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Anixa Biosciences Inc - Quarter Report: 2019 July (Form 10-Q)

Form 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended July 31, 2019

 

Commission file number 0-11254

 

ANIXA BIOSCIENCES, INC.

(Exact name of registrant as specified in its charter)

Delaware

11-2622630

(State or other jurisdiction of               

(I.R.S. Employer

incorporation or organization)                

Identification No.)

 

3150 Almaden Expressway, Suite 250

San Jose, CA

 

95118

(Address of principal executive offices)

 (Zip Code)

(408) 708-9808

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol

Name of exchange on which registered

Common Stock, par value $.01 per share

ANIX

NASDAQ Capital Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   X                   No ___

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).           Yes   X                     No ___

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [   ]

Accelerated filer [   ]

Non-accelerated filer [X]

Smaller reporting company [X]

Emerging growth company [   ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [   ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).             Yes ____      No   X  

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

On September 5, 2019 the registrant had outstanding 20,207,261 shares of Common Stock, par value $.01 per share, which is the registrant’s only class of common stock.

 

 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1.

 Financial Statements.

Condensed Consolidated Balance Sheets as of July 31, 2019 (Unaudited) and October 31, 2018

1

Condensed Consolidated Statements of Operations (Unaudited) for the nine months ended July 31, 2019 and 2018

2

  

Condensed Consolidated Statements of Operations (Unaudited) for the three months ended July 31, 2019 and 2018

3

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the nine months ended July 31, 2019

4

 

 

 

 

 

 

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the three months ended July 31, 2019

5

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the nine months ended July 31, 2018

6

 

 

 

 

 

 

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) for the three months ended July 31, 2018

7

Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended July 31, 2019 and 2018

8

Notes to Condensed Consolidated Financial Statements (Unaudited)

9

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

32

Item 4.

Controls and Procedures.

32

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings.

33

Item 1A.

Risk Factors.

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

33

Item 3.

Defaults Upon Senior Securities.

33

Item 4.

Mine Safety Disclosures.

33

Item 5.

Other Information.

33

Item 6.

Exhibits.

34

SIGNATURES                   

35

 

Table of Contents

 

PART I.  FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

 

ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

July 31,

2019

October 31,

2018

ASSETS

Current assets:

Cash and cash equivalents

$

4,396,853

$

3,055,890

Short-term investments in certificates of deposit

2,100,000

2,000,000

Receivables

1,072

306,991

Prepaid expenses and other current assets

 

129,644

 

175,491

Total current assets

6,627,569

5,538,372

Patents, net of impairment of $1,001,729 and $582,979, respectively, and

    accumulated amortization of $2,034,382 and $1,615,632, respectively

            

-

   

837,500

Property and equipment, net of accumulated depreciation of $86,789 and

    $53,799, respectively

 

    

215,137

 

 

72,670

Total assets

$

6,842,706

$

6,448,542

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable

$

567,778

$

582,012

Accrued expenses

 

875,771

 

683,099

Total current liabilities

 

1,443,549

 

1,265,111

Commitments and contingencies (Note 9)

               

              

Equity:

Shareholders’ equity:

Preferred stock, par value $100 per share; 19,860 shares authorized; no

     

    shares issued or outstanding

-

-

Series A convertible preferred stock, par value $100 per share; 140 shares

    authorized; no shares issued or outstanding

-

-

Common stock, par value $.01 per share; 48,000,000 shares authorized;

   20,162,851 and 18,908,632 shares issued and outstanding, respectively

201,628

189,086

Additional paid-in capital

185,326,706

175,415,931

Accumulated deficit

 

(179,729,770)

 

(170,170,209)

Total shareholders’ equity

5,798,564

5,434,808

Noncontrolling interest (Note 1)

 

(399,407)

 

(251,377)

Total equity

 

5,399,157

 

5,183,431

 

Total liabilities and equity

$

6,842,706

$

6,448,542

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

1

Table of Contents

 

 

ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

For the Nine Months Ended

July 31,

2019

2018

Revenue

$

250,000

$

1,112,500

Operating costs and expenses:

Inventor royalties, contingent legal fees, litigation and licensing

  expenses related to patent assertion

166,250

767,180

Amortization of patents

418,750

243,972

Research and development expenses (including non-cash share-based

  compensation expenses of $2,567,294 and $2,668,315, respectively)

4,602,239

4,380,137

General and administrative expenses (including non-cash share-based

  compensation expenses of $2,335,218 and $2,558,701, respectively)

4,405,385

4,602,555

Impairment in carrying amount of patent asset (Note 1)

 

418,750

 

 -

Total operating costs and expenses

 

10,011,374

 

9,993,844

Loss from operations

(9,761,374)

(8,881,344)

Interest income 

 

53,783

 

29,780

Loss before income taxes

(9,707,591)

(8,851,564)

Provision for income taxes

 

-

 

-

    

Net loss

(9,707,591)

(8,851,564)

                   

Less: Net loss attributable to noncontrolling interest

 

(148,030)

 

(158,032)

 

 

 

 

 

 

Net loss attributable to common shareholders

$

(9,559,561)

$

(8,693,532)

Net loss per common share attributable to common shareholders:

 

Basic and diluted

$

(0.49)

$

(0.50)

Weighted average common shares outstanding:

Basic and diluted

19,638,833

17,257,546

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2

Table of Contents

 

 

ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

For the Three Months Ended

July 31,

2019

2018

Revenue

$

-

$

362,500

Operating costs and expenses:

Inventor royalties, contingent legal fees, litigation and licensing

  expenses related to patent assertion

-

241,157

Amortization of patents

41,875

81,324

Research and development expenses (including non-cash share-based

  compensation expenses of $338,449 and $2,472,489, respectively)

1,085,574

2,942,071

General and administrative expenses (including non-cash share-based
  compensation expenses of $492,449 and $2,155,844 respectively)

1,056,963

2,703,752

Total operating costs and expenses

 

2,184,412

 

5,968,304

Loss from operations

(2,184,412)

(5,605,804)

Interest income 

 

18,364

 

12,228

Loss before income taxes

(2,166,048)

(5,593,576)

Provision for income taxes

 

-

 

-

    

Net loss

(2,166,048)

(5,593,576)

                   

Less: Net loss attributable to noncontrolling interest

 

(26,020)

 

(116,650)

Net loss attributable to common shareholders

$

(2,140,028)

$

(5,476,926)

Net loss per common share attributable to common shareholders:

 

Basic and diluted

$

(0.11)

$

(0.30)

Weighted average common shares outstanding:

Basic and diluted

     20,100,915

18,431,025

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3

Table of Contents


 

ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED JULY 31, 2019 (UNAUDITED)

 

Additional

Paid-in

Capital

Total

Shareholders’

Equity

Non-

controlling

Interest

Common Stock

Accumulated

Deficit

Total

Equity

Shares

Par Value

Balance, October 31, 2018

18,908,632

$

189,086

$

175,415,931

$

(170,170,209)

$

5,434,808

$

(251,377)

$

5,183,431

Stock option compensation to employees and  

    directors

-

-

2,808,910

-

2,808,910

-

2,808,910

Stock options and warrants issued to consultants

-

-

139,161

-

139,161

-

139,161

Common stock issued upon exercise of stock

    options

40,000

400

102,100

-

102,500

-

102,500

               

                 

Restricted stock award compensation to employee

    pursuant to stock incentive plan

-

-

1,954,441

-

1,954,441

-

1,954,441

Common stock issued pursuant to employee

    stock purchase plan

5,411

54

18,506

-

18,560

-

18,560

      

       

      

                      

      

                 

   

Common stock issued in at-the-market offering,

    net of offering expenses of $264,186

  1,208,808

       12,088

4,887,657

-

4,899,745

-

4,899,745

Net loss

-

 

-

 

-

 

(9,559,561)

 

(9,559,561)

 

(148,030)

 

(9,707,591)

Balance, July 31, 2019

20,162,851

$

201,628

$

185,326,706

$

(179,729,770)

$

5,798,564

$

(399,407)

$

5,399,157

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4

Table of Contents

 

ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JULY 31, 2019 (UNAUDITED)

 

Additional

Paid-in

Capital

Total

Shareholders’

Equity

Non-

controlling

Interest

Common Stock

Accumulated

Deficit

Total

Equity

Shares

Par Value

Balance, April 30, 2019

20,005,075

$

200,050

$

183,932,744

$

 (177,589,742)

$

6,543,052

$

(373,387)

$

6,169,665

 

 

 

 

 

 

 

 

Stock option compensation to employees and
    directors

-

-

784,246

-

784,246

-

784,246

 

 

  

 

  

 

  

 

  

 

  

 

  

 

Stock options and warrants issued to consultants

-

-

46,652

-

46,652

-

46,652

 

 

 

 

 

 

 

 

Common stock issued upon exercise of stock
    options

10,000

100

22,600

-

22,700

-

22,700

 

 

 

 

 

 

 

 

Common stock issued in at-the-market offering,
    net of offering expenses of $111,275

147,776

1,478

540,464

-

541,942

-

541,942

 

 

 

 

 

 

 

 

Net loss

-

-

-

(2,140,028)

(2,140,028)

(26,020)

(2,166,048)

 

 

 

 

 

 

 

 

Balance, July 31, 2019

20,162,851

$

201,628

$

185,326,706

$

(179,729,770)

$

5,798,564

$

(399,407)

$

5,399,157

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5

Table of Contents

 

 

ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED JULY 31, 2018 (UNAUDITED)

 

Additional

Paid-in

Capital

Total

Shareholders’

Equity

Non-

controlling

Interest

Common Stock

Accumulated

Deficit

Total

Equity

Shares

Par Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, October 31, 2017

16,602,759

$

166,028

$

163,931,079

$

 (156,174,184)

$

7,922,923

$

-

$

7,922,923

Stock option compensation to employees and  

    directors

-

-

3,598,986

-

3,598,986

-

3,598,986

Stock options and warrants issued to consultants

-

-

254,090

-

254,090

-

254,090

Common stock issued upon exercise of stock

    options

39,816

398

(398)

-

-

-

-

Restricted stock award compensation to employee

    pursuant to stock incentive plan

1,500,000

 

 

15,000

 

 

1,358,940

 

 

-

 

 

1,373,940

 

 

-

 

 

1,373,940

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued to consultants

5,347

53

14,949

-

15,002

-

15,002

Common stock issued in at-the-market offering,

    net of offering expenses of $141,140

548,224

5,482

1,780,547

-

1,786,029

-

1,786,029

 

         

      

   

               

       

     

   

Issuance of noncontrolling interest in Certainty

    Therapeutics, Inc

-

-

68,974

-

68,974

(4,318)

64,656

Net loss

-

 

-

 

-

 

(8,693,532)

 

(8,693,532)

 

(158,032)

 

(8,851,564)

Balance, July 31, 2018

18,696,146

$

186,961

$

171,007,167

$

(164,867,716)

$

6,326,412

$

(162,350)

$

6,164,062

The accompanying notes are an integral part of these condensed consolidated financial statements. 

 

6

Table of Contents

 

 

ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JULY 31, 2018 (UNAUDITED)

 

Additional

Paid-in

Capital

Total

Shareholders’

Equity

Non-

controlling

Interest

Common Stock

Accumulated

Deficit

Total

Equity

Shares

Par Value

Balance, April 30, 2018

16,850,445

  

$

168,504

$

165,288,632

$

 (159,390,790)

$

6,066,346

$

(45,700)

$

6,020,646

 

 

 

 

 

 

 

 

Stock option compensation to employees and
    directors

-

-

3,126,454

-

3,126,454

-

3,126,454

 

 

 

 

 

 

 

 

Stock options and warrants issued to consultants

-

-

127,939

-

127,939

-

127,939

 

 

 

  

 

  

 

  

 

  

 

  

 

Restricted stock award compensation to employee
    pursuant to stock incentive plan

1,500,000

15,000

1,358,940

-

1,373,940

-

1,373,940

 

 

 

 

 

 

 

 

Common stock issued in at-the-market offering,
    net of offering expenses of $58,198

345,701

3,457

1,105,202

-

1,108,659

-

1,108,659

 

 

 

 

 

 

 

 

Net loss

-

-

-

(5,476,926)

(5,476,926)

(116,650)

(5,593,576)

 

 

 

 

 

 

 

 

Balance, July 31, 2018

18,696,146

$

186,961

$

171,007,167

$

(164,867,716)

$

6,326,412

$

(162,350)

$

6,164,062

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7

Table of Contents

 

ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the nine months ended

 July 31,

2019

2018

Cash flows from operating activities:

Reconciliation of net loss to net cash used in operating activities:

Net loss

$

(9,707,591)

$

(8,851,564)

Stock option compensation to employees and directors

2,808,910

3,598,986

Stock options and warrants issued to consultants

139,161

254,090

Restricted stock award compensation to employee pursuant to stock   
    incentive plan

    

