Anixa Biosciences Inc 10-K

Item 9A. Controls and Procedures. Disclosure Controls and Procedures We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15 of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of fiscal year 2023. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our management, including the principal executive officer and principal financial officer, does not expect that our internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, cannot provide full assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, we conducted an evaluation as to the effectiveness of our internal control over financial reporting as of October 31, 2023. In making this assessment, our management used the criteria for effective internal control set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 Internal Control – Integrated Framework . Based on this assessment, our management concluded that our internal control over financial reporting was effective as of October 31, 2023. 36 This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to an exemption of the Commission that permits smaller reporting companies and non-accelerated filers, such as the Company, to provide only management’s report in this Annual Report on Form 10-K. Accordingly, our management’s assessment of the effectiveness of our internal control over financial reporting as of October 31, 2023 has not been audited by our auditors, Haskell & White LLP. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting during the fourth quarter of fiscal year 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B. Other Information. None. PART III Item 10. Directors, Executive Officers and Corporate Governance. The information required by this Item will be set forth in our Proxy Statement for the 2024 Annual Meeting of Stockholders scheduled for March 21, 2024 which such Proxy Statement will be filed with the SEC within 120 days of October 31, 2023, and will be incorporated into this Annual Report on Form 10-K by reference. Item 11. Executive Compensation. The information required by this Item will be set forth in our Proxy Statement for the 2024 Annual Meeting of Stockholders scheduled for March 21, 2024 which such Proxy Statement will be filed with the SEC within 120 days of October 31, 2023, and will be incorporated into this Annual Report on Form 10-K by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this Item will be set forth in our Proxy Statement for the 2024 Annual Meeting of Stockholders scheduled for March 21, 2024 which such Proxy Statement will be filed with the SEC within 120 days of October 31, 2023, and will be incorporated into this Annual Report on Form 10-K by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this Item will be set forth in our Proxy Statement for the 2024 Annual Meeting of Stockholders scheduled for March 21, 2024 which such Proxy Statement will be filed with the SEC within 120 days of October 31, 2023, and will be incorporated into this Annual Report on Form 10-K by reference. 37 Item 14. Principal Accounting Fees and Services. The information required by this Item will be set forth in our Proxy Statement for the 2024 Annual Meeting of Stockholders scheduled for March 21, 2024 which such Proxy Statement will be filed with the SEC within 120 days of October 31, 2023, and will be incorporated into this Annual Report on Form 10-K by reference. PART IV Item 15. Exhibits, Financial Statement Schedules. (a)(1)(2) Financial Statement Schedules See accompanying “Index to Consolidated Financial Statements.” (b) Exhibits 3.1 Certificate of Incorporation, as amended. (Incorporated by reference to Form 10-Q for the fiscal quarter ended July 31, 1992 and Form S-3, dated February 11, 2014.) 3.2 Amendment to the Certificate of Incorporation. (Incorporated by reference to Exhibit 3.2 to our Form 10-K for the fiscal year ended October 31, 2013.) 3.3 Certificate of Amendment to the Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to our Form 8-K, dated September 4, 2014.) 3.4 Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock. (Incorporated by reference to Exhibit 3.1 to our Form 8-K, dated September 10, 2014.) 3.5 Certificate of Amendment to the Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to our Form 8-K, dated June 25, 2015.) 3.6 Certificate of Amendment to the Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to our Form 10-Q for the fiscal quarter ended April 30, 2018.) 3.7 Certificate of Amendment to the Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to our Form 8-K, dated October 1, 2018.) 3.8 Certificate of Amendment to the Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to our Form 8-K, dated August 13, 2020.) 3.9 Amended and Restated By-laws. (Incorporated by reference to Exhibit 3.8 to our Form 10-K for the fiscal year ended October 31, 2019.) 3.10 Amendment to the Amended and Restated Bylaws of the Company. (Incorporated by reference to our Form 8-K, dated April 2, 2021.) 4.1 Form of Underwriter Warrants. (Incorporated by reference to Exhibit 4.1 to our Form 8-K, dated March 24, 2021.) 4.2 Description of the Company’s Securities Registered under Section 12 of the Exchange Act (Incorporated by reference to the description of our common stock contained in our Current Report on Form 8-K filed on March 31, 2014.) 10.1 2010 Share Incentive Plan. (Incorporated by reference to Exhibit 10.1 to our Form 8-K, dated July 20, 2010.) 10.2 Amendment No. 1 to the 2010 Share Incentive Plan. (Incorporated by reference to Exhibit 10.1 to our Form 8-K, dated July 7, 2011.) 38 10.3 Amendment No. 2 to the 2010 Share Incentive Plan. (Incorporated by reference to Exhibit 10.1 to our Form 8-K, dated September 5, 2012.) 10.4 Amendment No. 3 to the 2010 Share Incentive Plan. (Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the fiscal quarter ended January 31, 2014.) 10.5 2018 Share Incentive Plan. (Incorporated by reference to Exhibit 4.13 to our Form S-8 dated October 1, 2018.) 10.6 License Agreement, dated November 13, 2017, between Certainty Therapeutics, Inc. and The Wistar Institute of Anatomy and Biology. (Incorporated by reference to Exhibit 10.14 to our Form 10-K, dated January 9, 2018.) (Portions of this exhibit have been redacted pursuant to a request for confidential treatment. The redacted portions have been separately filed with the Securities and Exchange Commission.) 10.7 Amendment to License Agreement between Certainty Therapeutics, Inc. and The Wistar Institute of Anatomy and Biology. (Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the fiscal quarter ended January 31, 2021.) (Certain information has been redacted in the marked portions of the exhibit.) 10.8 Amended and Restated Master Collaboration Agreement, dated November 1, 2021, between Certainty Therapeutics, Inc. and H. Lee Moffitt Cancer Center and Research Institute, Inc. (Incorporated by reference to Exhibit 10.8 to our Form 10-K for the fiscal year ended October 31, 2021.) 10.9 Exclusive License Agreement, dated July 8, 2019, between the Company and The Cleveland Clinic Foundation. (Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the fiscal quarter ended July 31, 2019.) (Certain information has been redacted in the marked portions of the exhibit.) 10.10 Amendment to Exclusive License Agreement between the Company and The Cleveland Clinic Foundation. (Filed herewith.) 10.11 Exclusive License Agreement, dated October 20, 2020, between the Company and The Cleveland Clinic Foundation. (Incorporated by reference to Exhibit 10.14 to our Form 10-K, for the fiscal year ended October 31, 2020.) (Certain information has been redacted in the marked portions of the exhibit.) 10.12 Amendment No. 1 to Exclusive License Agreement between the Company and The Cleveland Clinic Foundation. (Incorporated by reference to Exhibit 10.1 to our Form 10-Q for the fiscal quarter ended July 31, 2022.) (Certain information has been redacted in the marked portions of the exhibit.) 10.13 Form of Controlled Equity Offering SM Sales Agreement (Incorporated by reference to Exhibit 10.1 to our Form S-3 dated September 9, 2022) 14 Code of Conduct (Incorporated by reference to Exhibit 14 to our Form 10-K, for the fiscal year ended October 31, 2020.) 19 Insider Trading Policy (Filed herewith.) 21 Subsidiaries of Anixa Biosciences, Inc. (Incorporated by reference to Exhibit 21 to our Form 10-K, for the fiscal year ended October 31, 2020.) 23.1 Consent of Haskell & White LLP. (Filed herewith.) 31.1 Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated January 16, 2024. (Filed herewith.) 