accounting Standards
In
May 2014, FASB issued ASU No. 2014-09, which amends the guidance for accounting for revenue from contracts with customers. ASU
No. 2014-09 superseded the revenue recognition requirements in ASC 605 and created ASC 606 described above. In 2015 and 2016,
the FASB issued additional ASUs related to ASC 606 that delayed the effective date of the guidance and clarified various aspects
of the new revenue guidance, including principal versus agent considerations, identifying performance obligations, and licensing,
and they include other improvements and practical expedients. Effective November 1, 2018, the Company adopted ASC 606 using the
modified retrospective transition method.
As
a result of adopting ASC 606, the Company made reclassifications to the balance sheet and income statement. Net income (loss)
was not impacted by the adoption of ASC 606. A summary of the amount by which each financial statement line item was affected
by the impact of the cumulative adjustment is set forth in the table below (in thousands):
|
|
Impact
of ASC 606 Adoption on
Condensed
Balance Sheet
as
of November 1, 2018
|
|
(in
thousands)
|
|
As
reported
under ASC 606
|
|
|
Adjustments
|
|
|
Balances
without adoption of ASC 606
|
|
Accounts
receivable
|
|
$
|
1,664
|
|
|
$
|
1,664
|
|
|
$
|
-
|
|
Prepaid
expenses and other current assets
|
|
$
|
1,611
|
|
|
$
|
(1,664
|
)
|
|
$
|
3,275
|
|
A
summary of the amount by which each financial statement line item was affected in the current reporting period by ASC 606 as compared
with the guidance that was in effect prior to the adoption of ASC 606 is set forth in the tables below.
|
|
Impact
of ASC 606 Adoption on
Condensed
Balance Sheet
as
of April 30, 2019
|
|
(in
thousands)
|
|
As
reported
under ASC 606
|
|
|
Adjustments
|
|
|
Balances
without adoption of ASC 606
|
|
Accounts
receivable
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Prepaid
expenses and other current assets
|
|
$
|
1,587
|
|
|
$
|
-
|
|
|
$
|
1,587
|
|
|
|
Impact
of ASC 606 Adoption on
Condensed
Statement of Operations
for
the Three Months Ended April 30, 2019
|
|
(in
thousands)
|
|
As
reported under ASC 606
|
|
|
Adjustments
|
|
|
Balances
without adoption of ASC 606
|
|
Revenue
|
|
$
|
1,188
|
|
|
$
|
73
|
|
|
$
|
1,115
|
|
Research
and Development Expenses
|
|
$
|
6,327
|
|
|
$
|
73
|
|
|
$
|
6,254
|
|
|
|
Impact
of ASC 606 Adoption on
Condensed
Statement of Operations
for
the Six Months Ended April 30, 2019
|
|
(in
thousands)
|
|
As
reported under ASC 606
|
|
|
Adjustments
|
|
|
Balances
without adoption of ASC 606
|
|
Revenue
|
|
$
|
20,877
|
|
|
$
|
1,960
|
|
|
$
|
18,917
|
|
Research
and Development Expenses
|
|
$
|
13,032
|
|
|
$
|
1,960
|
|
|
$
|
11,072
|
|
|
|
Impact
of ASC 606 Adoption on
Condensed
Statement of Cash Flows
for
the Six Months Ended April 30, 2019
|
|
(in
thousands)
|
|
As
reported under ASC 606
|
|
|
Adjustments
|
|
|
Balances
without adoption of ASC 606
|
|
Accounts
receivable
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Prepaid
expenses and other current assets
|
|
$
|
1,587
|
|
|
$
|
-
|
|
|
$
|
1,587
|
|
The
most significant change to the Company’s accounting for revenue as a result of the adoption of ASC 606 relates to its treatment
of clinical development payments it receives in its collaboration and licensing agreement with Amgen, Inc. (“Amgen”).
Under ASC 605, the Company accounted for the clinical development payments as a reduction of research and development expenses
in the statement of operations. Under ASC 606, the Company accounted for the reimbursements for research and development costs
as revenue. For further discussion of the adoption of this standard, see Note 9.
In
November 2018, the FASB issued ASU No. 2018-18, “Collaborative Arrangements (Topic 808)—Clarifying the Interaction
between Topic 808 and Topic 606” (“ASU 2018-18”). The amendments in ASU 2018-18 make targeted improvements to
generally accepted accounting principles (GAAP) for collaborative arrangements by clarifying that certain transactions between
collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant
is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including
recognition, measurement, presentation, and disclosure requirements. In addition, unit-of-account guidance in Topic 808 was aligned
with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement
or a part of the arrangement is within the scope of Topic 606. ASU 2018-18 is effective for fiscal years beginning after December
15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period.
The amendments should be applied retrospectively to the date of initial application of Topic 606. The Company adopted this guidance
effective November 1, 2018 using the modified retrospective approach. There was no impact on the Company’s financial statements.
In
June 2018, the FASB issued ASU No. 2018-07, “Compensation—Stock Compensation (Topic 718) —Improvements to Nonemployee
Share-Based Payment Accounting” (“ASU 2018-07”). The amendments in ASU 2018-07 expand the scope of Topic 718
to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements
of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost
(that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period).
