NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BUSINESS
AND FUNDING
Description
of Business
As
used herein, “we,” “us,” “our,” the “Company” or “Anixa” means Anixa
Biosciences, Inc. and its consolidated subsidiaries. Our primary operations involve developing therapies and vaccines that are
focused on critical unmet needs in oncology and infectious disease. Our therapeutics programs include the development of a chimeric
endocrine receptor T-cell technology, a novel form of CAR-T technology, initially focused on treating ovarian cancer, and discovery
and ultimately development of anti-viral drug candidates for the treatment of COVID-19 focused on inhibiting certain viral protein
functions. Our vaccine program consists of the development of a vaccine against triple negative breast cancer (“TNBC”),
the most lethal form of breast cancer.
We
hold an exclusive worldwide, royalty-bearing license to use certain intellectual property owned or controlled by The Cleveland
Clinic Foundation (“Cleveland Clinic”) related to certain breast cancer vaccine technology developed at Cleveland
Clinic. We are working in collaboration with Cleveland Clinic to develop a method to vaccinate women against contracting breast
cancer, focused specifically on TNBC, the most lethal form of the disease. A specific protein, alpha-lactalbumin, has been identified
that is only present during lactation in healthy women, but reappears in many forms of breast cancer, especially TNBC. Studies
have shown that vaccinating against this protein prevents breast cancer in mice. We are working with researchers at Cleveland
Clinic to advance this vaccine toward human clinical testing, and we are in the process of manufacturing the vaccine and upon
completion we will be prepared to file an Investigational New Drug (“IND”) application with the U.S. Food and Drug
Administration (“FDA”). While we anticipate filing the IND during the third calendar quarter of 2020, we may experience
delays in the vaccine manufacturing and characterization process due to the global coronavirus pandemic. We do not currently anticipate
any potential delays to significantly alter our expected timeline. The IND application, after review and if approved by the FDA,
will enable us to begin testing our vaccine in human subjects.
Our
subsidiary, Certainty Therapeutics, Inc. (“Certainty”), is developing immuno-therapy drugs against cancer. Certainty
holds an exclusive worldwide, royalty-bearing license to use certain intellectual property owned or controlled by The Wistar Institute
(“Wistar”) relating to Wistar’s CAR-T technology. We have initially focused on the development of a treatment
for ovarian cancer, but we may also pursue applications of the technology for the development of treatments for additional solid
tumors. The license agreement requires Certainty to make certain cash and equity payments to Wistar. With respect to Certainty’s
equity obligations to Wistar, Certainty issued to Wistar shares of its common stock equal to five percent (5%) of the common stock
of Certainty.
Certainty,
in collaboration with the H. Lee Moffitt Cancer Center and Research Institute, Inc. (“Moffitt”), is advancing toward
human clinical testing its CAR-T technology for treating ovarian cancer. Clinical grade materials are currently being manufactured
and upon completion will undergo extensive testing. Once the materials have been successfully tested, we will be prepared to submit
an IND application with the FDA. While we anticipate filing the IND by the end of calendar 2020, we may experience delays in completing
the manufacturing and testing of clinical materials due to the global coronavirus pandemic. We do not currently anticipate any
potential delays to significantly alter our expected timeline. The IND application, after review and approval by the FDA, will
enable us to begin testing our therapy in ovarian cancer patients.
In
April 2020, in collaboration with OntoChem GmbH (“OntoChem”), we commenced a project to discover and ultimately develop
anti-viral drug candidates against COVID-19. Through this collaboration, we are utilizing advanced computational methods, machine
learning, and molecular modeling techniques to perform in silico screening of over 1.2 billion compounds in chemical libraries
(including publicly available compounds and OntoChem’s proprietary libraries) to evaluate if any of these compounds could
disrupt one of two key enzymes of SARS-CoV-2, the virus that causes the disease COVID-19.
While
the screening process is ongoing and we anticipate discovering additional drug candidates, we have identified four compounds that
could disrupt the function of a viral enzyme called an endoribonuclease, known as Non-Structural Protein-15 (“NSP-15”),
and 27 compounds that target the main protease (“Mpro”) of the virus. Our in silico molecular modeling
indicates that any of the NSP-15 or Mpro inhibitors might disrupt the virus’ ability to replicate in humans.
The NSP-15 compounds have been synthesized and are in the process of being tested in biological assays. We are currently evaluating
which of the Mpro compounds to synthesize for biological testing. The in vitro biological assays of the NSP-15
compounds are ongoing, and if the biological activity of any of these compounds is verified, they will be tested in animal studies
to further evaluate their candidacy as COVID-19 therapeutics.
On
July 2, 2020, we implemented a strategic realignment of our business and redirected resources to exclusively focus on the development
of therapeutics and vaccines. Accordingly, we suspended operations of our subsidiary, Anixa Diagnostics Corporation, and the development
of the Cchek™ artificial intelligence driven platform of non-invasive blood tests for the early detection of cancer.
Over
the next several quarters, we expect the development of our breast cancer vaccine, our COVID-19 therapeutic discovery program
and Certainty’s CAR-T technology to be the primary focus of the Company. As part of our legacy operations, the Company remains
engaged in limited patent licensing activities regarding the Cchek™ liquid biopsy platform, as well as in the area of encrypted
audio/video conference calling. We do not expect these activities to be a significant part of the Company’s ongoing operations
nor do we expect these activities to require material financial resources or attention of senior management.
Over
the past several years, our revenue was derived from technology licensing and the sale of patented technologies, including revenue
from the settlement of litigation. We have not generated any revenue to date from our therapeutics or vaccine programs. In addition,
while we pursue our therapeutics and vaccine programs, we may also make investments in and form new companies to develop additional
emerging technologies.
