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 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 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, our product candidates
have the potential to work synergistically with other immunotherapies, including checkpoint inhibitors, while having a generally
well-tolerated safety profile.
On
June 27, 2019, Advaxis announced that it is increasing its focus on neoantigen-directed immunotherapies and closing the AIM2CERV
Phase 3 clinical trial with axalimogene filolisbac (AXAL) in high-risk locally advanced cervical cancer. Advaxis intends to continue
to support the clinical development of AXAL, its single-antigen construct, in other HPV-related cancers while redirecting resources
towards advancing its neoantigen-directed programs.
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 July 2019, the Company
raised approximately $292.2 million in gross proceeds ($27.0 million in fiscal year 2019) from various public and private
offerings of its common stock.
As
of July 31, 2019, the Company had approximately $41.8 million in cash and cash equivalents. Although the Company believes that
it expects to have sufficient capital to fund its obligations, as they become due, in the ordinary course of business until at
least September 2020, the actual amount of cash that it will need to operate is subject to many factors. 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 $28.6 million for the
nine months ended July 31, 2019 as compared to $53.2 million during the comparable prior period. Furthermore, the
Company expects operating expenses to be between $33 million and $37 million for fiscal year 2020, which includes approximately
$6 million in non-recurring costs related to programs that are winding down.
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 July 31, 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 nine months ended July 31, 2019, the two letters of credit were terminated and as of July
31, 2019 the Company has no restricted cash balance.
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, 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,
|
|
|
|
2019
|
|
|
2018
|
|
Warrants
|
|
|
18,301,804
|
|
|
|
206,160
|
|
Stock options
|
|
|
405,372
|
|
|
|
353,258
|
|
Restricted stock units
|
|
|
16,204
|
|
|
|
47,100
|
|
Total
|
|
|
18,723,380
|
|
|
|
606,518
|
|
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 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 used 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 July 31, 2019
|
|
(in
thousands)
|
|
As
reported
under ASC 606
|
|
|
Adjustments
|
|
|
Balances
without adoption of ASC 606
|
|
Accounts
receivable
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Prepaid
expenses and other current assets
|
|
$
|
1,571
|
|
|
$
|
-
|
|
|
$
|
1,571
|
|
|
|
Impact
of ASC 606 Adoption on
Condensed
Statement of Operations
for
the Three Months Ended July 31, 2019
|
|
(in
thousands)
|
|
As
reported under ASC 606
|
|
|
Adjustments
|
|
|
Balances
without adoption of ASC 606
|
|
Revenue
|
|
$
|
6
|
|
|
$
|
-
|
|
|
$
|
6
|
|
Research
and Development Expenses
|
|
$
|
7,060
|
|
|
$
|
-
|
|
|
$
|
7,060
|
|
|
|
Impact
of ASC 606 Adoption on
Condensed
Statement of Operations
for
the Nine Months Ended July 31, 2019
|
|
(in
thousands)
|
|
As
reported under ASC 606
|
|
|
Adjustments
|
|
|
Balances
without adoption of ASC 606
|
|
Revenue
|
|
$
|
20,883
|
|
|
|
1,960
|
|
|
|
18,923
|
|
Research
and Development Expenses
|
|
$
|
19,735
|
|
|
|
1,960
|
|
|
|
17,775
|
|
|
|
Impact
of ASC 606 Adoption on
Condensed
Statement of Cash Flows
for
the Nine Months Ended July 31, 2019
|
|
(in
thousands)
|
|
As
reported under ASC 606
|
|
|
Adjustments
|
|
|
Balances
without adoption of ASC 606
|
|
Accounts
receivable
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Prepaid
expenses and other current assets
|
|
$
|
1,571
|
|
|
|
-
|
|
|
|
1,571
|
|
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 8.