31.2 Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated January 16, 2024. (Filed herewith.) 32.1 Statement of Chief Executive Officer, pursuant to Section 1350 of Title 18 of the United States Code, dated January 16, 2024. (Filed herewith.) 32.2 Statement of Chief Financial Officer, pursuant to Section 1350 of Title 18 of the United States Code, dated January 16, 2024. (Filed herewith.) 99.1 Clawback Policy (Filed herewith.) Item 16. Form 10-K Summary. The Company has elected not to include a summary pursuant to this Item 16. 39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Anixa Biosciences, Inc. By: /s/ Amit Kumar Dr. Amit Kumar Chairman of the Board and January 16, 2024 Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. By: /s/ Amit Kumar Dr. Amit Kumar Chairman of the Board and Chief Executive Officer January 16, 2024 (Principal Executive Officer) By: /s/ Michael J. Catelani Michael J. Catelani President, Chief Operating Officer and Chief Financial Officer January 16, 2024 (Principal Financial and Accounting Officer) By: /s/ Lewis H. Titterton, Jr. Lewis H. Titterton, Jr. January 16, 2024 Director By: /s/ Arnold Baskies Dr. Arnold Baskies January 16, 2024 Director By: /s/ Emily Gottschalk Emily Gottschalk January 16, 2024 Director 40 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 2023 Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 200 ) F-1 Consolidated Balance Sheets as of October 31, 2023 and 2022 F-2 Consolidated Statements of Operations for the years ended October 31, 2023 and 2022 F-3 Consolidated Statements of Equity for the years ended October 31, 2023 and 2022 F-4 Consolidated Statements of Cash Flows for the years ended October 31, 2023 and 2022 F-5 Notes to Consolidated Financial Statements F-6 Additional information required by schedules called for under Regulation S-X is either not applicable or is included in the consolidated financial statements or notes thereto. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders Anixa Biosciences, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Anixa Biosciences, Inc. (the “Company”) as of October 31, 2023 and 2022, and the related consolidated statements of operations, equity, and cash flows for each of the two years in the period ended October 31, 2023, and the related notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of October 31, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the years in the two year period ended October 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Research and Development Expenses – Refer to Note 2 of the Consolidated Financial Statements Critical Audit Matter Description: The Company recognizes research and development expenses as incurred. Advance payments for future research and development activities are deferred and expensed as the services are performed. The Company recognizes its preclinical studies and clinical trial expenses based on the services performed pursuant to contracts with research institutions, clinical research organizations (“CROs”), clinical manufacturing organizations (“CMOs”), and other parties that conduct and manage various stages of research and development activities on the Company’s behalf. Fees for such services are recognized based on management’s estimates after considering the activities and tasks completed by each service provider in a given period, the time period over which services are expected to be performed, and the level of effort expended in each reporting period. At each balance sheet date, management estimates prepaid and accrued research and development costs by discussing progress or stage of completion of activities with internal personnel and external service providers, and comparing this information to payments made, invoices received, and the agreed-upon contractual fee to be paid for such services in the applicable contract or statements of work. In addition, the Company allocates certain internal compensation costs to research and development expenses based on management’s estimates of each employee’s time and effort expended. How the Critical Matter was Addressed in the Audit: The primary procedures we performed to address this critical audit matter included the following: ● We obtained an understanding, and evaluated the design and implementation, of controls relating to research and development costs, including controls over the review of third-party contracts, the process of gathering information from external and internal sources and management’s review thereof, and the determination of prepaid positions, period-end accruals, and expense allocations. ● For the Company’s significant third-party contracts, we performed the following procedures: ○ We obtained and read related master service agreements, statements of work, or other supporting agreements with the research institution, CRO, or CMO. ○ We performed corroborating inquiries with management personnel responsible for the oversight of the activities regarding the nature and status of work performed. ○ We evaluated evidence of services provided by third parties including invoices regarding activities completed, and we inspected evidence supporting payments made by the Company. ○ We compared the data and evidence obtained from internal and external sources to the amounts recorded by management and recalculated the related research and development expense and prepaid research and development expense. ● For the Company’s internal compensation allocations, we performed the following procedures: ○ We performed corroborating inquiries with management personnel responsible for the oversight of the activities regarding the nature of employee services performed. ○ We evaluated the reasonableness of allocations estimated by management by comparisons with prior periods and evaluating the reasonableness of significant changes made by management. ○ We obtained written representations from management regarding the appropriateness of allocation estimates. HASKELL & WHITE LLP We have served as the Company’s auditor since 2013 Irvine, California January 16, 2024 F- 1 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) October 31, October 31, 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 915 $ 12,360 Short–term investments 22,929 17,327 Receivables 270 46 Prepaid expenses and other current assets 1,242 467 Total current assets 25,356 30,200 Operating lease right-of-use asset 166 212 Total assets $ 25,522 $ 30,412 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 206 $ 265 Accrued expenses 1,770 1,726 Operating lease liability 52 46 Total current liabilities 2,028 2,037 Operating lease liability, non-current 123 175 Total liabilities 2,151 2,212 Commitments and contingencies (Note 6) Equity: Shareholders’ equity: Preferred stock, par value $ 100 per share; 19,860 shares authorized; no shares issued or outstanding - - Series A convertible preferred stock, par value $ 100 per share; 140 shares authorized; no shares issued or outstanding - - Preferred stock, value - - Common stock, par value $ .01 per share; 100,000,000 shares authorized; 31,145,219 and 30,913,902 shares issued and outstanding as of October 31, 2023 and 2022, respectively 311 309 Additional paid-in capital 252,222 247,123 Accumulated deficit ( 228,196 ) ( 218,385 ) Total shareholders’ equity 24,337 29,047 Noncontrolling interest (Note 2) ( 966 ) ( 847 ) Total equity 23,371 28,200 Total liabilities and equity $ 25,522 $ 30,412 The accompanying notes are an integral part of these statements. F- 2 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) 2023 2022 For the years ended October 31, 2023 2022 Revenue $ 210 $ - Operating costs and expenses: Inventor royalties, contingent legal fees, litigation and licensing expenses 161 - Research and development expenses (including non-cash share based compensation expenses of $ 2,037 and $ 3,635 , respectively) 4,769 6,703 General and administrative expenses (including non-cash share based compensation expenses of $ 2,698 and $ 3,117 , respectively) 6,291 7,172 Total operating costs and expenses 11,221 13,875 Loss from operations ( 11,011 ) ( 13,875 ) Interest income 1,081 104 Net loss ( 9,930 ) ( 13,771 ) Less: Net loss attributable to noncontrolling interest ( 119 ) ( 176 ) Net loss attributable to common stockholders $ ( 9,811 ) $ ( 13,595 ) Net loss per share: Basic and diluted $ ( 0.32 ) $ ( 0.45 ) Weighted average common shares outstanding: Basic and diluted 30,980 30,374 The accompanying notes are an integral part of these statements. F- 3 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY FOR THE YEARS ENDED OCTOBER 31, 2023 AND 2022 (in thousands, except