0001493152-23-018686 | 10-Q | XBRL Viewer | Ayala Pharmaceuticals INC

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SUMMARY OF LEASE COSTS (Details) - USD ($) $ in Thousands	3 Months Ended
SUMMARY OF LEASE COSTS (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Mar. 31, 2022
Commitments and Contingencies Disclosure [Abstract]
Operating lease cost	$ 126	$ 112
Variable lease cost	2
Total lease cost	$ 128	$ 112

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Balance value at Dec. 31, 2021	$ 3	$ 145,296	$ (111,141)	$ 34,158
Balance, shares at Dec. 31, 2021	2,615,360
Share based compensation		643		643
Stock-based compensation, shares	2,219
Proceeds from issuance of common stock and warrants, net of issuance cost of $3		44		44
Stock-based compensation, shares	918
Net Loss			(9,953)	(9,953)
Balance value at Mar. 31, 2022	$ 3	145,983	(121,094)	24,892
Balance, shares at Mar. 31, 2022	2,618,497
Balance value at Dec. 31, 2022	$ 3	148,052	(149,154)	(1,099)
Balance, shares at Dec. 31, 2022	2,695,067
Share based compensation		1,186		$ 1,186
Stock-based compensation, shares	15,530
Stock-based compensation, shares				0.1874
Net Loss			(7,361)	$ (7,361)
Issuance of shares upon Merger, net of issuance costs of $3,153	$ 2	16,947		16,949
Issuance of shares upon Merger, shares	2,062,143
Balance value at Mar. 31, 2023	$ 5	$ 166,185	$ (156,515)	$ 9,675
Balance, shares at Mar. 31, 2023	4,772,740

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

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- Definition

Equity impact of the value of new stock issued during the period. Includes shares issued in an initial public offering or a secondary public offering.

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Amount of equity (deficit) attributable to parent. Excludes temporary equity and equity attributable to noncontrolling interest.

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+ Details

REVENUES (Details Narrative) - USD ($) $ in Thousands	3 Months Ended
REVENUES (Details Narrative) - USD ($) $ in Thousands	Mar. 31, 2023	Mar. 31, 2022
Revenue from Contract with Customer [Abstract]
Revenues	$ 4	$ 458

- Definition

Amount of revenue recognized from goods sold, services rendered, insurance premiums, or other activities that constitute an earning process. Includes, but is not limited to, investment and interest income before deduction of interest expense when recognized as a component of revenue, and sales and trading gain (loss).

+ References

+ Details

SCHEDULE OF RECONCILIATION OF COMPANY’S UNRECOGNIZED TAX BENEFITS (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Income Tax Disclosure [Abstract]
Uncertain tax position at the beginning of the period	$ 1,323	$ 858
Additions for uncertain tax position of prior years (foreign exchange and interest)	11	36
Subtractions for tax positions of previous period	(7)
Additions for tax positions of current period	251	429
Uncertain tax position at the end of the period	$ 1,578	$ 1,323

SCHEDULE OF FUTURE PAYMENTS OF OPERATING LEASE LIABILITIES (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Commitments and Contingencies Disclosure [Abstract]
2023	$ 319
2024	345
2025	309
2026	308
2027	308
After 2027	308
Total undiscounted lease payments	2,000
Less: Interest	337
Total lease liabilities - operating	$ 1,663	$ 1,751

SCHEDULE OF ASSUMPTIONS USED IN WARRANT LIABILITY (Details) - Warrant Liability [Member] - Private Placement [Member]	Mar. 31, 2023 $ / shares	Jan. 19, 2023 $ / shares
Exercise Price	$ 55.73	$ 55.73
Stock Price	$ 1.25	$ 2.95
Measurement Input, Expected Term [Member]
Expected term	4 years 11 months 23 days	4 years 11 months 23 days
Measurement Input, Price Volatility [Member]
Measurement input percentage	119	117
Measurement Input, Risk Free Interest Rate [Member]
Measurement input percentage	3.61	3.60

SCHEDULE OF CASH FLOW INFORMATION RELATED TO LEASES (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Commitments and Contingencies Disclosure [Abstract]
Cash paid for amounts included in the measurement of lease liabilities	$ 109	$ 109
Right of use assets obtained in exchange for operating lease liabilities	$ 65	$ 1,751

SCHEDULE OF FAIR VALUE OF INTANGIBLE ASSETS ACQUIRED (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Jan. 19, 2023
Accounting Policies [Abstract]
Cash and cash equivalents		$ 22,539
Prepaid expenses and other current assets		300
Property and equipment, net		34
Intangible assets	$ 130	130
Operating right-of-use asset		5
Other assets		11
Total assets		23,019
Common stock warrant liability		(203)
Other current liabilities and trade payables		(2,714)
Total liabilities		(2,917)
Net assets acquired		$ 20,102

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
CURRENT ASSETS:
Cash and cash equivalents	$ 16,839	$ 2,408
Short-term restricted bank deposits	108	110
Trade receivables	4	234
Prepaid expenses and other current assets	1,310	436
Total current assets	18,261	3,188
LONG-TERM ASSETS:
Deferred issuance costs		1,953
Other assets	212	206
Operating lease right of use asset	1,442	1,462
Intangible assets, net	130
Property and equipment, net	950	960
Total long-term assets	2,734	4,581
Total assets	20,995	7,769
CURRENT LIABILITIES:
Trade payable	4,140	4,080
Operating lease liabilities	253	419
Accrued expenses	2,026	551
Accrued payroll and employee benefits	1,728	994
Other accounts payable	1,686	1,492
Total current liabilities	9,833	7,536
LONG TERM LIABILITIES:
Long-term warrant liability	77
Long-term operating lease liabilities	1,410	1,332
Total long-term liabilities	1,487	1,332
STOCKHOLDERS’ EQUITY:
Common Stock of $0.001 par value per share; 170,000,000 and 37,480,000 shares authorized on March 31, 2023 and on December 31, 2022, respectively; 4,838,321 and 2,775,906 shares issued and on March 31, 2023 and December 31, 2022, respectively; 4,772,740 and 2,695,067 shares outstanding at March 31, 2023 and December 31, 2022, respectively.	5	3
Additional paid-in capital*	166,185	148,052
Accumulated deficit	(156,515)	(149,154)
Total stockholders’ equity	9,675	(1,099)
Total liabilities and stockholders’ equity	$ 20,995	$ 7,769

SCHEDULE OF OPERATING RIGHT OF USE ASSETS AND LEASE LIABILITIES (Details) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Property, Plant and Equipment [Line Items]
Operating right-of-use asset	$ 1,442	$ 1,462
Total lease liabilities	1,663	1,751
Current lease liabilities	253	419
Non-current lease liabilities	1,410	1,332
Officer [Member]
Property, Plant and Equipment [Line Items]
Operating right-of-use asset	1,312	1,273
Total lease liabilities	1,550	1,612
Cars [Member]
Property, Plant and Equipment [Line Items]
Operating right-of-use asset	130	189
Total lease liabilities	$ 113	$ 139

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (Parenthetical) $ in Thousands	3 Months Ended
	Mar. 31, 2023 USD ($)
Statement of Stockholders' Equity [Abstract]
Net of issuance merge	$ 3,153

REVENUES

3 Months Ended

Mar. 31, 2023

Revenue from Contract with Customer [Abstract]

REVENUES

NOTE 2—REVENUES

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which applies to all contracts with customers.

At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within the contract and determines those that are performance obligations and assesses whether each promised good or service is distinct.

Revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services.

In December 2018, the Company entered into an evaluation, option and license agreement (the “Novartis Agreement”) with Novartis International Pharmaceutical Limited (“Novartis”) for which the Company is paid for its research and development costs.