The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services
to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify
that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted
in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts
with Customers. ASU 2018-07 is effective for public business entities for fiscal years beginning after December 15, 2018, including
interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic
606. The Company adopted this guidance effective as of February 1, 2019. There was no impact on the Company’s financial
statements.
In
November 2016, the FASB issued ASU No. 2016-18,
Restricted Cash
(ASU No. 2016-18). The amendments in ASU No. 2016-18 require
an entity to reconcile and explain the period-over-period change in total cash, cash equivalents and restricted cash within its
statements of cash flows. ASU No. 2016-18 was effective for the Company on November 1, 2018. The Company adopted ASU No. 2016-18
effective November 1, 2018 using a full retrospective approach and it did not have a significant impact on its financial statements
and related disclosures.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
impact on the accompanying condensed financial statements.
3.
PROPERTY AND EQUIPMENT
Property
and equipment, net consists of the following (in thousands):
|
|
April
30, 2019
|
|
|
October
31, 2018
|
|
|
|
|
|
|
|
|
Leasehold
improvements
|
|
$
|
2,335
|
|
|
$
|
2,321
|
|
Laboratory
equipment
|
|
|
5,530
|
|
|
|
5,510
|
|
Furniture
and fixtures
|
|
|
746
|
|
|
|
746
|
|
Computer
equipment
|
|
|
409
|
|
|
|
409
|
|
Construction
in progress
|
|
|
17
|
|
|
|
17
|
|
Total
property and equipment
|
|
|
9,037
|
|
|
|
9,003
|
|
Accumulated
depreciation and amortization
|
|
|
(2,880
|
)
|
|
|
(2,319
|
)
|
Net
property and equipment
|
|
$
|
6,157
|
|
|
$
|
6,684
|
|
Depreciation
expense for each of the three months ended April 30, 2019 and 2018 was $0.3 million. Depreciation expense for the six months ended
April 30, 2019 and 2018 was $0.6 million and $0.5 million, respectively.
4.
INTANGIBLE ASSETS
Intangible
assets, net consist of the following (in thousands):
|
|
April
30, 2019
|
|
|
October
31, 2018
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
6,240
|
|
|
$
|
5,970
|
|
Licenses
|
|
|
777
|
|
|
|
777
|
|
Software
|
|
|
117
|
|
|
|
117
|
|
Total
intangibles
|
|
|
7,134
|
|
|
|
6,864
|
|
Accumulated
amortization
|
|
|
(2,183
|
)
|
|
|
(2,026
|
)
|
Intangible
assets
|
|
$
|
4,951
|
|
|
$
|
4,838
|
|
The
expirations of the existing patents range from 2019 to 2039 but the expirations can be extended based on market approval if granted
and/or based on existing laws and regulations. Capitalized costs associated with patent applications that are abandoned without
future value are charged to expense when the determination is made not to pursue the application. Patent applications having a
net book value of $0.1 million and 0.2 million were abandoned and were charged to research and development expenses in
the statement of operations for the three months ended April 30, 2019 and 2018, respectively. Patent applications having a net
book value of 0.4 million and $0.3 million were abandoned and were charged to research and development expenses in the statement
of operations for the six months ended April 30, 2019 and 2018, respectively. Amortization expense for intangible assets that
was charged to general and administrative expense in the statement of operations aggregated $0.1 million for each of the three
months ended April 30, 2019 and 2018, respectively. Amortization expense for intangible assets that was charged to general and
administrative expense in the statement of operations aggregated $0.2 million for each of the six months ended April 30, 2019
and 2018, respectively.
Management
has reviewed its long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset
might not be recoverable. Net assets are recorded on the balance sheet are recorded on the balance sheet for patents and licenses
related to axalimogene filolisbac (AXAL), ADXS-NEO, ADXS-HOT, ADXS-PSA and ADXS-HER2 and other products that are in development
or out-licensed. However, if a competitor were to gain FDA approval for a treatment before us or if future clinical trials fail
to meet the targeted endpoints, the Company would likely record an impairment related to these assets. In addition, if an application
is rejected or fails to be issued, the Company would record an impairment of its estimated book value. Lastly, if the Company
is unable to raise enough capital to continue funding our studies and developing our intellectual property, the Company would
likely record an impairment to certain of these assets.
At
April 30, 2019, the estimated amortization expense by fiscal year based on the current carrying value of intangible assets is
as follows (in thousands):
|
|
Year
ended October 31,
|
|
|
|
|
|
2019
(Remaining)
|
|
$
|
193
|
|
2020
|
|
|
372
|
|
2021
|
|
|
352
|
|
2022
|
|
|
352
|
|
2023
|
|
|
352
|
|
Thereafter
|
|
|
3,330
|
|
Total
|
|
$
|
4,951
|
|
5.
ACCRUED EXPENSES:
|
|
April
30, 2019
|
|
|
October
31, 2018
|
|
|
|
|
|
|
|
|
Salaries
and other compensation
|
|
$
|
1,388
|
|
|
$
|
2,035
|
|
Vendors
|
|
|
1,293
|
|
|
|
3,660
|
|
Professional
fees
|
|
|
908
|
|
|
|
490
|
|
Total
accrued expenses
|
|
$
|
3,589
|
|
|
$
|
6,185
|
|
6.