share data) Additional Total Non- Common Stock Paid-in Accumulated Shareholders’ controlling Total Shares Par Value Capital Deficit Equity Interest Equity BALANCE, October 31, 2021 30,050,894 $ 301 $ 239,927 $ ( 204,790 ) $ 35,438 $ ( 671 ) $ 34,767 Stock option compensation to employees and directors - - 6,000 - 6,000 - 6,000 Stock options and warrants issued to consultants - - 655 - 655 - 655 Common stock issued upon exercise of stock options and warrants 827,619 8 431 - 439 - 439 Common stock issued to consultants 30,648 - 97 - 97 - 97 Common stock issued pursuant to employee stock purchase plan 4,741 - 13 - 13 - 13 Net loss - - - ( 13,595 ) ( 13,595 ) ( 176 ) ( 13,771 ) BALANCE, October 31, 2022 30,913,902 $ 309 $ 247,123 $ ( 218,385 ) $ 29,047 $ ( 847 ) $ 28,200 Balance 30,913,902 $ 309 $ 247,123 $ ( 218,385 ) $ 29,047 $ ( 847 ) $ 28,200 Stock option compensation to employees and directors - - 4,422 - 4,422 - 4,422 Stock options issued to consultants - - 221 - 221 - 221 Common stock issued upon exercise of stock options 202,647 2 351 - 353 - 353 Common stock issued to consultants 24,310 - 92 - 92 - 92 Common stock issued pursuant to employee stock purchase plan 4,360 - 13 - 13 - 13 Net loss - - - ( 9,811 ) ( 9,811 ) ( 119 ) ( 9,930 ) BALANCE, October 31, 2023 31,145,219 $ 311 $ 252,222 $ ( 228,196 ) $ 24,337 $ ( 966 ) $ 23,371 Balance 31,145,219 $ 311 $ 252,222 $ ( 228,196 ) $ 24,337 $ ( 966 ) $ 23,371 The accompanying notes are an integral part of these statements. F- 4 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) 2023 2022 For the years ended October 31, 2023 2022 Cash flows from operating activities: Reconciliation of net loss to net cash used in operating activities: Net loss $ ( 9,930 ) $ ( 13,771 ) Stock option compensation to employees and directors 4,422 6,000 Stock options and warrants issued to consultants 221 655 Common stock issued to consultants 92 97 Amortization of operating lease right-of-use asset 46 42 Change in operating assets and liabilities: Receivables ( 224 ) ( 29 ) Prepaid expenses and other current assets ( 775 ) ( 208 ) Accounts payable ( 59 ) 129 Accrued expenses 44 631 Operating lease liability ( 46 ) ( 38 ) Net cash used in operating activities ( 6,209 ) ( 6,492 ) Cash flows from investing activities: Disbursements to acquire short-term investments ( 44,411 ) ( 22,486 ) Proceeds from maturities of short-term investments 38,809 11,758 Net cash used in investing activities ( 5,602 ) ( 10,728 ) Cash flows from financing activities: Proceeds from sale of common stock pursuant to employee stock purchase plan 13 13 Proceeds from exercise of stock options and warrants 353 439 Net cash provided by financing activities 366 452 Net decrease in cash and cash equivalents ( 11,445 ) ( 16,768 ) Cash and cash equivalents at beginning of year 12,360 29,128 Cash and cash equivalents at end of year $ 915 $ 12,360 Supplemental cash flow information: Cash proceeds from interest income $ 838 $ 23 The accompanying notes are an integral part of these statements. F- 5 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND FUNDING Description of Business As used herein, “we,” “us,” “our,” the “Company” or “Anixa” means Anixa Biosciences, Inc. and its consolidated subsidiaries. Anixa Biosciences, Inc. is a biotechnology company developing vaccines and therapies that are focused on critical unmet needs in oncology. Our vaccine programs include (i) the development of a preventative vaccine against triple negative breast cancer (“TNBC”), the most lethal form of breast cancer, as well other forms of breast cancer and (ii) the development of a preventative vaccine against ovarian cancer. Our therapeutics programs include (i) the development of a chimeric endocrine receptor T cell therapy, a novel form of chimeric antigen receptor T cell (“CAR-T”) technology, initially focused on treating ovarian cancer, which is being developed at our subsidiary, Certainty Therapeutics, Inc. (“Certainty”), and (ii) until March 2023, the development of anti-viral drug candidates for the treatment of COVID-19 focused on inhibiting certain protein functions of the virus. We hold an exclusive worldwide, royalty-bearing license to use certain intellectual property owned or controlled by The Cleveland Clinic Foundation (“Cleveland Clinic”) relating to certain breast cancer vaccine technology developed at Cleveland Clinic. The license agreement requires us to make certain cash payments to Cleveland Clinic upon achievement of specific development milestones. Utilizing this technology, we are working in collaboration with Cleveland Clinic to develop a method to vaccinate women against contracting breast cancer, focused initially on TNBC. The focus of this vaccine is a specific protein, α-lactalbumin, that is only expressed during lactation in a healthy mother’s mammary tissue. This protein disappears when the mother is no longer lactating, but reappears in many forms of breast cancer, especially TNBC. Studies have shown that vaccinating against this protein prevents breast cancer in mice. In October 2021, following the U.S. Food and Drug Administration’s (“FDA”) authorization to proceed, we commenced dosing patients in a Phase 1 clinical trial of our breast cancer vaccine. This study, which is being funded by a U.S. Department of Defense grant to Cleveland Clinic, is a multiple-ascending dose Phase 1 trial to determine the maximum tolerated dose (“MTD”) of the vaccine in patients with early-stage, triple-negative breast cancer as well as monitor immune response. The study is being conducted at Cleveland Clinic. The first segment of the study, Phase 1a, will consist of 18 to 24 patients who have completed treatment for early-stage, triple-negative breast cancer within the past three years and are currently tumor-free but at high risk for recurrence. Studies show that 42% of TNBC patients will have a recurrence of their cancer, with most of the recurrences occurring in the first two to three years after standard of care treatment. During the course of the Phase 1a study, participants will receive three vaccinations, each two weeks apart, and will be closely monitored for side effects and immune response. In January 2023, the number of participants in each dose cohort was expanded, and as of August 2023, we had completed vaccinating all patients in these expanded cohorts. In December 2023, we presented the immunological data collected to date at the San Antonio Breast Cancer Symposium. The data presented show that in the vaccinated women who had been tested to date, various levels of antigen-specific T cell responses were observed at all dose levels. We have begun vaccinating participants in up to three additional dose cohorts at dose levels higher than the currently determined MTD and lower than the highest dose where we observed dose limiting toxicity. Further, we have commenced vaccination of participants in the second segment of the trial, Phase 1b, that includes participants who have never had cancer, but carry certain genetic mutations such as BRCA1, BRCA2 or PALB2, that indicate a greater risk of developing TNBC in the future, and have elected to have a prophylactic mastectomy. Finally, we are currently enrolling participants in the third segment of the trial, Phase 1c, that includes post-operative TNBC patients that have residual disease following neoadjuvant chemo-immunotherapy and are currently undergoing treatment with pembrolizumab (Keytruda®). F- 6 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In November 2020, we executed a license agreement with Cleveland Clinic pursuant to which the Company was granted an exclusive worldwide, royalty-bearing license to use certain intellectual property owned or controlled by Cleveland Clinic relating to certain ovarian cancer vaccine technology. The license agreement requires us to make certain cash payments to Cleveland Clinic upon achievement of specific development milestones. This technology pertains to among other things, the use of vaccines for the treatment or prevention of ovarian cancers which express the anti-Mullerian hormone receptor 2 protein containing an extracellular domain (“AMHR2-ED”). In healthy tissue, this protein regulates growth and development of egg-containing follicles in the ovary. While expression of AMHR2-ED naturally and markedly declines during menopause, this protein is expressed at high levels in the ovaries of postmenopausal women with ovarian cancer. Researchers at Cleveland Clinic believe that a vaccine targeting AMHR2-ED could prevent the occurrence of ovarian cancer. In May 