The Company concluded that there is one distinct performance obligation under the Novartis Agreement: Research and development services, an obligation which is satisfied over time.

Revenue associated with the research and development services in the amount of approximately $4 thousand was recognized in the three months ended March 31, 2023.

Revenue associated with the research and development services in the amount of approximately $0.5 million was recognized in the three months ended March 31, 2022.

The Company concluded that progress towards completion of the research and development performance obligation related to the Novartis Agreement is best measured in an amount proportional to the expenses relative to the total estimated expenses. The Company periodically reviews and updates its estimates, when appropriate, which may adjust revenue recognized for the period. Most of the company’s revenues derive from the Novartis Agreement, for which revenues consist of reimbursable research and development costs. On June 2, 2022, Novartis informed the Company that Novartis does not intend to exercise its option to obtain an exclusive license for AL102, thereby terminating the agreement.

AYALA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

- Definition

The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 9
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479806/606-10-50-9

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 10
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479806/606-10-50-10

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 15
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479806/606-10-50-15

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 12
-Subparagraph (a)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479806/606-10-50-12

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 12
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479806/606-10-50-12

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 12
-Subparagraph (c)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479806/606-10-50-12

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 12
-Subparagraph (d)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479806/606-10-50-12

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 12
-Subparagraph (e)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479806/606-10-50-12

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Topic 606
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 13
-Subparagraph (b)(2)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147479806/606-10-50-13

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Name Accounting Standards Codification
-Topic 606
-Publisher FASB
-URI https://asc.fasb.org//606/tableOfContent

+ Details

Cover - shares	3 Months Ended
Cover - shares	Mar. 31, 2023	May 23, 2023
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Mar. 31, 2023
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2023
Current Fiscal Year End Date	--12-31
Entity File Number	001-36138
Entity Registrant Name	AYALA PHARMACEUTICALS, INC.
Entity Central Index Key	0001100397
Entity Tax Identification Number	02-0563870
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	9 Deer Park Drive
Entity Address, Address Line Two	Suite K-1
Entity Address, City or Town	Monmouth Junction
Entity Address, State or Province	NJ
Entity Address, Postal Zip Code	08852
City Area Code	(609)
Local Phone Number	452-9813
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		4,838,321

TAX (Tables)

3 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

SCHEDULE OF RECONCILIATION OF COMPANY’S UNRECOGNIZED TAX BENEFITS

	Three months ended March 31,			Year ended December 31,
	2023			2022
	(In thousands)			(In thousands)
Uncertain tax position at the beginning of the period	$	1,323		$	858
Additions for uncertain tax position of prior years (foreign exchange and interest)		11			36
Subtractions for tax positions of previous period		(7	)
Additions for tax positions of current period		251			429
Uncertain tax position at the end of the period	$	1,578		$	1,323

COMMON STOCK PURCHASE WARRANTS AND WARRANT LIABILITY (Tables)

3 Months Ended

Mar. 31, 2023

Common Stock Purchase Warrants And Warrant Liability

SCHEDULE OF WARRANTS OUTSTANDING

Exercise Price		Number of Shares Underlying Warrants			Expiration Date	Type of Financing
$	2.79		879		September 2024	September 2018 Public Offering
$	224.00		4,092		July 2024	July 2019 Public Offering
$	28.00		57,230		November 2025	November 2020 Public Offering
$	56.00		140,552		April 2026	April 2021 Registered Direct Offering (Accompanying Warrants)
$	56.00		175,065		5 years after the date such warrants become exercisable, if ever	April 2021 Private Placement (Private Placement Warrants)
$	96.58		87,453	*	February 2024	February 2021 Private Placement (issued by Old Ayala)
	Grand Total		465,271

* Exercise price and warrant numbers of Old Ayala’s warrants have been retroactively adjusted for the impact of the Merger, see note 1.

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

Shares Weighted
Average
Exercise Price Weighted
Average
Remaining
Contractual Life
In Years Aggregate
Intrinsic Value

Outstanding and exercisable warrants at December 31, 2022 337,320 $ 25.08 1.14 $ 86,613

Issuance of warrants upon Merger 377,818 * 53.45 *

Exercised (249,867 )* 0.05 *

Outstanding warrants at March 31, 2023 465,271 * $ 61.56 * 3.15 $ -

Exercisable warrants at March 31, 2023
290,206
$
64.92

2.29
$ -

* Exercise price and warrant numbers have been retroactively adjusted for the impact of the Merger, see note 1.

SCHEDULE OF ASSUMPTIONS USED IN WARRANT LIABILITY

In measuring the warrant liability for the warrants issued in the April 2021 Private Placement and September 2018 Public Offering at March 31, 2023, the Company used the following inputs in its Black Scholes model:

	March 31, 2023			January 19, 2023
Exercise Price	$	55.73		$	55.73
Stock Price	$	1.25		$	2.95
Expected Term		4.98 years			4.98 years
Volatility %		119	%		117	%
Risk Free Rate		3.61	%		3.60	%

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2023	Dec. 31, 2022
Statement of Financial Position [Abstract]
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	170,000,000	37,480,000
Common stock, shares issued	4,838,321	2,775,906
Common stock, shares outstanding	4,772,740	2,695,067

COMMON STOCK PURCHASE WARRANTS AND WARRANT LIABILITY

3 Months Ended

Mar. 31, 2023

Common Stock Purchase Warrants And Warrant Liability

COMMON STOCK PURCHASE WARRANTS AND WARRANT LIABILITY

NOTE 4 – COMMON STOCK PURCHASE WARRANTS AND WARRANT LIABILITY

Common Stock Rights

The Common Stock confer upon the holders the right vote in annual and special meetings of the Company, and to participate in the distribution of the surplus assets of the Company upon liquidation of the Company, after the distribution of the preferred stock liquidation preference.

Warrants

As of March 31, 2023, there were 465,271 warrants outstanding of which 290,206 were exercisable warrants to purchase shares of our common stock, with exercise prices ranging from $2.79 to $224.00 per share. As of December 31, 2022, there were outstanding and exercisable warrants to purchase 337,320*, shares of our common stock with exercise prices ranging from $0.05* to $96.58* per share. Information on the outstanding warrants as of March 31, 2023 is as follows:

SCHEDULE OF WARRANTS OUTSTANDING

Exercise Price Number of
Shares
Underlying
Warrants Expiration Date Type of Financing

$ 2.79 879 September 2024 September 2018 Public Offering

$ 224.00 4,092 July 2024 July 2019 Public Offering

$ 28.00 57,230 November 2025 November 2020 Public Offering

$ 56.00 140,552 April 2026 April 2021 Registered Direct Offering (Accompanying Warrants)

$ 56.00 175,065 5 years after the date such warrants become exercisable, if ever April 2021 Private Placement (Private Placement Warrants)

$ 96.58 87,453 * February 2024
February 2021 Private Placement

(issued by Old Ayala)

Grand Total 465,271

* Exercise price and warrant numbers of Old Ayala’s warrants have been retroactively adjusted for the impact of the Merger, see note 1.

AYALA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of March 31, 2023, the Company had 289,327 of its total 465,271 outstanding warrants classified as equity (equity warrants). As of December 31, 2022, all outstanding warrants were classified as equity (equity warrants). At issuance, equity warrants are recorded in Additional Paid-In Capital in the shareholders equity section of the consolidated balance sheets.

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

Shares Weighted
Average
Exercise Price Weighted
Average
Remaining
Contractual Life
In Years Aggregate
Intrinsic Value

Outstanding and exercisable warrants at December 31, 2022 337,320 $ 25.08 1.14 $ 86,613

Issuance of warrants upon Merger 377,818 * 53.45 *

Exercised (249,867 )* 0.05 *

Outstanding warrants at March 31, 2023 465,271 * $ 61.56 * 3.15 $ -

Exercisable warrants at March 31, 2023
290,206
$
64.92

2.29
$ -

* Exercise price and warrant numbers have been retroactively adjusted for the impact of the Merger, see note 1.

