General
In reviewing Management's Discussion and Analysis of Financial Condition and
Results of Operations, you should refer to our Consolidated Financial Statements
and the notes related thereto.
Results of Operations
Fiscal Year ended October 31, 2020 compared with Fiscal Year ended October 31,
2019
Revenue
We did not have any revenue in fiscal year 2020. In fiscal year 2019, we
recorded revenue of $250,000 from one license agreement. The license agreement
provided for a one-time, non-recurring, lump sum payment in exchange for a
non-exclusive retroactive and future license, and covenant 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
performance obligations from the license were satisfied 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, Litigation and Licensing Expenses
Related to Patent Assertion
We did not have any inventor royalties, contingent legal fees, litigation and
licensing expenses related to patent assertion activities in fiscal year 2020.
In fiscal year 2019 inventor royalties, contingent legal fees, litigation and
licensing expenses related to patent assertion activities were approximately
$166,000. 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 was $-0- in fiscal year 2020 compared to approximately
$419,000 in fiscal year 2019. We capitalize patent and patent rights acquisition
costs and amortize the cost over the estimated economic useful life. The
carrying value of capitalized patents was reduced to $-0- as of October 31,
2019. During fiscal year 2020, we did not capitalize any patents or patent
rights.
Research and Development Expenses
Research and development expenses are related to the development of our cancer
diagnostics and therapeutics programs and our anti-viral drug program, and
decreased by approximately $1,092,000 to approximately $4,381,000 in fiscal year
2020, from approximately $5,473,000 in fiscal year 2019. The decrease in
research and development expenses was primarily due to a decrease in employee
stock award compensation expense of approximately $1,251,000 and a decrease in
Certainty's outside research and development expenses related to development of
CAR-T therapeutics of approximately $547,000, offset by an increase in Anixa
Diagnostics Corporation's outside research and development expense to develop
the Cchek™ artificial intelligence driven platform of non-invasive blood tests
for the early detection of cancer of approximately $561,000 and an increase in
outside research and development to develop anti-viral drug candidates against
COVID-19 of approximately $141,000.
34
Research and development expenses incurred in fiscal year 2020 associated with
each of our development programs consisted of approximately $2,455,000 for our
suspended as of July 2020 cancer diagnostics program, approximately $1,048,000
for CAR-T therapeutics, approximately $510,000 for anti-viral therapeutics, and
approximately $368,000 for cancer vaccines.
General and Administrative Expenses
General and administrative expenses decreased by approximately $66,000 to
approximately $5,597,000 in fiscal year 2020, from approximately $5,663,000 in
fiscal year 2019. The decrease in general and administrative expenses was
principally due to a decrease in employee stock award compensation expense of
approximately $704,000, a decrease in legal and accounting fees of approximately
$423,000 in fiscal year 2020 primarily related to fees incurred in fiscal year
2019 in connection with a putative shareholder derivative complaint which was
settled in August 2019, a decrease in expense resulting from the discharge in
January 2020 of a disputed liability of approximately $337,000 upon the
expiration of the vendor's statutory right to pursue collection of the disputed
liability, a decrease in patent expense of approximately $144,000 primarily
related to a patent expense reimbursement to Cleveland Clinic in fiscal year
2019, a decrease in investor and public relations expense of approximately
$107,000, offset by an increase in employee compensation and related costs,
other than equity-based compensation, of approximately $748,000, an increase in
employee and director stock option expense of approximately $460,000, an
increase in corporate insurance expense of approximately $230,000 primarily due
to an increase in our directors and officers insurance premium, an increase in
consultant expense related to our Cchek™ program of approximately $120,000 and
an increase in consultant stock option expense of approximately $94,000.
Impairment in Carrying Amount of Patent Assets
The impairment in carrying amount of patent assets related to our legacy patent
licensing activities recorded in fiscal year 2020 was $-0- compared to
approximately $419,000 in the fiscal year 2019. The impairment recorded in
fiscal year 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. The estimated undiscounted future cash flows was based on our
assessment of the market for potential licensees, as well as the status of
ongoing negotiations with potential licensees.
Loss on Disposal of Property and Equipment
Other expense was $148,000 in fiscal year 2020 compared to $-0- in fiscal year
2019. The other expense recorded in fiscal year 2020 represents loss on disposal
of property and equipment as a result of suspension of development of our Cchek™
program.