2021, Cleveland Clinic was granted acceptance for our ovarian cancer vaccine technology into the National Cancer Institute’s (“NCI”) PREVENT program. The NCI is a part of the National Institutes of Health (“NIH”). The PREVENT program is a peer-reviewed agent development program designed to support pre-clinical development of innovative interventions and biomarkers for cancer prevention and interception towards clinical trials. The scientific and financial resources of the PREVENT program are being used for our ovarian cancer vaccine technology to perform virtually all pre-clinical research and development, manufacturing and Investigational New Drug (“IND”) application enabling studies. This work is being performed at NCI facilities, by NCI scientific staff and with NCI financial resources and will require no material financial expenditures by the Company, nor the transfer of any rights of the Company’s assets. Our subsidiary, Certainty, is developing immuno-therapy drugs against cancer. Certainty holds an exclusive worldwide, royalty-bearing license to use certain intellectual property owned or controlled by The Wistar Institute (“Wistar”), the nation’s first independent biomedical research institute and a leading NCI designated cancer research center, relating to Wistar’s chimeric endocrine receptor targeted therapy technology. We have initially focused on the development of a treatment for ovarian cancer, but we also may pursue applications of the technology for the development of treatments for additional solid tumors. The license agreement requires Certainty to make certain cash and equity payments to Wistar upon achievement of specific development milestones. With respect to Certainty’s equity obligations to Wistar, Certainty issued to Wistar shares of its common stock equal to five percent ( 5 %) of the common stock of Certainty, such equity stake subject to dilution by further funding of Certainty’s activities by the Company. Due to such Company funding, Wistar’s equity stake in Certainty was 4.6% as of October 31, 2023. Certainty, in collaboration with the H. Lee Moffitt Cancer Center and Research Institute, Inc. (“Moffitt”), has begun human clinical testing of the CAR-T technology licensed by Certainty from Wistar aimed initially at treating ovarian cancer. After receiving authorization from the FDA, we commenced enrollment of patients in a Phase 1 clinical trial and treated the first patient in August 2022. Further, in May 2023 and August 2023, we treated the second and third patients in the trial, respectively, at the same dose level as the first patient, and the treatment appears to have been well-tolerated by all patients treated to date. We anticipate that we will begin enrolling the successive patient cohort, that we expect to give a three-times higher dose of cells, in the first calendar quarter of 2024. This study is a dose-escalation trial with two arms based on delivery method—intraperitoneal or intravenous—to determine the maximum tolerated dose in patients with recurrent epithelial ovarian cancer and to assess persistence, expansion and efficacy of the modified T cells. The study is being conducted at Moffitt and will consist of 24 to 48 patients who have received at least two prior lines of chemotherapy. The study is estimated to be completed in two to four years depending on multiple factors including when maximum tolerated dose is reached, the rate of patient enrollment, and how long we maintain the two different delivery methods. F- 7 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In April 2020, we entered into a collaboration with OntoChem GmbH (“OntoChem”) which was later assigned to MolGenie GmbH, a company spun-out from OntoChem focused on drug discovery and development, to discover and ultimately develop anti-viral drug candidates against COVID-19. Through this collaboration, we identified compounds that appeared to be effective in disrupting the main protease of SARS-CoV-2, the virus that causes the disease COVID-19. While our compounds have shown promise as an effective treatment, results of animal studies indicate that there is not sufficient oral bioavailability, and it is unclear whether an orally delivered treatment may be developed. We do not currently believe that there is a viable market for an injectable treatment given the current oral treatments available. Furthermore, we believe the needed additional investment in research for alternative delivery methods would divert resources from more promising projects. Therefore, in March 2023, we decided to pause further development of our COVID-19 therapeutic. We continue to prosecute our U.S. patent applications of this technology and may decide to restart development at some time in the future. Over the next several quarters, we expect the development of our vaccines and therapeutics to be the primary focus of the Company. As part of our legacy operations, the Company remains engaged in limited patent licensing activities of its various patent portfolios. We do not expect these activities to be a significant part of the Company’s ongoing operations nor do we expect these activities to require material financial resources or attention of senior management. Over the past several years, our revenue was derived from technology licensing and the sale of patented technologies, including revenue from the settlement of litigation (during the year ended October 31, 2023, we derived approximately $ 210,000 of revenue from these activities). We have not generated any revenue to date from our vaccine or therapeutics programs. In addition, while we pursue our vaccine and therapeutics programs, we may also make investments in and form new companies to develop additional emerging technologies. We do not expect to begin generating revenue with respect to any of our current vaccine or therapy programs in the near term. We hope to achieve a profitable outcome by eventually licensing our technologies to large pharmaceutical companies that have the resources and infrastructure in place to manufacture, market and sell our technologies as vaccines or therapeutics. The eventual licensing of any of our technologies may take several years, if it is to occur at all, and may depend on positive results from human clinical trials. Funding and Management’s Plans Based on currently available information as of January 16, 2024, we believe that our existing cash, cash equivalents, short-term investments and expected cash flows will be sufficient to fund our activities for at least the next twelve months. We have implemented a business model that conserves funds by collaborating with third parties to develop our technologies. However, our projections of future cash needs and cash flows may differ from actual results. If current cash on hand, cash equivalents, short-term investments and cash that may be generated from our business operations are insufficient to continue to operate our business, or if we elect to invest in or acquire a company or companies or new technology or technologies that are synergistic with or complementary to our technologies, we may be required to obtain more working capital. Under our at-the-market equity program which is currently effective and may remain available for us to use in the future, as of October 31, 2023, we may sell up to $ 100 million of common stock. We did not sell any shares under our at-the-market equity program during the fiscal year ended October 31, 2023. We may seek to obtain working capital during our fiscal year 2024 or thereafter through sales of our equity securities or through bank credit facilities or public or private debt from various financial institutions where possible. We cannot be certain that additional funding will be available on acceptable terms, or at all. If we do identify sources for additional funding, the sale of additional equity securities or convertible debt will result in dilution to our stockholders. We can give no assurance that we will generate sufficient cash flows in the future to satisfy our liquidity requirements or sustain future operations, or that other sources of funding, such as sales of equity or debt, would be available or would be approved by our security holders, if needed, on favorable terms or at all. If we fail to obtain additional working capital as and when needed, such failure could have a material adverse impact on our business, results of operations and financial condition. Furthermore, such lack of funds may inhibit our ability to respond to competitive pressures or unanticipated capital needs, or may force us to reduce