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):
|
|
July 31, 2019
|
|
|
October 31,
2018
|
|
|
|
|
|
|
|
|
Leasehold improvements
|
|
$
|
2,335
|
|
|
$
|
2,321
|
|
Laboratory equipment
|
|
|
5,030
|
|
|
|
5,510
|
|
Furniture and fixtures
|
|
|
746
|
|
|
|
746
|
|
Computer equipment
|
|
|
409
|
|
|
|
409
|
|
Construction in progress
|
|
|
17
|
|
|
|
17
|
|
Total property and equipment
|
|
|
8,537
|
|
|
|
9,003
|
|
Accumulated depreciation and amortization
|
|
|
(2,945
|
)
|
|
|
(2,319
|
)
|
Net property and equipment
|
|
$
|
5,592
|
|
|
$
|
6,684
|
|
Depreciation
expense for each of the three months ended July 31, 2019 and 2018 was approximately $0.3 million. Depreciation expense
for each of the nine months ended July 31, 2019 and 2018 was approximately $0.8 million.
4.
INTANGIBLE ASSETS
Intangible
assets, net consist of the following (in thousands):
|
|
July 31, 2019
|
|
|
October 31,
2018
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
6,085
|
|
|
$
|
5,970
|
|
Licenses
|
|
|
777
|
|
|
|
777
|
|
Software
|
|
|
117
|
|
|
|
117
|
|
Total intangibles
|
|
|
6,979
|
|
|
|
6,864
|
|
Accumulated amortization
|
|
|
(2,211
|
)
|
|
|
(2,026
|
)
|
Intangible assets
|
|
$
|
4,768
|
|
|
$
|
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 approximately $0.3 million and $0.1 million were abandoned and were charged to research and development
expenses in the statement of operations for the three months ended July 31, 2019 and 2018, respectively. Patent applications having
a net book value of approximately $0.6 million and $0.4 million were abandoned and were charged to research and development
expenses in the statement of operations for the nine months ended July 31, 2019 and 2018, respectively. Amortization expense for
intangible assets that was charged to general and administrative expense in the statement of operations aggregated approximately
$0.1 million for each of the three months ended July 31, 2019 and 2018, respectively. Amortization expense for intangible
assets that was charged to general and administrative expense in the statement of operations aggregated approximately $0.3
million for each of the nine months ended July 31, 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 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
July 31, 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)
|
|
$
|
96
|
|
2020
|
|
|
371
|
|
2021
|
|
|
352
|
|
2022
|
|
|
352
|
|
2023
|
|
|
352
|
|
Thereafter
|
|
|
3,245
|
|
Total
|
|
$
|
4,768
|
|
5.
ACCRUED EXPENSES:
|
|
July 31, 2019
|
|
|
October 31,
2018
|
|
|
|
|
|
|
|
|
Salaries and other compensation
|
|
$
|
812
|
|
|
$
|
2,035
|
|
Vendors
|
|
|
2,333
|
|
|
|
3,660
|
|
Professional fees
|
|
|
431
|
|
|
|
490
|
|
Total accrued expenses
|
|
$
|
3,576
|
|
|
$
|
6,185
|
|
6.
COMMON STOCK PURCHASE WARRANTS AND WARRANT LIABILITY
As
of July 31, 2019, there were outstanding warrants to purchase 31,380,804 shares of our common stock with exercise prices ranging
from $0.001 to $281.25 per share. Information on the outstanding warrants is as follows:
Exercise
Price
|
|
|
Number of
Shares Underlying Warrants
|
|
|
Expiration Date
|
|
Summary of Warrants
|
$
|
2.80
|
|
|
|
18,229,500
|
|
|
April 2024
|
|
July 2019 Public Offering
|
$
|
0.001
|
|
|
|
13,079,000
|
|
|
April 2024
|
|
July 2019 Public Offering- Pre-Funded
|
$
|
281.25
|
|
|
|
25
|
|
|
N/A
|
|
Other Warrants
|
$
|
0.372
|
|
|
|
72,279
|
|
|
September 2024
|
|
September 2018 Public Offering
|
|
Grand
Total
|
|
|
|
31,380,804
|
|
|
|
|
|
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
|
|
|
Number of
Shares Underlying Warrants
|
|
|
Expiration Date
|
|
Summary of Warrants
|
$
|
281.25
|
|
|
|
25
|
|
|
N/A
|
|
Other Warrants
|
$
|
56.25
|
|
|
|
166
|
|
|
March 2019
|
|
March 2014 Public Offering- Placement Agent
|
$
|
22.50
|
|
|
|
944,444
|
|
|
September 2024
|
|
September 2018 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
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding and exercisable warrants at October
31, 2018
|
|
|
944,635
|
