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 (i) the development of a chimeric endocrine receptor
T-cell therapy, a novel form of chimeric antigen receptor T-cell (“CAR-T”) technology, initially focused on treating ovarian
cancer, which is being developed at our subsidiary, Certainty Therapeutics, Inc. (“Certainty”), and (ii) the discovery and
ultimately development of anti-viral drug candidates for the treatment of COVID-19 focused on inhibiting certain protein functions of
the virus. Our vaccine programs include (i) the development of a preventative vaccine against triple negative breast cancer (“TNBC”),
the most lethal form of breast cancer, as well other forms of breast cancer and (ii) a preventative vaccine against ovarian cancer.
Our
subsidiary, 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”), the nation’s first independent
biomedical research institute and a leading National Cancer Institute designated cancer research center, relating to Wistar’s chimeric
endocrine receptor targeted therapy technology. We have initially focused on the development of a treatment for ovarian cancer, but we
also may 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 upon achievement of specific development milestones. 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 of the CAR-T technology licensed by Certainty from Wistar aimed initially at treating ovarian cancer. We received authorization
from the U.S. Food and Drug Administration (“FDA”) in August 2021, to commence enrollment and treatment of patients in a
Phase 1 clinical trial. We began patient recruitment for the trial in March 2022, and that process is ongoing. This study is a dose-escalation
trial with two arms based on injection method—intraperitoneal or intravenous—to determine the maximum tolerated dose in patients
with recurrent epithelial ovarian cancer and to assess persistence, expansion and efficacy of the modified T-cells. The study is being
conducted at Moffitt and will consist of 24 to 48 patients who have received at least two prior lines of chemotherapy. The study is estimated
to be completed in two to four years depending on multiple factors including when maximum tolerated dose is reached and the rate of patient
recruitment.
In
April 2020, we entered into a collaboration with OntoChem GmbH (“OntoChem”) to discover and ultimately develop anti-viral
drug candidates against COVID-19. Through this collaboration, we utilized 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.
The
screening process resulted in the identification of multiple compounds that could potentially disrupt critical enzymes of the virus,
including the virus’ main protease, Mpro. Several of these compounds were synthesized and tested in in vitro
biological assays. Upon completion of these biological assays, we identified two of the most promising compounds and tested them in animal
models. In these animal studies, the two compounds were compared to Remdesivir, which at the time the assays were performed was the only
anti-viral drug authorized by the FDA for COVID-19. The data showed that administration of the drugs to infected hamsters did not cause
any noticeable adverse effects, and monitoring of weight and general animal behavior demonstrated comparable efficacy between each of
our compounds and Remdesivir. Based on this promising data in the animal study, we directed our team to proceed to the next stage of
drug development and we selected one of the compounds around which our team is performing combinatorial synthetic medicinal chemistry
to evaluate whether potency can be increased and pharmacokinetics optimized.
In
May 2021, after completion of the aforementioned animal studies, OntoChem assigned its rights and obligations related to this collaboration
to MolGenie GmbH (“MolGenie”), a company spun-out from OntoChem focused on drug discovery and development. As a result of
the MolGenie spin-out, there was no change in the personnel working on our project, and the assignment caused no interruptions to the
program’s development.
While
use of preventative vaccines is widespread throughout much of the developed world, we believe that there is and will continue to be a
need for effective treatments for COVID-19. We believe that there are a number of factors that have limited the effectiveness, both in
the near and long term, of the vaccines currently in use, including, but not limited to, vaccine persistence, viral escape and perceptions
of long-term safety resulting in vaccine resistance. Furthermore, there are currently two new anti-viral treatments, Pfizer’s Paxlovid,
which is a combination therapy consisting of the protease-inhibitor nirmatrelvir and the antiretroviral ritonavir and Merck’s polymerase-inhibitor
molnupiravir, that have recently been authorized for emergency use in the U.S. These treatments use oral formulations, while all other
currently authorized or approved treatments require intravenous administration. As the main component of Pfizer’s treatment is
a protease-inhibitor targeting Mpro, it is most similar to our compounds, and we therefore conducted a head-to-head analysis
via a Fluorescence Resonance Energy Transfer (FRET) assay that tested the ability of the compounds to inhibit the function of Mpro.