Interest Income
Interest income decreased to approximately $34,000 in fiscal year 2020 compared
to approximately $71,000 in fiscal year 2019, due to a decrease in interest
rates.
35
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 $98,000
to approximately $74,000 in fiscal year 2020, from approximately $172,000 in
fiscal year 2019, as Certainty's net loss decreased. The decrease in Certainty's
net loss was primarily due to a decrease in employee stock option and stock
award compensation expense of approximately $1,315,000 and a decrease in
research and development expense of approximately $547,000.
Liquidity and Capital Resources
Our primary sources of liquidity are cash, cash equivalents and short-term
investments.
Based on currently available information as of January 7, 2021, we believe that
our existing cash, cash equivalents, short-term investments and expected cash
flows will be sufficient to fund our activities for the next twelve months. We
have implemented a business model that conserves funds by collaborating with
third parties to develop our technologies. However, our projections of future
cash needs and cash flows may differ from actual results. If current cash on
hand, cash equivalents, short term investments and cash that may be generated
from our business operations are insufficient to continue to operate our
business, or if we elect to invest in or acquire a company or companies or new
technology or technologies that are synergistic with or complementary to our
technologies, we may be required to obtain more working capital. During fiscal
year 2020, we raised approximately $9,266,000, net of expenses, through
at-the-market equity offerings of 3,854,305 shares of common stock. This
included approximately $427,000, net of expenses, through the sale of 112,238
shares of common stock in an at-the market equity offering which expired in
November 2019 and approximately $8,839,000, net of expenses, through the sale of
3,742,067 shares of common stock in an at-the-market equity offering under which
we may issue up to $50 million of common stock. Under our current at-the-market
equity program which is currently effective and may remain available for us to
use in the future, as of October 31, 2020, we may sell an additional
approximately $40,811,000 of common stock. We may seek to obtain working capital
during our fiscal year 2021 or thereafter through sales of our equity securities
or through bank credit facilities or public or private debt from various
financial institutions where possible. We cannot be certain that additional
funding will be available on acceptable terms, or at all. If we do identify
sources for additional funding, the sale of additional equity securities or
convertible debt could result in dilution to our stockholders. We can give no
assurance that we will generate sufficient cash flows in the future to satisfy
our liquidity requirements or sustain future operations, or that other sources
of funding, such as sales of equity or debt, would be available or would be
approved by our security holders, if needed, on favorable terms or at all. If we
fail to obtain additional working capital as and when needed, such failure could
have a material adverse impact on our business, results of operations and
financial condition. Furthermore, such lack of funds may inhibit our ability to
respond to competitive pressures or unanticipated capital needs, or may force us
to reduce operating expenses, which would significantly harm the business and
development of operations.
During the year ended October 31, 2020, cash used in operating activities was
approximately $6,176,000. Cash used in investing activities was approximately
$306,000, resulting from the purchases of certificates of deposit totaling
$5,010,000 and the purchase of property and equipment of approximately $16,000,
which was offset by the proceeds on maturities of certificates of deposit
totaling $4,720,000. Cash provided by financing activities was approximately
$9,407,000, resulting from the sale of 3,854,305 shares of common stock in
at-the-market equity offerings of approximately $9,266,000, the proceeds from
exercise of stock options of approximately $122,000 and the proceeds from the
sale of common stock pursuant to employee stock purchase plan of approximately
$18,000. As a result, our cash, cash equivalents, and short-term investments at
October 31, 2020 increased approximately $3,215,000 to approximately $9,057,000
from approximately $5,842,000 at the end of fiscal year 2019.
Off-Balance Sheet Arrangements
We have no variable interest entities or other significant off-balance sheet
obligation arrangements.
36
Critical Accounting Policies
The Company's 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
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.
We believe that, of the significant accounting policies discussed in Note 2 to
our Consolidated Financial Statements, 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" using the modified
retrospective method. 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. Accordingly, the performance
obligations from these agreements were satisfied and 100% of the revenue was
recognized upon the execution of the agreements.
37
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). 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.
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. See Note 2 to the Consolidated Financial Statements for additional
information.
Effect of Recent Accounting Pronouncements
We discuss the effect of recently issued pronouncements in Note 2 to the
Consolidated Financial Statements.
© Edgar Online, source Glimpses
ANIXA BIOSCIENCES, INC. 