Funding
and Management’s Plans
Based
on currently available information as of September 8, 2020, we believe that our existing cash, cash equivalents, short-term investments
and expected cash flows will be sufficient to fund our activities for the next twelve months. We have implemented a business model
that conserves funds by collaborating with third parties to develop our technologies. However, our projections of future cash
needs and cash flows may differ from actual results. If current cash on hand, cash equivalents, short-term investments and cash
that may be generated from our business operations are insufficient to continue to operate our business, or if we elect to invest
in or acquire a company or companies or new technology or technologies that are synergistic with or complementary to our technologies,
we may be required to obtain more working capital. During the nine months ended July 31, 2020, we raised an aggregate of approximately
$7,866,000, net of expenses, through the sale of 3,261,282 shares of common stock in our at-the-market equity offerings. This
included approximately $427,000, net of expenses, through the sale of 112,238 shares of common stock in an at-the market equity
offering which expired in November 2019 and approximately $7,439,000, net of expenses, through the sale of 3,149,044 shares of
common stock in an at-the-market equity offering under which we may issue up to $50 million of common stock. Under our current
at-the-market equity program which is currently effective and may remain available for us to use in the future, we may sell an
additional approximately $42,260,000 of common stock. We may seek to obtain working capital during our fiscal year 2020 or thereafter
through sales of our equity securities or through bank credit facilities or public or private debt from various financial institutions
where possible. We cannot be certain that additional funding will be available on acceptable terms, or at all. If we do identify
sources for additional funding, the sale of additional equity securities or convertible debt could result in dilution to our stockholders.
We can give no assurance that we will generate sufficient cash flows in the future to satisfy our liquidity requirements or sustain
future operations, or that other sources of funding, such as sales of equity or debt, would be available or would be approved
by our security holders, if needed, on favorable terms or at all. If we fail to obtain additional working capital as and when
needed, such failure could have a material adverse impact on our business, results of operations and financial condition. Furthermore,
such lack of funds may inhibit our ability to respond to competitive pressures or unanticipated capital needs, or may force us
to reduce operating expenses, which would significantly harm the business and development of operations.
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting
principles in the United States of America (“US GAAP”) for interim financial information and with the instructions
to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, certain information and disclosures required by generally accepted
accounting principles in annual financial statements have been omitted or condensed. These interim condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial statements and related disclosures included in
our Annual Report on Form 10-K for the year ended October 31, 2019. The accompanying October 31, 2019 condensed consolidated balance
sheet data was derived from the audited financial statements but does not include all disclosures required by US GAAP. The condensed
consolidated financial statements include all adjustments of a normal recurring nature which, in the opinion of management, are
necessary for a fair statement of our financial position as of July 31, 2020, and results of operations and cash flows for the
interim periods represented. The results of operations for the nine months ended July 31, 2020 are not necessarily indicative
of the results to be expected for the entire year.
Noncontrolling Interest
Noncontrolling
interest represents Wistar’s equity ownership in Certainty and is presented as a component of equity. The following table
sets forth the changes in noncontrolling interest for the nine months ended July 31, 2020:
Balance, October 31, 2019
|
|
$
|
(422,975
|
)
|
Net loss attributable to noncontrolling interest
|
|
|
(57,032
|
)
|
Balance, July 31, 2020
|
|
$
|
(480,007
|
)
|
Revenue
Recognition
Since
fiscal 2016 our revenue has been derived solely from technology licensing and the sale of patented technologies. Revenue is recognized
upon transfer of control of intellectual property rights and satisfaction of other contractual performance obligations to licensees
in an amount that reflects the consideration we expect to receive.
On
November 1, 2018 we adopted Accounting Standards Update 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers
using the modified retrospective method. Upon adoption of ASU 2014-09 we were required to make certain judgments and estimates
in connection with the accounting for revenue. Such areas may include determining the existence of a contract and identifying
each party’s rights and obligations to transfer goods and services, identifying the performance obligations in the contract,
determining the transaction price and allocating the transaction price to separate performance obligations, estimating the timing
of satisfaction of performance obligations, determining whether a promise to grant a license is distinct from other promised goods
or services and evaluating whether a license transfers to a customer at a point in time or over time.
Our
revenue arrangements provide for the payment of contractually determined, one-time, paid-up license fees in settlement of litigation
and in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the
Company. These arrangements typically include some combination of the following: (i) the grant of a non-exclusive, retroactive
and future license to manufacture and/or sell products covered by patented technologies owned or controlled by the Company, (ii)
a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) the dismissal of any pending litigation.
In such instances, the intellectual property rights granted have been perpetual in nature, extending until the expiration of the
related patents. Pursuant to the terms of these agreements, we have no further obligations with respect to the granted intellectual
property rights, including no obligation to maintain or upgrade the technology, or provide future support or services. Licensees
obtained control of the intellectual property rights they have acquired upon execution of the agreement. Accordingly, the performance
obligations from these agreements were satisfied and 100% of the revenue was recognized upon the execution of the agreements.
The adoption of ASU 2014-09 had no impact on revenue recognized.
Cost
of Revenues
Cost
of revenues include the costs and expenses incurred in connection with our patent licensing and enforcement activities, including
inventor royalties paid to original patent owners, contingent legal fees paid to external counsel, other patent-related legal
expenses paid to external counsel, licensing and enforcement related research, consulting and other expenses paid to third-parties
and the amortization of patent-related investment costs. These costs are included under the caption “Operating costs and
expenses” in the accompanying condensed consolidated statements of operations.
