ADXS Ayala Pharmaceuticals Inc (QX)

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 Technology^TM. Advaxis’ proprietary approach is designed to deploy a unique mechanism of action that redirects the immune system to attack cancer in three distinct ways:

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):

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):

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.

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.

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.

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):

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:

A summary of warrant activity was as follows (in thousands, except share and per share data):

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:

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.

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:

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.