1,954,441

                

1,373,940

Common stock issued to consultants

-

15,002

Depreciation of property and equipment

32,990

12,414

Amortization of patents

418,750

243,972

Impairment in carrying amount of patent assets

418,750

-

Issuance of noncontrolling interest in Certainty Therapeutics, Inc. expensed

   as a license fee

           

-

     

64,656

Change in operating assets and liabilities:

Receivables

305,919

(40,710)

Prepaid expenses and other current assets

45,847

(163,211)

Accounts payable

(14,234)

(60,914)

Accrued expenses

 

192,672

 

300,888

Net cash used in operating activities

 

(3,404,385)

 

(3,252,451)

Cash flows from investing activities:

Disbursements to acquire short-term investments in certificates of deposit                                                             

(2,350,000)

(4,000,000)

Proceeds from maturities of short-term investments in certificates of deposit             

2,250,000

4,750,000

Purchase of property and equipment

 

(175,457)

 

(31,853)

Net cash (used in) provided by investing activities

 

(275,457)

 

718,147

Cash flows from financing activities:

Net proceeds from sale of common stock in at-the-market offering

4,899,745

1,786,029

Proceeds from sale of common stock pursuant to employee stock purchase

       plan

18,560

-

Proceeds from exercise of employee stock options

 

102,500

 

-

Net cash provided by financing activities

 

5,020,805

 

1,786,029

Net increase (decrease) in cash and cash equivalents

1,340,963

(748,275)

Cash and cash equivalents at beginning of period

 

3,055,890

 

3,339,374

Cash and cash equivalents at end of period

$

4,396,853

$

2,591,099

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

8

Table of Contents

 

 

ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES

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 research and development of cancer therapeutics and diagnostics.  Our cancer therapeutics programs consist of development of a vaccine against triple negative breast cancer (“TNBC”) and development of chimeric endocrine receptor T-cell (“CER-T”) technology, a novel form of CAR-T technology, initially focused on treating ovarian cancer.  Our cancer diagnostics program consists of development of the artificial intelligence (AI) driven Cchek™ liquid biopsy platform for early cancer detection. 

 

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.  Animal 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 anticipate filing an Investigational New Drug (“IND”) application with the U.S. Food and Drug Administration (“FDA”) by the end of the 2019 calendar year.

 

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 CER-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 of its CER-T technology for treating ovarian cancer.  Certainty is working with researchers at Moffitt to complete studies necessary to submit an IND application with the FDA.  We anticipate filing the IND with the FDA by the end of the 2019 calendar year, with human clinical trials commencing thereafter, in 2020.  The collaboration between Certainty and Moffitt was recently extended through November 2020, so the parties may continue research on Certainty’s CER-T technology.

 

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Our subsidiary, Anixa Diagnostics Corporation (“Anixa Diagnostics”), is developing Cchek™, an AI driven platform of non-invasive blood tests for the early detection of cancer which is based on the body’s immune response to the presence of a malignancy.  We have demonstrated the efficacy of Cchek™ with 20 different types of cancer, including:  breast, lung, colon, melanoma, ovarian, liver, thyroid, pancreatic, appendiceal, uterine, osteosarcoma, leiomyosarcoma, liposarcoma, vulvar, prostate, bladder, cervical, head and neck, gastric and testicular cancers.  Breast, lung, colon and prostate cancers represent the four largest categories of cancer worldwide.

 

We are currently developing tests for the detection of multiple types of cancer and are working with our development and commercialization partner, ResearchDx, a CLIA-certified laboratory, to launch Cchek™ Prostate Cancer Confirmation as a Laboratory Developed Test during the fourth calendar quarter of 2019. 

 

Over the next several quarters, we expect the development of our breast cancer vaccine, Certainty’s CER-T technology and Anixa Diagnostic’s Cchek™ to be the primary focus of the Company.  As part of our legacy operations, the Company remains engaged in limited patent licensing activities 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 quarters, 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 cancer therapeutics and diagnostics programs. In addition, while we pursue our cancer therapeutics and diagnostics programs, we may also make investments in and form new companies to develop additional emerging technologies.

 

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Funding and Management’s Plans

 

Based on currently available information as of September 5, 2019, 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.  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, 2019, we raised approximately $4,900,000 through our at-the-market equity offering of 1,208,808 shares of common stock which is currently effective (we can sell an additional 267,302 shares under our current at-the-market equity program) and may remain available for us to use in the future.  Further, we have an additional at-the-market equity offering under which we may issue up to $50 million of common stock, which is currently effective and may remain available to us in the future.  We may seek to obtain working capital during our fiscal year 2019 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.  Additionally, the sale of equity securities or issuance of debt securities may be subject to certain security holder approvals or may result in the downward adjustment of the exercise or conversion price of our outstanding securities.  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 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, 2018.  The accompanying October 31, 2018 consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“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, 2019, and results of operations and cash flows for the interim periods represented.  The results of operations for the nine months ended July 31, 2019 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, 2019:

 

Balance at October 31, 2018

$

(251,377)

Net loss attributable to noncontrolling interest

 

(148,030)

Balance at July 31, 2019

$

(399,407)

 

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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.  Upon adoption of ASU 2014-09 we are 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.  As such, the earnings process is complete and revenue is recognized upon the execution of the agreement, when collectability is probable and all other revenue recognition criteria have been met.

 

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.

 

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Patents

 

Our only identifiable intangible assets are patents and patent rights related to our legacy patent licensing operations.  We capitalize patent and patent rights acquisition costs and amortize the cost over the estimated economic useful life.  No patent acquisition costs were capitalized during the nine months ended July 31, 2019 and 2018.  We recorded patent amortization expense of approximately $419,000 and $244,000 during the nine-month periods ended July 31, 2019 and 2018, respectively.  In evaluating the carrying amount of capitalized patents at January 31, 2019, we determined that based on estimated undiscounted future cash flows a write-down of the carrying amount of approximately $419,000, to a carrying value of approximately $168,000, should be recorded as of January 31, 2019. The carrying value of capitalized patents has been amortized to $-0- as of July 31, 2019. Our estimates of future cash flows were based on our most recent assessment of the market for potential licensees, as well as the status of ongoing negotiations with potential licensees. While we may be able to generate future cash flows from this patent portfolio, as of July 31, 2019, we cannot reasonably determine an estimate of any such future cash flows.