Research
and Development Expenses
Research
and development expenses, consisting primarily of employee compensation, payments to third parties for research and development
activities and other direct costs associated with developing a platform for non-invasive blood tests for early detection of cancer,
developing immuno-therapy drugs against cancer, development of our breast cancer vaccine and development of anti-viral drugs candidates
for COVID-19, are expensed in the consolidated financial statements in the period incurred.
2. STOCK
BASED COMPENSATION
The
Company maintains stock equity incentive plans under which the Company grants incentive stock options, non-qualified stock options,
stock appreciation rights, stock awards, performance awards, or stock units to employees, directors and consultants.
Stock
Option Compensation Expense
The
compensation cost for service-based stock options granted to employees and directors is measured at the grant date, based on the
fair value of the award using the Black-Scholes pricing model, and is expensed on a straight-line basis over the requisite service
period (the vesting period of the stock option) which is one to four years. We recorded stock-based compensation expense related
to service-based stock options granted to employees and directors of approximately $3,016,000 and $2,433,000 during the nine months
ended July 31, 2020 and 2019, respectively, and approximately $997,000 and $784,000 during the three months ended July 31, 2020
and 2019, respectively.
For
stock options granted to employees and directors that vest based on market conditions, such as the trading price of the Company’s
common stock exceeding certain price targets, we use a Monte Carlo Simulation in estimating the fair value at grant date and recognize
compensation cost over the implied service period (median time to vest). On May 8, 2018, we issued market condition options to
purchase 1,500,000 shares of common stock, to our Chairman, President and Chief Executive Officer, vesting at target trading prices
of $5.00 to $8.00 per share before May 31, 2021, with implied service periods of three to seven months. In October 2018, the first
tranche of 500,000 shares of market condition options became exercisable upon achieving an average closing price above $5.00 per
share for twenty consecutive trading days. We recorded stock-based compensation expense related to market condition stock options
granted to employees of approximately $-0- and $376,000 during the nine months ended July 31, 2020 and 2019, respectively. We
did not have any market condition stock-based compensation expense during the three months ended July 31, 2020 and 2019.
On
November 1, 2018 we adopted Accounting Standards Update 2018-07 (“ASU 2018-07”) for stock options granted to consultants.
Upon adoption of ASU 2018-07 we estimated the fair value of unvested service-based and performance-based stock options at the
date of adoption, using the Black-Scholes pricing model. Subsequent to adoption of ASU 2018-07, future grants to consultants are
measured at the grant date, based on the fair value of the award using the Black-Scholes pricing model, consistent with our policy
for grants to employees and directors. In prior periods, in accordance with US GAAP, we estimated the fair value of service-based
and performance-based stock options granted to consultants at each reporting period using the Black-Scholes pricing model. We
recognize the fair value of stock options granted to consultants as consulting expense over the requisite or implied service period
of the grant. We recorded stock-based consulting expense related to stock options granted to consultants of approximately $157,000
and $75,000 during the nine months ended July 31, 2020 and 2019, respectively, and approximately $45,000 and $25,000 during the
three months ended July 31, 2020 and 2019, respectively.
Stock
Option Plans
During
the nine months ended July 31, 2020, we had three stock option plans: the Anixa Biosciences, Inc. 2003 Share Incentive Plan (the
“2003 Share Plan”), the Anixa Biosciences, Inc. 2010 Share Incentive Plan (the “2010 Share Plan”) and
the Anixa Biosciences, Inc. 2018 Share Incentive Plan (the “2018 Share Plan”), which were adopted by our Board of
Directors on April 21, 2003, July 14, 2010 and January 25, 2018, respectively. The 2018 Share Plan was approved by our shareholders
on March 29, 2018.
Stock
Option Activity
During
the nine months ended July 31, 2020 and 2019, we granted options to purchase 800,000 shares and 10,000 shares of common stock,
respectively, to employees and consultants, with exercise prices ranging from $3.64 to $4.04 per share, pursuant to the 2010 Share
Plan and the 2018 Share Plan. During the nine months ended July 31, 2020 and 2019, stock options to purchase 51,100 and 40,000
shares of common stock, respectively, were exercised with aggregate proceeds of approximately $122,000 and $103,000, respectively.