Shares Issued for Warrants Exercises

During the three months ended March 31, 2023, pre-funded warrant holders from the Old Ayala’s February 2019 Offering automatically net exercised 249,867 warrants in exchange for 246,192 shares of the Company’s common stock in accordance with their terms.

Warrant Liability

The warrants issued in the April 2021 Private Placement will become exercisable only on such day, if ever, that is 14 days after the Company files an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock, $0.001 par value per share from 170,000,000 shares to 300,000,000 shares. These warrants expire five years after the date they become exercisable. As of March 31, 2023, the Company did not have sufficient authorized common stock to allow for the issuance of common stock underlying these warrants. Accordingly, based on certain indemnification provisions of the securities purchase agreement, the Company concluded that liability classification is warranted. The Company utilized the Black Scholes model to calculate the fair value of these warrants at the merger and reporting date.

The September 2018 Public Offering warrants contain a down round feature, except for exempt issuances as defined in the warrant agreement, in which the exercise price would immediately be reduced to match a dilutive issuance of common stock, options, convertible securities and changes in option price or rate of conversion. As of March 31, 2023, the down round feature was triggered five times and the exercise price of the warrants were reduced from $1,800.00 to $2.79. The warrants require liability classification as the warrant agreement requires the Company to maintain an effective registration statement and does not specify any circumstances under which settlement in other than cash would be permitted or required. In addition, the contract contains an unpermitted adjustment to the exercise price, and therefore preclude an equity classification. As a result, net cash settlement is assumed and liability classification is warranted. The Company utilized the Black Scholes model to calculate the fair value of these warrants at the merger and reporting date.

In measuring the warrant liability for the warrants issued in the April 2021 Private Placement and September 2018 Public Offering at March 31, 2023, the Company used the following inputs in its Black Scholes model:

March 31, 2023 January 19, 2023

Exercise Price $ 55.73 $ 55.73

Stock Price $ 1.25 $ 2.95

Expected Term 4.98 years 4.98 years

Volatility % 119 % 117 %

Risk Free Rate 3.61 % 3.60 %

For the three months ended March 31, 2023, the Company reported a gain of approximately $126 due to changes in the fair value of the warrant liability.

AYALA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

SCHEDULE OF FAIR VALUE OF INTANGIBLE ASSETS ACQUIRED

The following is a preliminary estimate of the fair value of acquired identifiable assets and assumed liabilities of former Advaxis which includes preliminary adjustments to reflect the fair value of intangible assets acquired (in thousands) as of January 19, 2023:

	Amounts
Cash and cash equivalents	$	22,539
Prepaid expenses and other current assets		300
Property and equipment, net		34
Intangible assets		130
Operating right-of-use asset		5
Other assets		11
Total assets		23,019

Common stock warrant liability		(203	)
Other current liabilities and trade payables		(2,714	)
Total liabilities		(2,917	)
Net assets acquired	$	20,102

SCHEDULE OF PRO FORMA FINANCIAL INFORMATION

The following unaudited table provides certain pro forma financial information for the Company as if the Merger occurred on January 1, 2022 (in thousands except per share amounts):

	Three months ended March 31,			Three months ended March 31,
	2023			2022
		Unaudited			Unaudited
Revenue	$	4		$	458
Net loss	$	(6,892	)	$	(11,666	)

Condensed Consolidated Statement of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (7,361)	$ (9,953)
Adjustments to reconcile net loss to net cash used in operating activities:
Shared based compensation	1,186	643
Depreciation	44	30
Remeasurement of long term warrant liability	(126)
Foreign currency loss, net	36
(Increase) decrease in prepaid expenses and other assets	(574)	1,184
Decrease (increase) in trade receivables	230	(638)
Decrease in trade payables	(892)	(651)
Decrease in operating lease right-of-use assets	89	72
Decrease in operating lease liabilities	(158)	(207)
Increase (decrease) accrued expenses	(1,351)	(55)
Increase in accrued payroll and employee benefits	1,689	79
Increase (decrease) in other accounts payable	447	(488)
Net cash used in operating activities	(6,741)	(9,984)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of shares, net of issuance cost of $3		44
Issuance of shares upon merger, net of issuance costs	21,201
Net cash provided by financing activities	21,201	44
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(36)
Increase (decrease) in cash and cash equivalents and restricted cash	14,424	(9,940)
Cash and cash equivalents and restricted cash at beginning of the period	2,724	37,339
Cash and cash equivalents and restricted cash at end of the period	17,148	27,399
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Non-cash issuance costs in relation to the merger	1,200
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Tax paid in cash	202	64
Cash and cash equivalents	16,839	27,050
Restricted bank deposits	108	122
Restricted bank deposits in other assets	201	227
Cash and cash equivalents and restricted cash at end of the period	$ 17,148	$ 27,399

SIGNIFICANT ACCOUNTING POLICIES (Policies)	3 Months Ended
SIGNIFICANT ACCOUNTING POLICIES (Policies)	Mar. 31, 2023
Accounting Policies [Abstract]
Going Concern	*Going Concern* The Company has incurred recurring losses since inception as a research and development organization and has an accumulated deficit of $156.5 million as of March 31, 2023. For the three months ended March 31, 2023, the Company used approximately $6.7 million of cash in operations. The Company has relied on its ability to fund its operations through public and private equity financings. The Company expects operating losses and negative cash flows to continue at significant levels in the future as it continues its clinical trials. As of March 31, 2023, the Company had approximately $16.8 million in cash and cash equivalents, which, without additional funding, the Company believes will not be sufficient to meet its obligations within the next twelve months from the date of issuance of these condensed consolidated financial statements. The Company plans to continue to fund its operations through public or private debt and equity financings, but there can be no assurances that such financing will continue to be available to the Company on satisfactory terms, or at all. If the Company is unable to obtain funding, the Company would be forced to delay, reduce, or eliminate its research and development programs, which could adversely affect its business prospects, or the Company may be unable to continue operations. As such, those factors raise substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Therefore, the unaudited condensed consolidated financial statements for the three months ended March 31, 2023, do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.
Basis of Presentation	*Basis of Presentation* The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Accordingly, they do not include all the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments (of a normal recurring nature) considered necessary for a fair statement of the results for the interim periods presented have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2022, included in the Annual Report on Form 10-K of Old Ayala filed for the year ended December 31, 2022 (the “Old Ayala 2022 Form 10-K”) with the Securities and Exchange Commission (the “SEC”) on March 31, 2023 and the Annual Report on Form 10-K of the Company filed for the year ended October 31, 2022 (the “Form 10-K”) with the SEC on February 10, 2023. The Company’s significant accounting policies have not changed materially from those included in note 2 of the Company’s consolidated financial statements for the year ended December 31, 2022, included in the Old Ayala 2022 Form 10-K and the Form 10-K, unless otherwise stated.
Use of estimates	*Use of estimates* The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. The Company’s management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the unaudited condensed consolidated financial statements. Actual results could differ from those estimates. AYALA PHARMACEUTICALS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1—SIGNIFICANT ACCOUNTING POLICIES (continued):
Net Loss per Share	*Net Loss per Share* Basic loss per share is computed by dividing the net loss by the weighted average number of shares of Common Stock outstanding during the period. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of Common Stock outstanding together with the number of additional shares of Common Stock that would have been outstanding if all potentially dilutive shares of Common Stock had been issued. Diluted net loss per share is the same as basic net loss per share in periods when the effects of potentially dilutive shares of Common Stock are anti-dilutive. The calculation of basic and diluted loss per share includes 249,867 pre-funded warrants, which as part of Merger converted to common stock, for the three months ended March 31, 2023. The calculation of basic and diluted loss per share includes 249,867 pre-funded warrants for the three months ended March 31, 2022. All of the Common Stock, exercise prices and per share data have been retroactively adjusted for the impact of the Merger. The shares have been adjusted to the merger ratio of 0.1874.
Fair value of financial instruments	*Fair value of financial instruments* The Company measures and discloses the fair value of financial assets and liabilities in accordance with ASC Topic 820, “Fair Value Measurement.” Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Restricted bank deposits, trade receivables, trade payables are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date. Warrants liabilities are stated at fair value on a recurring basis.
Recently Adopted Accounting Pronouncements	*Recently Adopted Accounting Pronouncements* In June 2016, the FASB issued ASU No. 2016-13 (Topic 326), Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments, which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The new guidance was effective for the Company on January 1, 2023 and the adoption did not have a material impact on the Company’s consolidated financial statements.