 

2.         SUBSEQUENT EVENT

            On August 21, 2019, the Company entered into a settlement agreement in connection with a putative shareholder derivative complaint filed in the Court of Chancery of the State of Delaware on November 5, 2018. See Note 9 to these condensed consolidation financial statements for additional information.  Management reviewed for subsequent events through the date of filing of this Quarterly Report on Form 10-Q and noted no other items requiring disclosure.

3.         STOCK BASED COMPENSATION AND WARRANTS

 

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).  We recorded stock-based compensation expense related to service-based stock options granted to employees and directors of approximately $2,433,000 and $1,153,000 during the nine months ended July 31, 2019 and 2018, respectively, and approximately $784,000 and $702,000 during the three months ended July 31, 2019 and 2018, 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 $376,000 and $2,446,000 during the nine months ended July 31, 2019 and 2018, respectively, and approximately $-0- and $2,446,000 during the three months ended July 31, 2019 and 2018, respectively.  

 

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 $75,000 and $197,000 during the nine months ended July 31, 2019 and 2018, respectively, and approximately $25,000 and $49,000 during the three months ended July 31, 2019 and 2018, respectively.

 

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Stock Option Activity

 

During the nine months ended July 31, 2019 and 2018, we granted options to purchase 10,000 shares and 3,897,000 shares of common stock, respectively,  to employees, directors and consultants, with exercise prices ranging from $2.30 to $3.84 per share, pursuant to the Anixa Biosciences, Inc. 2010 Share Incentive Plan (the "2010 Share Plan”) and the Anixa Biosciences, Inc. 2018 Share Plan (the “2018 Share Plan”).    During the nine months ended July 31, 2019 and 2018, stock options to purchase 40,000 and 48,600 shares of common stock, respectively, were exercised with aggregate proceeds of approximately $103,000 and $-0-, respectively.  Under certain circumstances, stock options may be exercised on a cashless basis.  During the nine months ended July 31, 2019 and 2018, -0- and 8,784 shares of common stock, respectively, were withheld in connection with cashless exercises of stock options.

 

Stock Option Plans

 

As of July 31, 2019, we have three stock option plans:  the Anixa Biosciences, Inc. 2003 Share Incentive Plan (the "2003 Share Plan"), the 2010 Share Plan and 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.

 

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 options on April 21, 2013.  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

 

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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

 

 

Information regarding the 2003 Share Plan for the nine months ended July 31, 2018 is as follows:

 

 

Shares

Weighted

Average Exercise

Price Per Share

Aggregate
Intrinsic
Value

Options outstanding at October 31, 2017

30,600

$ 3.16

Exercised

(10,600)

$ 0.67

Forfeited

(8,000)

$ 7.04

Options outstanding and exercisable at
   July 31, 2018

12,000

$ 2.77

$        13,054

 

 

The following table summarizes information about stock options outstanding and exercisable under the 2003 Share Plan as of July 31, 2018:

 

 

Range of

Exercise Prices

Number

Outstanding

and

Exercisable

Weighted Average

Remaining

Contractual Life

(in years)

Weighted

Average

Exercise Price

   $ 0.67 - $17.00

12,000

.99

$ 2.77

 

2010 Plan

 

The 2010 Share Plan provides for the grant of nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to employees, directors and consultants.  As of July 31, 2019, the 2010 Share Plan had 889,200 shares available for future grants.  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

(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

 

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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

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

Range of

Exercise Prices

 

 

 

 

 

$ 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 -$ 5.75

472,534

8.51

$ 4.05

240,034

8.19

$ 4.43

 

Information regarding the 2010 Share Plan for the nine months ended July 31, 2018 is as follows:

 

 

Shares

Weighted

Average Exercise

Price Per Share

Aggregate

Intrinsic

Value

Options outstanding at October 31, 2017

1,637,246

$ 1.50

Granted

475,000

$ 3.22

Exercised

(38,000)

$ 0.67

Forfeited

(49,800)

$ 2.15

Options outstanding at July 31, 2018

2,024,446

$ 1.90

$    2,965,764

Options exercisable at July 31, 2018

1,284,190

$ 1.73

$    2,108,817

 

 

The following table summarizes information about stock options outstanding and exercisable under the 2010 Share Plan as of July 31, 2018:

 

Options Outstanding

Options Exercisable

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

Range of

Exercise Prices

 

 

 

 

 

$ 0.67

943,000

6.94

$ 0.67

653,142

6.18

$ 0.67

$ 2.27 -$ 3.01

729,712

5.21

$ 2.61

579,314

5.28

$ 2.60

$ 3.46 -$ 7.00

351,734

8.74

$ 3.73

51,734

1.46

$ 5.27

       

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            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, 2019, the 2018 Share Plan had 2,008,000 shares available for future grants.  Information regarding options outstanding under 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

(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

 

 

Information regarding the 2018 Share Plan for the nine months ended July 31, 2018 is as follows:

 

Shares

Weighted

Average Exercise

Price Per Share

Aggregate
Intrinsic 
Value

Options outstanding at October 31, 2017

           -0-

 

Granted

3,422,000

$ 3.71

Options outstanding at July 31, 2018

3,422,000

$ 3.71

$               -0-

Options exercisable at July 31, 2018

167,779

$ 3.73

$               -0-

 

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The following table summarizes information about stock options outstanding and exercisable under the 2018 Share Plan as of July 31, 2018:

 

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 -$ 3.84

3,422,000

9.77

$ 3.71

167,779

9.76

$ 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, the Board of Directors approved the grant of stock options to purchase 1,780,000 shares to employees and directors outside of Share Plans.  Information regarding stock options outstanding 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

3.05

$ 0.67

$ 2.58-$ 5.56

734,000

2.59

$ 2.88

 

 

 

Information regarding stock options outstanding that were granted outside of Share Plans for the nine months ended July 31, 2018 is as follows:

 

Shares

Weighted

Average Exercise

Price Per Share

Aggregate

Intrinsic

Value

Options outstanding at October 31, 2017

1,780,000

$ 1.58

Options outstanding and exercisable at
   July 31, 2018 

1,780,000

$ 1.58

$    3,206,700

 

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The following table summarizes information about stock options outstanding and exercisable that were granted outside of Share Plans as of July 31, 2018:

 

Range of

Exercise Prices

Number

Outstanding

and

Exercisable

Weighted Average

Remaining

Contractual Life

(in years)

Weighted

Average

Exercise Price

$ 0.67

1,046,000

4.05

$ 0.67

$ 2.58-$ 5.56

734,000

3.59

$ 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.  During the nine months ended July 31, 2018, we issued 5,347 shares of common stock that vested upon grant to consultants for services rendered.  We recorded consulting expense for the shares of common stock issued to consultants of approximately $15,000 for the nine months ended July 31, 2018 and $-0- for the three months ended July 31, 2018.  We did not grant any stock awards that vested upon grant during the nine months ended July 31, 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).  We recorded stock-based compensation expense related to the restricted stock award of approximately $1,954,000 and $1,374,000 during the nine months ended July 31, 2019 and 2018, respectively, and $-0- and approximately $1,374,000 during the three months ended July 31, 2019 and 2018, respectively.