2003
Plan
The
2003 Share Plan provided for the grant of nonqualified stock options, stock appreciation rights, stock awards, performance awards
and stock units to employees, directors and consultants. In accordance with the provisions of the 2003 Share Plan, the plan terminated
with respect to the ability to grant future awards on April 21, 2013. Information regarding the 2003 Share Plan for the nine months
ended July 31, 2020 is as follows:
|
|
Shares
|
|
|
Weighted
Average Exercise
Price Per Share
|
|
|
Aggregate
Intrinsic
Value
|
|
Options outstanding at October 31, 2019
|
|
|
400
|
|
|
$
|
17.00
|
|
|
|
|
|
Forfeited/Expired
|
|
|
(400
|
)
|
|
$
|
17.00
|
|
|
|
|
|
Options outstanding and exercisable at July 31, 2020
|
|
|
-
|
|
|
$
|
-0-
|
|
|
$
|
-0-
|
|
Information
regarding the 2003 Share Plan for the nine months ended July 31, 2019 is as follows:
|
|
Shares
|
|
|
Weighted
Average Exercise
Price Per Share
|
|
|
Aggregate
Intrinsic Value
|
|
Options outstanding at October 31, 2018
|
|
|
12,000
|
|
|
$
|
2.77
|
|
|
|
|
|
Exercised
|
|
|
(4,000
|
)
|
|
$
|
3.63
|
|
|
|
|
|
Options outstanding and exercisable at July 31, 2019
|
|
|
8,000
|
|
|
$
|
2.34
|
|
|
$
|
23,694
|
|
The
following table summarizes information about stock options outstanding and exercisable under the 2003 Share Plan as of July 31,
2019:
Range of
Exercise Prices
|
|
Number
Outstanding
and
Exercisable
|
|
|
Weighted Average Remaining
Contractual Life
(in
years)
|
|
|
Weighted
Average Exercise
Price
|
|
$0.67 - $17.00
|
|
|
8,000
|
|
|
|
0.19
|
|
|
$
|
2.34
|
|
2010
Plan
The
2010 Share Plan provided for the grant of nonqualified stock options, stock appreciation rights, stock awards, performance awards
and stock units to employees, directors and consultants. In accordance with the provisions of the 2010 Share Plan, the plan terminated
with respect to the ability to grant future awards on July 14, 2020. Information regarding the 2010 Share Plan for the nine months
ended July 31, 2020 is as follows:
|
|
Shares
|
|
|
Weighted
Average Exercise
Price Per Share
|
|
|
Aggregate
Intrinsic
Value
|
|
Options outstanding at October 31, 2019
|
|
|
1, 1,998,668
|
|
|
$
|
2.80
|
|
|
|
|
|
Exercised
|
|
|
(51,100
|
)
|
|
$
|
2.39
|
|
|
|
|
|
Forfeited/Expired
|
|
|
(20,534
|
)
|
|
$
|
1.72
|
|
|
|
|
|
Options outstanding at July 31, 2020
|
|
|
1 1,927,034
|
|
|
$
|
2.82
|
|
|
$
|
731,670
|
|
Options exercisable at July 31, 2020
|
|
|
1, 1,772,034
|
|
|
$
|
2.84
|
|
|
$
|
630,120
|
|
The
following table summarizes information about stock options outstanding and exercisable under the 2010 Share Plan as of July 31,
2020:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of
Exercise Prices
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual Life
(in years)
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Remaining
Contractual Life
(in years)
|
|
|
Weighted
Average
Exercise Price
|
|
$ 0.67 - $2.30
|
|
|
549,000
|
|
|
|
5.70
|
|
|
$
|
1.57
|
|
|
|
494,000
|
|
|
|
5.56
|
|
|
$
|
1.64
|
|
$ 2.58 - $ 3.13
|
|
|
846,000
|
|
|
|
3.05
|
|
|
$
|
2.79
|
|
|
|
846,000
|
|
|
|
3.41
|
|
|
$
|
2.79
|
|
$ 3.46 - $ 5.75
|
|
|
532,034
|
|
|
|
7.45
|
|
|
$
|
4.16
|
|
|
|
432,034
|
|
|
|
7.33
|
|
|
$
|
4.33
|
|
Information
regarding the 2010 Share Plan for the nine months ended July 31, 2019 is as follows:
|
|
Shares
|
|
|
Weighted
Average Exercise
Price Per Share
|
|
|
Aggregate Intrinsic Value
|
|
Options outstanding at October 31, 2018
|
|
|
2,131,868
|
|
|
$
|
2.11
|
|
|
|
|
|
Granted
|
|
|
10,000
|
|
|
$
|
3.64
|
|
|
|
|
|
Exercised
|
|
|
(32,000
|
)
|
|
$
|
2.27
|
|
|
|
|
|
Forfeited/Expired
|
|
|
(99,200
|
)
|
|
$
|
3.78
|
|
|
|
|
|
Options outstanding at July 31, 2019
|
|
|
2,010,668
|
|
|
$
|
2.03
|
|
|
$
|
5,422,886
|
|
Options exercisable at July 31, 2019
|
|
|
1,639,556
|
|
|
$
|
1.92
|
|
|
$
|
4,609,165
|
|
The
following table summarizes information about stock options outstanding and exercisable under the 2010 Share Plan as of July 31,
2019:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of
Exercise Prices
|
|
Number Outstanding
|
|
|
Weighted Average Remaining Contractual Life
(in years)
|
|
|
Weighted Average Exercise Price
|
|
|
Number Exercisable
|
|
|
Weighted Average Remaining Contractual Life
(in years)
|
|
|
Weighted Average Exercise Price
|
|
$ 0.67
|
|
|
938,000
|
|
|
|
5.94
|
|
|
$
|
0.67
|
|
|
|
799,388
|
|
|
|
5.59
|
|
|
$
|
0.67
|
|
$2.27 -$3.01
|
|
|
600,134
|
|
|
|
3.81
|
|
|
$
|
2.58
|
|
|
|
600,134
|
|
|
|
3.81
|
|
|
$
|
2.58
|
|
$3.46 -$7.00
|
|
|
472,534
|
|
|
|
8.51
|
|
|
$
|
4.05
|
|
|
|
240,034
|
|
|
|
8.19
|
|
|
$
|
4.43
|
|
2018
Plan
The
2018 Share Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, stock
awards, performance awards and stock units to employees, directors and consultants. As of July 31, 2020, the 2018 Share Plan had
2,258,376 shares available for future grants. Information regarding the 2018 Share Plan for the nine months ended July 31, 2020
