NOTES
TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1.
NATURE OF OPERATIONS
Advaxis,
Inc. (“Advaxis” or the “Company”) is a clinical-stage biotechnology company focused on the 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 TechnologyTM. 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, its 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, debt financings, clinical collaborations, option and warrant exercises, NOL tax sales, income earned on investments and
grants and interest income. From October 2013 through July 31, 2020, the Company raised approximately $305.8 million in gross
proceeds ($13.6 million in fiscal year 2020) from various public and private offerings of its common stock.
As
of July 31, 2020, the Company had approximately $23.8 million in cash and cash equivalents. Although the Company expects to have
sufficient capital to fund its obligations, as they become due, in the ordinary course of business until at least July
2021, the actual amount of cash that it will need to operate is subject to many factors. Over the past several months, the
Company has taken steps to obtain additional financing, including the at-the-market (“ATM”) program and the equity
line with Lincoln Park Capital. Due to the current state of the Company’s stock price and general market conditions, these
programs have not been utilized to the fullest extent, thereby resulting in lower capital availability than anticipated. Management’s
plans to mitigate an expected shortfall of capital and to support future operations include obtaining additional funds through
partnerships or strategic or financing investors. The Company has reduced its operating expenses to $20.3 million for the nine
months ended July 31, 2020 as compared to $28.6 million during the comparable prior period.
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 interim condensed balance sheet as of July 31, 2020 has
been derived from the Company’s October 31, 2019 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 fiscal year ended October 31, 2019 and notes thereto contained in the Company’s annual report on Form 10-K,
as filed with the SEC on December 20, 2019, as amended by Amendment No. 1 thereto on Form 10-K/A filed on January 21, 2020 and
by Amendment No. 2 thereto on Form 10-K/A filed on February 28, 2020.
Net
Income (Loss) per Share
Basic
net income or loss per common share is computed by dividing net income or loss available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted earnings per share give effect to dilutive options, warrants,
restricted stock units and other potential common stock outstanding during the period. In the case of a net loss, the impact of
the potential common stock resulting from warrants, outstanding stock options and convertible debt are not included in the computation
of diluted loss per share, as the effect would be anti-dilutive. In the case of net income, the impact of the potential common
stock resulting from these instruments that have intrinsic value are included in the diluted earnings per share. The table sets
forth the number of potential shares of common stock that have been excluded from diluted net loss per share (as of July 31, 2020,
327,338 warrants are included in the basic earnings per share computation because the exercise price is $0, and as of July 31,
2019, 13,079,000 pre-funded warrants are included in the basic earnings per share computation because the exercise price is nominal):
|
|
As of July 31,
|
|
|
|
2020
|
|
|
2019
|
|
Warrants
|
|
|
5,070,888
|
|
|
|
18,301,804
|
|
Stock options
|
|
|
914,577
|
|
|
|
405,372
|
|
Restricted stock units
|
|
|
5,818
|
|
|
|
16,204
|
|
Total
|
|
|
5,991,283
|
|
|
|
18,723,380
|
|
Leases
Effective
November 1, 2019, the Company adopted ASC Topic 842, Leases (“ASC 842”) using the modified retrospective transition
approach by applying the new standard to all leases existing as of the date of initial application. Results and disclosure requirements
for reporting periods beginning after November 1, 2019 are presented under ASC 842, while prior period amounts have not been adjusted
and continue to be reported in accordance with the previous guidance in ASC 840, Leases.
At
the inception of an arrangement, the Company determines whether an arrangement is or contains a lease based on the facts and circumstances
present in the arrangement. An arrangement is or contains a lease if the arrangement conveys the right to control the use of an
identified asset for a period of time in exchange for consideration. Most leases with a term greater than one year are recognized
on the balance sheet as operating lease right-of-use assets and current and long-term operating lease liabilities, as applicable.
The Company has elected not to recognize on the balance sheet leases with terms of 12 months or less. The Company typically only
includes the initial lease term in its assessment of a lease arrangement. Options to extend a lease are not included in the Company’s
assessment unless there is reasonable certainty that the Company will renew.
Operating
lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the
expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as prepaid or accrued
rent. The interest rate implicit in the Company’s leases is typically not readily determinable. As a result, the Company
utilizes its incremental borrowing rate, which reflects the fixed rate at which the Company could borrow on a collateralized basis
the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. In transition to
ASC 842, the Company utilized the remaining lease term of its leases in determining the appropriate incremental borrowing rates.