The results of this head-to-head in vitro analysis suggest that our compounds may be five times more effective at inhibiting Mpro
than Pfizer’s nirmatrelvir.
We
hold an exclusive worldwide, royalty-bearing license to use certain intellectual property owned or controlled by The Cleveland Clinic
Foundation (“Cleveland Clinic”) relating to certain breast cancer vaccine technology developed at Cleveland Clinic. Utilizing
this technology, we are working in collaboration with Cleveland Clinic to develop a method to vaccinate women against contracting breast
cancer, focused specifically on TNBC. The focus of this vaccine is a specific protein, α-lactalbumin, that is only expressed during
lactation in a healthy mother’s mammary tissue. This protein disappears when the mother is no longer lactating, but reappears in
many forms of breast cancer, especially TNBC. Studies have shown that vaccinating against this protein prevents breast cancer in mice.
Following
the FDA’s authorization to proceed with clinical trials in December 2020, in October 2021, we commenced dosing patients in a Phase
1 clinical trial of our breast cancer vaccine. Funded by a U.S. Department of Defense grant, this study is a multiple-ascending dose
Phase 1 trial to determine the maximum tolerated dose of the vaccine in patients with early-stage, triple-negative breast cancer as well
as monitor immune response. The study is being conducted at Cleveland Clinic and will consist of 18 to 24 patients who have completed
treatment for early-stage, triple-negative breast cancer within the past three years and are currently tumor-free but at high risk for
recurrence. During the course of the study, participants will receive three vaccinations, each two weeks apart, and will be closely monitored
for side effects and immune response. The study is roughly one-fourth of the way complete and is estimated to be completed by the end
of calendar year 2022. Initial indications suggest that an immune response is being observed.
In
November 2020, we executed a license agreement with Cleveland Clinic pursuant to which the Company was granted an exclusive worldwide,
royalty-bearing license to use certain intellectual property owned or controlled by Cleveland Clinic relating to certain ovarian cancer
vaccine technology. This technology pertains to among other things, the use of vaccines for the treatment or prevention of ovarian cancers
which express the anti-Mullerian hormone receptor 2 protein containing an extracellular domain (“AMHR2-ED”). In healthy tissue,
this protein regulates growth and development of egg-containing follicles in the ovary. While expression of AMHR2-ED naturally and markedly
declines after menopause, this protein is expressed at high levels in the ovaries of postmenopausal women with ovarian cancer. Researchers
at Cleveland Clinic believe that a vaccine targeting AMHR2-ED could prevent the occurrence of ovarian cancer. We entered into a joint
development agreement with Cleveland Clinic to advance this vaccine toward human clinical testing.
In
May 2021, Cleveland Clinic was granted an award for our ovarian cancer vaccine technology by the National Cancer Institute’s (“NCI”)
PREVENT program. The NCI is a part of the National Institutes of Health. The PREVENT program is a peer-reviewed agent development program
designed to support preclinical development of innovative interventions and biomarkers for cancer prevention and interception towards
clinical trials. The scientific and financial resources of the PREVENT program will be used for our ovarian cancer vaccine technology
to perform virtually all pre-clinical research and development, manufacturing and IND-enabling studies. This work will be performed at
NCI facilities, by NCI scientific staff and with NCI financial resources and will require no material financial expenditures by the Company,
nor the transfer of any rights to the Company’s assets.
Over
the next several quarters, we expect the development of our breast and ovarian cancer vaccines, 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 its liquid biopsy platform and 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. We do not expect to begin generating revenue with respect to any of our current therapy or vaccine programs in the near
term. Our strategy is to achieve a profitable outcome by eventually licensing our technologies to large pharmaceutical companies that
have the resources and infrastructure in place to manufacture, market and sell our technologies as therapeutics or vaccines. The eventual
licensing of any of our technologies may take several years, if it is to occur at all, and may depend on positive results from human
clinical trials.