is as follows:
|
|
Shares
|
|
|
Weighted
Average Exercise
Price Per Share
|
|
|
Aggregate Intrinsic Value
|
|
Options outstanding at October 31, 2019
|
|
|
3,935,000
|
|
|
$
|
3.74
|
|
|
|
|
|
Granted
|
|
|
800,000
|
|
|
$
|
3.85
|
|
|
|
|
|
Forfeited/Expired
|
|
|
(258,376
|
)
|
|
$
|
3.86
|
|
|
|
|
|
Options outstanding at July 31, 2020
|
|
|
4,476,624
|
|
|
$
|
3.76
|
|
|
$
|
-0-
|
|
Options exercisable at July 31, 2020
|
|
|
2,403,014
|
|
|
$
|
3.76
|
|
|
$
|
-0-
|
|
The
following table summarizes information about stock options outstanding and exercisable under the 2018 Share Plan as of July 31,
2020:
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of
Exercise Prices
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
3.70
|
|
|
|
3,100,000
|
|
|
|
7.78
|
|
|
$
|
3.70
|
|
|
|
1,700,000
|
|
|
|
7.78
|
|
|
$
|
3.70
|
|
$
|
3.84 - $4.61
|
|
|
|
1,376,624
|
|
|
|
7.55
|
|
|
$
|
3.89
|
|
|
|
703,014
|
|
|
|
6.15
|
|
|
$
|
3.90
|
|
Information
regarding the 2018 Share Plan for the nine months ended July 31, 2019 is as follows:
|
|
Shares
|
|
|
Weighted
Average Exercise
Price Per Share
|
|
|
Aggregate
Intrinsic
Value
|
|
Options outstanding at October 31, 2018
|
|
|
3,482,000
|
|
|
$
|
3.73
|
|
|
|
|
|
Exercised
|
|
|
(4,000
|
)
|
|
$
|
3.84
|
|
|
|
|
|
Forfeited/Expired
|
|
|
(8,000
|
)
|
|
$
|
3.84
|
|
|
|
|
|
Options outstanding at July 31, 2019
|
|
|
3,470,000
|
|
|
$
|
3.73
|
|
|
$
|
3,337,300
|
|
Options exercisable at July 31, 2019
|
|
|
1,321,111
|
|
|
$
|
3.73
|
|
|
$
|
1,273,443
|
|
The
following table summarizes information about stock options outstanding and exercisable under the 2018 Share Plan as of July 31,
2019:
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of
Exercise Prices
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
3.70 - $4.61
|
|
|
|
3,470,000
|
|
|
|
8.78
|
|
|
$
|
3.73
|
|
|
|
1,321,111
|
|
|
|
8.77
|
|
|
$
|
3.73
|
|
Outside
of Share Plans
In
addition to options granted under the 2003 Share Plan, the 2010 Share Plan and the 2018 Share Plan, during the years ended October
31, 2012 and 2013, the Board of Directors approved the grant of stock options to certain employees and directors. Information
regarding stock options that were granted outside of Share Plans for the nine months ended July 31, 2020 is as follows:
|
|
Shares
|
|
|
Weighted
Average Exercise
Price Per Share
|
|
|
Aggregate
Intrinsic
Value
|
|
Options outstanding at October 31, 2019
|
|
|
1,698,000
|
|
|
$
|
2.58
|
|
|
|
|
|
Options outstanding and exercisable at July 31, 2020
|
|
|
1,698,000
|
|
|
$
|
2.58
|
|
|
$
|
348,090
|
|
The
following table summarizes information about stock options outstanding and exercisable that were granted outside of Share Plans
as of July 31, 2020:
Range
of
Exercise Prices
|
|
|
Number
Outstanding
and
Exercisable
|
|
|
Weighted
Average
Remaining
Contractual Life
(in
years)
|
|
|
Weighted
Average
Exercise Price
|
|
$
|
2.58
|
|
|
|
1,698,000
|
|
|
|
2.00
|
|
|
$
|
2.58
|
|
Information
regarding stock options that were granted outside of Share Plans for the nine months ended July 31, 2019 is as follows:
|
|
Shares
|
|
|
Weighted
Average Exercise
Price Per Share
|
|
|
Aggregate
Intrinsic
Value
|
|
Options outstanding at October 31, 2018
|
|
|
1,780,000
|
|
|
$
|
1.58
|
|
|
|
|
|
Options outstanding and exercisable at July 31, 2019
|
|
|
1,780,000
|
|
|
$
|
1.58
|
|
|
$
|
5,583,900
|
|
The
following table summarizes information about stock options outstanding and exercisable that were granted outside of Share Plans
as of July 31, 2019:
Range
of
Exercise Prices
|
|
|
Number
Outstanding
and
Exercisable
|
|
|
Weighted
Average
Remaining
Contractual Life
(in
years)
|
|
|
Weighted
Average
Exercise Price
|
|
$
|
0.67
|
|
|
|
1,046,000
|
|
|
|
3.30
|
|
|
$
|
0.67
|
|
$
|
2.58-$ 5.56
|
|
|
|
734,000
|
|
|
|
2.85
|
|
|
$
|
2.88
|
|
Stock
Awards
For
stock awards granted to employees, directors and consultants that vest upon grant we recognize expense at the date of grant based
on the grant date market price of the underlying common stock. We did not grant any stock awards that vested upon grant during
the nine months ended July 31, 2020 or 2019.
On
May 8, 2018, a restricted stock award of 1,500,000 shares of common stock was granted under the 2018 Share Plan to our Chairman,
President and Chief Executive Officer. The restricted stock award vests in its entirety upon achievement of a target trading price
of $11.00 per share of the Company’s common stock before May 31, 2021. For restricted stock awards vesting upon achievement
of a price target of our common stock we use a Monte Carlo Simulation in estimating the fair value at grant date and recognize
compensation cost over the implied service period (median time to vest). During the nine-month and three-month periods ended July
31, 2019, we recorded compensation expense related to the restricted stock award of approximately $1,954,000 and $-0-, respectively.