Recent
Accounting Standards
Recently
Adopted Accounting Standards
On
November 1, 2019, the Company adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which
establishes ASC 842 and supersedes the lease accounting guidance under ASC 840, and generally requires lessees to recognize operating
and financing lease liabilities and corresponding right-of-use (ROU) assets on the balance sheet and to provide enhanced disclosures
surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. We adopted the new guidance using
the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application
and not restating comparative periods.
In
adopting the new standard, the Company elected to utilize the available package of practical expedients permitted under the transition
guidance within the new standard, which does not require the reassessment of the following: (i) whether existing or expired arrangements
are or contain a lease, (ii) the lease classification of existing or expired leases, and (iii) whether previous initial direct
costs would qualify for capitalization under the new lease standard. Additionally, the Company elected to combine lease and non-lease
components and to exclude leases with a term of 12 months or less.
As
of the November 1, 2019 effective date, the Company had identified one operating lease arrangement and one short-term lease in
which it is a lessee. The adoption of ASC 842 resulted in the recognition of an operating lease liability and a right-of-use asset
of approximately $6.8 million and $5.6 million, respectively, on the Company’s balance sheet relating to its leases, with
the difference relating to reclassifications of the current accrued rent liability and the current lease incentive obligation
of approximately $0.9 million and $0.3 million, respectively, as reductions to the right-of-use-asset for its operating lease.
The adoption of the standard did not have a material effect on the Company’s condensed statements of operations or condensed
statements of cash flows.
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):
|
|
July 31, 2020
|
|
|
October 31, 2019
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
2,335
|
|
|
$
|
2,335
|
|
Laboratory equipment
|
|
|
3,405
|
|
|
|
3,405
|
|
Furniture and fixtures
|
|
|
744
|
|
|
|
744
|
|
Computer equipment
|
|
|
409
|
|
|
|
409
|
|
Construction in progress
|
|
|
83
|
|
|
|
83
|
|
Total property and equipment
|
|
|
6,976
|
|
|
|
6,976
|
|
Accumulated depreciation and amortization
|
|
|
(3,309
|
)
|
|
|
(2,626
|
)
|
Net property and equipment
|
|
$
|
3,667
|
|
|
$
|
4,350
|
|
Depreciation
expense for the three months ended July 31, 2020 and 2019 was $0.2 million and $0.3 million, respectively. Depreciation
expense for the nine months ended July 31, 2020 and 2019 was $0.7 million and $0.8 million, respectively.
4.
INTANGIBLE ASSETS
Intangible
assets, net consist of the following (in thousands):
|
|
July 31, 2020
|
|
|
October 31, 2019
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
5,208
|
|
|
$
|
5,833
|
|
Licenses
|
|
|
777
|
|
|
|
777
|
|
Software
|
|
|
117
|
|
|
|
117
|
|
Total intangibles
|
|
|
6,102
|
|
|
|
6,727
|
|
Accumulated amortization
|
|
|
(2,261
|
)
|
|
|
(2,152
|
)
|
Intangible assets
|
|
$
|
3,841
|
|
|
$
|
4,575
|
|
The
expirations of the existing patents range from 2020 to 2040 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 $0.3 million were abandoned and were charged to research and development expenses in the statement of operations
for each of the three months ended July 31, 2020 and 2019, respectively. Patent applications having a net book value of
$0.9 million and $0.6 million were abandoned and were charged to research and development expenses in the statement of operations
for the nine months ended July 31, 2020 and 2019, 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 July
31, 2020 and 2019, respectively. Amortization expense for intangible assets that was charged to general and administrative expense
in the statement of operations aggregated $0.3 million for each of the nine months ended July 31, 2020 and 2019, 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 for patents and licenses related to axalimogene filolisbac
(AXAL), ADXS-HOT, ADXS-PSA and ADXS-HER2 and other products that are in development. However, if a competitor were to gain FDA
approval for a treatment before us or if future clinical trials fail to meet the targeted endpoints, 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
its studies and developing its intellectual property, the Company would likely record an impairment to these assets.
At
July 31, 2020, the estimated amortization expense by fiscal year based on the current carrying value of intangible assets is as
follows (in thousands):
|
|
Fiscal year ending October 31,
|
|
|
|
|
|
2020 (Remaining)
|
|
$
|
79
|
|
2021
|
|
|
309
|
|
2022
|
|
|
309
|
|
2023
|
|
|
309
|
|
2024
|
|
|
309
|
|
Thereafter
|
|
|
2,526
|
|
Total
|
|
$
|
3,841
|
|
5.