operating expenses, which would significantly harm the business and development of operations. F- 8 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of Anixa Biosciences, Inc. and its wholly and majority owned subsidiaries. All intercompany transactions have been eliminated. Noncontrolling Interest Noncontrolling interest represents Wistar’s equity ownership in Certainty and is presented as a component of equity. The following table sets forth the changes in noncontrolling interest for the two years ended October 31, 2023 (in thousands): SCHEDULE OF CHANGES IN NONCONTROLLING INTEREST Balance October 31, 2021 $ ( 671 ) Net loss attributable to noncontrolling interest ( 176 ) Balance October 31, 2022 ( 847 ) Net loss attributable to noncontrolling interest ( 119 ) Balance October 31, 2023 $ ( 966 ) Revenue Recognition Our revenue has been derived solely from technology licensing and the sale of patented technologies. Revenue is recognized upon transfer of control of intellectual property rights and satisfaction of other contractual performance obligations to licensees in an amount that reflects the consideration we expect to receive. Our revenue recognition policy requires us to make certain judgments and estimates in connection with the accounting for revenue. Such areas may include determining the existence of a contract and identifying each party’s rights and obligations to transfer goods and services, identifying the performance obligations in the contract, determining the transaction price and allocating the transaction price to separate performance obligations, estimating the timing of satisfaction of performance obligations, determining whether a promise to grant a license is distinct from other promised goods or services and evaluating whether a license transfers to a customer at a point in time or over time. Our revenue arrangements provide for the payment, within 30 days of execution of the agreement, of contractually determined, one-time, paid-up license fees in settlement of litigation and in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company. These arrangements typically include some combination of the following: (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patented technologies owned or controlled by the Company, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) the dismissal of any pending litigation. In such instances, the intellectual property rights granted have been perpetual in nature, extending until the expiration of the related patents. Pursuant to the terms of these agreements, we have no further obligations with respect to the granted intellectual property rights, including no obligation to maintain or upgrade the technology, or provide future support or services. Licensees obtained control of the intellectual property rights they have acquired upon execution of the agreement. Accordingly, the performance obligations from these agreements were satisfied and 100 % of the revenue was recognized upon the execution of the agreements. F- 9 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Cost of Revenues Cost of revenues include the costs and expenses incurred in connection with our patent licensing and enforcement activities, including inventor royalties paid to original patent owners, contingent legal fees paid to external counsel, other patent-related legal expenses paid to external counsel, licensing and enforcement related research and consulting and other expenses paid to third-parties. These costs are included under the caption “Operating costs and expenses” in the accompanying consolidated statements of operations. Research and Development Expenses Research and development expenses consist primarily of payments to third parties for research and development activities, including expenses related to clinical trials, employee compensation, and other direct costs associated with developing our therapeutics and vaccines. We recognize research and development expenses as incurred. Advance payments for future research and development activities are deferred and expensed as the services are performed. We recognize our preclinical studies and clinical trial expenses based on the services performed pursuant to contracts with research institutions, clinical research organizations (“CROs”), clinical manufacturing organizations (“CMOs”), and other parties that conduct and manage various stages of research and development activities on our behalf. Fees for such services are recognized based on management’s estimates after considering the activities and tasks completed by each service provider in a given period, the time period over which services are expected to be performed, and the level of effort expended in each reporting period. At each balance sheet date, management estimates prepaid and accrued research and development costs by discussing progress or stage of completion of activities with internal personnel and external service providers, and comparing this information to payments made, invoices received, and the agreed-upon contractual fee to be paid for such services in the applicable contract or statements of work. In addition, we allocate certain internal compensation costs to research and development expenses based on management’s estimates of each employee’s time and effort expended. Fair Value Measurements Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value under U.S. generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. In accordance with ASC 820, we have categorized our financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Financial assets and liabilities recorded in the accompanying consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows: Level 1 – Financial instruments whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market which we have the ability to access at the measurement date. Level 2 – Financial instruments whose values are based on quoted market prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets. Level 3 – Financial instruments whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the instrument. F- 10 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31, 2023 (in thousands): SCHEDULE OF FAIR VALUE MEASUREMENTS Level 1 Level 2 Level 3 Total Money market funds: Cash equivalents $ 778 $ - $ - $ 778 Certificates of deposit: Short term investments - 720 - 720 U. S. treasury bills: Short term investments - 22,209 - 22,209 Total financial assets $ 778 $ 22,929 $ - $ 23,707 The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31, 2022 (in thousands): Level 1 Level 2 Level 3 Total Money market funds: Cash equivalents $ 11,175 $ - $ - $ 11,175 Certificates of deposit: Cash equivalents 1,000 1,000 Short term investments - 13,700 - 13,700 U. S. treasury bills: Short term investments - 3,627 - 3,627 Total financial assets $ 11,175 $ 18,327 $ - $ 29,502 Our non-financial assets that are measured on a non-recurring basis are property and equipment and other assets which are measured using fair value techniques whenever events or changes in circumstances indicate a condition of impairment exists. The estimated fair value of prepaid expenses and other current assets, accounts payable and accrued expenses approximates their individual carrying amounts due to the short-term nature of these measurements. Cash equivalents are stated at carrying value which approximates fair value. Cash Equivalents Cash equivalents consist of highly liquid, short-term investments with original maturities of three months or less when purchased. Short-term Investments At October 31, 2023 and 2022, we had certificates of deposit and United States treasury bills with maturities greater than 90 days and less than 12 months when acquired of approximately $ 22,929,000 and $ 17,327,000 , respectively, that were classified as short-term investments and reported at fair value. Income Taxes We recognize deferred tax assets and liabilities for the estimated future tax effects of events that have been recognized in our financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized. F- 11 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Share-Based Compensation We maintain equity incentive plans under which we may grant incentive stock options, non-qualified stock options, stock appreciation rights, stock awards, performance awards, or stock units to employees, directors and consultants. Stock Option Compensation Expense We account for stock options granted to employees, directors and consultants using the accounting guidance in ASC 718, Stock Compensation (“ASC 718”). We estimate the fair value of service-based