Funding
and Management’s Plans
Based
on currently available information as of June 10, 2022, we believe that our existing cash, cash equivalents, short-term investments
and expected cash flows will be sufficient to fund our activities for at least 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. We may seek to obtain working capital during our fiscal year 2022 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 will 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, 2021. The accompanying October 31, 2021 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 April 30, 2022, and results of operations and cash flows for the interim periods represented. The results of operations
for the three and six months ended April 30, 2022 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 six months ended April 30, 2022 (in thousands):
SCHEDULE OF NONCONTROLLING INTEREST AS A COMPONENT OF EQUITY
Balance, October 31, 2021 | |
$ | (671 | ) |
Net loss attributable
to noncontrolling interest | |
| (94 | ) |
Balance, April 30, 2022 | |
$ | (765 | ) |
Revenue
Recognition
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.
Our
revenue recognition policy requires us 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, within 30 days of execution of the agreement, 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.
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 and licensing and enforcement related research, consulting and other expenses paid to third-parties. 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 immuno-therapy drugs against cancer, developing anti-viral drug candidates for COVID-19,
developing our breast cancer vaccine, and developing our ovarian cancer vaccine, 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 $875,000 and $881,000 during the three months ended April 30, 2022
and 2021, respectively, and approximately $1,605,000 and $1,756,000 during the six months ended April 30, 2022 and 2021, 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 June 1, 2021, our Chairman and Chief Executive Officer and
our President, Chief Operating Officer and Chief Financial Officer were awarded market condition stock options for 2,000,000 shares and
100,000 shares of common stock, respectively, that vest in four equal installments upon the Company’s share price achieving targets
ranging from $5.00 to $8.00 per share, with implied service periods of three to fifteen months. We recorded market condition stock-based
compensation expense during the three months ended April 30, 2022 and 2021 of approximately $587,000 and $0, respectively, and approximately
$1,993,000 and $0 during the six months ended April 30, 2022 and 2021, respectively.
The
compensation cost for service-based stock options granted to consultants 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 three years. We recorded stock-based consulting expense related to stock options granted
to consultants of approximately $109,000 and $132,000 during the three months ended April 30, 2022 and 2021, respectively, and approximately
$218,000 and $186,000 during the six months ended April 30, 2022 and 2021, respectively.
Stock
Option Plans
During
the three months ended April 30, 2022, we had two stock option plans: 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 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 three months ended April 30, 2022 and 2021, we granted options to purchase 1,400,000
shares and 250,000
shares of common stock, respectively, and during
the six months ended April 30, 2022 and 2021, we granted options to purchase 1,430,000
shares and 1,380,000
shares of common stock, respectively, to employees
and consultants, with exercise prices ranging from $2.62
to $5.30
per share, pursuant to the 2018 Share Plan. During
the three months ended April 30, 2022 and 2021, stock options to purchase 0
shares of common stock and 77,571
shares of common stock, net of 7,937
shares withheld on a cashless exercise, respectively,
were exercised with aggregate proceeds of $0
and $0,
respectively. During the six months ended April 30, 2022 and 2021, stock options to purchase 46,909
shares of common stock, net of 53,091
shares withheld on a cashless exercise and 107,451
shares of common stock, net of 7,937
shares withheld on a cashless exercise, respectively,
were exercised with aggregate proceeds of $0
and $0,
respectively.