COMMON STOCK PURCHASE WARRANTS AND WARRANT LIABILITY (Details Narrative) - USD ($)
$ / shares in Units, $ in Thousands

3 Months Ended

Mar. 31, 2023

Dec. 31, 2022

Oct. 31, 2022

Number of shares underlying warrants

465,271

465,271,000

Class of Warrant or Right, Number of Securities Called by Warrants or Rights

289,327

Warrant exchanges of shares

^[1]

249,867

Common Stock, Par or Stated Value Per Share

$ 0.001

Gain on fair value of warrant liability

$ 126

Minimum [Member]

Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Shares Authorized

300,000,000

Maximum [Member]

Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Shares Authorized

170,000,000

Warrant [Member]

Number of shares underlying warrants

290,206

Warrant exchanges of shares

249,867

Warrant [Member] | Minimum [Member]

Warrant exercise price per share

$ 2.79

Warrant [Member] | Maximum [Member]

Warrant exercise price per share

$ 224.00

Common Stock [Member]

Number of shares underlying warrants

337,320

Warrant exchanges of shares

246,192

Common Stock [Member] | Minimum [Member]

Warrant exercise price per share

$ 0.05

Common Stock [Member] | Maximum [Member]

Warrant exercise price per share

$ 96.58

Warrant Liability [Member] | Minimum [Member]

Warrant exercise price per share

$ 2.79

Warrant Liability [Member] | Maximum [Member]

Warrant exercise price per share

$ 1,800.00

[1]	Exercise price and warrant numbers have been retroactively adjusted for the impact of the Merger, see note 1.

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Income Statement [Abstract]
Revenues from license agreement	$ 4	$ 458
Cost of revenue	(4)	(368)
Gross profit		90
Operating expenses:
Research and development	7,265	7,503
General and administrative	4,604	2,433
Operating loss	(11,869)	(9,846)
Financial income, net	301	82
Loss before income tax	(11,568)	(9,764)
Taxes on income	4,207	(189)
Net loss	$ (7,361)	$ (9,953)
Net loss per share, basic and diluted	$ (1.67)	$ (3.47)
Weighted average common shares outstanding, basic and diluted*	4,405,286	2,867,420

TAX (Details Narrative) - USD ($)	3 Months Ended	12 Months Ended
TAX (Details Narrative) - USD ($)	Mar. 31, 2023	Dec. 31, 2022	Mar. 31, 2022
Income Tax Disclosure [Abstract]
Uncertain tax position liability	$ 1,600,000	$ 1,300,000
Interest related to uncertain tax positions	90,000		$ 79,000
Operating Loss Carryforwards	$ 4,675

TAX

3 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

TAX

NOTE 3—TAX

The Company has reviewed the tax positions taken, or to be taken, in its tax returns for all tax years currently open to examination by a taxing authority. As of March 31, 2023 and December 31, 2022, the Company has recorded an uncertain tax position liability exclusive of interest and penalties of $1.6 million and $1.3 million, respectively, which were classified as other accounts payable. As of March 31, 2023 and December 31, 2022, the Company accrued interest related to uncertain tax positions of $90 thousand and $79 thousand, respectively. The interest is recorded as part of financial expenses. These uncertain tax positions would impact the Company’s effective tax rate, if recognized. A reconciliation of the Company’s unrecognized tax benefits is below:

	Three months ended March 31,			Year ended December 31,
	2023			2022
	(In thousands)			(In thousands)
Uncertain tax position at the beginning of the period	$	1,323		$	858
Additions for uncertain tax position of prior years (foreign exchange and interest)		11			36
Subtractions for tax positions of previous period		(7	)
Additions for tax positions of current period		251			429
Uncertain tax position at the end of the period	$	1,578		$	1,323

The Company files U.S. federal, various U.S. state and Israeli income tax returns. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate. In the United States and Israel, the 2018 and subsequent tax years remain subject to examination by the applicable taxing authorities as of March 31, 2023.

In March 2023, the Company received $4,675 proceeds from the sale of our Net Operating Losses (“NOLs”) under the State of New Jersey NOL Transfer Program. This was recorded as a tax benefit and offset against income tax expense in the consolidated statement of operations.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
-SubTopic 20
-Name Accounting Standards Codification
-Section 50
-Paragraph 13
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480990/946-20-50-13

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 235
-SubTopic 10
-Name Accounting Standards Codification
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(h)(2))
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480678/235-10-S99-1

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-Name Accounting Standards Codification
-Publisher FASB
-URI https://asc.fasb.org//740/tableOfContent

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Topic 740
-SubTopic 10
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+ Details

SCHEDULE OF PRO FORMA FINANCIAL INFORMATION (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Accounting Policies [Abstract]
Revenue	$ 4	$ 458
Net loss	$ (6,892)	$ (11,666)

COMMITMENTS AND CONTINGENT LIABILITIES

3 Months Ended

Mar. 31, 2023

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENT LIABILITIES

NOTE 5—COMMITMENTS AND CONTINGENT LIABILITIES

In January 2019, the Company’s wholly owned Israeli subsidiary, Ayala-Oncology Israel Ltd. (the “Subsidiary”), signed a new lease agreement. The term of the lease is for 63 months and includes an option to extend the lease for an additional 60 months. As part of the agreement, the lessor also provided the Company an amount of approximately $0.5 million paid in arrears for leasehold improvements. The amount was recorded as an incentive and is taken into account when computing the Right of Use (“ROU”) asset.

The Subsidiary obtained a bank guarantee in the amount of approximately $0.2 million for its new office lease agreement.

On March 25, 2021, the Company entered into a one-year lease agreement for its corporate office/lab with base rent of approximately $29 per year, plus other expenses. In September 2021, the Company exercised its option to renew the lease, extending the lease term until March 31, 2023. On March 25, 2023 the Company signed an extension up to March 31, 2025, with base rent of approximately $36 per year. The Company recorded an ROU asset and liability of approximately $65.

The Company has the following operating ROU assets and lease liabilities:

	March 31, 2023
	ROU assets		Lease liabilities
Offices	$	1,312	$	1,550
Cars		130		113
Total operating leases	$	1,442	$	1,663

	December 31, 2022
	ROU assets		Lease liabilities
Offices	$	1,273	$	1,612
Cars		189		139
Total operating leases	$	1,462	$	1,751

	March 31, 2023		December 31, 2022
	Lease liabilities		Lease liabilities
Current lease liabilities	$	253	$	419
Non-current lease liabilities		1,410		1,332
Total lease liabilities	$	1,663	$	1,751

The following table summarizes the lease costs recognized in the condensed consolidated statement of operations:

	March 31, 2023		March 31, 2022
Operating lease cost	$	126	$	112
Variable lease cost		2		-
Total lease cost	$	128	$	112

As of March 31, 2023, the weighted-average remaining lease term and weighted-average discount rate for operating leases are 3.16 years and 7.5%, respectively. The following table presents supplementary cash flow information regarding the Company’s operating leases:

	March 31, 2023		March 31, 2022
Cash paid for amounts included in the measurement of lease liabilities	$	109	$	109
Right of use assets obtained in exchange for operating lease liabilities	$	65	$	1,751

The following table summarizes the future payments of the Company for its operating lease liabilities:

	March 31, 2023
2023	$	319
2024		345
2025		309
2026		308
2027		308
After 2027		308
Total undiscounted lease payments	$	2,000
Less: Interest		337
Total lease liabilities - operating	$	1,663

Asset Transfer and License Agreement with Bristol-Myers Squibb Company.