|
|
$
|
22.50
|
|
|
$
|
-
|
|
Issued
|
|
|
31,885,500
|
|
|
|
1.60
|
|
|
|
|
|
Exercised
|
|
|
(592,300
|
)
|
|
|
0.12
|
|
|
|
|
|
Exchanged
|
|
|
(856,865
|
)
|
|
|
22.50
|
|
|
|
|
|
Expired
|
|
|
(166
|
)
|
|
|
56.25
|
|
|
|
|
|
Outstanding and exercisable warrants
at July 31, 2019
|
|
|
31,380,804
|
|
|
$
|
1.63
|
|
|
$
|
7,259
|
|
As
of July 31, 2019, the Company had 31,308,525 of its total 31,380,804 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 simulation model. In determining the fair
warrant of the warrants issued on March 14, 2019, the Company used the following inputs in its Monte Carlo simulation 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 July 31, 2019, the Company had 72,279 of its total 31,380,804 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 the
sale of 2,500,000 common shares (see Note 10) and the exercise price of the warrants were reduced from $4.50 to $3.72. In July
2019, the down round feature was triggered a third time due to the sale of 10,650,000 common shares and 13,656,000 pre-funded
warrants (see Note 10) and the exercise price of the warrants were reduced from $3.72 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 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 July 31, 2019 and October 31, 2018, the fair value of the warrant liability was approximately $36,000 and $6.5 million, respectively.
For the three and nine months ended July 31, 2019, the Company income of approximately $0.2 million and $2.6 million, respectively.
For each of the three and nine months ended July 31, 2018, the Company reported income of $0.
In
measuring the warrant liability at July 31, 2019 and October 31, 2018, the Company used the following inputs in its Monte Carlo
simulation model:
|
|
July 31, 2019
|
|
|
October 31,
2018
|
|
Exercise Price
|
|
$
|
0.372
|
|
|
$
|
22.50
|
|
Stock Price
|
|
$
|
0.56
|
|
|
$
|
8.40
|
|
Expected Term
|
|
|
5.12
years
|
|
|
|
5.87
years
|
|
Volatility %
|
|
|
97.73
|
%
|
|
|
97.47
|
%
|
Risk Free Rate
|
|
|
1.84
|
%
|
|
|
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 July 31,
|
|
|
Nine Months
Ended July 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Research and development
|
|
$
|
241
|
|
|
$
|
543
|
|
|
$
|
822
|
|
|
$
|
2,342
|
|
General and administrative
|
|
|
223
|
|
|
|
1,409
|
|
|
|
743
|
|
|
|
3,645
|
|
Total
|
|
$
|
464
|
|
|
$
|
1,952
|
|
|
$
|
1,565
|
|
|
$
|
5,987
|
|
Restricted
Stock Units (RSUs)
A
summary of the Company’s RSU activity and related information for the nine months ended July 31, 2019 is as follows:
|
|
Number of
RSUs
|
|
|
Weighted-Average
Grant
Date Fair Value
|
|
|
|
|
|
|
|
|
Balance at October 31, 2018
|
|
|
32,614
|
|
|
$
|
70.41
|
|
Vested
|
|
|
(10,949
|
)
|
|
|
71.84
|
|
Cancelled
|
|
|
(5,461
|
)
|
|
|
110.24
|
|
Balance at July 31, 2019
|
|
|
16,204
|
|
|
$
|
56.02
|
|
As
of July 31, 2019, there was approximately $0.4 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 1.11 years.
As
of July 31, 2019, the aggregate intrinsic value of non-vested RSU’s was approximately $9,000.
Employee
Stock Awards
Common
Stock issued to executives and employees related to vested incentive retention awards, employment inducements and management purchases
totaled 408 shares and 14,351 shares (12,683 shares on a net basis after employee taxes) during the three months ended July 31,
2019 and 2018, respectively. Total stock compensation expense associated with employee awards for the three months ended July
31, 2019 and 2018 was approximately $0.2 million and $0.9 million, respectively.
Common
Stock issued to executives and employees related to vested incentive retention awards, employment inducements and management
purchases totaled 10,947 shares and 44,603 shares (41,579 shares on a net basis after employee taxes) during the nine months ended
July 31, 2019 and 2018 respectively. Total stock compensation expense associated with employee awards for the nine months ended
July 31, 2019 and 2018 was approximately $0.7 million and $2.9 million, respectively.