2010
Share 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 six months ended April
30, 2022 is as follows:
SCHEDULE OF OPTION ACTIVITY
| |
Shares | | |
Weighted
Average Exercise Price Per Share | | |
Aggregate
Intrinsic Value (in thousands) | |
Options outstanding at October 31, 2021 | |
| 1,1,718,634 | | |
$ | 2.82 | | |
| | |
Exercised | |
| (100,000 | ) | |
$ | 2.92 | | |
| | |
Options outstanding
and exercisable at April 30, 2022 | |
| 1,618,634 | | |
$ | 2.81 | | |
$ | 1,182 | |
The
following table summarizes information about stock options outstanding and exercisable under the 2010 Share Plan as of April 30, 2022:
SCHEDULE OF OUTSTANDING AND EXERCISABLE
Range
of Exercise Prices | | |
Number
Outstanding and Exercisable | | |
Weighted
Average Remaining Contractual Life (in
years) | | |
Weighted
Average Exercise Price | |
$ | 0.67
- $2.30 | | |
| 527,500 | | |
| 4.0 | | |
$ | 1.54 | |
$ | 2.58
- $3.13 | | |
| 577,000 | | |
| 2.7 | | |
$ | 2.76 | |
$ | 3.46
- $5.30 | | |
| 514,134 | | |
| 6.0 | | |
$ | 4.16 | |
2018
Share 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 April 30, 2022, the 2018 Share Plan had 600,000 shares
available for future grants. Information regarding the 2018 Share Plan for the six months ended April 30, 2022 is as follows:
SCHEDULE OF OPTION ACTIVITY
| |
Shares | | |
Weighted
Average Exercise Price Per Share | | |
Aggregate
Intrinsic Value (in thousands) | |
Options outstanding at October 31, 2021 | |
| 7,409,992 | | |
$ | 3.76 | | |
| | |
Granted | |
| 1,430,000 | | |
$ | 2.74 | | |
| | |
Options outstanding at April 30, 2022 | |
| 8,839,992 | | |
$ | 3.60 | | |
$ | 1,371 | |
Options exercisable at April 30, 2022 | |
| 4,364,161 | | |
$ | 3.63 | | |
$ | 426 | |
The
following table summarizes information about stock options outstanding and exercisable under the 2018 Share Plan as of April 30, 2022:
SCHEDULE OF OUTSTANDING AND EXERCISABLE
| | |
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 | |
$ | 2.09
- $3.87 | | |
| 5,369,992 | | |
| 7.9 | | |
$ | 3.24 | | |
| 3,298,050 | | |
| 7.0 | | |
$ | 3.49 | |
$ | 3.96
- $5.30 | | |
| 3,470,000 | | |
| 8.5 | | |
$ | 4.16 | | |
| 1,066,111 | | |
| 7.6 | | |
$ | 4.07 | |
Non-Plan
Options
In
addition to options granted under stock option plans, 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 six months ended April 30, 2022 is as follows:
SCHEDULE OF OPTION ACTIVITY
| |
Shares | | |
Weighted
Average Exercise Price Per Share | | |
Aggregate
Intrinsic Value (in thousands) | |
Options outstanding at October
31, 2021 | |
| 1,642,000 | | |
$ | 2.58 | | |
| | |
Options outstanding
and exercisable at April 30, 2022 | |
| 1,642,000 | | |
$ | 2.58 | | |
$ | 1,108 | |
The
following table summarizes information about stock options outstanding and exercisable that were granted outside of share plans as of
April 30, 2022:
SCHEDULE OF OUTSTANDING AND EXERCISABLE
Range
of Exercise
Prices | | |
Number
Outstanding and Exercisable | | |
Weighted
Average Remaining Contractual Life (in
years) | | |
Weighted
Average Exercise Price | |
$ | 2.58 | | |
| 1,642,000 | | |
| 0.3 | | |
$ | 2.58 | |
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 closing price of the underlying common stock. We did not grant any stock awards that vested upon grant during the six
months ended April 30, 2022 or 2021.
Employee
Stock Purchase Plan
The
Company maintains the Anixa Biosciences, Inc. Employee Stock Purchase Plan (the “ESPP”) 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 six months ended April 30, 2022 and 2021, employees purchased 2,389 and 1,634 shares,
respectively, with aggregate proceeds of approximately $7,000 and $3,000, respectively.
Warrants
On
October 30, 2020, we issued a warrant, expiring on October 30, 2025, to purchase 60,000 shares of common stock at $2.06 per share, vesting
over five months, to a consultant for investor relations services. We recorded consulting expense of approximately $38,000 and $96,000,
respectively, during the three and six months ended April 30, 2021, based on the fair value of the warrant on the date of grant recognized
on a straight-line basis over the vesting period. On November 16, 2021, the warrant was exercised on a cashless basis and 25,484 shares
were withheld as payment.
On
November 1, 2021 we issued a warrant, expiring on October 30, 2026, to purchase 60,000 shares of common stock at $4.77 per share, vesting
over five months, to a consultant for investor relations services. We recorded consulting expense of approximately $110,000 and $220,000,
respectively, during the three and six months ended April 30, 2022, based on the fair value of the warrant on the date of grant recognized
on a straight-line basis over the vesting period.