COMMON STOCK PURCHASE WARRANTS AND WARRANT LIABILITY
As
of April 30, 2019, there were outstanding warrants to purchase 72,304 shares of our common stock with exercise prices ranging
from $3.72 to $281.25 per share. Information on the outstanding warrants is as follows:
Exercise
Price
|
|
|
Amount
|
|
|
Expiration
Date
|
|
Type
of Financing
|
$
|
281.25
|
|
|
|
25
|
|
|
N/A
|
|
Other
warrants
|
$
|
3.72
|
|
|
|
72,279
|
|
|
September
2024
|
|
Advaxis
Public Offering
|
|
Grand
Total
|
|
|
|
72,304
|
|
|
|
|
|
As
of October 31, 2018, there were outstanding warrants to purchase 944,635 shares of our common stock with exercise prices ranging
from $22.50 to $281.25 per share. Information on the outstanding warrants is as follows:
Exercise
Price
|
|
|
Amount
|
|
|
Expiration
Date
|
|
Type
of Financing
|
$
|
281.25
|
|
|
|
25
|
|
|
N/A
|
|
Other
warrants
|
$
|
56.25
|
|
|
|
166
|
|
|
March
2019
|
|
Placement
Agent- Advaxis Public Offering
|
$
|
22.50
|
|
|
|
944,444
|
|
|
September
2024
|
|
Advaxis
Public Offering
|
|
Grand
Total
|
|
|
|
944,635
|
|
|
|
|
|
A
summary of warrant activity was as follows (in thousands, except share and per share data):
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual Life
In Years
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding
and exercisable warrants at October 31, 2018
|
|
|
944,635
|
|
|
$
|
22.50
|
|
|
|
5.87
|
|
|
$
|
-
|
|
Exercised
|
|
|
(15,300
|
)
|
|
|
4.50
|
|
|
|
|
|
|
|
|
|
Exchanged
|
|
|
(856,865
|
)
|
|
|
22.50
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(166
|
)
|
|
|
56.25
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable warrants at April 30, 2019
|
|
|
72,304
|
|
|
$
|
3.82
|
|
|
|
5.37
|
|
|
$
|
-
|
|
As
of April 30, 2019, the Company had 25 of its total 72,304 outstanding warrants classified as equity (equity warrants). As of October
31, 2018, the Company had 191 of its total 944,635 outstanding warrants classified as equity (equity warrants). At issuance, equity
warrants are recorded at their relative fair values, using the relative fair value method, in the stockholders’ equity section
of the balance sheet.
Shares
Issued in Settlement of Warrants
On
March 14, 2019, the Company entered into private exchange agreements with certain holders of warrants issued in connection with
the Company’s September 2018 public offering of common stock and warrants. The warrants being exchanged provided for the
purchase of up to an aggregate of 856,865 shares of the Company’s common stock at an exercise price of $22.50, with an expiration
date of September 11, 2024. Pursuant to such exchange agreements, the Company issued 856,865 shares of common stock to the investors
in exchange for such warrants on a 1:1 basis. The exchange of warrants for common stock caused the down round provision to be
triggered and the exercise price of the warrants that were not exchanged were reduced from $22.50 to $4.50. The warrants were
valued at approximately $3.9 million on the March 14, 2019 using the Monte Carlo Model. In determining the fair warrant of the
warrants issued on March 14, 2019, the Company used the following inputs in its Monte Carlo Model: exercise price $22.50, stock
price $6.45, expected term 5.50 years, volatility 96.37% and risk free interest rate 2.44%. In connection with the exchange of
warrants for common stock, the Company recorded a loss of approximately $1.6 million as the fair value of the shares issued exceeded
the fair value of warrants exchanged.
Warrant
Liability
As
of April 30, 2019, the Company had 72,279 of its total 72,304 outstanding warrants classified as liabilities (liability warrants).
As of October 31, 2018, the Company had 944,444 of its total 944,635 outstanding warrants classified as liabilities (liability
warrants). These warrants contain a down round feature, except for exempt issuances as defined in the warrant agreement, in which
the exercise price would immediately be reduced to match a dilutive issuance of common stock, options, convertible securities
and changes in option price or rate of conversion. In April 2019, the down round feature was triggered a second time due to sale
of 2,500,000 common shares (see Note 11) and the exercise price of the warrants were reduced from $4.50 to $3.72. The warrants
require liability classification as the warrant agreement requires the Company to maintain an effective registration statement
and does not specify any circumstances under which net cash settlement would be permitted or required. As a result, net cash settlement
is assumed and liability classification is warranted. For these liability warrants, the Company utilized the Monte Carlo Simulation
Model to calculate the fair value of these warrants at issuance and at each subsequent reporting date.
As
of April 30, 2019 and October 31, 2018, the fair value of the warrant liability was approximately $0.2 million and $6.5 million,
respectively. For the three and six months ended April 30, 2019, the Company reported an expense of approximately $14,000 and
income of approximately $2.4 million, respectively. For each of the three and six months ended April 30, 2018, the Company reported
income of approximately $0.
In
measuring the warrant liability at April 30, 2019 and October 31, 2018, the Company used the following inputs in its Monte Carlo
simulation model:
|
|
April
30, 2019
|
|
|
October
31, 2018
|
|
Exercise
Price
|
|
$
|
3.72
|
|
|
$
|
22.50
|
|
Stock
Price
|
|
$
|
3.54
|
|
|
$
|
8.40
|
|
Expected
Term
|
|
|
5.37
years
|
|
|
|
5.87
years
|
|
Volatility
%
|
|
|
93.87
|
%
|
|
|
97.47
|
%
|
Risk
Free Rate
|
|
|
2.28
|
%
|
|
|
3.03
|
%
|
7.