ACCRUED EXPENSES:
|
|
July 31, 2020
|
|
|
October 31, 2019
|
|
|
|
|
|
|
|
|
Salaries and other compensation
|
|
$
|
743
|
|
|
$
|
158
|
|
Vendors
|
|
|
604
|
|
|
|
3,194
|
|
Professional fees
|
|
|
479
|
|
|
|
126
|
|
Total accrued expenses
|
|
$
|
1,826
|
|
|
$
|
3,478
|
|
6.
COMMON STOCK PURCHASE WARRANTS AND WARRANT LIABILITY
Warrants
As
of July 31, 2020, there were outstanding warrants to purchase 5,398,226 shares of our common stock with exercise prices ranging
from $0 to $281.25 per share. Information on the outstanding warrants is as follows:
Exercise
Price
|
|
|
Number of Shares
Underlying Warrants
|
|
|
Expiration Date
|
|
Type of Financing
|
$
|
-
|
|
|
|
327,338
|
|
|
July 2024
|
|
July 2019 Public Offering
|
$
|
281.25
|
|
|
|
25
|
|
|
N/A
|
|
Other warrants
|
$
|
0.372
|
|
|
|
70,863
|
|
|
September 2024
|
|
September 2018 Public Offering
|
$
|
1.25
|
|
|
|
5,000,000
|
|
|
July 2025
|
|
January 2020 Public Offering
|
|
Grand Total
|
|
|
|
5,398,226
|
|
|
|
|
|
As
of October 31, 2019, there were outstanding warrants to purchase 432,142 shares of our common stock with exercise prices ranging
from $0 to $281.25 per share. Information on the outstanding warrants is as follows:
Exercise
Price
|
|
|
Number of Shares
Underlying Warrants
|
|
|
Expiration Date
|
|
Type of Financing
|
$
|
-
|
|
|
|
359,838
|
|
|
July 2024
|
|
July 2019 Public Offering
|
$
|
281.25
|
|
|
|
25
|
|
|
N/A
|
|
Other Warrants
|
$
|
0.372
|
|
|
|
72,279
|
|
|
September 2024
|
|
September 2018 Public Offering
|
|
Grand Total
|
|
|
|
432,142
|
|
|
|
|
|
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, 2019
|
|
|
432,142
|
|
|
$
|
0.08
|
|
|
|
4.76
|
|
|
$
|
114,069
|
|
Issued
|
|
|
5,000,000
|
|
|
|
1.25
|
|
|
|
|
|
|
|
|
|
Exercised *
|
|
|
(33,916
|
)
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable warrants at July 31, 2020
|
|
|
5,398,226
|
|
|
$
|
1.16
|
|
|
|
4.90
|
|
|
$
|
204,596
|
|
*
Includes the cashless exercise of 32,500 warrants that resulted in the issuance of 32,500 shares of common stock.
As
of July 31, 2020, the Company had 5,327,363 of its total 5,398,226 outstanding warrants classified as equity (equity warrants).
At October 31, 2019, the Company had 359,863 of its total 432,142 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.
Warrant
Liability
As
of July 31, 2020, the Company had 70,863 of its total 5,398,226 outstanding warrants classified as liabilities (liability warrants).
At October 31, 2019, the Company had 72,279 of its total 432,142 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. As of July 31, 2020, the down round feature was triggered three times and the exercise price
of the warrants were reduced from $22.50 to $0.372. 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 settlement in other
than cash 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.
In
measuring the warrant liability at July 31, 2020 and October 31, 2019, the Company used the following inputs in its Monte Carlo
simulation model:
|
|
July 31, 2020
|
|
|
October 31, 2019
|
|
Exercise Price
|
|
$
|
0.372
|
|
|
$
|
0.372
|
|
Stock Price
|
|
$
|
0.58
|
|
|
$
|
0.32
|
|
Expected Term
|
|
|
4.12 years
|
|
|
|
4.87 years
|
|
Volatility %
|
|
|
104.47
|
%
|
|
|
100.99
|
%
|
Risk Free Rate
|
|
|
0.16
|
%
|
|
|
1.51
|
%
|
7.