As
of April 30, 2022, we also had warrants outstanding to purchase 300,000 shares of common stock at $6.56 per share, issued during fiscal
year 2021 and expiring on March 22, 2026.
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 April 30, 2022:
SCHEDULE OF FAIR VALUE MEASUREMENTS
| |
Level
1 | | |
Level
2 | | |
Level
3 | | |
Total | |
| |
| | |
(in thousands) | | |
| |
Money market funds: | |
| | | |
| | | |
| | | |
| | |
Cash equivalents | |
$ | 25,294 | | |
$ | - | | |
$ | - | | |
$ | 25,294 | |
Certificates of deposit: | |
| | | |
| | | |
| | | |
| | |
Cash equivalents | |
| 2,250 | | |
| - | | |
| - | | |
| 2,250 | |
Short-term investments | |
| - | | |
| 1,200 | | |
| | | |
| 1,200 | |
U. S. treasury bills | |
| | | |
| | | |
| | | |
| | |
Short-term
investments | |
| - | | |
| 3,299 | | |
| - | | |
| 3,299 | |
Total financial assets | |
$ | 27,544 | | |
$ | 4,499 | | |
$ | - | | |
$ | 32,043 | |
The
following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31, 2021:
| |
Level
1 | | |
Level
2 | | |
Level
3 | | |
Total | |
| |
| | |
(in thousands) | | |
| |
Money market funds: | |
| | | |
| | | |
| | | |
| | |
Cash equivalents | |
$ | 28,949 | | |
$ | - | | |
$ | - | | |
$ | 28,949 | |
Certificates of deposit: | |
| | | |
| | | |
| | | |
| | |
Short term investments | |
| - | | |
| 2,000 | | |
| - | | |
| 2,000 | |
U. S. treasury bills | |
| | | |
| | | |
| - | | |
| | |
Short-term
investments | |
| - | | |
| 4,599 | | |
| - | | |
| 4,599 | |
Total financial assets | |
$ | 28,949 | | |
$ | 6,599 | | |
$ | - | | |
$ | 35,548 | |
The
estimated fair value of prepaid expenses and other current assets and accounts payable approximates their individual carrying amounts
due to the short-term nature of these instruments. Cash balances are stated at carrying value which approximates fair value.
4. ACCRUED
EXPENSES
Accrued
expenses consist of the following as of:
SCHEDULE
OF ACCRUED EXPENSES
| |
April 30, | | |
October 31, | |
| |
2022 | | |
2021 | |
| |
(in
thousands) | |
Payroll and related expenses | |
$ | 477 | | |
$ | 492 | |
Accrued royalty and contingent legal fees | |
| 577 | | |
| 577 | |
Accrued other | |
| 3 | | |
| 26 | |
Accrued
expenses | |
$ | 1,057 | | |
$ | 1,095 | |
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 six months ended April 30, 2022 and 2021, were stock options to purchase
12,100,626 and 8,813,626 shares, respectively, and warrants to purchase 360,000 and 860,000 shares, respectively.
6. EFFECT
OF RECENTLY ADOPTED AND ISSUED PRONOUNCEMENTS
In
January 2020, the FASB issued Accounting Standards Update 2020-01 (“ASU 2020-01”) Investments-Equity Securities (Topic 321),
Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The amendments in ASU 2020-01 clarify
certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments
under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity
security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of
the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value
option in accordance with Topic 825, Financial Instruments. These amendments improve current GAAP by reducing diversity in practice and
increasing comparability of the accounting for these interactions. The amendments in this update are effective for fiscal years beginning
after December 15, 2020, and interim periods within those fiscal years. The adoption of this standard did not have a material impact
on our condensed consolidated financial statements and related disclosures.