In November 2017, the Company entered into a license agreement, or the BMS License Agreement, with Bristol-Myers Squibb Company, or BMS, under which BMS granted the Company a worldwide, non-transferable, exclusive, sublicensable license under certain patent rights and know-how controlled by BMS to research, discover, develop, make, have made, use, sell, offer to sell, export, import and commercialize AL101 and AL102, or the BMS Licensed Compounds, and products containing AL101 or AL102, or the BMS Licensed Products, for all uses including the prevention, treatment or control of any human or animal disease, disorder or condition.

Under the BMS License Agreement, the Company is obligated to use commercially reasonable efforts to develop at least one BMS Licensed Product. The Company has sole responsibility for, and bear the cost of, conducting research and development and preparing all regulatory filings and related submissions with respect to the BMS Licensed Compounds and/or BMS Licensed Products. BMS has assigned and transferred all INDs for the BMS Licensed Compounds to the Company. The Company is also required to use commercially reasonable efforts to obtain regulatory approvals in certain major market countries for at least one BMS Licensed Product, as well as to affect the first commercial sale of and commercialize each BMS Licensed Product after obtaining such regulatory approval. The Company has sole responsibility for, and bear the cost of, commercializing BMS Licensed Products. For a limited period of time, the Company may not engage directly or indirectly in the clinical development or commercialization of a Notch inhibitor molecule that is not a BMS Licensed Compound.

AYALA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5—COMMITMENTS AND CONTINGENT LIABILITIES (continued):

The Company is required to pay BMS payments upon the achievement of certain development or regulatory milestone events of up to $95 million in the aggregate with respect to the first BMS Licensed Compound to achieve each such event and up to $47 million in the aggregate with respect to each additional BMS Licensed Compound to achieve each such event. The Company is also obligated to pay BMS payments of up to $50 million in the aggregate for each BMS Licensed Product that achieves certain sales-based milestone events and tiered royalties on net sales of each BMS Licensed Product by the Company or its affiliates or sublicensees at rates ranging from a high single-digit to low teen percentage, depending on the total annual worldwide net sales of each such Licensed Product. If the Company sublicenses or assigns any rights to the licensed patents, the BMS Licensed Compounds and/or the BMS Licensed Products, the Company is required to share with BMS a portion of all consideration received from such sublicense or assignment, ranging from a mid-teen to mid-double-digit percentage, depending on the development stage of the most advanced BMS Licensed Compound or BMS Licensed Product that is subject to the applicable sublicense or assignment, but such portion may be reduced based on the milestone or royalty payments that are payable by the Company to BMS under the BMS License Agreement.

The Company accounted for the acquisition of the rights granted by BMS as an asset acquisition because it did not meet the definition of a business. The Company recorded the total consideration transferred and value of shares issued to BMS as research and development expense in the consolidated statement of operations as incurred since the acquired rights granted by BMS represented in-process research and development and had no alternative future use.

The Company accounts for contingent consideration payable upon achievement of sales milestones in such asset acquisitions when the underlying contingency is resolved.

The BMS License Agreement remains in effect, on a country-by-country and BMS Licensed Product-by-BMS Licensed Product basis, until the expiration of royalty obligations with respect to a given BMS Licensed Product in the applicable country. Royalties are paid on a country-by-country and BMS Licensed Product-by-BMS Licensed Product basis from the first commercial sale of a particular BMS Licensed Product in a country until the latest of 10 years after the first commercial sale of such BMS Licensed Product in such country, (b) when such BMS Licensed Product is no longer covered by a valid claim in the licensed patent rights in such country, or (c) the expiration of any regulatory or marketing exclusivity for such BMS Licensed Product in such country. Any inventions, and related patent rights, invented solely by either party pursuant to activities conducted under the BMS License Agreement shall be solely owned by such party, and any inventions, and related patent rights, conceived of jointly by the Company and BMS pursuant to activities conducted under the BMS License Agreement shall be jointly owned by the Company and BMS, with BMS’s rights thereto included in the Company’s exclusive license. The Company has the first right—with reasonable consultation with, or participation by, BMS—to prepare, prosecute, maintain and enforce the licensed patents, at the Company’s expense.

BMS has the right to terminate the BMS License Agreement in its entirety upon written notice to the Company (a) for insolvency-related events involving the Company, (b) for the Company’s material breach of the BMS License Agreement if such breach remains uncured for a defined period of time, for the Company’s failure to fulfill its obligations to develop or commercialize the BMS Licensed Compounds and/or BMS Licensed Products not remedied within a defined period of time following written notice by BMS, or (d) if the Company or its affiliates commence any action challenging the validity, scope, enforceability or patentability of any of the licensed patent rights. The Company has the right to terminate the BMS License Agreement (a) for convenience upon prior written notice to BMS, the length of notice dependent on whether a BMS Licensed Project has received regulatory approval, (b) upon immediate written notice to BMS for insolvency-related events involving BMS, (c) for BMS’s material breach of the BMS License Agreement if such breach remains uncured for a defined period of time, or (d) on a BMS Licensed Compound-by-BMS Licensed Compound and/or BMS Licensed Product-by-BMS Licensed Product basis upon immediate written notice to BMS if the Company reasonably determine that there are unexpected safety and public health issues relating to the applicable BMS Licensed Compounds and/or BMS Licensed Products.

Upon termination of the BMS License Agreement in its entirety by the Company for convenience or by BMS, the Company grants an exclusive, non-transferable, sublicensable, worldwide license to BMS under certain of its patent rights that are necessary to develop, manufacture or commercialize BMS Licensed Compounds or BMS Licensed Products. In exchange for such license, BMS must pay the Company a low single-digit percentage royalty on net sales of the BMS Licensed Compounds and/or BMS Licensed Products by it or its affiliates, licensees or sublicensees, provided that the termination occurred after a specified developmental milestone for such BMS Licensed Compounds and/ or BMS Licensed Products.

Option and License Agreement with Novartis International Pharmaceutical Ltd.

In December 2018, the Company entered into an evaluation, option and license agreement, or the Novartis Option Agreement, with Novartis International Pharmaceutical Limited, or Novartis, pursuant to which Novartis agreed to conduct certain studies to evaluate AL102 in combination with its B-cell maturation antigen, or BCMA, therapies in multiple myeloma, and the Company agreed to supply AL102 for such studies. All supply and development costs associated with such evaluation studies were fully borne by Novartis.

AYALA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5—COMMITMENTS AND CONTINGENT LIABILITIES (continued):

Under the Novartis Option Agreement, the Company granted Novartis an exclusive option to obtain an exclusive (including as to the Company and its affiliates), sublicensable (subject to certain terms and conditions), worldwide license and sublicense (as applicable) under certain patent rights and know-how controlled by the Company (including applicable patent rights and know-how that are licensed from BMS pursuant to the BMS License Agreement) to research, develop, manufacture (subject to the Company’s non-exclusive right to manufacture and supply AL102 or the Novartis Licensed Product for Novartis) and commercialize AL102 or any pharmaceutical product containing AL102 as the sole active ingredient, or the Novartis Licensed Product, for the diagnosis, prophylaxis, treatment, or prevention of multiple myeloma in humans. The Company also granted Novartis the right of first negotiation for the license rights to conduct development or commercialization activities with respect to the use of AL102 for indications other than multiple myeloma. Additionally, from the exercise by Novartis of its option until the termination of the Novartis Option Agreement, the Company was not able to, either itself or through its affiliates or any other third parties, directly or indirectly research, develop or commercialize certain BCMA-related compounds for the treatment of multiple myeloma.