SHARE BASED COMPENSATION
The
following table summarizes share-based compensation expense included in the Statement of Operations (in thousands):
|
|
Three
Months Ended April 30,
|
|
|
Six
Months Ended April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Research
and development
|
|
$
|
258
|
|
|
$
|
526
|
|
|
$
|
581
|
|
|
$
|
1,799
|
|
General
and administrative
|
|
|
221
|
|
|
|
699
|
|
|
|
520
|
|
|
|
2,235
|
|
Total
|
|
$
|
479
|
|
|
$
|
1,225
|
|
|
$
|
1,101
|
|
|
$
|
4,034
|
|
Restricted
Stock Units (RSUs)
A
summary of the Company’s RSU activity and related information for the six months ended April 30, 2019 is as follows:
|
|
Number
of
RSUs
|
|
|
Weighted-Average
Grant
Date Fair Value
|
|
|
|
|
|
|
|
|
Balance
at October 31, 2018
|
|
|
32,614
|
|
|
$
|
70.41
|
|
Vested
|
|
|
(10,541
|
)
|
|
|
70.49
|
|
Cancelled
|
|
|
(5,010
|
)
|
|
|
110.69
|
|
Balance
at April 30, 2019
|
|
|
17,063
|
|
|
$
|
58.54
|
|
As
of April 30, 2019, there was approximately $0.7 million of unrecognized compensation cost related to non-vested RSUs, which is
expected to be recognized over a remaining weighted average vesting period of approximately 1.16 years.
As
of April 30, 2019, the aggregate intrinsic value of non-vested RSU’s was approximately $60,000.
Employee
Stock Awards
Common
Stock issued to executives and employees related to vested incentive retention awards, employment inducements, management purchases
and employee excellence awards totaled 692 shares and 17,107 shares (13,873 shares on a net basis after employee taxes) during
the three months ended April 30, 2019 and 2018, respectively. Total stock compensation expense associated with employee awards
for the three months ended April 30, 2019 and 2018 was approximately $0.2 million and $0.6 million, respectively
Common
Stock issued to executives and employees related to vested incentive retention awards, employment inducements, management purchases
and employee excellence awards totaled 10,539 shares and 30,252 shares (26,876 shares on a net basis after employee taxes) during
the six months ended April 30, 2019 and 2018 respectively. Total stock compensation expense associated with employee awards for
the six months ended April 30, 2019 and 2018 was approximately $0.5 million and $2.0 million, respectively.
Included
in compensation expense for the three and six months ended April 30, 2018 is approximately $0.2 million recognized as a result
of the modification of certain RSU’s associated with the resignation of the Company’s Chief Financial Officer in April
2018. Pursuant to the separation agreement, the vesting was accelerated on all the outstanding RSU’s.
Director
Stock Awards
Common
stock issued to Directors for compensation related to board and committee membership totaled 0 shares and 2,000 shares for three
months ended April 30, 2019 and 2018, respectively. During the three months ended April 30, 2019 and 2018, total stock compensation
expense associated with Director awards was approximately $0 and $6,000 respectively.
Common
stock issued to Directors for compensation related to board and committee membership totaled 0 shares and 2,000 shares for the
six months ended April 30, 2019 and 2018, respectively. During the six months ended April 30, 2019 and 2018, total stock compensation
expense associated with Director awards was $0 and $0.1 million, respectively.
Included
in compensation expense for the three and six months ended April 30, 2018 is approximately $10,000 recognized as a result of the
modification of certain RSU’s associated with the end of service of a former Board member. The vesting was accelerated
on all the outstanding RSU’s.
Stock
Options
A
summary of changes in the stock option plan for the six months ended April 30, 2019 is as follows:
|
|
Number
of
Options
|
|
|
Weighted-Average
Exercise Price
|
|
Outstanding
at October 31, 2018:
|
|
|
330,071
|
|
|
$
|
122.79
|
|
Granted
|
|
|
86,882
|
|
|
|
6.50
|
|
Canceled
or Expired
|
|
|
(16,693
|
)
|
|
|
20.20
|
|
Outstanding
at April 30, 2019
|
|
|
400,260
|
|
|
|
101.82
|
|
Vested
and Exercisable at April 30, 2019
|
|
|
235,097
|
|
|
$
|
160.03
|
|
Total
compensation cost related to the Company’s outstanding stock options, recognized in the statement of operations for
the three months ended April 30, 2019 and 2018 was approximately $0.3 million and $0.6 million, respectively. For the six
months ended April 30, 2019 and 2018, compensation cost related to the Company’s outstanding stock options was
approximately $0.6 million and $2.0 million, respectively. Included in compensation expense for the three and six months
ended April 30, 2018 is approximately $0.1 million recognized as a result of the modification of certain option agreements
associated with the end of service of two former Board members. For the modified options, the vesting was accelerated
and the expiration dates were changed to the earlier of the original expiration date or March 21, 2023.
As
of April 30, 2019, there was approximately $1.9 million of unrecognized compensation cost related to non-vested stock option awards,
which is expected to be recognized over a remaining weighted average vesting period of approximately 1.92 years.