SHARE BASED COMPENSATION
The
following table summarizes share-based compensation expense included in the condensed statement of operations (in thousands):
|
|
Three Months Ended July 31,
|
|
|
Nine Months Ended July 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Research and development
|
|
$
|
79
|
|
|
$
|
241
|
|
|
$
|
233
|
|
|
$
|
822
|
|
General and administrative
|
|
|
176
|
|
|
|
223
|
|
|
|
475
|
|
|
|
743
|
|
Total
|
|
$
|
255
|
|
|
$
|
464
|
|
|
$
|
708
|
|
|
$
|
1,565
|
|
Restricted
Stock Units (RSUs)
A
summary of the Company’s RSU activity and related information for the nine months ended July 31, 2020 is as follows:
|
|
Number of
RSUs
|
|
|
Weighted-Average
Grant
Date Fair Value
|
|
|
|
|
|
|
|
|
Balance at October 31, 2019
|
|
|
14,706
|
|
|
$
|
47.62
|
|
Vested
|
|
|
(8,608
|
)
|
|
|
59.61
|
|
Cancelled
|
|
|
(280
|
)
|
|
|
98.80
|
|
Balance at July 31, 2020
|
|
|
5,818
|
|
|
$
|
27.40
|
|
As
of July 31, 2020, there was approximately $0.1 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 0.72 years.
As
of July 31, 2020, the aggregate intrinsic value of non-vested RSU’s was approximately $3,000.
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 0 shares and 408 shares during the three months ended July 31, 2020 and 2019, respectively.
Total stock compensation expense associated with employee awards for the three months ended July 31, 2020 and 2019 was approximately
$40,000 and $0.2 million, respectively
Common
Stock issued to executives and employees related to vested incentive retention awards, employment inducements, management purchases
and employee excellence awards totaled 8,608 shares and 10,947 shares during the nine months ended July 31, 2020 and 2019, respectively.
Total stock compensation expense associated with employee awards for the nine months ended July 31, 2020 and 2019 was approximately
$0.1 million and $0.7 million, respectively.
Stock
Options
A
summary of changes in the stock option plan for the nine months ended July 31, 2020 is as follows:
|
|
Number of
Options
|
|
|
Weighted-Average
Exercise Price
|
|
Outstanding at October 31, 2019:
|
|
|
560,490
|
|
|
$
|
71.56
|
|
Granted
|
|
|
450,000
|
|
|
|
0.66
|
|
Canceled or expired
|
|
|
(95,913
|
)
|
|
|
58.21
|
|
Outstanding at July 31, 2020
|
|
|
914,577
|
|
|
|
38.08
|
|
Vested and Exercisable at July 31, 2020
|
|
|
266,380
|
|
|
$
|
125.14
|
|
During the nine
months end July 31, 2020, the Company granted options to purchase 385,000 and 65,000 shares of its common stock to employees and
directors, respectively. The stock options have a ten-year term, vest over three years, and have an exercise price of $0.66.
Total
compensation cost related to the Company’s outstanding stock options, recognized in the statement of operations for the
three months ended July 31, 2020 and 2019 was approximately $0.2 million and $0.3 million, respectively. For the nine months ended
July 31, 2020 and 2019, compensation cost related to the Company’s outstanding stock options was approximately $0.6 million
and $0.9 million, respectively.
As
of July 31, 2020, there was approximately $0.8 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 1.37 years.
As
of July 31, 2020, the aggregate intrinsic value of vested and exercisable options was $0 and the aggregate
intrinsic value of non-vested options was approximately $42,000.
In
determining the fair value of the stock options granted during the nine months ended July 31, 2020, the Company used the following
inputs in its Black Scholes Merton model:
|
|
Nine Months
Ended
July 31, 2020
|
|
|
|
|
|
Expected Term
|
|
|
5.50-6.50 years
|
|
Expected Volatility
|
|
|
100.27-105.21
|
%
|
Expected Dividends
|
|
|
0
|
%
|
Risk Free Interest Rate
|
|
|
0.36-0.52
|
%
|
Employee
Stock Purchase Plan
During
the nine months ended July 31, 2020 and 2019, the Company issued 11,148 and 4,585 shares, respectively, that were purchased under
the 2018 Employee Stock Purchase Plan (“ESPP”).
8.
COLLABORATION AND LICENSING AGREEMENTS
OS
Therapies LLC
On
September 4, 2018, the Company entered into a development, license and supply agreement with OS Therapies (“OST”)
for the use of ADXS31-164, also known as ADXS-HER2, for evaluation in the treatment of osteosarcoma in humans. Under the terms
of the license agreement, as amended, OST will be responsible for the conduct and funding of a clinical study evaluating ADXS-HER2
in recurrent, completely resected osteosarcoma. Under the most recent amendment to the licensing agreement, OST agrees to pay
Advaxis $25,000 per month (“Monthly Payment”) starting on April 30, 2020 until it achieves its funding milestone of
$2,337,500. Upon receipt of the first Monthly Payment, Advaxis will initiate the transfer of the intellectual property and licensing
rights of ADXS31-164, which were licensed pursuant to the Penn Agreement, back to the University of Pennsylvania. Contemporaneously,
OST will enter negotiations with the University of Pennsylvania to establish a licensing agreement for ADXS31-164 to OST for clinical
and commercial development of the ADXS31-164 technology.