 

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, 2019, employees purchased 5,411 shares at a purchase price of $3.43 per share pursuant to the plan.

 

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.  We recorded consulting expense of approximately $64,000 during the nine months ended July 31, 2019 and approximately $21,000 during the three months ended July 31, 2019, based on the fair value of the warrant recognized on a straight-line basis over the vesting period.  

 

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In July 2018 we issued a warrant exercisable at $3.65 per share vested upon grant to purchase 25,000 shares of common stock to a consultant for investor relations services.  We recorded consulting expense of approximately $57,000 during the three months ended July 31, 2018, based on the fair value of the warrant.  This warrant was exercised in October 2018.

 

As of July 31, 2019, we also had warrants outstanding to purchase 10,000 shares and 10,000 shares of common stock at $9.25 and $13.875 per share, respectively, expiring on August 19, 2019 and warrants to purchase 500,000 shares of common stock at $5.03 per share expiring on November 30, 2021.

 

4.         FAIR VALUE MEASUREMENTS

US GAAP defines fair value and establishes a framework for measuring fair value.  We have categorized our financial assets, 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, 2019:

 

Level 1

Level 2

Level 3

Total

Money market funds –  

    Cash and cash equivalents

$

 

3,370,661

$

      

-

$

      

-

$

3,370,661

Certificates of deposit –

    Cash and cash equivalents

-

750,000

-

750,000

 Short-term investments

 

-

 

2,100,000

 

-

 

 2,100,000

Total financial assets

$

3,370,661

$

2,850,000

$

-

$

6,220,661

 

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The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31, 2018:

 

 

 

Level 1

Level 2

Level 3

Total

Money market funds –  

    Cash and cash equivalents

$

 

2,031,331

$

      

-

$

      

-

$

2,031,331

Certificates of deposit –

    Cash and cash equivalents

-

750,000

-

750,000

 Short-term investments

 

-

 

2,000,000

 

-

 

2,000,000

Total financial assets

$

2,031,331

$

2,750,000 

$

-

$

4,781,331

 

 

Our non-financial assets that are measured on a non-recurring basis include our patents and property and equipment which are measured using fair value techniques whenever events or changes in circumstances indicate a condition of impairment exists.  The estimated fair value of 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. 

 

5.         ACCRUED EXPENSES

 

Accrued expenses consist of the following as of:

 

July 31,
2019

October 31,
2018

Payroll and related expenses

$

64,627

$

62,965

Accrued royalty and contingent legal fees

449,691

366,670

Accrued collaborative research and license expenses

351,994

187,500

Accrued other

 

9,459

 

65,964

$

875,771

$

683,099

 

 

6.         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, 2019 and 2018, were stock options to purchase 7,268,668 and 7,238,446 shares, respectively, and warrants to purchase 545,000 and 854,400 shares, respectively.

 

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7.         EFFECT OF RECENTLY ADOPTED AND ISSUED PRONOUNCEMENTS

 

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers.  This amendment updates addressing revenue from contracts with customers, which clarifies existing accounting literature relating to how and when a company recognizes revenue. Under the standard, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services.  The Company adopted ASU 2014-09 on November 1, 2018.  The adoption of ASU 2014-09 did not have a material impact on our consolidated financial statements, other than required additional disclosure of accounting policies.  See Note 1 regarding our revenue recognition policy.

 

In February 2016, the FASB issued Accounting Standards Update 2016-02 (“ASU 2016-02”) which requires lessees to recognize most leases on the balance sheet. This is expected to increase both reported assets and liabilities.  The new lease standard does not substantially change lessor accounting. For public companies, the standard will be effective for the first interim reporting period within annual periods beginning after December 15, 2018, although early adoption is permitted. Lessees and lessors will be 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, using a modified retrospective transition method.  The requirements of this standard include a significant increase in required disclosures.  We began a detailed assessment of the impact that this guidance will have on our consolidated financial statements and related disclosures, and our analysis is currently ongoing.

 

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8.         INCOME TAXES

 

We file Federal, New York and California state income tax returns.  Due to net operating losses, the statute of limitations for Federal and New York State income tax returns remains open to examination by taxing authorities since the fiscal year ended October 31, 1999.  We account for interest and penalties related to income tax matters, if any, in general and administrative expenses.  There are no unrecognized income tax benefits as of July 31, 2019 and October 31, 2018.

 

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 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. Management has not performed an analysis of the potential limitations. 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.

 

9.         COMMITMENT AND CONTINGENCES 

 

Litigation Matters

Other than below and lawsuits we have historically brought to enforce our patent rights, we are not a party to any material pending legal proceedings other than that which arise in the ordinary course of business.  We believe that any liability that may ultimately result from the resolution of these matters will not, individually or in the aggregate, have a material adverse effect on our financial position or results of operations.

On November 5, 2018, a putative shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware, captioned Howland v. Kumar et al., C.A. No. 2018-0804-KSJM (the “Derivative Action”), that alleged claims for breach of fiduciary duty and unjust enrichment.  The Derivative Action named as defendants certain of the Company’s current and former officers and directors (the “Individual Defendants”), and the Company was named solely as a nominal defendant.  On August 21, 2019, the Company entered into a settlement pursuant to which the Company agreed to certain changes in its corporate governance policies and to reprice certain stock options that were repriced on September 6, 2017 to $0.67 to the option price immediately prior to that repricing.  The Company also agreed to pay certain legal fees, with such fees to be paid from the Company’s D&O insurance.  As a result of this settlement, all of the claims asserted in the Derivative Action will be dismissed.  The Individual Defendants have denied, and continue to deny, any and all allegations of wrongdoing or liability asserted in the Derivative Action.  The Individual Defendants have further asserted, and continue to assert, that at all relevant times, they acted in good faith and in a manner that they reasonably believed to be in the best interests of the Company and its stockholders.  The Individual Defendants have entered into the settlement solely to eliminate the uncertainty, distraction, disruption, burden, risk, and expense of further litigation.