As
of April 30, 2019, the aggregate intrinsic value of vested and exercisable options was $0.
In
determining the fair value of the stock options granted during the six months ended April 30, 2019 and 2018, the Company used
the following inputs in its Black Scholes Merton model:
|
|
Six
Months Ended April 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Expected
Term
|
|
|
5.50
– 6.51 years
|
|
|
|
5.35
– 6.51 years
|
|
Expected
Volatility
|
|
|
90.29
– 104.20
|
%
|
|
|
95.11
– 100.34
|
%
|
Expected
Dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk
Free Interest Rate
|
|
|
2.39
– 3.15
|
%
|
|
|
1.81
– 2.66
|
%
|
Employee
Stock Purchase Plan
During
the six months ended April 30, 2019, the Company issued 3,512 shares that were purchased under the 2018 Employee Stock Purchase
Plan (“ESPP”).
During
the six months ended April 30, 2018, the Company issued 712 shares that were purchased under the 2015 Employee Stock Purchase
Plan (“ESPP”).
8
.
NET INCOME (LOSS) PER SHARE
Basic
and diluted earnings per share is calculated as follows (in thousands, except share and per share data):
|
|
Three
Months Ended April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(9,383
|
)
|
|
$
|
(13,408
|
)
|
Loss
attributable to common stockholders – basic and diluted
|
|
|
(9,383
|
)
|
|
|
(13,408
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average
number of common shares used in earnings per share – basic and diluted
|
|
|
5,900,449
|
|
|
|
3,324,320
|
|
|
|
|
|
|
|
|
|
|
Loss
per share – basic and diluted
|
|
$
|
(1.59
|
)
|
|
$
|
(4.03
|
)
|
|
|
Six Months Ended April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,434
|
|
|
$
|
(33,900
|
)
|
Income (loss) attributable to common stockholders – basic
|
|
|
3,434
|
|
|
|
(33,900
|
)
|
Effect of liability classified warrants
|
|
|
(2,395
|
)
|
|
|
-
|
|
Income (loss) attributable to common stockholders – diluted
|
|
|
1,039
|
|
|
|
(33,900
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares used in earnings per share - basic
|
|
|
5,259,677
|
|
|
|
3,038,439
|
|
Effect of dilutive stock options
|
|
|
61
|
|
|
|
-
|
|
Effect of dilutive warrants
|
|
|
23,034
|
|
|
|
-
|
|
Weighted-average number of common shares used in earnings per share - diluted
|
|
|
5,282,772
|
|
|
|
3,038,439
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share – basic
|
|
$
|
0.65
|
|
|
$
|
(11.16
|
)
|
Income (loss) per share – diluted
|
|
$
|
0.20
|
|
|
$
|
(11.16
|
)
|
The
following potentially dilutive securities, prior to the use of the treasury stock method, have been excluded from the computation
of diluted weighted-average shares outstanding, as they would be anti-dilutive:
|
|
As of April 30,
|
|
|
|
2019
|
|
|
2018
|
|
Warrants
|
|
|
72,304
|
|
|
|
206,160
|
|
Stock options
|
|
|
235,097
|
|
|
|
309,534
|
|
Restricted stock units
|
|
|
17,063
|
|
|
|
72,632
|
|
Total
|
|
|
324,464
|
|
|
|
588,326
|
|
9.
COLLABORATION AND LICENSING AGREEMENTS
Amgen
On
August 1, 2016, the Company entered into a global agreement (the “Amgen Agreement”) with Amgen for the development
and commercialization of the Company’s ADXS-NEO, a novel, preclinical investigational immunotherapy, using the Company’s
proprietary Listeria monocytogenes attenuated bacterial vector which activates a patient’s immune system to respond against
unique mutations, or neoepitopes, contained in and identified from an individual patient’s tumor. Under the terms of the
Amgen Agreement, Amgen received an exclusive worldwide license to develop and commercialize ADXS-NEO. Amgen made an upfront payment
to Advaxis of $40 million and purchased directly from Advaxis 203,163 shares of the Company’s common stock, at approximately
$123.00 per share (representing a purchase at market using a 20 day VWAP methodology) for a total of $25 million. Amgen assisted
in funding the clinical development and commercialization of ADXS-NEO and Advaxis retained manufacturing responsibilities. Advaxis
and Amgen collaborated through a joint steering committee for the development and commercialization of ADXS-NEO. Advaxis received
reimbursements for research and development costs and Advaxis was eligible to receive future contingent payments based on development,
regulatory and sales milestone payments of up to $475 million and high single digit to double digit royalty payments based on
worldwide sales by Amgen.
The
Company assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, Amgen, is a customer.
The Company identified the following material promises under the arrangement: (1) licenses, (2) research and development activities,
(3) clinical supplies, (4) regulatory responsibilities and (5) participation on a Joint Steering Committee (JSC). The Company
determined that the licenses and research and development activities were not distinct from another, as the licenses had limited
value without the performance of the research and development activities. Participation on the JSC to oversee the research and
development activities was determined to be quantitatively and qualitatively immaterial and therefore was excluded from performance
obligations. The clinical supply and regulatory responsibilities did not represent separate performance obligations based on their
dependence on the research and development efforts. Based on this assessment, the Company identified one performance obligation
at the outset of the Amgen Agreement, which consists of: (1) licenses, (2) research and development activities, (3) clinical supplies
and (4) regulatory responsibilities.