In
August 2020, the FASB issued Accounting Standards Update 2020-06 (“ASU 2020-06”), Accounting for Convertible Instruments
and Contracts in an Entity’s Own Equity. The amendments in ASU 2020-06 include guidance on convertible instruments and the derivative
scope exception for contracts in an entity’s own equity and simplifies the accounting for convertible instruments which include
beneficial conversion features or cash conversion features by removing certain separation models in Subtopic 470-20. Additionally, ASU
2020-06 will require entities to use the “if-converted” method when calculating diluted earnings per share for convertible
instruments. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods
within those fiscal years. We do not expect the adoption of this standard to have a material impact on our condensed consolidated financial
statements and related disclosures.
In
May 2021, the FASB issued Accounting Standards Update 2021-04 (“ASU No. 2021-04”), Issuer’s Accounting for Certain
Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The guidance in ASU 2021-04 requires the issuer to
treat a modification of an equity-classified written call option (the “option”) that does not cause the option to become
liability-classified as an exchange of the original option for a new option. This guidance applies whether the modification is structured
as an amendment to the terms and conditions of the option or as termination of the original option and issuance of a new option. The
amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal
years. We do not expect the adoption of this standard to have a material impact on our condensed consolidated financial statements and
related disclosures.
In
October 2021, the FASB issued Accounting Standards Update 2021-08 (“ASU No. 2021-08”), Business Combinations (Topic 805):
Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to require that an acquirer recognize and measure
contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with
Customers. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it
had originated the contracts. The amendments in this update should be applied prospectively and are effective for fiscal years beginning
after December 15, 2022, including interim periods within those fiscal years. We do not expect the adoption of this standard to have
a material impact on our condensed consolidated financial statements and related disclosures.
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 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 April 30,
2022 and October 31, 2021 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 was to expire on September 30, 2021. Effective August 17, 2021, the lease
was amended to extend the expiration date to September 30, 2024, with an option to extend the lease an additional two years. 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. The amendment to the lease resulted in a right-of-use asset and lease liability of approximately $260,000
with a discount rate of 10%. Rent expense was approximately $17,000 and $16,000, respectively, for the three months ended April 30, 2022
and 2021, and approximately $33,000 and $32,000, respectively, for the six months ended April 30, 2022 and 2021.
For
operating leases, the lease liability is initially measured at the present value of the unpaid lease payments. The remaining 53-month
lease term as of April 30, 2022 for the Company’s lease includes the noncancelable period of the lease and the additional two-year
option period that the Company expects to exercise. All right-of-use assets are reviewed for impairment when indications of impairment
are present.
As
of April 30, 2022, the annual minimum future lease payments of our operating lease liabilities were as follows:
SCHEDULE
of MINIMUM LEASE PAYMENTS
For Periods Ended October 31, | |
Operating Leases | |
| |
(in thousands) | |
2022 | |
$ | 32 | |
2023 | |
| 66 | |
2024 | |
| 67 | |
2025 | |
| 70 | |
2026 | |
| 65 | |
Total future minimum lease
payments, undiscounted | |
| 300 | |
Less: Imputed interest | |
| 59 | |
Present value of future
minimum lease payments | |
$ | 241 | |
9. COMMITMENTS
AND CONTINGENCES
Litigation
Matters
Other
than lawsuits related to the enforcement of our patent rights, we are not a party to any material pending legal proceedings, nor are
we 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.