We did not record any compensation expense related to the restricted stock award during the nine-month period ended July 31, 2020.
Employee
Stock Purchase Plan
The
Company maintains the Anixa Biosciences, Inc. Employee Stock Purchase Plan which permits eligible employees to purchase shares
at not less than 85% of the market value of the Company’s common stock on the offering date or the purchase date of the
applicable offering period, whichever is lower. The plan was adopted by our Board of Directors on August 13, 2018 and approved
by our shareholders on September 27, 2018. During the nine months ended July 31, 2020, employees purchased 9,618 shares with aggregate
proceeds of approximately $15,000. During the nine months ended July 31, 2019, employees purchased 5,411 shares with aggregate
proceeds of approximately $19,000.
Warrants
During
the nine months ended July 31, 2019 we issued a warrant, expiring on November 1, 2023, to purchase 25,000 shares of common stock
at $4.04 per share, vesting over 12 months, to a consultant for investor relations services. On November 1, 2019 the warrant was
exchanged for a stock option with the same terms as the warrant. During the nine-month and three-month periods ended July 31,
2019, we recorded consulting expense of approximately $64,000 and $21,000, respectively, based on the fair value of the warrant
recognized on a straight-line basis over the vesting period. No warrants were issued during the nine months ended July 31, 2020.
As
of July 31, 2020, we also had warrants outstanding to purchase 500,000 shares of common stock at $5.03 per share expiring on November
30, 2021.
3. FAIR
VALUE MEASUREMENTS
US
GAAP defines fair value and establishes a framework for measuring fair value. We have categorized our financial assets and liabilities,
based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below. If
the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based
on the lowest level input that is significant to the fair value measurement of the instrument.
Financial
assets and liabilities recorded in the accompanying condensed consolidated balance sheets are categorized based on the inputs
to the valuation techniques as follows:
Level
1 - Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in
an active market which we have the ability to access at the measurement date.
Level
2 - Financial assets and liabilities whose values are based on quoted market prices in markets where trading occurs infrequently
or whose values are based on quoted prices of instruments with similar attributes in active markets.
Level
3 – Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are
both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions
about the assumptions a market participant would use in pricing the asset and liabilities.
The
following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of July 31, 2020:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Money market funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,154,304
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,154,304
|
|
Certificates of deposit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
|
Short-term investments
|
|
|
-
|
|
|
|
3,140,000
|
|
|
|
-
|
|
|
|
3,140,000
|
|
Total financial assets
|
|
$
|
5,654,304
|
|
|
$
|
3,140,000
|
|
|
$
|
-
|
|
|
$
|
8,794,304
|
|
The
following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31,
2019:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Money market funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,706,944
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,706,944
|
|
Certificates of deposit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
500,000
|
|
Short-term investments
|
|
|
-
|
|
|
|
2,350,000
|
|
|
|
-
|
|
|
|
2,350,000
|
|
Total financial assets
|
|
$
|
3,206,944
|
|
|
$
|
2,350,000
|
|
|
$
|
-
|
|
|
$
|
5,556,944
|
|
Our
non-financial assets that are measured on a non-recurring basis include our property and equipment and which are measured using
fair value techniques whenever events or changes in circumstances indicate a condition of impairment exists. The estimated fair
value of accounts receivable, prepaid expenses, accounts payable and accrued expenses approximates their individual carrying amounts
due to the short-term nature of these measurements. Cash and cash equivalents are stated at carrying value which approximates
fair value.
4. ACCRUED
EXPENSES
Accrued
expenses consist of the following as of:
|
|
July 31,
2020
|
|
|
October 31,
2019
|
|
Payroll and related expenses
|
|
$
|
238,565
|
|
|
$
|
72,850
|
|
Accrued royalty and contingent legal fees
|
|
|
449,691
|
|
|
|
449,691
|
|
Accrued collaborative research and license expenses
|
|
|
37,114
|
|
|
|
371,710
|
|
Accrued severance costs
|
|
|
83,624
|
|
|
|
-
|
|
Accrued other
|
|
|
6,723
|
|
|
|
1,247
|
|
|
|
$
|
815,717
|
|
|
$
|
895,498
|
|
5. NET
LOSS PER SHARE OF COMMON STOCK
Basic
net loss per common share (“Basic EPS”) is computed by dividing net loss by the weighted average number of common
shares outstanding. Diluted net loss per common share (“Diluted EPS”) is computed by dividing net loss by the weighted
average number of common shares and dilutive common share equivalents and convertible securities then outstanding. Diluted EPS
for all periods presented is the same as Basic EPS, as the inclusion of the effect of common share equivalents then outstanding
would be anti-dilutive. For this reason, excluded from the calculation of Diluted EPS for the nine and three months ended July
31, 2020 and 2019, were stock options to purchase 8,101,658 and 7,268,668 shares, respectively, and warrants to purchase 500,000
and 545,000 shares, respectively.
6. EFFECT
OF RECENTLY ADOPTED AND ISSUED PRONOUNCEMENTS
In
February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-02 (“ASU 2016-02”)
Accounting Standards Codification Topic 842, Leases (ASC 842), which supersedes Topic 840, Leases, and which requires lessees
to recognize most leases on the balance sheet. The new lease standard does not substantially change lessor accounting. For public
companies, the standard was effective for the first interim reporting period within annual periods beginning after December 15,
2018, although early adoption was permitted. Lessees and lessors were required to apply the new standard at the beginning of the
earliest period presented in the financial statements in which they first apply the new guidance. In July 2018, FASB issued ASU
2018-11, Leases, which provides an additional transition option for an entity to apply the provisions of ASC 842 by recognizing
a cumulative effect adjustment at the effective date of adoption without adjusting the prior comparative periods presented. The
requirements of this standard include a significant increase in required disclosures. The Company adopted ASU 2016-02 on November
1, 2019. The adoption of this standard did not have a material impact on our condensed consolidated financial statements. See
Note 8 regarding the accounting and disclosures related to our office lease.