Under
the Amgen Agreement, in order to evaluate the appropriate transaction price, the Company determined that the upfront amount of
$40 million constituted the entirety of the consideration to be included in the transaction price as of the outset of the arrangement,
which is allocated to the single performance obligation. The Company concluded that a time-based method was most appropriate to
measuring progress toward completion given that the research and development services are satisfied reasonably evenly over the
agreement and the Company has a stand-ready obligation to perform over such time. Accordingly, progress toward completion and
related revenue recognition is measured using the input method of time elapsed relative to the estimated timeline for Advaxis
to submit the Phase 2 package to Amgen, or perform the contractual research and development services, which was the predominant
promise in the Company’s combined performance obligation to Amgen.
The
reimbursement for the research and development costs was variable consideration that was included in the transaction price at
the outset, subject to the constraint. The Company estimated the consideration from the reimbursement of the research and development
costs using the most-likely amount. When the research and development costs are no longer constrained, they are added to the transaction
price for the single, combined performance obligation and recognized over the same recognition period as the rest of the performance
obligation’s allocated revenue. The potential milestone and sales-based royalty payments that the Company was eligible to
receive were excluded from the transaction price, as all milestone and sales royalty amounts were fully constrained based on the
probability of achievement. The Company reevaluated the transaction price at the end of each reporting period and as uncertain
events were resolved or other changes in circumstances occurred, and, as necessary, adjusted its estimate of the transaction price.
On
December 10, 2018, the Company received a written notice of termination from Amgen with respect to the Amgen Agreement. The termination
became effective as of February 8, 2019. The Company is currently enrolling patients in its ADXS-NEO program and evaluating its
options for partnering the program. Pursuant to the terms of the Amgen Agreement, upon Amgen’s termination, the license
to Amgen terminated and the Company regained worldwide rights for the development and commercialization of its ADXS-NEO program.
The
remaining deferred revenue of approximately $18.2 million on December 10, 2018 related to the $40 million non-refundable, up-front
payment received from Amgen was accounted for as of the modification date. As of that notification date, the Company adjusted
revenue on a cumulative catch-up basis considering the revised measure of progress for the combined performance obligation based
on the modified service period up to and through the contract termination date of February 8, 2019. The Company recognized cumulative
catch-up revenue of approximately $15.6 million on December 10, 2018. The remaining $2.6 million was recognized over the subsequent
60 days until the performance obligation was satisfied on February 8, 2019.
During
the three months ended April 30, 2019 and 2018, the Company recognized revenue from the Amgen Agreement of approximately $1.2
million and $1.7 million, respectively. During the six months ended April 30, 2019 and 2018, the Company recognized revenue from
the Amgen Agreement of approximately $20.6 million and $3.6 million, respectively. During the three and six months ended April
30, 2018, Company recorded reductions in research and development expenses of approximately $1.6 million and $3.1 million, respectively,
pertaining to the reimbursement of research and development costs. During the three and six months ended January 31, 2019, the
reimbursement of research and development costs of approximately $0.8 million and $2.0 million, respectively, was included in
revenue.
Aratana
Therapeutics
On
March 19, 2014, the Company and Aratana entered into a definitive Exclusive License Agreement (the “Aratana Agreement”).
Pursuant to the Agreement, Advaxis granted Aratana an exclusive, worldwide, royalty-bearing, license, with the right to sublicense,
certain Advaxis proprietary technology that enables Aratana to develop and commercialize animal health products that will be targeted
for treatment of osteosarcoma and other cancer indications in animals. Under the terms of the Aratana Agreement, Aratana paid
an upfront payment to the Company, of $1 million. As this license has stand-alone value to Aratana (who has the ability to sublicense)
and was delivered to Aratana, upon execution of the Aratana Agreement, the Company recorded the $1 million payment as licensing
revenue during the year ended October 31, 2014. Aratana will also pay the Company up to an additional $36.5 million based on the
achievement of certain milestones with respect to the advancement of products pursuant to the terms of the Aratana Agreement.
In addition, Aratana may pay the Company an additional $15 million in cumulative sales milestones pursuant to the terms of the
Aratana Agreement.
Advaxis
(i) issued and sold 20,408 shares of Advaxis’ common stock to Aratana at a price of $73.50 per share, which was equal to
the closing price of the common stock on the NASDAQ Capital Market on March 19, 2014, and (ii) issued a ten-year warrant to Aratana
giving Aratana the right to purchase up to 10,204 additional shares of Advaxis’ common stock at an exercise price of $73.50
per share. In connection with the sale of the common stock and warrants, Advaxis received aggregate net proceeds of $1.5 million.
Aratana exercised all of its 10,204 warrants. As a result, no warrants remain outstanding under this agreement.
During
the year ended October 31, 2018, the USDA’s Center for Veterinary Biologics granted Aratana conditional approval for its
canine osteosarcoma vaccine using Advaxis’ technology. During the three months ended April 30, 2019 and 2018, Advaxis recognized
royalty revenue totaling approximately $0 and $3,000, respectively, from Aratana’s sales of the canine osteosarcoma vaccine.
During the six months ended April 30, 2019 and 2018, Advaxis recognized royalty revenue totaling approximately $2,000 and $3,000,
respectively, from Aratana’s sales of the canine osteosarcoma vaccine.