Provided
that OST meets its ongoing obligation to make its Monthly Payments to Advaxis for six consecutive months, Advaxis agrees to transfer,
and OST agrees to take full ownership of, the IND application for ADXS31-164 in its entirety to OST, along with agreements and
promises contained therein, as well as all obligations associated with this IND or any HER2 product/program development. Until
OST makes its Monthly Payments to Advaxis for six consecutive months, Advaxis will continue to bear the costs of the regulatory
filing services related to the IND application for ADXS31-164.
Within
five business days of achieving the funding milestone of $2,337,500 for the performance of the Children’s Oncology Group
study (knowns as the “License Commencement Date”), OST will make a non-refundable and non-creditable payment to Advaxis
of $1,550,000 less the cumulative Monthly Payments previously made (the “License Commencement Payment”). Within five
days following the License Commencement Date, Advaxis will provide existing drug supply “as is” to OST, and until
the drug supply is supplied to OST, Advaxis will bear the storage costs for the drug product. Pursuant to the agreement, the Company
is also to receive sales-based milestone payments and royalties on future product sales. In addition, the Company and OST will
establish a Joint Steering Committee to oversee the R&D activities.
The
promises to (1) Maintain the HER2 product until transfer to OST, (2) Provide the IND application ownership for ADX321-164 to OST,
(3) Participate in the Joint Steering Committee, (4) Transfer of IP & licensing rights of ADXS31-164 and related Patents,
and (5) Provide Clinical Drug Supply represent one combined performance obligation for revenue recognition purposes. The Company
concluded that the transfer of the IP and licensing rights provides OST with a functional, or “right to use,” license,
and thus the Company will recognize the upfront fees of $1,550,000 from the license at a point in time. The revenue from the transfer
of the license cannot be recognized until the transfer of the corresponding IP to OST has occurred and OST has the ability to
benefit from the right to use the license. As the right to use the license begins when OST makes the upfront payment within five
days of the License Commencement Date and the IP transfers to OST at that time, the upfront fees from the license will be recognized
upon the transfer of the intellectual property to OST.
Since
OST is making $25,000 monthly payments that will be creditable against the $1,550,000, the Company will receive payments
prior to the performance of the single distinct performance obligation. Due to this, the Company will defer any of the
monthly payments until the IP and licensing rights are transferred to OST. However, if OST terminates the contract, which
they are able to do with 60-day notice, the Company would recognize any of the $25,000 monthly payments received when the
contract terminates. As of July 31, 2020, OST has made payments totaling $50,000 and this has been recorded as other
liabilities in the condensed balance sheet.
Elanco
Animal Health (formerly Aratana Therapeutics)
During
the fiscal 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 July 31, 2020 and 2019, Advaxis
recognized royalty revenue totaling $0 and $6,000, respectively, from Aratana’s sales of the canine osteosarcoma vaccine.
During the nine months ended July 31, 2020 and 2019, Advaxis recognized royalty revenue totaling approximately $3,000 and $8,000,
respectively, from Aratana’s sales of the canine osteosarcoma vaccine. On July 16, 2019, Aratana announced their shareholders
approved a merger agreement with Elanco Animal Health (“Elanco”) whereby Elanco will be the majority shareholder of
Aratana. All of the terms of the Aratana Agreement remain in effect.
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). During each of the nine months ended July 31, 2020 and 2019, the Company recorded $0.3 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.
9.
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. Advaxis is also seeking fees associated with the arbitration and interest.
From
October 21-23, 2019, an evidentiary hearing for the arbitration was conducted. On April 1, 2020, the Arbitrator issued a final
award denying Stendhal’s claim in full. The Arbitrator found that the Company had not repudiated the Agreement and did not
owe Stendhal damages, fees, or interest associated with the arbitration. The Arbitrator also denied the Company’s claim
that Stendhal breached its obligations to the Company. The parties were ordered to bear their own attorneys’ fees and evenly
split administrative fees and expenses for the arbitration.
10.
LEASES
Operating
Leases
The
Company leases its corporate office and manufacturing facility in Princeton, New Jersey under an operating lease that expires
in November 2025. The Company has the option to renew the lease term for two additional five-year terms. The renewal periods were
not included the lease term for purposes of determining the lease liability or right-of-use asset. The Company has provided a
security deposit of approximately $182,000, which is recorded as Other Assets in the condensed balance sheet.