7. INCOME
TAXES
We
recognize deferred tax assets and liabilities for the estimated future tax effects of events that have been recognized in our
financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. A valuation allowance is established, when necessary, to reduce deferred tax assets to
the amount expected to be realized. We have provided a full valuation allowance against our deferred tax asset due to our historical
pre-tax losses and the uncertainty regarding the realizability of these deferred tax assets.
We
have substantial net operating loss carryforwards for Federal, New York State and California income tax returns. These net operating
loss carryforwards could be subject to limitations under Internal Revenue Code section 382. We have no unrecognized income tax
benefits as of July 31, 2020 and October 31, 2019 and we account for interest and penalties related to income tax matters, if
any, in general and administrative expenses.
8. LEASES
We
lease approximately 2,000 square feet of office space at 3150 Almaden Expressway, San Jose, California (our principal executive
offices) from an unrelated party pursuant to an operating lease that expires September 30, 2021. Our base rent is approximately
$5,000 per month and the lease provides for annual increases of approximately 3% and an escalation clause for increases in certain
operating costs. Under an operating lease that expired on May 31, 2019 we also leased approximately 3,000 square feet of office
space at 12100 Wilshire Boulevard, Los Angeles, California (our former executive offices) from an unrelated party. As of August
1, 2018, we had subleased these facilities. Rent expense was approximately $48,000 and $46,000, respectively, for the nine months
ended July 31, 2020 and 2019, and approximately $16,000 and $16,000, respectively, for the three months ended July 31, 2020 and
2019.
On
November 1, 2019, the Company adopted ASC 842, which increases transparency and comparability by recognizing a lessee’s
rights and obligations resulting from leases by recording them on the balance sheet as lease assets and lease liabilities. The
new guidance requires the recognition of the right-of-use (“ROU”) assets and related operating lease liabilities on
the balance sheet. The Company adopted the new guidance using the modified retrospective approach on November 1, 2019. As a result,
the condensed consolidated balance sheet as of October 31, 2019 was not restated and is not comparative.
The
adoption of ASC 842 resulted in the recognition of ROU assets of $106,221, and lease liabilities for operating leases of $106,299
on the Company’s condensed consolidated balance sheet as of November 1, 2019. The difference between the ROU assets and
the operating lease liability represents the difference between the lease cost and the amount of rent paid in October.
The
Company elected the package of practical expedients permitted within the standard, which allow an entity to forgo reassessing
(i) whether a contract contains a lease, (ii) classification of leases, and (iii) whether capitalized costs associated with a
lease meet the definition of initial direct costs. Also, the Company elected the expedient allowing an entity to use hindsight
to determine the lease term and impairment of ROU assets and the expedient to allow the Company to not have to separate lease
and non-lease components. The Company has also elected the short-term lease accounting policy under which Anixa would not recognize
a lease liability or ROU asset for any lease that at the commencement date has a lease term of twelve months or less and does
not include a purchase option that Anixa is more than reasonably certain to exercise.
For operating leases,
the lease liability is initially and subsequently measured at the present value of the unpaid lease payments. The remaining 14-month
lease term as of July 31, 2020 for the Company’s lease includes the noncancelable period of the lease. The lease does
not contain a Company option to extend the lease or an option to extend the lease controlled by the lessor. All ROU assets are
reviewed for impairment.
Balance
sheet information related to the Company’s lease is presented below:
|
|
Balance Sheet
Location
|
|
July 31,
2020
|
|
|
November 1,
2019
|
|
|
October 31,
2019
|
|
Operating Lease:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use asset
|
|
Operating lease right-of-use asset
|
|
$
|
67,982
|
|
|
$
|
106,221
|
|
|
$
|
-
|
|
Right-of-use liability, current
|
|
Operating lease liability
|
|
|
58,195
|
|
|
|
51,101
|
|
|
|
-
|
|
Right-of-use liability, non-current
|
|
Operating lease liability, non-current
|
|
|
10,567
|
|
|
|
55,198
|
|
|
|
-
|
|
As
of July 31, 2020, the annual minimum lease payments of our operating lease liabilities were as follows:
For
Years Ending October 31,
|
|
Operating Leases
|
|
2020 (excluding the nine months ended July 31, 2020)
|
|
$
|
15,816
|
|
2021
|
|
|
59,136
|
|
Total future minimum payments, undiscounted
|
|
|
74,952
|
|
Less: Imputed interest
|
|
|
(6,190
|
)
|
Present value of future minimum lease payments
|
|
$
|
68,762
|
|
9. COMMITMENT
AND CONTINGENCES
Litigation
Matters
We
are not involved in any litigation or other legal proceedings and management is not aware of any pending litigation or legal proceeding
against us that would have a material adverse effect upon our results of operations or financial condition.
10.
SEGMENT INFORMATION
We
follow the accounting guidance of ASC 280 “Segment Reporting” (“ASC 280”). Reportable operating segments
are determined based on the management approach. The management approach, as defined by ASC 280, is based on the way that the
chief operating decision-maker organizes the segments within an enterprise for making operating decisions and assessing performance.