Novartis owned any inventions, and related patent rights, invented solely by it or jointly with the Company in connection with activities conducted pursuant to the Novartis Option Agreement. The Company maintained first right to prosecute and maintained any patents licensed to Novartis, both before and after its exercise of its option. The Company maintained the first right to defend and enforce its patents prior to Novartis’s exercise of its option, upon which Novartis gains such right with respect to patents included in the license.

On June 2, 2022, Novartis informed the Company that Novartis does not intend to exercise its option to obtain an exclusive license for AL102, thereby terminating the agreement.

Purported Stockholder Claims

Purported Stockholder Claims Related to Biosight Transaction

Between September 16, 2021, and November 4, 2021, the Company received demand letters on behalf of six purported stockholders of the Company, alleging that the Company failed to disclose certain matters in the Registration Statement, and demanding that the Company disclose such information in a supplemental disclosure filed with the SEC. On October 14, 2021, the Company filed an amendment to the Registration Statement and on November 8, 2021, the Company made certain other additional disclosures that mooted the demands asserted in the above-referenced letters. The six plaintiffs have made settlement demands. On May 20, 2022, the Company and one of the plaintiffs have reached a settlement agreement. At this time, the Company is unable to predict the likelihood of an unfavorable outcome.

AYALA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In addition, the Company received certain additional demands from stockholders asserting that the proxy materials filed by the Company in connection with the Previously Proposed Merger contained alleged material misstatements and/or omissions. Certain stockholders also demanded books and records of the Company pursuant to Delaware law. In response to these demands, the Company agreed to make, and did make, certain supplemental disclosures to the proxy materials. The stockholders have made settlement demands. On July 18, 2022, the Company and the plaintiffs consummated settlement agreements.

Purported Stockholder Claims Related to Series D Convertible Preferred Stock Offering

On February 17, 2022, the Company received a letter on behalf of purported stockholders of the Company, demanding certain books and records pursuant to Delaware law regarding the proposed issuance of super voting preferred stock. The Company agreed to provide certain books and records to the stockholders and agreed to make, and did make, a supplemental disclosure to the proxy materials. The stockholders have made settlement demands. On July 18, 2022, the Company and the plaintiffs consummated settlement agreements.

Purported Stockholder Claims Related to Merger with Old Ayala

On December 15, 2022, a purported stockholder of Old Ayala filed a complaint in the U.S. District Court for the Southern District of New York against Old Ayala and the members of its Board, captioned Stephen Bushansky v. Ayala Pharmaceuticals, Inc., Case No.1:22-cv-10621 (S.D.N.Y.) (the “Complaint”).

The Complaint asserts claims against all defendants under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 14a-9 promulgated thereunder for omitting or misrepresenting material information from Old Ayala’s Proxy Statement and against the individual defendants under Section 20(a) of the Exchange Act for alleged “control person” liability with respect to such alleged omissions and misrepresentations. The allegations in the Complaint include that the Proxy Statement omitted material information regarding Old Ayala’s financial projections and the financial analyses of Old Ayala’s financial advisor for the Merger. The Complaint seeks, among other relief, (1) to enjoin defendants from consummating the Merger; (2) to enjoin a vote on the Merger; (3) to rescind the Merger Agreement or recover damages, if the Merger is completed; (4) a declaration that defendants violated Sections 14(a) or 20(a) and Rule 14a-9 of the Exchange Act; and (5) attorneys’ fees and costs.

In addition, approximately nine purported stockholders of Old Ayala sent letters to those noted in the above-referenced Complaint alleging similar deficiencies in Old Ayala’s Proxy Statement (collectively, the “Demand Letters”).

At this time, the Company is unable to predict the likelihood of an unfavorable outcome with respect to the Complaint and the Demand Letters.

Condensed Consolidated Statement of Cash Flows (Unaudited) (Parenthetical) $ in Thousands	3 Months Ended
	Mar. 31, 2022 USD ($)
Statement of Cash Flows [Abstract]
Net of issuance cost	$ 3

COMMITMENTS AND CONTINGENT LIABILITIES (Details Narrative) - USD ($) $ in Thousands		1 Months Ended		3 Months Ended
	Mar. 25, 2021	Mar. 31, 2023	Sep. 30, 2021	Mar. 31, 2023
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Loan from lessor				$ 500
Bank guarantee amount				200
Lease and rental expense	$ 29	$ 36
Lease to extending term date			March 31, 2023
Operating lease right of use asset and lease liabilities				$ 65
Weighted average remaining lease term		3 years 1 month 28 days		3 years 1 month 28 days
Weighted average discount rate percent		7.50%		7.50%
First BMS Licensed Compound [Member]
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Payments for license				$ 95,000
Second BMS Licensed Compound [Member]
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Payments for license				47,000
Third BMS Licensed Compound [Member]
Collaborative Arrangement and Arrangement Other than Collaborative [Line Items]
Payments for license				$ 50,000

SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2023 USD ($) $ / shares shares	Mar. 31, 2022 USD ($) shares	Jan. 19, 2023 USD ($)	Dec. 31, 2022 USD ($) $ / shares	Oct. 18, 2022
Common stock, par value \| $ / shares	$ 0.001			$ 0.001
Stock issued during period, shares, new issues \| shares	0.1874
Intangible assets	$ 130		$ 130
Accumulated deficit	156,515			$ 149,154
Net cash used in operating activities	6,741	$ 9,984
Cash and cash equivalents	$ 16,839	$ 27,050		$ 2,408
Basic and diluted loss per share \| shares	4,405,286	2,867,420
Common shares merger ratio	0.1874
Warrant [Member]
Basic and diluted loss per share \| shares	249,867	249,867
Merger Agreement [Member] \| Merger Sub Inc and Ayala Pharmaceuticals Inc [Member]
Percentage of outstanding shares					37.50%
Merger Agreement [Member] \| Ayala Pharmaceuticals Inc [Member]
Percentage of outstanding shares					62.50%

SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

NOTE 1—SIGNIFICANT ACCOUNTING POLICIES

In these financial statements, unless otherwise stated or the context otherwise indicates, references to “New Ayala,” the “Company,” “we,” “us,” “our” and similar references refer to Ayala Pharmaceuticals, Inc., a Delaware corporation, which prior to the change of its name effected on January 19, 2023, was known as Advaxis, Inc. The name change was affected in connection with the Merger, as described below. References to “former Advaxis” refer to our company solely in the period prior to the Merger.

Prior to the Merger, we were a clinical-stage biotechnology company focused on the development and commercialization of proprietary Listeria monocytogenes (“Lm”)-based antigen delivery products. These efforts utilized our Lm platform directed against tumor-specific targets in order to engage the patient’s immune system to destroy tumor cells. Through a license from the University of Pennsylvania, we have exclusive access to this proprietary formulation of attenuated Lm called Lm Technology^TM.