The
Company identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding
lease liabilities:
|
●
|
As
the Company does not have sufficient insight to determine an implicit rate, the Company estimated the incremental borrowing
rate in calculating the present value of the lease payments. The Company utilized a synthetic credit rating model to determine
a benchmark for its incremental borrowing rate for its leases. The benchmark rate was adjusted to arrive at an appropriate
discount rate for the lease.
|
|
|
|
|
●
|
Since
the Company elected to account for each lease component and its associated non-lease components as a single combined component,
all contract consideration was allocated to the combined lease component.
|
|
|
|
|
●
|
Renewal
option periods have not been included in the determination of the lease terms as they are not deemed reasonably certain of
exercise.
|
|
|
|
|
●
|
Variable
lease payments, such as common area maintenance, real estate taxes, and property insurance are not included in the determination
of the lease’s right-of-use asset or lease liability.
|
Supplemental
balance sheet information related to leases as of July 31, 2020 was as follows (in thousands):
Operating Leases:
|
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
5,030
|
|
|
|
|
|
|
Operating lease liability
|
|
$
|
926
|
|
Operating lease liability, net of current portion
|
|
|
5,304
|
|
Total operating lease liabilities
|
|
$
|
6,230
|
|
Supplemental
lease expense related to leases was as follows (in thousands):
Lease Cost (in thousands)
|
|
Statements of Operations Classification
|
|
For the Three
Months Ended
July 31, 2020
|
|
|
For the Nine Months Ended
July 31, 2020
|
|
Operating lease cost
|
|
General and administrative
|
|
|
290
|
|
|
|
869
|
|
Short-term lease cost
|
|
General and administrative
|
|
|
83
|
|
|
|
249
|
|
Variable lease cost
|
|
General and administrative
|
|
$
|
108
|
|
|
$
|
282
|
|
Total lease expense
|
|
|
|
$
|
481
|
|
|
$
|
1,400
|
|
Other
information related to leases where the Company is the lessee is as follows:
|
|
For the Nine
Months Ended
July 31, 2020
|
|
Weighted-average remaining lease term
|
|
|
5.3 years
|
|
Weighted-average discount rate
|
|
|
6.5
|
%
|
Supplemental
cash flow information related to operating leases was as follows:
|
|
For the Three
Months Ended
July 31, 2020
|
|
|
For the Nine
Months Ended
July 31, 2020
|
|
Cash paid for operating lease liabilities
|
|
$
|
311
|
|
|
$
|
922
|
|
Future
minimum lease payments under non-cancellable leases as of July 31, 2020 were as follows:
Fiscal Year ending October 31,
|
|
|
|
2020 (Remaining)
|
|
$
|
311
|
|
2021
|
|
|
1,318
|
|
2022
|
|
|
1,369
|
|
2023
|
|
|
1,395
|
|
2024
|
|
|
1,419
|
|
Thereafter
|
|
|
1,564
|
|
Total minimum lease payments
|
|
|
7,376
|
|
Less: Imputed interest
|
|
|
(1,146
|
)
|
Total
|
|
$
|
6,230
|
|
Under
ASC 840, future minimum payments under the Company’s operating lease were as follows (in thousands):
Fiscal Year ending October 31,
|
|
|
|
2020
|
|
$
|
1,233
|
|
2021
|
|
|
1,318
|
|
2022
|
|
|
1,369
|
|
2023
|
|
|
1,395
|
|
2024
|
|
|
1,419
|
|
Thereafter
|
|
|
1,564
|
|
Total
|
|
$
|
8,298
|
|
Under
ASC 840, rent expense for each of the years ended October 31, 2019 and 2018 was approximately $1.2 million.
11.