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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 three reportable segments, each with different operating and potential revenue generating characteristics: (i) Cancer Diagnostics, (ii) Cancer Therapeutics and (iii) our legacy patent licensing activities.  The following represents selected financial information for our segments for the nine and three months ended July 31, 2019 and 2018 and as of July 31, 2019 and October 31, 2018:

For the Nine Months Ended

July 31,

2019

2018

Net loss:

Cancer Diagnostics

$

(4,024,785)

$

(3,783,854)

Cancer Therapeutics

(4,807,668)

(4,583,070)

Patent licensing

 

(875,138)

 

(484,640)

Total

$

(9,707,591)

$

(8,851,564)

Operating costs and expenses excluding non-cash

    share based compensation expense:

Cancer Diagnostics

$

1,953,760

$

1,692,865

Cancer Therapeutics

2,084,694

1,807,515

Patent licensing

 

1,070,408

 

1,266,448

Total

$

5,108,862

$

4,766,828

Operating costs and expenses excluding non-cash

    share based compensation expense

$

5,108,862

$

4,766,828

Plus non-cash share-based compensation expense

 

4,902,512

 

5,227,016

Total operating costs and expenses

$

10,011,374

$

9,993,844

For the Three Months Ended

July 31,

2019

2018

Net loss:

Cancer Diagnostics

$

(917,363)

$

(2,359,568)

Cancer Therapeutics

(1,203,468)

(2,901,708)

Patent licensing

 

(45,217)

 

(332,300)

Total

$

(2,166,048)

$

(5,593,576)

 

 

Operating costs and expenses excluding non-cash 

    share based compensation expense:

Cancer Diagnostics

$

507,356

$

569,512

Cancer Therapeutics

801,704

359,006

Patent licensing

 

44,454

 

411,453

Total

$

1,353,514

$

1,339,971

Operating costs and expenses excluding non-cash

    share based compensation expense

$

1,353,514

$

1,339,971

Plus non-cash share-based compensation expense

 

830,898

 

4,628,333

Total operating costs and expenses

$

2,184,412

$

5,968,304

July 31,

2019

October 31,

2018

Total assets:

Cancer Diagnostics

$

3,201,233

$

2,545,803

Cancer Therapeutics

3,279,496

2,157,359

Patent licensing

 

361,977

 

1,745,380

Total

$

6,842,706

$

6,448,542

 

Operating costs and expenses excluding non-cash share-based compensation expense is the measurement the chief operating decision-maker uses in managing the enterprise.   

 

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Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.  

 

GENERAL

 

We discuss the description of our business in the Notes to our Condensed Consolidated Financial Statements.

 

RESULTS OF OPERATIONS

 

Nine months ended July 31, 2019 compared with nine months ended July 31, 2018

 

Revenue

 

For the nine months ended July 31, 2019, we recorded revenue of $250,000 from one license agreement.  For the nine months ended July 31, 2018, we recorded revenue of $1,112,500 from two license agreements.  These license agreements each provided for a one-time, non-recurring, lump sum payment in exchange for non-exclusive retroactive and future licenses, and covenants not to sue.  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.  Accordingly, the earnings process from these licenses was complete and 100% of the revenue was recognized upon execution of the license agreement.  As discussed in Note 1 to our consolidated financial statements, as part of our legacy operations, the Company remains engaged in limited patent licensing activities which we do not expect to be a significant part of our ongoing operations or revenue.

 

Inventor Royalties, Contingent Legal Fees and Litigation and Licensing Expenses Related to Patent Assertion

 

Inventor royalties, contingent legal fees, litigation and licensing expenses related to patent assertion activities decreased by approximately $601,000 to approximately $166,000 in the nine months ended July 31, 2019, compared to approximately $767,000 in the comparable prior year.  The decrease was primarily due to the decrease in related revenues.  Inventor royalties and contingent legal fees are expensed in the period that the related revenues are recognized.  Litigation and licensing expenses related to patent assertion, other than contingent legal fees, are expensed in the period incurred.

 

Amortization of Patents

 

Amortization of patents increased by approximately $175,000 to approximately $419,000 in the nine months ended July 31, 2019, from approximately $244,000 in the nine months ended July 31, 2018.  We capitalize patent and patent rights acquisition costs and amortize the cost over the estimated economic useful life.  The increase in amortization of patents was due to a reduction in the estimated economic useful life of capitalized patents. 

 

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Research and Development Expenses

 

Research and development expenses are related to the development of our cancer diagnostics and therapeutics programs and increased by approximately $222,000 to approximately $4,602,000 in the nine months ended July 31, 2019, from approximately $4,380,000 in the nine months ended July 31, 2018.  The increase in research and development expenses was primarily due to an increase in employee stock award compensation expense of approximately $481,000, an increase in outside research and development expense, excluding license expense, primarily related to Certainty's collaboration agreement with Moffitt and Anixa Diagnostics' agreement with our development partner, ResearchDx, of approximately $356,000 and an increase in employee compensation and related costs, other than equity-based compensation, of approximately $95,000, offset by a decrease of approximately $562,000 in employee stock option compensation expense and a decrease in license fees of approximately $190,000. License fees in fiscal year 2019 are related to our license with Cleveland Clinic. License fees in fiscal year 2018 are related to our license with Wistar.

 

General and Administrative Expenses

 

General and administrative expenses decreased by approximately $198,000 to approximately $4,405,000 in the nine months ended July 31, 2019, from approximately $4,603,000 in the nine months ended July 31, 2018. The decrease in general and administrative expenses was principally due to a decrease in employee stock option compensation expense of approximately $228,000, a decrease in consultant stock option expense of approximately $105,000 and a decrease in investor and public relations expense of approximately $86,000, offset by a patent expense reimbursement to Cleveland Clinic of approximately $164,000 and an increase in employee stock award compensation expense of approximately $99,000.

 

Impairment in Carrying Amount of Patent Assets

 

The impairment in carrying amount of patent assets related to our legacy patent licensing activities of approximately $419,000 in the nine months ended July 31, 2019 resulted from the write down of the value of our patent assets to the estimated undiscounted future cash flows we anticipated receiving from the patent assets as of January 31, 2019 of approximately $168,000.  Our estimates of future cash flows were based on our most recent assessment of the market for potential licensees, as well as the status of ongoing negotiations with potential licensees.

 

Interest Income

 

Interest income increased by approximately $24,000 to approximately $54,000 in the nine months ended July 31, 2019, from approximately $30,000 in the comparable prior year period as a result of greater amounts of cash, cash equivalents and short-term investments in certificates of deposit.