Included
in compensation expense for the three and nine months ended July 31, 2018 is approximately $110,000 and $320,000, respectively,
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 and Chief Operating Officer in June 2018. Pursuant to the separation agreements, the vesting was
accelerated on all of the outstanding RSU’s.
Director
Stock Awards
Common
stock issued to Directors for compensation related to board and committee membership totaled 0 shares and 3,000 shares for three
months ended July 31, 2019 and 2018, respectively. During the three months ended July 31, 2019 and 2018, total stock compensation
expense associated with Director awards was approximately $0 and $71,000 respectively.
Common
stock issued to Directors for compensation related to board and committee membership totaled 0 shares and 5,000 shares for the
nine months ended July 31, 2019 and 2018, respectively. During the nine months ended July 31, 2019 and 2018, total stock compensation
expense associated with Director awards was $0 and $0.2 million, respectively.
Included
in compensation expense for the nine months ended July 31, 2018 is approximately $10,000 recognized as a result of the modification
of certain RSU’s associated with a Board member that decided not to run for re-election in March 2018. The vesting was accelerated
on all the outstanding RSU’s.
Stock
Options
A
summary of changes in the stock option plan for the nine months ended July 31, 2019 is as follows:
|
|
Number of
Options
|
|
|
Weighted-Average
Exercise Price
|
|
Outstanding at October 31, 2018:
|
|
|
330,071
|
|
|
$
|
122.79
|
|
Granted
|
|
|
106,132
|
|
|
|
5.44
|
|
Cancelled or Expired
|
|
|
(30,831
|
)
|
|
|
33.18
|
|
Outstanding at July 31, 2019
|
|
|
405,372
|
|
|
|
98.88
|
|
Vested and Exercisable at July 31,
2019
|
|
|
239,276
|
|
|
$
|
155.72
|
|
Total
compensation cost related to the Company’s outstanding stock options, recognized in the statement of operations for the
three months ended July 31, 2019 and 2018 was approximately $0.3 million and $0.9 million, respectively. For the nine months ended
July 31, 2019 and 2018, compensation cost related to the Company’s outstanding stock options was approximately $0.9 million
and $2.9 million, respectively. Included in compensation expense for the nine months ended July 31, 2018 is approximately $77,000
recognized as a result of the modification of certain option agreements associated with two Board members that decided not to
run for re-election in March 2018. 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 July 31, 2019, there was approximately $1.6 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 1.74 years.
As
of July 31, 2019, the aggregate intrinsic value of vested and exercisable options was $0.
In
determining the fair value of the stock options granted during the nine months ended July 31, 2019 and 2018, the Company used
the following inputs in its Black Scholes Merton model:
|
|
Nine
Months Ended July 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Expected
Term
|
|
|
5.50-6.51
years
|
|
|
|
5.35
– 6.51 years
|
|
Expected Volatility
|
|
|
90.29%-104.99
|
%
|
|
|
94.61%-100.34
|
%
|
Expected Dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk Free Interest
Rate
|
|
|
1.75%-3.15
|
%
|
|
|
1.81
– 2.93
|
%
|
Employee
Stock Purchase Plan
During
the nine months ended July 31, 2019, the Company issued 4,585 shares that were purchased under the 2018 Employee Stock Purchase
Plan.
During
the nine months ended July 31, 2018, the Company issued 10,681 shares that were purchased under the 2011 & 2018 Employee Stock
Purchase Plans.
8.
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 then- 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 July 31, 2019 and 2018, the Company recognized revenue from the Amgen Agreement of approximately $0 and
$1.1 million, respectively. During the nine months ended July 31, 2019 and 2018, the Company recognized revenue from the Amgen
Agreement of approximately $20.6 million and $4.7 million, respectively. During the three and nine months ended July 31, 2018,
Company recorded reductions in research and development expenses of approximately $1.4 million and $4.5 million, respectively,
pertaining to the reimbursement of research and development costs. During the three and nine months ended July 31, 2019, the reimbursement
of research and development costs of approximately $0 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.