Global
BioPharma Inc.
On
December 9, 2013, the Company entered into an exclusive licensing agreement for the development and commercialization of axalimogene
filolisbac with Global BioPharma, Inc. (“GBP”), a Taiwanese based biotech company funded by a group of investors led
by Taiwan Biotech Co., Ltd (TBC).
GBP
is planning to conduct a randomized Phase 2, open-label, controlled trial in HPV-associated NSCLC in patients following first-line
induction chemotherapy. GBP has obtained Taiwanese regulatory approval for this trial and plans to initiate this trial in 2019.
This trial will be fully funded exclusively by GBP and GBP will be responsible for all clinical development and commercialization
costs in the GBP territory and GBP is committed to establishing manufacturing capabilities for its own. Under the terms of the
agreement, the Company will exclusively license the rights of axalimogene filolisbac to GBP for the Asia, Africa, and former USSR
territory, exclusive of India and certain other countries, for all HPV-associated indications. Advaxis will retain exclusive rights
to axalimogene filolisbac for the rest of the world.
During
each of the six months ended April 30, 2019 and 2018, the Company recorded $0.25 million in revenue for the annual license
fee renewal. Since Advaxis has no significant obligation to perform after the license transfer and has provided GBP with the right
to use its intellectual property, performance is satisfied when the license renews. In addition, GBP has paid $2.25 million
to the contract research organization that manages the Company’s AIM2CERV clinical trial.
10.
COMMITMENTS AND CONTINGENCIES
Legal
Proceedings
Stendhal
On
September 19, 2018, Stendhal filed a Demand for Arbitration before the International Centre for Dispute Resolution (Case No. 01-18-0003-5013)
relating to the Co-development and Commercialization Agreement with Especificos Stendhal SA de CV (the “Stendhal Agreement”).
In the demand, Stendhal alleged that (i) the Company breached the Stendhal Agreement when it made certain statements regarding
its AIM2CERV program, (ii) that Stendhal was subsequently entitled to terminate the Agreement for cause, which it did so at the
time and (iii) that the Company owes Stendhal damages pursuant to the terms of the Stendhal Agreement. Stendhal is seeking to
recover $3 million paid to the Company in 2017 as support payments for the AIM2CERV clinical trial along with approximately $0.3
million in expenses incurred. Stendhal is also seeking fees associated with the arbitration and interest. The Company has answered
Stendhal’s Demand for Arbitration and denied that it breached the Stendhal Agreement. The Company also alleges that Stendhal
breached its obligations to the Company by, among other things, failing to make support payments that became due in 2018 and that
Stendhal therefore owes the Company $3 million.
On
April 2, 2019, the Arbitrator denied the Company’s early application for summary disposition of Stendhal’s claims.
As a result, the arbitration will proceed to a hearing, scheduled to begin on October 21, 2019. On April 26, 2019, Stendhal
served its Statement of Claim, and on May 23, 2019, the Company served its Statement of Defense and Counterclaim. At this
time, the Company is unable to predict the likelihood of an unfavorable outcome.
11.
STOCKHOLDERS’ EQUITY
A
summary of the changes in stockholders’ equity for the three and six months ended April 30, 2019 and 2018 is presented below
(in thousands, except share data):
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional Paid-In
|
|
|
Accumulated
|
|
|
Total Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balance at November 1, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
2,744,196
|
|
|
$
|
3
|
|
|
$
|
355,400
|
|
|
$
|
(301,142
|
)
|
|
$
|
54,261
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
13,003
|
|
|
|
-
|
|
|
|
2,854
|
|
|
|
-
|
|
|
|
2,854
|
|
Tax withholdings paid related to net share settlement of equity awards
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
(7
|
)
|
Tax withholdings paid on equity awards
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(209
|
)
|
|
|
-
|
|
|
|
(209
|
)
|
Tax shares sold to pay for tax withholdings on equity awards
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
197
|
|
|
|
-
|
|
|
|
197
|
|
Issuance of shares to employees under ESPP Plan
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Advaxis at-the-market sales
|
|
|
|
|
|
|
|
|
|
|
58,776
|
|
|
|
-
|
|
|
|
2,659
|
|
|
|
-
|
|
|
|
2,659
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,492
|
)
|
|
|
(20,492
|
)
|
Balance at January 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
2,815,975
|
|
|
$
|
3
|
|
|
$
|
360,894
|
|
|
$
|
(321,634
|
)
|
|
$
|
39,263
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
17,873
|
|
|
|
-
|
|
|
|
1,225
|
|
|
|
-
|
|
|
|
1,225
|
|
Tax withholdings paid related to net share settlement of equity awards
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(33
|
)
|
|
|
-
|
|
|
|
(33
|
)
|
Tax withholdings paid on equity awards
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(61
|
)
|
|
|
-
|
|
|
|
(61
|
)
|
Tax shares sold to pay for tax withholdings on equity awards
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
78
|
|
|
|
-
|
|
|
|
78
|
|
Issuance of shares to employees under ESPP Plan
|
|
|
|
|
|
|
|
|
|
|
712
|
|
|
|
-
|
|
|
|
9
|
|
|
|
-
|
|
|
|
9
|
|
Advaxis public offerings
|
|
|
|
|
|
|
|
|
|
|
666,667
|
|
|
|
1
|
|
|
|
18,382
|
|
|
|
-
|
|
|
|