STOCKHOLDERS’ EQUITY
A
summary of the changes in stockholders’ equity for the three and nine months ended July 31, 2020 and 2019 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, 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, net of offering costs
|
|
|
-
|
|
|
|
-
|
|
|
|
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
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
408
|
|
|
|
-
|
|
|
|
464
|
|
|
|
-
|
|
|
|
464
|
|
Tax withholdings paid on equity awards
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
(1
|
)
|
Tax shares sold to pay for tax withholdings on equity awards
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
1
|
|
Issuance of shares to employees under ESPP Plan
|
|
|
-
|
|
|
|
-
|
|
|
|
1,073
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
3
|
|
Shares issued in settlement of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
577,000
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Advaxis public offerings, net of offering costs
|
|
|
-
|
|
|
|
-
|
|
|
|
10,650,000
|
|
|
|
11
|
|
|
|
15,478
|
|
|
|
-
|
|
|
|
15,489
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,858
|
)
|
|
|
(9,858
|
)
|
Balance at July 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
19,248,851
|
|
|
$
|
20
|
|
|
$
|
423,330
|
|
|
$
|
(374,081
|
)
|
|
$
|
49,269
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
Total
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balance at November 1, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
50,201,671
|
|
|
$
|
50
|
|
|
$
|
423,750
|
|
|
$
|
(384,269
|
)
|
|
$
|
39,531
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
2,957
|
|
|
|
-
|
|
|
|
242
|
|
|
|
-
|
|
|
|
242
|
|
Advaxis public offerings, net of offering costs
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000,000
|
|
|
|
10
|
|
|
|
9,618
|
|
|
|
-
|
|
|
|
9,628
|
|
Warrant exercises
|
|
|
-
|
|
|
|
-
|
|
|
|
26,416
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
Issuance of shares to employees under ESPP Plan
|
|
|
-
|
|
|
|
-
|
|
|
|
5,555
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
Net Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,857
|
)
|
|
|
(7,857
|
)
|
Balance at January 31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
60,236,599
|
|
|
$
|
60
|
|
|
$
|
433,614
|
|
|
$
|
(392,126
|
)
|
|
$
|
41,548
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
5,651
|
|
|
|
-
|
|
|
|
210
|
|
|
|
-
|
|
|
|
210
|
|
Warrant exercises
|
|
|
-
|
|
|
|
-
|
|
|
|
7,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance of shares to employees under ESPP Plan
|
|
|
-
|
|
|
|
-
|
|
|
|
2,694
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
Net Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,323
|
)
|
|
|
(6,323
|
)
|
Balance at April 30, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
60,252,444
|
|
|
$
|
60
|
|
|
$
|
433,826
|
|
|
$
|
(398,449
|
)
|
|
$
|
35,437
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
255
|
|
|
|
-
|
|
|
|
255
|
|
Tax withholdings paid on equity awards
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
Tax shares sold to pay for tax withholdings on equity awards
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
Issuance of shares to employees under ESPP Plan
|
|
|
-
|
|
|
|
-
|
|
|
|
2,899
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
At-the-market shares issued, net of offering costs
|
|
|
-
|
|
|
|
-
|
|
|
|
1,375,337
|
|
|
|
1
|
|
|
|
956
|
|
|
|
-
|
|
|
|
957
|
|
Commitment fee shares issued for equity line
|
|
|
-
|
|
|
|
-
|
|
|
|
1,084,266
|
|
|
|
1
|
|
|
|
643
|
|
|
|
-
|
|
|
|
644
|
|
Net Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,829
|
)
|
|
|
(5,829
|
)
|
Balance at July 31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
|
62,714,946
|
|
|
$
|
62
|
|
|
$
|
435,682
|
|
|
$
|
(404,278
|
)
|
|
$
|
31,466
|
|
On
February 21, 2019, the Company’s stockholders voted to approve an amendment to the Company’s Amended and Restated
Certificate of Incorporation (the “Certificate of Incorporation”) 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 the Certificate of Incorporation 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.
In
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.
In
July 2019, the Company closed on an underwritten public offering of 10,650,000 shares of its common stock, pre-funded warrants
to purchase 13,656,000 shares of common stock and warrants to purchase up to 17,142,000 shares of common stock at a public offering
price of $1.20, for gross proceeds of $17.0 million. Each share of common stock or pre-funded warrant was sold together in a fixed
combination with a warrant to purchase 0.75 shares of common stock. The pre-funded warrants are exercisable immediately, do not
expire and have an exercise price of $0.001 per share. The warrants are exercisable immediately, expire five years from the date
of issuance, have an exercise price of $2.80 per share and are subject to anti-dilution and other adjustments for certain stock
splits, stock dividends, or recapitalizations. The warrants also provide that if during the period of time between the date that
is the earlier of (i) 30 days after issuance and (ii) if the common stock trades an aggregate of more than 35,000,000 shares after
the pricing of the offering, and ending 15 months after issuance, the weighted-average price of common stock immediately prior
to the exercise date is lower than the then-applicable exercise price per share, each Common Warrant may be exercised, at the
option of the holder, on a cashless basis for one share of Common Stock. After deducting the underwriting discounts and commissions
and other offering expenses, the net proceeds from the offering were approximately $15.5 million.