Following the Merger, we are primarily a clinical-stage oncology company focused on developing and commercializing small molecule therapeutics for patients suffering from rare and aggressive cancers, primarily in genetically defined patient populations. Our differentiated development approach is predicated on identifying and addressing tumorigenic drivers of cancer, through a combination of our bioinformatics platform and next-generation sequencing to deliver targeted therapies to underserved patient populations. Our current portfolio of product candidates, AL101 and AL102, targets the aberrant activation of the Notch pathway using gamma secretase inhibitors. Gamma secretase is the enzyme responsible for Notch activation and, when inhibited, turns off the Notch pathway activation. Aberrant activation of the Notch pathway has long been implicated in multiple solid tumor and hematological cancers and has often been associated with more aggressive cancers. In cancers, Notch is known to serve as a critical facilitator in processes such as cellular proliferation, survival, migration, invasion, drug resistance and metastatic spread, all of which contribute to a poorer patient prognosis. AL101 and AL102 are designed to address the underlying key drivers of tumor growth, and our initial Phase 2 clinical data of AL101 suggest that our approach may address shortcomings of existing treatment options. We believe that our novel product candidates, if approved, have the potential to transform treatment outcomes for patients suffering from rare and aggressive cancers. We also continue to conduct certain operations relating to former Advaxis’ operations as a clinical-stage biotechnology company focused on the development and commercialization of proprietary Listeria monocytogenes (“Lm”)-based antigen delivery products. These efforts are primarily focused on the development of ADXS-504, a Lm-based therapy for early-stage prostate cancer.

In 2017, the Company entered into an exclusive worldwide license agreement with respect to AL101 and AL102. See note 5.

Merger with Ayala Pharmaceuticals, Inc.

On October 18, 2022, the Company, which at the time was named Advaxis, Inc., entered into a Merger Agreement (the “Merger Agreement”), with an entity then known as Ayala Pharmaceuticals, Inc., with the Ayala Pharmaceuticals, Inc. shortly prior to the closing of the merger in January 2023 changing its name to Old Ayala, Inc., (“Old Ayala”) and Doe Merger Sub, Inc. (“Merger Sub”), a direct, wholly-owned subsidiary of the Company. Under the terms of the Merger Agreement, Merger Sub merged with and into Old Ayala, with Old Ayala continuing as the surviving company and a wholly-owned subsidiary of the Company (the “Merger”). Immediately after the Merger, former Advaxis stockholders as of immediately prior to the Merger own approximately 37.5% of the outstanding shares of the combined Company and former Old Ayala shareholders own approximately 62.5% of the outstanding shares of the combined Company.

At the effective time of the Merger (the “Effective Time”), each share of share capital of Old Ayala issued and outstanding immediately prior to the Effective Time was converted into the right to receive a number of shares of the Company’s common stock, par value $0.001 per share, equal to the exchange ratio, 0.1874 shares of the Company’s common stock per Old Ayala share.

The Merger has been accounted for as a reverse merger with Old Ayala as the accounting acquirer and former Advaxis as the accounting acquiree. In identifying Old Ayala as the accounting acquirer, the companies considered ASC 805-10-55 including the structure of the Merger, relative outstanding share ownership at closing and the composition of the combined Company’s board of directors and senior management. The financial reporting reflects the accounting from the perspective of Old Ayala (“accounting acquirer”), except for the legal capital, which has been retroactively adjusted to reflect the capital of former Advaxis (“accounting acquiree”) in accordance with ASC 805-40-45. As such, the historical financial information presented is that of Old Ayala as the accounting acquirer in the Merger.

Because most of the value of the assets of former Advaxis was in cash and cash equivalents, the Merger is treated primarily as a financing transaction for accounting purposes with a small component as a business acquisition. Therefore, no gain or loss is recorded as a result of the Merger. Old Ayala’s transaction costs were capitalized and offset against the shareholder’s equity upon the Merger, and former Advaxis’ transaction costs were expensed as merger costs. The consolidated financial statements from the closing date of the Merger include the assets, liabilities, and results of operations of the combined company.

AYALA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1—SIGNIFICANT ACCOUNTING POLICIES (continued):

Fair Value Allocation

	Amounts
Cash and cash equivalents	$	22,539
Prepaid expenses and other current assets		300
Property and equipment, net		34
Intangible assets		130
Operating right-of-use asset		5
Other assets		11
Total assets		23,019

Common stock warrant liability		(203	)
Other current liabilities and trade payables		(2,714	)
Total liabilities		(2,917	)
Net assets acquired	$	20,102

The fair value estimate for all identifiable assets and liabilities assumed is preliminary and is based on assumptions that market participants would use in pricing an asset, based on the most advantageous market for the asset (i.e., its highest and best use). This preliminary fair value estimate could include assets that are not intended to be used, may be sold, or are intended to be used in a manner other than their best use. Such estimates are subject to change during the measurement period, which is not expected to exceed one year. Any adjustments identified during the measurement period will be recognized in the period in which the adjustments are determined.

The Company recognized intangible assets related to the Merger, which consist of the Patents and License agreements valued at $130 thousand with an estimated useful life of four years. Acquired identifiable finite-lived intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets. The basis of amortization approximates the pattern in which the assets are utilized, over their estimated useful lives. The Company routinely reviews the remaining estimated useful lives of finite-lived intangible assets. In case the Company reduces the estimated useful life for any asset, the remaining unamortized balance is amortized or depreciated over the revised estimated useful life.

These intangible assets are classified as Level 3 measurements within the fair value hierarchy.

The following unaudited table provides certain pro forma financial information for the Company as if the Merger occurred on January 1, 2022 (in thousands except per share amounts):

	Three months ended March 31,			Three months ended March 31,
	2023			2022
		Unaudited			Unaudited
Revenue	$	4		$	458
Net loss	$	(6,892	)	$	(11,666	)

The pro forma numbers above are derived from historical numbers of the Company and Old Ayala. The results of operations for the three months ended March 31, 2022 include the operations of the Company for the period from November 1, 2021 to January 31, 2022, which was the first quarter of fiscal year 2022 prior to the change in our fiscal year end from October 31 to December 31, which change was effected in January 2023.

The unaudited pro forma results have been prepared based on estimates and assumptions, which we believe are reasonable; however, they are not necessarily indicative of the consolidated results of operations had the acquisition occurred on January 1, 2022, or of future results of operations.

AYALA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1—SIGNIFICANT ACCOUNTING POLICIES (continued):

Going Concern

The Company has incurred recurring losses since inception as a research and development organization and has an accumulated deficit of $156.5 million as of March 31, 2023. For the three months ended March 31, 2023, the Company used approximately $6.7 million of cash in operations. The Company has relied on its ability to fund its operations through public and private equity financings. The Company expects operating losses and negative cash flows to continue at significant levels in the future as it continues its clinical trials. As of March 31, 2023, the Company had approximately $16.8 million in cash and cash equivalents, which, without additional funding, the Company believes will not be sufficient to meet its obligations within the next twelve months from the date of issuance of these condensed consolidated financial statements. The Company plans to continue to fund its operations through public or private debt and equity financings, but there can be no assurances that such financing will continue to be available to the Company on satisfactory terms, or at all. If the Company is unable to obtain funding, the Company would be forced to delay, reduce, or eliminate its research and development programs, which could adversely affect its business prospects, or the Company may be unable to continue operations. As such, those factors raise substantial doubt about the Company’s ability to continue as a going concern.

The unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Therefore, the unaudited condensed consolidated financial statements for the three months ended March 31, 2023, do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information. Accordingly, they do not include all the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments (of a normal recurring nature) considered necessary for a fair statement of the results for the interim periods presented have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full year.

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2022, included in the Annual Report on Form 10-K of Old Ayala filed for the year ended December 31, 2022 (the “Old Ayala 2022 Form 10-K”) with the Securities and Exchange Commission (the “SEC”) on March 31, 2023 and the Annual Report on Form 10-K of the Company filed for the year ended October 31, 2022 (the “Form 10-K”) with the SEC on February 10, 2023. The Company’s significant accounting policies have not changed materially from those included in note 2 of the Company’s consolidated financial statements for the year ended December 31, 2022, included in the Old Ayala 2022 Form 10-K and the Form 10-K, unless otherwise stated.