 

Net Loss Attributable to Noncontrolling Interest

 

The net loss attributable to noncontrolling interest, representing Wistar’s 5% ownership interest in Certainty’s net loss, decreased by approximately $10,000 to approximately $148,000 in the nine months ended July 31, 2019, from approximately $158,000 in the nine months ended July 31, 2018, as Certainty’s net loss decreased.  The decrease in Certainty’s net loss was primarily due to decreases in employee stock option compensation expense and employee stock award compensation expense.

 

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Three months ended July 31, 2019 compared with three months ended July 31, 2018

 

Revenue

 

We had no revenue during the three months ended July 31, 2019.  For the three months ended July 31, 2018, we recorded revenue of $362,500 from one license agreement.  The license agreement provided for a one-time, non-recurring, lump sum payment in exchange for non-exclusive retroactive and future licenses, and covenants not to sue.  Pursuant to the terms of the agreement, 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.  Accordingly, the earnings process from these licenses was complete and 100% of the revenue was recognized upon execution of the license agreement.  As discussed in Note 1 to our consolidated financial statements, as part of our legacy operations, the Company remains engaged in limited patent licensing activities which we do not expect to be a significant part of our ongoing operations or revenue.

 

Inventor Royalties, Contingent Legal Fees and Litigation and Licensing Expenses Related to Patent Assertion

 

We had no inventor royalties, contingent legal fees, litigation and licensing expenses related to patent assertion activities during the three months ended July 31, 2019, compared to approximately $241,000 in the comparable prior year.  Inventor royalties and contingent legal fees are expensed in the period that the related revenues are recognized.  Litigation and licensing expenses related to patent assertion, other than contingent legal fees, are expensed in the period incurred.

 

Amortization of Patents

 

Amortization of patents decreased by approximately $39,000 to approximately $42,000 in the three months ended July 31, 2019, from approximately $81,000 in the three months ended July 31, 2018.   We capitalize patent and patent rights acquisition costs and amortize the cost over the estimated economic useful life.  The decrease in amortization of patents was due to a reduction in the carrying value of the patents.

 

Research and Development Expenses

 

Research and development expenses are related to the development of our cancer diagnostics and therapeutics programs and decreased by approximately $1,856,000 to approximately $1,086,000 in the three months ended July 31, 2019, from approximately $2,942,000 in the three months ended July 31, 2018.  The decrease in research and development expenses was primarily due to a decrease in employee stock option compensation expense of approximately $1,384,000 and a decrease in employee stock award compensation expense of approximately $769,000, offset by an increase in outside research and development expense, excluding license expense, primarily related to Certainty's collaboration agreement with Moffitt and Anixa Diagnostics' agreement with our development partner, ResearchDx, of approximately $149,000 and approximately $100,000 of license fees paid to Cleveland Clinic.

 

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General and Administrative Expenses

 

General and administrative expenses decreased by approximately $1,647,000 to approximately $1,057,000 in the three months ended July 31, 2019, from approximately $2,704,000 in the three months ended July 31, 2018. The decrease in general and administrative expenses was principally due to a decrease in employee stock option compensation expense of approximately $980,000, a decrease in employee stock award compensation expense of approximately $605,000, a decrease in legal and accounting fees of approximately $147,000 primarily related to a putative shareholder derivative complaint (see Note 9 to our condensed consolidated financial statements) and a decrease in investor and public relations expense of approximately $102,000, offset by a patent expense reimbursement to Cleveland Clinic of approximately $164,000.

 

Interest Income

 

Interest income increased by approximately $6,000 to approximately $18,000 in the three months ended July 31, 2019, from approximately $12,000 in the comparable prior year period as a result of greater amounts of cash, cash equivalents and short-term investments in certificates of deposit.

 

Net Loss Attributable to Noncontrolling Interest

 

The net loss attributable to noncontrolling interest, representing Wistar’s 5% ownership interest in Certainty’s net loss, decreased by approximately $91,000 to approximately $26,000 in the three months ended July 31, 2019, from approximately $117,000 in the three months ended July 31, 2018, as Certainty’s net loss decreased.  The decrease in Certainty’s net loss was primarily due to decreases in employee stock option compensation expense and employee stock award compensation expense.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Our primary sources of liquidity are cash, cash equivalents and short-term investments.

 

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Based on currently available information as of September 5, 2019, 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.  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, 2019, we raised approximately $4,900,000 through our at-the-market equity offering of 1,208,808 shares of common stock which is currently effective (we can sell an additional 267,302 shares under our current at-the-market equity program) and may remain available for us to use in the future.  Further, we have an additional at-the-market equity offering under which we may issue up to $50 million of common stock, which is currently effective and may remain available to us in the future.  We may seek to obtain working capital during our fiscal year 2019 or thereafter through sales of our equity securities (including through the commencement of another at-the-market equity offering) 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.  Additionally, the sale of equity securities or issuance of debt securities may be subject to certain security holder approvals or may result in the downward adjustment of the exercise or conversion price of our outstanding securities.  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

 

During the nine months ended July 31, 2019, cash used in operating activities was approximately $3,404,000.  Cash used in investing activities was approximately $275,000, resulting from the purchase of certificates of deposit totaling $2,350,000 and the purchase of property and equipment of approximately $175,000, which was offset by the proceeds on maturities of certificates of deposit totaling $2,250,000.  Cash provided by financing activities was approximately $5,021,000, resulting from the sale of 1,208,808 shares of common stock in our at-the-market equity offering over the past nine months of approximately $4,900,000 (which is ongoing), the proceeds from sale of common stock pursuant to employee stock purchase plan of approximately $19,000 and the proceeds from exercise of stock options of approximately $103,000.  As a result, our cash, cash equivalents, and short-term investments at July 31, 2019 increased approximately $1,441,000 to approximately $6,497,000 from approximately $5,056,000 at the end of fiscal year 2018.

 

CRITICAL ACCOUNTING POLICIES

 

The Company’s condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America.  In preparing these financial statements, we make assumptions, judgments and estimates that can have a significant impact on amounts reported in our condensed consolidated financial statements.  We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances.  Actual results could differ materially from these estimates under different assumptions or conditions.  On a regular basis, we evaluate our assumptions, judgments and estimates and make changes accordingly.

 

 

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We believe that, of the significant accounting policies discussed in Note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended October 31, 2018, the following accounting policies require our most difficult, subjective or complex judgments:

 

Revenue Recognition; and

Stock-Based Compensation.

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. 