stock options on the date of grant, using the Black-Scholes pricing model, and recognize compensation expense over the requisite service period of the grant. We recorded stock-based compensation expense, related to service-based stock options granted to employees and directors, of approximately $ 4,422,000 and $ 3,463,000 , during the years ended October 31, 2023 and 2022, respectively. Included in stock-based compensation cost for service-based options granted to employees and directors during the years ended October 31, 2023 and 2022 was approximately $ 3,023,000 and $ 2,788,000 , respectively, related to the amortization of compensation cost for stock options granted in prior periods but not yet vested. As of October 31, 2023, there was unrecognized compensation cost related to non-vested service-based stock options granted to employees and directors of approximately $ 5,194,000 , which will be recognized over a weighted-average period of 1.7 years. For stock options that vest based on market conditions, such as the trading price of the Company’s common stock exceeding certain price targets, we use a Monte Carlo Simulation in estimating the fair value at grant date and recognize compensation expense over the implied service period (median time to vest). On June 1, 2021, our Chairman, then-President and Chief Executive Officer and our Chief Operating Officer and Chief Financial Officer were awarded market condition stock options for 2,000,000 shares and 100,000 shares of common stock, respectively, that vest in four equal installments upon the Company’s share price achieving targets ranging from $ 5.00 to $ 8.00 per share, with implied service periods of three to fifteen months. The assumptions used in the Monte Carlo Simulation for the June 1, 2021 grants were stock price on date of grant and exercise price of $ 4.02 , contract term of 10 years, expected volatility of 75 % and risk-free interest rate of 1.62 %. As of October 31, 2023, 500,000 options and 25,000 options granted to our Chairman, then-President and Chief Executive Officer and our Chief Operating Officer and Chief Financial Officer, respectively, have vested. During the year ended October 31, 2023, we recorded no stock-based compensation expense related to market condition stock options granted to employees. We recorded stock-based compensation expense related to market condition stock options granted to employees of approximately $ 2,537,000 during the year ended October 31, 2022, which amount represented expense related to the amortization of compensation cost for stock options granted during the year ended October 31, 2021. As of October 31, 2023, there was no unrecognized compensation cost related to market condition stock options granted to employees. We recorded consulting expense, related to service-based stock options granted to consultants, during the years ended October 31, 2023 and 2022 of approximately $ 221,000 and $ 434,000 , respectively. Included in stock-based consulting expense for the years ended October 31, 2023 and 2022 was approximately $ 209,000 and $ 434,000 , respectively, related to compensation cost for stock options granted in prior periods but not yet vested. As of October 31, 2023, there was unrecognized consulting expense related to non-vested service-based stock options granted to consultants of approximately $ 281,000 , which will be recognized over a weighted-average period of 2.5 years. F- 12 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair Value Determination We use the Black-Scholes pricing model in estimating the fair value of stock options granted to employees, directors and consultants which vest over a specific period of time. The stock options we granted during each of the years ended October 31, 2023 and 2022 consisted of awards with 5 -year and 10 -year terms that vest over 12 to 36 months. The following weighted average assumptions were used in estimating the fair value of stock options granted during the years ended October 31, 2023 and 2022: SCHEDULE OF WEIGHTED AVERAGE ASSUMPTIONS USED IN ESTIMATING FAIR VALUE OF STOCK OPTIONS For the Year Ended October 31, 2023 2022 Weighted average fair value at grant date $ 3.29 $ 2.18 Valuation assumptions: Expected life (years) 5.47 5.76 Expected volatility 100.27 % 102.72 % Risk-free interest rate 3.87 % 1.99 % Expected dividend yield 0 % 0 % The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding. For employees and directors, 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 operations. For consultants, we use the contract term for expected term. Under the Black-Scholes pricing model, we estimated 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 options. We estimated 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 cash dividends and our expectation not to pay dividends in the future. Under ASC 718, the amount of stock-based compensation expense recognized is based on the portion of the awards that are ultimately expected to vest. Accordingly, if deemed necessary, we reduce the fair value of the stock option awards for expected forfeitures, which are forfeitures of the unvested portion of surrendered options. Based on our historical experience and future expectations, we have not reduced the amount of stock-based compensation expenses for anticipated forfeitures. We will reconsider use of the Black-Scholes pricing model if additional information becomes available in the future that indicates another model would be more appropriate. If factors change and we employ different assumptions in the application of ASC 718 in future periods, the compensation expense that we record under ASC 718 may differ significantly from what we have recorded in the current period. F- 13 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Warrants For warrants granted to consultants for services rendered, we estimate the fair value using the Black-Scholes pricing model on the date of grant. During the years ended October 31, 2023 and 2022 we recorded consulting expense, based on the fair value, of $ 0 and approximately $ 221,000 , respectively, for warrants granted to consultants. Net Loss Per Share of Common Stock In accordance with ASC 260, Earnings Per Share, basic net loss per common share (“Basic EPS”) is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted net loss per common share (“Diluted EPS”) is computed by dividing net loss by the weighted average number of common shares and dilutive common share equivalents and convertible securities then outstanding. Diluted EPS for all years presented is the same as Basic EPS, as the inclusion of the effect of common share equivalents then outstanding would be anti-dilutive. For this reason, excluded from the calculation of Diluted EPS for the years ended October 31, 2023 and 2022 were options to purchase 11,430,000 shares and 10,318,872 shares, respectively, and warrants to purchase 300,000 shares and 300,000 shares, respectively. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are used for, but not limited to, determining stock-based compensation, asset impairment evaluations, tax assets and liabilities, license fee revenue, the allowance for doubtful accounts, depreciation lives and other contingencies. Actual results could differ from those estimates. F- 14 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Effect of Recently Issued Pronouncements In August 2020, the FASB issued Accounting Standards Update 2020-06 (“ASU 2020-06”), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in ASU 2020-06 include guidance on convertible instruments and the derivative scope exception for contracts in an entity’s own equity and simplifies the accounting for convertible instruments which include beneficial conversion features or cash conversion features by removing certain separation models in Subtopic 470-20. Additionally, ASU 2020-06 will require entities to use the “if-converted” method when calculating diluted earnings per share for convertible instruments. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The adoption of this standard did not have a material impact on our consolidated financial statements and related disclosures. In May 2021, the FASB issued Accounting Standards Update 2021-04 (“ASU 2021-04”), Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The guidance in ASU 2021-04 requires the issuer to treat a modification of an equity-classified written call option (the “option”) that does not cause the option to become liability-classified as an exchange of the original option for a new option. This guidance applies whether the modification is structured as an amendment to the terms and conditions of the option or as termination of the original option and issuance of a new option. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The adoption of this standard did not have a material impact on our consolidated financial statements and related disclosures. In October 2021, the FASB issued Accounting Standards Update 2021-08 (“ASU 2021-08”), Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The amendments in this update should be applied prospectively and are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements and related disclosures. Concentration of Credit Risks Financial instruments that potentially subject us to concentrations of credit risk are cash equivalents, short-term investments and accounts receivable. Cash equivalents are primarily highly rated money market funds. Short-term investments are certificates of deposit within federally insured limits as well as U.S. treasury bills. Where applicable, management reviews our accounts receivable and other receivables for potential doubtful accounts and maintains an allowance for estimated uncollectible amounts. Our policy is to write-off uncollectable amounts at the time it is determined that collection will not occur. One licensee accounted for 100% of revenues from patent licensing activities during fiscal year 2023. 3. ACCRUED EXPENSES Accrued liabilities consist of the following as of: SCHEDULE OF ACCRUED EXPENSES 2023 2022 October 31, 2023 2022 Payroll and related expenses $ 1,114 $ 1,144 Accrued royalty and contingent legal fees 626 577 Accrued other 30 5 Accrued expenses $ 1,770 $ 1,726 F- 15 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. SHAREHOLDERS’ EQUITY Stock Option Plans During the year ended October 31, 2023, we had two stock option plans: the Anixa Biosciences, Inc. 2010 Share Incentive Plan (the “2010 Share Plan”) and the Anixa Biosciences, Inc. 2018 Share Incentive Plan (the “2018 Share Plan”) which were adopted by our Board of Directors on July 14, 2010 and January 25, 2018, respectively. The 2018 Share Plan was approved by our shareholders on March 29, 2018. In accordance with the provisions of the 2010 Share Plan, the plan terminated with respect to the grant of future securities on July 14, 2020. During the years ended October 31, 2023 and 2022, stock options to purchase 157,761 and 387,739 shares of common stock, respectively, were exercised on a cash basis, with aggregate proceeds of approximately $ 353,000 and $ 439,000 , respectively. During the years ended October 31, 2023 and 2022, stock options to purchase 161,111 shares of common stock, of which 116,225 shares were withheld, and 1,488,881 shares of common stock, of which 1,083,517 shares were withheld, were exercised on a cashless basis, respectively. 2010 Share Plan The 2010 Share Plan provided for the grant of nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to employees, directors and consultants. On the first business day of each calendar year the aggregate number of shares available for future issuance was replenished such that 800,000 shares were available. The exercise price with respect to all of the options granted under the 2010 Share Plan was equal to the fair market value of the underlying common stock at the grant date. Information regarding the 2010 Share Plan for the two years ended October 31, 2023 is as follows: SCHEDULE OF OPTION ACTIVITY Shares Weighted Average Exercise Price Per Share Aggregate Intrinsic Value Options Outstanding at October 31, 2021 1,718,634 $ 2.82 Exercised ( 212,000 ) $ 2.68 Expired ( 5,134 ) $ 3.63 Options Outstanding at October 31, 2022 1,501,500 $ 2.83 Exercised ( 312,500 ) $ 2.41 Options Outstanding and Exercisable at October 31, 2023 1,189,000 $ 2.94 $ 770,800 The following table summarizes information about stock options outstanding under the 2010 Share Plan as of October 31, 2023: SCHEDULE OF OUTSTANDING AND EXERCISABLE Range of Exercise Prices Number Outstanding and Exercisable Weighted Average Remaining Contractual Life (in years) Weighted Average Exercise Price $ 0.67 - $ 2.27 366,000 3.59 $ 1.27 $ 2.58 - $ 3.13 314,000 2.21 $ 2.91 $ 3.46 - $ 5.30 509,000 4.54 $ 4.17 F- 16 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2018 Share Plan The 2018 Share Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to employees, directors and consultants. On the first business day of each calendar year the maximum aggregate number of shares available for future issuance is replenished such that 2,000,000 shares are available. The exercise price with respect to all of the options granted under the 2018 Share Plan was equal to the fair market value of the underlying common stock at the grant date. As of October 31, 2023, the 2018 Share Plan had 750,000 shares available for future grants. Information regarding the 2018 Share Plan for the two years ended October 31, 2023 is as follows: SCHEDULE OF OPTION ACTIVITY Shares Weighted Average Exercise Price Per Share Aggregate Intrinsic Value Options Outstanding at October 31, 2021 7,409,992 $ 3.76 Granted 1,430,000 $ 2.74 Exercised ( 22,620 ) $ 3.15 Options Outstanding at October 31, 2022 8,817,372 $ 3.60 Granted 1,640,000 $ 3.97 Exercised ( 6,372 ) $ 2.89 Forfeited/Expired ( 210,000 ) $ 5.10 Options Outstanding at October 31, 2023 10,241,000 $ 3.67 $ 1,112,030 Options Exercisable at October 31, 2023 6,721,970 $ 3.50 $ 884,783 The following table summarizes information about stock options outstanding under the 2018 Share Plan as of October 31, 2023: SCHEDULE OF OUTSTANDING AND EXERCISABLE Options Outstanding Options Exercisable Range of Exercise Prices Number Outstanding Weighted Average Remaining Contractual Life (in years) Weighted Average Exercise Price Number Exercisable Weighted Average Remaining Contractual Life (in years) Weighted Average Exercise Price $ 2.09 - $ 3.87 5,476,000 6.50 $ 3.24 4,828,361 6.22 $ 3.29 $ 3.96 - $ 5.30 4,765,000 7.70 $ 4.16 1,893,609 7.20 $ 4.02 Non-Plan Options In addition to options granted under stock option plans, during the years ended October 31, 2012 and 2013, the Board of Directors approved the grant of stock options to certain employees and directors (the “Non-Plan Options”). F- 17 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Information regarding the Non-Plan Options for the two years ended October 31, 2023 is as follows: SCHEDULE OF OPTION ACTIVITY Shares Weighted Average Exercise Price Per Share Options Outstanding October 31, 2021 1,642,000 $ 2.58 Exercised ( 1,642,000 ) $ 2.58 Options Outstanding and Exercisable at October 31, 2022 - Employee Stock Purchase Plan The Company maintains the Anixa Biosciences, Inc. Employee Stock Purchase Plan which permits eligible employees to purchase shares at not less than 85 % of the market value of the Company’s common stock on the offering date or the purchase date of the applicable offering period, whichever is lower. The plan was adopted by our Board of Directors on August 13, 2018 and approved by our shareholders on September 27, 2018. During the years ended October 31, 2023 and 2022, employees purchased 4,360 and 4,741 shares, respectively, with aggregate proceeds of approximately $ 13,000 and $ 13,000 , respectively. Common Stock Purchase Warrants On November 1, 2021 we issued a warrant, expiring on October 30, 2026 , to purchase 60,000 shares of common stock at $ 4.77 per share, vesting over five months , to a consultant for investor relations services. We recorded consulting expense of approximately $ 221,000 during the year ended October 31, 2022, based on the fair value of the warrant recognized on a straight-line basis over the vesting period. The warrant terminated in May 2022 upon termination of the consulting agreement. In connection with a public offering in March 2021, we issued to certain designees of the underwriter, as compensation, warrants to purchase 300,000 shares of common stock at $ 6.5625 per share, expiring on March 22, 2026 . Information regarding the Company’s warrants for the two years ended October 31, 2023 is as follows: SCHEDULE OF WARRANTS ACTIVITY Shares Weighted Average Exercise Price Per Share Aggregate Intrinsic Value Warrants Outstanding at October 31, 2021 860,000 $ 5.36 Issued 60,000 $ 4.77 Exercised ( 60,000 ) $ 2.06 Expired ( 560,000 ) $ 4.71 Warrants Outstanding and Exercisable at October 31, 2022 and October 31, 2023 300,000 $ 6.56 $ 0 The following table summarizes information about the Company’s outstanding and exercisable warrants as of October 31 , 2023: SCHEDULE OF OUTSTANDING AND EXERCISABLE Exercise Price Number Outstanding and