Impact
of Coronavirus Pandemic
The
ongoing global outbreak of COVID-19 has resulted in significant governmental measures being implemented to control the spread of the
virus, and while the breadth of these measures has been reduced recently, the Company cannot predict their scope or the severity of the
outbreak in the future, and these developments and measures could materially and adversely affect the Company’s business, the operations
of the Company’s collaboration partners, and the Company’s results of operations and financial condition. The Company is
closely monitoring the impact of the COVID-19 pandemic on all aspects of its business and has taken steps to minimize its impact on the
Company’s business. Although COVID-19 has not had a material adverse impact on the Company’s operations and its clinical
and preclinical programs, the extent to which COVID-19 ultimately impacts the Company’s business, results of operations or financial
condition will depend on future developments which are highly uncertain and cannot be predicted with confidence, such as the duration
of the outbreak, the occurrence of new mutations of the SARS-CoV-2 virus, new information that may emerge concerning the severity of
COVID-19 or the effectiveness of actions taken to contain the pandemic or mitigate its impact, among others. Certain of the Company’s
collaboration partners have experienced shutdowns or other business disruptions. As a result, the Company’s ability to conduct
its business in the manner and on the timelines presently planned could be materially or negatively affected, which could have a material
adverse impact on the Company’s business, results of operations and 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 four reportable
segments, each with different operating and potential revenue generating characteristics: (i) CAR-T Therapeutics, (ii) Cancer Vaccines,
(iii) Anti-Viral Therapeutics and (iv) Other. The following represents selected financial information for our segments for the three
and six months ended April 30, 2022 and 2021 and as of April 30, 2022 and October 31, 2021, in thousands:
SCHEDULE
of SEGMENT INFORMATION
| |
|
2022 | | |
|
2021 | | |
|
2022 | | |
|
2021 | |
| |
For
the Three Months Ended April 30, | | |
For
the Six Months Ended April 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Net Loss: | |
| | | |
| | | |
| | | |
| | |
CAR-T Therapeutics | |
$ | (1,399 | ) | |
$ | (1,446 | ) | |
$ | (3,010 | ) | |
$ | (2,406 | ) |
Cancer Vaccines | |
| (1,423 | ) | |
| (662 | ) | |
| (2,780 | ) | |
| (1,569 | ) |
Anti-Viral Therapeutics | |
| (757 | ) | |
| (310 | ) | |
| (1,661 | ) | |
| (791 | ) |
Other | |
| (9 | ) | |
| (19 | ) | |
| (16 | ) | |
| 97 | |
Total | |
$ | (3,588 | ) | |
$ | (2,437 | ) | |
$ | (7,467 | ) | |
$ | (4,669 | ) |
Net
loss | |
$ | (3,588 | ) | |
$ | (2,437 | ) | |
$ | (7,467 | ) | |
$ | (4,669 | ) |
Total operating costs and expenses | |
$ | 3,589 | | |
$ | 2,437 | | |
$ | 7,469 | | |
$ | 5,183 | |
Less non-cash share-based
compensation | |
| (1,681 | ) | |
| (1,051 | ) | |
| (4,036 | ) | |
| (2,037 | ) |
Operating
costs and expenses excluding non-cash share-based compensation | |
$ | 1,908 | | |
$ | 1,386 | | |
$ | 3,433 | | |
$ | 3,146 | |
Operating costs and
expenses excluding non-cash share based compensation: | |
| | | |
| | | |
| | | |
| | |
CAR-T Therapeutics | |
$ | 759 | | |
$ | 935 | | |
$ | 1,427 | | |
$ | 1,492 | |
Cancer Vaccines | |
| 740 | | |
| 299 | | |
| 1,220 | | |
| 837 | |
Anti-Viral Therapeutics | |
| 402 | | |
| 138 | | |
| 774 | | |
| 409 | |
Other | |
| 7 | | |
| 14 | | |
| 12 | | |
| 408 | |
Total | |
$ | 1,908 | | |
$ | 1,386 | | |
$ | 3,433 | | |
$ | 3,146 | |
Operating
costs and expenses excluding non-cash share based compensation expense | |
$ | 1,908 | | |
$ | 1,386 | | |
$ | 3,433 | | |
$ | 3,146 | |
| |
April
30, 2022 | | |
October
31, 2021 | |
Total assets: | |
| | | |
| | |
CAR-T Therapeutics | |
$ | 13,014 | | |
$ | 15,068 | |
Cancer Vaccines | |
| 12,680 | | |
| 13,276 | |
Anti-Viral Therapeutics | |
| 6,883 | | |
| 7,368 | |
Other | |
| 220 | | |
| 545 | |
Total | |
$ | 32,797 | | |
$ | 36,257 | |
Total
Asset | |
$ | 32,797 | | |
$ | 36,257 | |
Operating
costs and expenses excluding non-cash share-based compensation is the measurement the chief operating decision-maker uses in managing
the enterprise.
The
Company’s consolidated revenue of $513,000 and inventor royalties, contingent legal fees, litigation and licensing expense of $385,000
for the six months ended April 30, 2021 were solely related to our encrypted audio/video conference calling technology, which is included
in our Other segment. All our revenue is generated domestically (United States) based on the country in which the licensee is located.