 

On November 1, 2018 we adopted Accounting Standards Update 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers.  Upon adoption of ASU 2014-09 we are 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.  As such, the earnings process is complete and revenue is recognized upon the execution of the agreement, when collectability is probable and all other revenue recognition criteria have been met.

 

Stock-Based Compensation

 

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.  For employee options vesting if the trading price of the Company’s common stock exceeds 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.

 

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For stock awards granted to employees and directors that vest at date of grant we recognize expense based on the grant date market price of the underlying common stock.  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). 

 

On November 1, 2018 we adopted Accounting Standards Update 2018-07 (“ASU 2018-027”) for stock-based compensation to non-employees.  Upon adoption of ASU 2018-07 we estimated the fair value of unvested awards at the date of adoption, using the Black-Scholes pricing model.  Future grants to consultants will be 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. 

 

The Black-Scholes pricing model and the Monte Carlo Simulation we use to estimate fair values requires valuation assumptions of expected term, expected volatility, risk-free interest rates and expected dividend yield.  The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding.  For employees we use the simplified method, which is a weighted average of the vesting term and contractual term, to determine expected term.  The simplified method was adopted since we do not believe that historical experience is representative of future performance because of the impact of the changes in our operations and the change in terms from historical options.  For consultants we use the contract term for expected term.  We estimate the expected volatility of our shares of common stock based upon the historical volatility of our share price over a period of time equal to the expected term of the grants.  We estimate the risk-free interest rate based on the implied yield available on the applicable grant date of a U.S. Treasury note with a term equal to the expected term of the underlying grants.  We made the dividend yield assumption based on our history of not paying dividends and our expectation not to pay dividends in the future. 

 

We will reconsider use of the Black-Scholes pricing model and Monte Carlo Simulation if additional information becomes available in the future that indicates other models would be more appropriate.  If factors change and we employ different assumptions in future periods, the compensation expense that we record may differ significantly from what we have recorded in the current period.

 

EFFECT OF RECENTLY ISSUED PRONOUNCEMENTS

 

We discuss the effect of recently issued pronouncements in the Notes to our Condensed Consolidated Financial Statements.

 

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FORWARD-LOOKING STATEMENTS

 

Information included in this Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Forward-looking statements are not statements of historical facts, but rather reflect our current expectations concerning future events and results.  We generally use the words “believes,” “expects,” “intends,” “plans,” “anticipates,” “likely,” “will” and similar expressions to identify forward-looking statements.  Such forward-looking statements, including those concerning our expectations, involve risks, uncertainties and other factors, some of which are beyond our control, which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.   These risks, uncertainties and factors include, but are not limited to, those factors set forth in our Annual Report on Form 10-K for the fiscal year ended October 31, 2018 and the condensed consolidated financial statements included in this Report.  Except as required by applicable law, including the securities laws of the United States, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this Report.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

 

As of July 31, 2019, we had investments in short-term, fixed rate and highly liquid instruments that have historically been reinvested when they mature throughout the year.  Although our existing instruments are not considered at risk with respect to changes in interest rates or markets for these instruments, our rate of return on these securities could be affected at the time of reinvestment, if any.

 

Item 4.  Controls and Procedures.

 

We carried out an evaluation, under the supervision and with the participation of our management including our President and Chief Executive Officer and our Chief Operating Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13-15(b) of the Exchange Act.  Based upon that evaluation, our President and Chief Executive Officer and our Chief Operating Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report. 

 

There was no change in our internal control over financial reporting during the third quarter of fiscal year 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II.  OTHER INFORMATION

 

Item 1.    Legal Proceedings. 

Other than as described below and lawsuits we have historically brought to enforce our patent rights we are not a party to any material pending legal proceedings other than that which arise in the ordinary course of business.  We believe that any liability that may ultimately result from the resolution of these matters will not, individually or in the aggregate, have a material adverse effect on our financial position or results of operations.

On November 5, 2018, a putative shareholder derivative complaint was filed in the Court of Chancery of the State of Delaware, captioned Howland v. Kumar et al., C.A. No. 2018-0804-KSJM (the “Derivative Action”), that alleged claims for breach of fiduciary duty and unjust enrichment.  The Derivative Action named as defendants certain of the Company’s current and former officers and directors (the “Individual Defendants”), and the Company was named solely as a nominal defendant.  On August 21, 2019, the Company entered into a settlement pursuant to which the Company agreed to certain changes in its corporate governance policies and to reprice certain stock options that were repriced on September 6, 2017 to $0.67 to the option price immediately prior to that repricing.  The Company also agreed to pay certain legal fees, with such fees to be paid from the Company’s D&O insurance.  As a result of this settlement, all of the claims asserted in the Derivative Action will be dismissed.  The Individual Defendants have denied, and continue to deny, any and all allegations of wrongdoing or liability asserted in the Derivative Action.  The Individual Defendants have further asserted, and continue to assert, that at all relevant times, they acted in good faith and in a manner that they reasonably believed to be in the best interests of the Company and its stockholders.  The Individual Defendants have entered into the settlement solely to eliminate the uncertainty, distraction, disruption, burden, risk, and expense of further litigation.

Item 1A.   Risk Factors.

 

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended October 31, 2018.

 

Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds.   None.

 

Item 3.      Defaults Upon Senior Securities.  None.

 

Item 4.      Mine Safety Disclosures.  Not Applicable.

 

Item 5.      Other Information. None.

 

 

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Item 6.      Exhibits.

 

10.1     Exclusive License Agreement, dated July 8, 2019, between Anixa Biosciences, Inc. and The Cleveland Clinic Foundation.  (Filed herewith.) 
(Certain information has been redacted in the marked portions of the exhibit.)

 

10.2     Amendment 1 to the Collaboration Agreement between Certainty Therapeutics, Inc. and H. Lee Moffitt Cancer Center and Research Institute, Inc.  (Filed herewith.)

31.1     Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated September 6, 2019.

31.2     Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated September 6, 2019.

32.1     Statement of Chief Executive Officer, pursuant to Section 1350 of Title 18 of the United States Code, dated September 6, 2019.

32.2     Statement of Chief Financial Officer, pursuant to Section 1350 of Title 18 of the United States Code, dated September 6, 2019.

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SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 


 

ANIXA BIOSCIENCES, INC.

By:/s/ Dr. Amit Kumar

Dr. Amit Kumar

Chairman, President and

Chief Executive Officer  

September 6, 2019   

(Principal Executive Officer)

By:/s/ Michael J. Catelani

Michael J. Catelani

Chief Operating Officer and

Chief Financial Officer

(Principal Financial and

September 6, 2019

Accounting Officer)

 

 

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