While our results of operations are primarily reviewed on a consolidated basis, the chief operating decision-maker manages the
enterprise in five reportable segments, each with different operating and potential revenue generating characteristics: (i) CAR-T
Therapeutics, (ii) Cancer Vaccines, (iii) Anti-Viral Therapeutics, (iv) Cancer Diagnostics and (v) our legacy Patent Licensing
activities. The following represents selected financial information for our segments for the three and nine months ended July
31, 2020 and 2019 and as of July 31, 2020 and October 31, 2019:
|
|
For the Three Months Ended
July 31,
|
|
|
For the Nine Months Ended
July 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net Loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAR-T Therapeutics
|
|
$
|
(402,223
|
)
|
|
$
|
(723,128
|
)
|
|
$
|
(1,527,586
|
)
|
|
$
|
(4,240,347
|
)
|
Cancer Vaccines
|
|
|
(172,881
|
)
|
|
|
(573,005
|
)
|
|
|
(538,748
|
)
|
|
|
(573,005
|
)
|
Anti-Viral Therapeutics
|
|
|
(268,704
|
)
|
|
|
-
|
|
|
|
(578,208
|
)
|
|
|
-
|
|
Cancer Diagnostics
|
|
|
(1,727,256
|
)
|
|
|
(876,667
|
)
|
|
|
(5,196,929
|
)
|
|
|
(3,929,021
|
)
|
Patent Licensing
|
|
|
(5,723
|
)
|
|
|
6,752
|
|
|
|
(9,881
|
)
|
|
|
(965,218
|
)
|
Total
|
|
$
|
(2,576,787
|
)
|
|
$
|
(2,166,048
|
)
|
|
$
|
(7,851,352
|
)
|
|
$
|
(9,707,591
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
$
|
2,584,053
|
|
|
$
|
2,184,412
|
|
|
$
|
7,884,059
|
|
|
$
|
10,011,374
|
|
Less non-cash share-based compensation
|
|
|
(1,041,799
|
)
|
|
|
(830,898
|
)
|
|
|
(3,173,219
|
)
|
|
|
(4,902,512
|
)
|
Operating costs and expenses excluding non-cash share-based compensation
|
|
$
|
1,542,254
|
|
|
$
|
1,353,514
|
|
|
$
|
4,710,840
|
|
|
$
|
5,108,862
|
|
Operating costs and expenses excluding non-cash share based compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAR-T Therapeutics
|
|
$
|
182,007
|
|
|
$
|
442,621
|
|
|
$
|
752,170
|
|
|
$
|
1,688,301
|
|
Cancer Vaccines
|
|
|
70,061
|
|
|
|
407,010
|
|
|
|
235,391
|
|
|
|
407,010
|
|
Anti-Viral Therapeutics
|
|
|
149,075
|
|
|
|
-
|
|
|
|
370,093
|
|
|
|
-
|
|
Cancer Diagnostics
|
|
|
1,136,629
|
|
|
|
487,169
|
|
|
|
3,345,441
|
|
|
|
1,905,137
|
|
Patent Licensing
|
|
|
4,482
|
|
|
|
16,714
|
|
|
|
7,745
|
|
|
|
1,108,414
|
|
Total
|
|
$
|
1,542,254
|
|
|
$
|
1,353,514
|
|
|
|
4,710,840
|
|
|
$
|
5,108,862
|
|
|
|
July 31,
2020
|
|
|
October 31,
2019
|
|
Total assets:
|
|
|
|
|
|
|
|
|
CAR-T Therapeutics
|
|
$
|
4,110,341
|
|
|
$
|
2,382,460
|
|
Cancer Vaccines
|
|
|
1,575,525
|
|
|
|
489,881
|
|
Anti-Viral Therapeutics
|
|
|
3,349,814
|
|
|
|
-
|
|
Cancer Diagnostics
|
|
|
78,723
|
|
|
|
3,119,246
|
|
Patent Licensing
|
|
|
247,378
|
|
|
|
302,106
|
|
Total
|
|
$
|
9,361,781
|
|
|
$
|
6,293,693
|
|
Operating
costs and expenses excluding non-cash share-based compensation expense is the measurement the chief operating decision-maker uses
in managing the enterprise.
11.
IMPACT OF CORONAVIRUS PANDEMIC
On
March 10, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The virus and actions taken to mitigate
its spread have had and are expected to continue to have a broad adverse impact on the economies and financial markets of many
countries, including the geographical areas in which the Company operates and conducts its business and which the Company’s
partners operate and conduct their business. We are currently following the recommendations of local health authorities to minimize
exposure risk for our team members and visitors. However, the scale and scope of this pandemic is unknown and the duration of
the business disruption and related financial impact cannot be reasonably estimated at this time. While we have implemented specific
business continuity plans to reduce the potential impact of COVID-19, there is no guarantee that our continuity plans will be
successful.
We
have already experienced certain disruptions to our business such as temporary closure of our offices and similar disruptions
have occurred for our partners. Specifically, the outbreak has caused shutdowns of the laboratories and other service providers
that we rely on to develop our CAR-T and breast cancer vaccine programs, and those laboratories and service providers that have
been operating or that have begun operating recently have been doing so with more limited capacity due to social distancing requirements.
As a result, our progress has been slowed and there is no assurance that we will be able to meet our previously announced timelines
regarding the IND filings for our CAR-T therapy for ovarian cancer and for our breast cancer vaccine.
The
extent to which COVID-19 or any other health epidemic may impact our results will depend on future developments, which are highly
uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions
to contain COVID-19 or treat its impact, among others. Accordingly, COVID-19 could have a material adverse effect on our business,
results of operations, financial condition and prospects.