In
January 2020, the Company closed on a public offering of 10,000,000 shares of its common stock at a public offering price of $1.05,
for gross proceeds of $10.5 million. In addition, the Company also undertook a concurrent private placement of warrants to purchase
up to 5,000,000 shares of common stock. The warrants have an exercise price per share of $1.25, are exercisable during the period
beginning on the six-month anniversary of the date of its issuance (the “Initial Exercise Date”) and will expire on
the fifth anniversary of the Initial Exercise Date. The warrants contain a change of control provision whereby if the
change of control is within the Company’s control, the warrants could be settled in cash based on the Black-Scholes value
of the warrants at the option of the warrant holder. The warrants also provide that if there is no effective registration
statement registering, or no current prospectus available for, the issuance or resale of the warrant shares, the warrants may
be exercised via a cashless exercise. After deducting the underwriting discounts and commissions and other offering expenses,
the net proceeds from the offering were approximately $9.6 million.
At
the Annual Meeting of Stockholders of the Company held on May 4, 2020, the stockholders ratified and approved an amendment to
the Company’s 2015 Incentive Plan to increase the aggregate number of shares of common stock authorized for issuance under
such Plan from 877,744 shares to 6,000,000 shares.
In
May 2020, the Company entered into a sales agreement related to an ATM equity offering program pursuant to which
the Company may sell, from time to time, common stock with an aggregate offering price of up to $40 million through A.G.P./Alliance
Global Partners, as sales agent. From May 2020 to July 2020, the Company sold 1,375,337 shares of its common stock under the ATM
program for $1.085 million, or an average of $0.79 per share, and received net proceeds of $0.957 million, net of commissions
of $35,000.
Lincoln
Park Purchase Agreement
On
July 30, 2020, the Company entered into a Purchase Agreement (the “Purchase Agreement”) and a Registration Rights
Agreement (the “Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”).
Over the 36-month term of the Purchase Agreement, the Company has the right, but not the obligation, from time to time, to
sell to Lincoln Park up to an aggregate amount of $20,000,000 of shares of common stock, in its sole discretion and
subject to certain conditions, including that the closing price of its common stock is not below $0.10 per share, to direct
Lincoln Park to purchase up to 1,000,000 shares (the “Regular Purchase Share Limit”) of its Common Stock (each
such purchase, a “Regular Purchase”). Lincoln Park’s maximum obligation under any single Regular Purchase
will not exceed $1,000,000, unless the parties mutually agree to increase the maximum amount of such Regular Purchase. The
purchase price for shares of Common Stock to be purchased by Lincoln Park under a Regular Purchase will be the equal to the
lower of (in each case, subject to the adjustments described in the Purchase Agreement): (i) the lowest sale price for the
Company’s common stock on the applicable purchase date, and (ii) the arithmetic average of the three lowest sale prices
for the Company’s common stock during the ten trading days prior to the purchase date.
As
consideration for entering into the Purchase Agreement, the Company issued 1,084,266 shares of common stock to Lincoln Park as
a commitment fee. The shares were valued at approximately $0.6 million and were recorded
as deferred offering expenses in the condensed balance sheet. The deferred charges will be charged against paid-in capital upon
future proceeds from the sale of common stock under the Lincoln Park Purchase Agreement.
12.
FAIR VALUE
The
authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in
an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the
principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance
describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last
unobservable, that may be used to measure fair value which are the following:
●
Level 1 — Quoted prices in active markets for identical assets or liabilities.
●
Level 2— Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or corroborated by observable
market data or substantially the full term of the assets or liabilities.
●
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the value of
the assets or liabilities.
The
following table provides the assets and liabilities carried at fair value measured on a recurring basis as of July 31, 2020 and
October 31, 2019 (in thousands):
July 31, 2020
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Common stock warrant liability, warrants exercisable at $0.372 through September 2024
|
|
|
-
|
|
|
|
-
|
|
|
$
|
33
|
|
|
$
|
33
|
|
October 31, 2019
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Common stock warrant liability, warrants exercisable at $0.372 through September 2024
|
|
|
-
|
|
|
|
-
|
|
|
$
|
19
|
|
|
$
|
19
|
|
The
following table sets forth a summary of the changes in the fair value of the Company’s warrant liabilities:
|
|
For the
Nine Months
Ended
July 31, 2020
|
|
Beginning balance
|
|
$
|
19
|
|
Warrant exercises
|
|
|
(2
|
)
|
Change in fair value
|
|
|
16
|
|
Ending Balance
|
|
$
|
33
|
|
13.
Subsequent Events
On
August 3, 2020, Lincoln Park purchased 3,510,527 shares of common stock for gross proceeds of approximately $2 million.
The net proceeds to the Company from the transaction was approximately $1.9 million.
On September 4,
2020, the Company and Molly Henderson, Executive Vice President and Chief Financial Officer, announced that Ms. Henderson is stepping
down as Chief Financial Officer effective September 25, 2020.