18,383
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13,407
|
)
|
|
|
(13,407
|
)
|
Balance at April 30, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
3,501,227
|
|
|
$
|
4
|
|
|
$
|
380,494
|
|
|
$
|
(335,041
|
)
|
|
$
|
45,457
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
Total
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balance at November 1, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
4,634,189
|
|
|
$
|
5
|
|
|
$
|
391,703
|
|
|
$
|
(367,657
|
)
|
|
$
|
24,051
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
9,811
|
|
|
|
-
|
|
|
|
622
|
|
|
|
-
|
|
|
|
622
|
|
Tax withholdings paid on equity awards
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11
|
)
|
|
|
-
|
|
|
|
(11
|
)
|
Tax shares sold to pay for tax withholdings on equity awards
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
|
|
11
|
|
Issuance of shares to employees under ESPP Plan
|
|
|
|
|
|
|
|
|
|
|
2,007
|
|
|
|
-
|
|
|
|
9
|
|
|
|
-
|
|
|
|
9
|
|
ESPP Expense
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
12,817
|
|
|
|
12,817
|
|
Balance at January 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
4,646,007
|
|
|
$
|
5
|
|
|
$
|
392,335
|
|
|
$
|
(354,840
|
)
|
|
$
|
37,500
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
693
|
|
|
|
-
|
|
|
|
479
|
|
|
|
-
|
|
|
|
479
|
|
Tax withholdings paid on equity awards
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
(3
|
)
|
Tax shares sold to pay for tax withholdings on equity awards
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
3
|
|
Issuance of shares to employees under ESPP Plan
|
|
|
|
|
|
|
|
|
|
|
1,505
|
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
|
|
7
|
|
Warrant exercises
|
|
|
|
|
|
|
|
|
|
|
15,300
|
|
|
|
-
|
|
|
|
68
|
|
|
|
-
|
|
|
|
68
|
|
Warrant liability reclassified into equity
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53
|
|
|
|
-
|
|
|
|
53
|
|
ESPP Expense
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Shares issued in settlement of warrants
|
|
|
|
|
|
|
|
|
|
|
856,865
|
|
|
|
1
|
|
|
|
5,462
|
|
|
|
-
|
|
|
|
5,463
|
|
Advaxis public offerings
|
|
|
|
|
|
|
|
|
|
|
2,500,000
|
|
|
|
2
|
|
|
|
8,980
|
|
|
|
-
|
|
|
|
8,982
|
|
Net Loss
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,383
|
)
|
|
|
(9,383
|
)
|
Balance at April 30, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
8,020,370
|
|
|
$
|
8
|
|
|
$
|
407,385
|
|
|
$
|
(364,223
|
)
|
|
$
|
43,170
|
|
During
the six months ended April 30, 2018, the Company sold 58,775 shares of its Common Stock at-the-market transactions resulting in
net proceeds of approximately $2.7 million.
During
February 2018, the Company issued 666,667 shares of the Company’s common stock in a public offering at $30.00 per share,
less underwriting discounts and commissions. The net proceeds to the Company from the transaction was approximately $18.4 million.
During
April 2019, the Company issued 2,500,000 shares of the Company’s common stock in a public offering at $4.00 per share, less
underwriting discounts and commissions. The net proceeds to the Company from the transaction was approximately $9 million.
On
February 21, 2019, the Company’s stockholders voted to approve an amendment to increase the number of authorized shares
of common stock from 95,000,000 to 170,000,000 and also voted to approve an amendment to allow the Company to execute a reverse
stock split of common stock at the discretion of the Board of Directors. The amendment to increase the number of authorized shares
of common stock became effective upon filing of the amendment with the Secretary of State of the State of Delaware on February
28, 2019. Additionally, on March 29, 2019, the Company executed a 1 for 15 reverse stock split.
12.
INCOME TAXES
The
Company did not record any income tax expense associated with its net income for the six months ended April 30, 2019, as the Company
expects to incur a net loss for the 2019 fiscal year.
13.
FAIR VALUE
The
authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in
an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the
principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance
describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last
unobservable, that may be used to measure fair value which are the following:
●
Level 1 — Quoted prices in active markets for identical assets or liabilities.
●
Level 2— Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable
market data or substantially the full term of the assets or liabilities.
●
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the value of
the assets or liabilities.
The
following table provides the assets and liabilities carried at fair value measured on a recurring basis as of January 31, 2019
and October 31, 2018 (in thousands):
April 30, 2019
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Common stock warrant liability, warrants exercisable at $3.72 through September 2024
|
|
|
-
|
|
|
|
-
|
|
|
$
|
213
|
|
|
$
|
213
|
|
October 31, 2018
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Common stock warrant liability, warrants exercisable at $22.50 through September 2024
|
|
|
-
|
|
|
|
-
|
|
|
$
|
6,517
|
|
|
$
|
6,517
|
|
The
following table sets forth a summary of the changes in the fair value of the Company’s warrant liabilities:
|
|
April 30, 2019
|
|
Beginning balance
|
|
$
|
6,517
|
|
Shares issued in settlement of warrants
|
|
|
(3,856
|
)
|
Warrant exercises
|
|
|
(53
|
)
|
Change in fair value
|
|
|
2,395
|
|
Ending Balance
|
|
$
|
213
|
|