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 July 31, 2019 and 2018, Advaxis recognized
royalty revenue totaling approximately $6,000 and $2,000, respectively, from Aratana’s sales of the canine osteosarcoma
vaccine. During the nine months ended July 31, 2019 and 2018, Advaxis recognized royalty revenue totaling approximately $8,000
and $3,000, 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 in
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).
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 nine months ended July 31, 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 paid $2.25 million to the
contract research organization that manages the Company’s AIM2CERV clinical trial. On June 27, 2019, Advaxis announced that
it is closing the AIM2CERV Phase 3 clinical trial with AXAL in high-risk locally advanced cervical cancer.
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.
On
April 2, 2019, the Arbitrator denied the Company’s early application for summary disposition of Stendhal’s claims.
No reasoning was provided. On April 26, 2019, Stendhal served its Statement of Claim, and on May 23, 2019, the Company served
its Statement of Defense and Counterclaim. A hearing for the arbitration is scheduled to begin on October 21, 2019. At this time,
the Company is unable to predict the likelihood of an unfavorable outcome.
10.
STOCKHOLDERS’ EQUITY
A
summary of the changes in stockholders’ equity for the three and nine months ended July 31, 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
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
15,683
|
|
|
|
-
|
|
|
|
1,953
|
|
|
|
-
|
|
|
|
1,953
|
|
Tax withholdings paid related to net share settlement of equity
awards
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(47
|
)
|
|
|
-
|
|
|
|
(47
|
)
|
Tax withholdings paid on equity awards
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(188
|
)
|
|
|
-
|
|
|
|
(188
|
)
|
Tax shares sold to pay for tax withholdings on equity awards
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
163
|
|
|
|
-
|
|
|
|
163
|
|
Issuance of shares to employees under ESPP Plan
|
|
|
|
|
|
|
|
|
|
|
341
|
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
|
|
7
|
|
ESPP expense
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
4
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(14,017
|
)
|
|
|
(14,017
|
)
|
Balance at July 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
3,517,251
|
|
|
$
|
4
|
|
|
$
|
382,386
|
|
|
$
|
(349,058
|
)
|
|
$
|
33,332
|
|
|
|
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
|
|
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
|
|
|
|
|
|
|
|
|
|
|
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
|
|
During
the nine months ended July 31, 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.
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.
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.
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.
11.
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, 2019 and
October 31, 2018 (in thousands):
July 31, 2019
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Common stock warrant liability, warrants exercisable
at $0.372 through September 2024
|
|
|
-
|
|
|
|
-
|
|
|
$
|
36
|
|
|
$
|
36
|
|
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 (in thousands):
|
|
July 31, 2019
|
|
Beginning balance
|
|
$
|
6,517
|
|
Shares issued in settlement of warrants
|
|
|
(3,856
|
)
|
Warrant exercises
|
|
|
(53
|
)
|
Change in fair value
|
|
|
(2,572
|
)
|
Ending Balance
|
|
$
|
36
|
|
12.
SUBSEQUENT EVENTS
On
September 3, 2019, the Company received a written notice from Nasdaq indicating that the Company is not in compliance with
the minimum bid price requirement for continued listing on the Nasdaq Global Select Market. The Company has until March 2,
2020 to regain compliance. The Company can regain compliance if at any time prior to March 2, 2020 the bid price of its
common stock closes at or above $1.00 per share for a minimum of ten consecutive business days. If the Company fails to
regain compliance with the minimum bid price requirement by March 2, 2020, the Company may apply to transfer to The Nasdaq
Global Select Market where the Company should be afforded an additional 180-day period to regain compliance provided that (i)
the Company meets the applicable market value of publicly held shares requirement for continued listing and all other
applicable requirements for initial listing on the Nasdaq Global Select Market (except for the bid price requirement) based
on the Company’s most recent public filings and market information and (ii) the Company notifies Nasdaq of its intent
to cure the bid price requirement deficiency prior to the completion of the second 180-day compliance period by effecting
a reverse stock split, if necessary.
Subsequent
to the balance sheet date, the Company received proceeds of $5,030 from the exercise of pre-funded warrants for a total
of 5,030,000 shares of common stock.
Subsequent
to the balance sheet date, warrants were cashlessly exercised for 430,162 shares of common stock.