Use of estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. The Company’s management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the unaudited condensed consolidated financial statements. Actual results could differ from those estimates.

AYALA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1—SIGNIFICANT ACCOUNTING POLICIES (continued):

Net Loss per Share

Basic loss per share is computed by dividing the net loss by the weighted average number of shares of Common Stock outstanding during the period. Diluted loss per share is computed by dividing the net loss by the weighted average number of shares of Common Stock outstanding together with the number of additional shares of Common Stock that would have been outstanding if all potentially dilutive shares of Common Stock had been issued. Diluted net loss per share is the same as basic net loss per share in periods when the effects of potentially dilutive shares of Common Stock are anti-dilutive.

The calculation of basic and diluted loss per share includes 249,867 pre-funded warrants, which as part of Merger converted to common stock, for the three months ended March 31, 2023.

The calculation of basic and diluted loss per share includes 249,867 pre-funded warrants for the three months ended March 31, 2022.

All of the Common Stock, exercise prices and per share data have been retroactively adjusted for the impact of the Merger. The shares have been adjusted to the merger ratio of 0.1874.

Fair value of financial instruments

The Company measures and discloses the fair value of financial assets and liabilities in accordance with ASC Topic 820, “Fair Value Measurement.” Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Restricted bank deposits, trade receivables, trade payables are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date. Warrants liabilities are stated at fair value on a recurring basis.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13 (Topic 326), Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments, which replaces the existing incurred loss impairment model with an expected credit loss model and requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected. The new guidance was effective for the Company on January 1, 2023 and the adoption did not have a material impact on the Company’s consolidated financial statements.

AYALA PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

COMMITMENTS AND CONTINGENT LIABILITIES (Tables)

3 Months Ended

Mar. 31, 2023

Commitments and Contingencies Disclosure [Abstract]

SCHEDULE OF OPERATING RIGHT OF USE ASSETS AND LEASE LIABILITIES

The Company has the following operating ROU assets and lease liabilities:

	March 31, 2023
	ROU assets		Lease liabilities
Offices	$	1,312	$	1,550
Cars		130		113
Total operating leases	$	1,442	$	1,663

	December 31, 2022
	ROU assets		Lease liabilities
Offices	$	1,273	$	1,612
Cars		189		139
Total operating leases	$	1,462	$	1,751

	March 31, 2023		December 31, 2022
	Lease liabilities		Lease liabilities
Current lease liabilities	$	253	$	419
Non-current lease liabilities		1,410		1,332
Total lease liabilities	$	1,663	$	1,751

SUMMARY OF LEASE COSTS

The following table summarizes the lease costs recognized in the condensed consolidated statement of operations:

	March 31, 2023		March 31, 2022
Operating lease cost	$	126	$	112
Variable lease cost		2		-
Total lease cost	$	128	$	112

SCHEDULE OF CASH FLOW INFORMATION RELATED TO LEASES

	March 31, 2023		March 31, 2022
Cash paid for amounts included in the measurement of lease liabilities	$	109	$	109
Right of use assets obtained in exchange for operating lease liabilities	$	65	$	1,751

SCHEDULE OF FUTURE PAYMENTS OF OPERATING LEASE LIABILITIES

The following table summarizes the future payments of the Company for its operating lease liabilities:

	March 31, 2023
2023	$	319
2024		345
2025		309
2026		308
2027		308
After 2027		308
Total undiscounted lease payments	$	2,000
Less: Interest		337
Total lease liabilities - operating	$	1,663

SCHEDULE OF WARRANTS OUTSTANDING (Details) - USD ($)
$ / shares in Units, $ in Thousands

3 Months Ended

12 Months Ended

Mar. 31, 2023

Dec. 31, 2022

Jan. 19, 2023

Oct. 31, 2022

Offsetting Assets [Line Items]

Number of shares underlying warrants

465,271

465,271,000

Warrants, Outstanding and exercisable warrants, Beginning balance

337,320

Weighted Average Exercise Price, Exercised

$ 0.05

^[1]

$ 25.08

Weighted Average Remaining Contractual Life In Years, Outstanding and exercisable warrants, Beginning balance

3 years 1 month 24 days

1 year 1 month 20 days

Aggregate Intrinsic Value, Beginning

$ 86,613

Shares - Issuance of warrants upon Merger

^[1]

377,818

Weighted Average Exercise Price, Exercised

^[1]

$ 53.45

Warrants, Outstanding and exercisable warrants, Beginning balance

^[1]

(249,867)

Warrants, Outstanding and exercisable warrants, Beginning balance

465,271

^[1]

337,320

Weighted Average Exercise Price, Exercised

^[1]

$ 61.56

Aggregate Intrinsic Value, Beginning

$ 86,613

Warrants, Outstanding and exercisable warrants, Beginning balance

290,206

Weighted Average Exercise Price, Exercised

$ 64.92

Weighted Average Remaining Contractual Life In Years, Outstanding and exercisable warrants, Beginning balance

2 years 3 months 14 days

Aggregate Intrinsic Value, Beginning

Warrant Liability [Member] | Private Placement [Member]

Offsetting Assets [Line Items]

Exercise price

$ 55.73

Measurement Input, Expected Term [Member] | Warrant Liability [Member] | Private Placement [Member]

Offsetting Assets [Line Items]

Type of financing

September 2024

Expected term

5 years

Exercise Price Range One [Member]

Offsetting Assets [Line Items]

Exercise price

$ 2.79

Number of shares underlying warrants

879,000

Type of financing

September 2018 Public Offering

Exercise Price Range Two [Member]

Offsetting Assets [Line Items]

Exercise price

$ 224.00

Number of shares underlying warrants

4,092,000

Type of financing

July 2019 Public Offering

Exercise Price Range Two [Member] | Measurement Input, Expected Term [Member] | Warrant Liability [Member] | Private Placement [Member]

Offsetting Assets [Line Items]

Type of financing

July 2024

Exercise Price Range Three [Member]

Offsetting Assets [Line Items]

Exercise price

$ 28.00

Number of shares underlying warrants

57,230,000

Type of financing

November 2020 Public Offering

Exercise Price Range Three [Member] | Measurement Input, Expected Term [Member] | Warrant Liability [Member] | Private Placement [Member]

Offsetting Assets [Line Items]

Type of financing

November 2025

Exercise Price Range Four [Member]

Offsetting Assets [Line Items]

Exercise price

$ 56.00

Number of shares underlying warrants

140,552,000

Type of financing

April 2021 Registered Direct Offering (Accompanying Warrants)

Exercise Price Range Four [Member] | Measurement Input, Expected Term [Member] | Warrant Liability [Member] | Private Placement [Member]

Offsetting Assets [Line Items]

Type of financing

April 2026

Exercise Price Range Five [Member]

Offsetting Assets [Line Items]

Exercise price

$ 56.00

Number of shares underlying warrants

175,065,000

Type of financing

April 2021 Private Placement (Private Placement Warrants)

Exercise Price Range Five [Member] | Measurement Input, Expected Term [Member] | Warrant Liability [Member] | Private Placement [Member]

Offsetting Assets [Line Items]

Type of financing

after the date such warrants become exercisable, if ever

Exercise Price Range Six [Member]

Offsetting Assets [Line Items]

Exercise price

$ 96.58

Number of shares underlying warrants

^[2]

87,453,000

Type of financing

February 2024

Type of financing

February 2021 Private Placement

[1]	Exercise price and warrant numbers have been retroactively adjusted for the impact of the Merger, see note 1.
[2]	Exercise price and warrant numbers of Old Ayala’s warrants have been retroactively adjusted for the impact of the Merger, see note 1.