Exercisable Weighted Average Remaining Contractual Life (in years) Weighted Average Exercise Price $ 6.56 300,000 2.39 $ 6.56 F- 18 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. LEASES We lease approximately 2,000 square feet of office space at 3150 Almaden Expressway, San Jose, California (our principal executive offices) from an unrelated party pursuant to an operating lease that, as amended, will expire on September 30, 2024 , with an option to extend the lease an additional two years. Our base rent is approximately $ 5,000 per month and the lease provides for annual increases of approximately 3 % and an escalation clause for increases in certain operating costs. The lease, as amended, resulted in a right-of-use asset and lease liability of approximately $ 260,000 with a discount rate of 10 %. Rent expense was approximately $ 66,000 for each of the years ended October 31, 2023 and 2022. For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments. The remaining 35 -month lease term as of October 31, 2023 for the Company’s lease includes the noncancelable period of the lease and the additional two-year option period that the Company believes it is reasonably certain to exercise. All right-of-use assets are reviewed for impairment when indications of impairment are present. As of October 31, 2023, the annual minimum lease payments of our operating lease liability were as follows (in thousands): SCHEDULE OF MINIMUM LEASE PAYMENTS For Years Ending October 31, Operating Leases 2024 $ 67 2025 70 2026 65 Total future minimum lease payments, undiscounted 202 Less: Imputed interest 27 Present value of future minimum lease payments $ 175 6. COMMITMENTS AND CONTINGENCIES Litigation Matters Other than lawsuits we bring to enforce our patent rights, we are not involved in any litigation or other legal proceedings and management is not aware of any pending litigation or legal proceeding against us that would have a material adverse effect upon our results of operations or financial condition. License Commitments As of October 31, 2023, our commitments under the license agreements with Wistar and Cleveland Clinic for the year ending October 31, 2024 were approximately $ 70,000 . Research & Development Agreements We have entered into certain research and development agreements with various third-party vendors related to the manufacturing of materials necessary for the expected Phase 2 clinical trial of our breast cancer vaccine. As of October 31, 2023, future payments the Company may make under these agreements may be approximately $ 3.5 million and such payments may be made over up to a five-year period. 7. INCOME TAXES Income tax provision (benefit) consists of the following: SCHEDULE OF INCOME TAX PROVISION (BENEFIT) Year Ended October 31, 2023 2022 Federal: Current $ - $ - Deferred ( 1,739,000 ) ( 1,021,000 ) State: Current - - Deferred ( 583,000 ) ( 350,000 ) Adjustment to valuation allowance related to net deferred tax assets 1,322,000 1,371,000 Total $ - $ - F- 19 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The tax effects of temporary differences that give rise to significant portions of the deferred tax asset, net, at October 31, 2023 and 2022, are as follows: SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES October 31, 2023 2022 Long-term deferred tax assets: Federal and state NOL and tax credit carryforwards $ 26,532,000 $ 22,196,000 Deferred compensation 7,752,000 6,851,000 Intangibles 218,000 274,000 Other - 281,000 Subtotal 34,502,000 29,602,000 Less: valuation allowance ( 34,502,000 ) ( 29,602,000 ) Deferred tax asset, net $ - $ - As of October 31, 2023, we had Federal tax net operating loss and tax credit carryforwards of approximately $ 95,752,000 and $ 1,870,000 , respectively. At the federal level, businesses can carry forward their net operating losses indefinitely, but the deductions are limited to 80 percent of taxable income. Prior to the Tax Cuts and Jobs Act (TCJA) of 2017, businesses could carry losses forward for 20 years (without a deductibility limit). If the tax benefits relating to deductions of option holders’ income are ultimately realized, those benefits will be credited directly to additional paid-in capital. Certain changes in stock ownership can result in a limitation on the amount of net operating loss and tax credit carryovers that can be utilized each year. As of October 31, 2023, management has not determined the extent of any such limitations, if any. We had California tax net operating loss carryforwards of approximately $ 51,065,000 as of October 31, 2023, available within statutory limits ( expiring at various dates between 2024 and 2043 ), to offset future corporate taxable income and taxes payable, if any, under certain computations of such taxes. We have provided a 100 % valuation allowance against our deferred tax asset due to our current and historical pre-tax losses and the uncertainty regarding their realizability. The primary differences from the Federal statutory rate of 21 % and the effective rate of 0 % is attributable to expiring net operating losses and a change in the valuation allowance. The following is a reconciliation of income taxes at the Federal statutory tax rate to income tax expense (benefit): SCHEDULE OF RECONCILIATION OF INCOME TAXES Year Ended October 31, 2023 2022 Income tax benefit at U.S. Federal statutory income tax rate ( 2,085,000 ) ( 21.00 )% $ ( 2,892,000 ) ( 21.00 )% State income taxes ( 693,000 ) ( 6.98 )% ( 962,000 ) ( 6.98 )% Permanent differences 20,000 0.20 % 14,000 0.10 % Expiring net operating losses, credits and other 1,436,000 14.46 % 2,469,000 17.93 % Change in valuation allowance 1,322,000 13.32 % 1,371,000 9.95 % Income tax provision $ - 0.00 % $ - 0.00 % F- 20 ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During the two fiscal years ended October 31, 2023, we incurred no Federal and no State income taxes. We have no unrecognized tax benefits as of October 31, 2023 and 2022 and we account for interest and penalties related to income tax matters in general and administrative expenses. Tax years to which our net operating losses relate remain open to examination by Federal and California authorities to the extent which the net operating losses have yet to be utilized. 8. SEGMENT INFORMATION We follow the accounting guidance of ASC 280, Segment Reporting (“ASC 280”). Reportable operating segments are determined based on the management approach. The management approach, as defined by ASC 280, is based on the way that the chief operating decision-maker organizes the segments within an enterprise for making operating decisions and assessing performance. While our results of operations are primarily reviewed on a consolidated basis, the chief operating decision-maker manages the enterprise in four reportable segments, each with different operating and potential revenue generating characteristics: (i) CAR-T Therapeutics, (ii) Cancer Vaccines, (iii) Anti-Viral Therapeutics and (iv) Other. The following represents selected financial information for our segments for the years ended October 31, 2023 and 2022: SCHEDULE OF SEGMENT INFORMATION Year Ended October 31, 2023 2022 Net income (loss): CAR-T Therapeutics $ ( 3,879 ) $ ( 5,776 ) Cancer Vaccines ( 5,111 ) ( 4,889 ) Anti-Viral Therapeutics ( 945 ) ( 3,075 ) Other 5 ( 31 ) Total $ ( 9,930 ) $ ( 13,771 ) Net income (loss) $ ( 9,930 ) $ ( 13,771 ) Total operating costs and expenses $ 11,221 $ 13,875 Less non-cash share-based compensation ( 4,735 ) ( 6,655 ) Operating costs and expenses excluding non-cash share-based compensation $ 6,486 $ 7,220 Operating costs and expenses excluding non-cash share based compensation: CAR-T Therapeutics $ 2,467 $ 3,206 Cancer Vaccines 3,265 2,355 Anti-Viral Therapeutics 553 1,634 Other 201 25 Total $ 6,486 $ 7,220 Operating costs and expenses excluding non-cash share based compensation $ 6,486 $ 7,220 October 31, 2023 2022 Total assets: CAR-T Therapeutics $ 7,523 $ 16,921 Cancer Vaccines 17,215 9,442 Anti-Viral Therapeutics 700 3,811 Other 84 238 Total $ 25,522 $ 30,412 Total assets $ 25,522 $ 30,412 Operating costs and expenses excluding non-cash share-based compensation is the measurement the chief operating decision-maker uses in managing the enterprise. The Company’s consolidated revenue of $ 210,000 and inventor royalties, contingent legal fees, litigation and licensing expense of $ 161,000 , for the year ended October 31, 2023 were solely related to our other segment. All our revenue is generated domestically (United States) based on the country in which the licensee is located. F- 21