UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2022

or

 

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2021

Commission file number 001-37492

ANIXA BIOSCIENCES, INC.

(Exact name of registrant as specified in its charter)

Delaware11-2622630
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)

3150 Almaden Expressway, Suite 250
San Jose, CA95118
(Address of principal executive offices)(Zip Code)

(408)708-9808

(Registrant’s telephone number, including area code)

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

Title of each classTrading symbolName of exchange on which registered
Common Stock, par value $.01 per shareANIXNASDAQ Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes[X] ☒ No [  ]☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes[X] ☒ No [  ]☐

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

Large accelerated filer [  ]☐Accelerated filer [  ]☐
Non-accelerated filer [X] ☒Smaller reporting company [X]☒Emerging growth company [  ]☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] ☐ No [X] ☒

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

On June 10, 20212022 the registrant had outstanding 29,949,905 30,471,001 shares of Common Stock, par value $.01 per share, which is the registrant’s only class of common stock.

 

 

 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.1
Condensed Consolidated Balance Sheets as of April 30, 20212022 (Unaudited) and October 31, 202020211
Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended April 30, 20212022 and 202020212
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the three months ended April 30, 20212022 and 202020213
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) for the six months ended April 30, 20212022 and 202020214
Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended April 30, 20212022 and 202020215
Notes to Condensed Consolidated Financial Statements (Unaudited)6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.2119
Item 3. Quantitative and Qualitative Disclosures About Market Risk.2624
Item 4. Controls and Procedures.2624
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.2725
Item 1A. Risk Factors.2725
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.2725
Item 3. Defaults Upon Senior Securities.2725
Item 4. Mine Safety Disclosures.2725
Item 5. Other Information.2725
Item 6. Exhibits.2725
SIGNATURES2826

ii

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 April 30,
2021		  October 31,
2020		 
  (Unaudited)    
ASSETS        
Current assets:        
Cash and cash equivalents $27,703,435  $6,417,061 
Short-term investments  10,399,300   2,640,000 
Prepaid expenses and other current assets  369,213   311,563 
Total current assets  38,471,948   9,368,624 
         
Operating lease right-of-use asset  25,574   54,340 
Other assets  -   30,000 
Total assets $38,497,522  $9,452,964 
         
LIABILITIES AND EQUITY        
Current liabilities:        
Accounts payable $438,013  $232,368 
Accrued expenses  978,894   901,025 
Operating lease liability  25,964   55,198 
Total current liabilities  1,442,871   1,188,591 
         
Commitments and contingencies (Note 10)  ��     
         
Equity:        
Shareholders’ equity:        
Preferred stock, par value $100 per share; 19,860 shares authorized; no shares issued or outstanding  -   - 
Series A convertible preferred stock, par value $100 per share; 140 shares authorized; no shares issued or outstanding  -   - 
Common stock, par value $.01 per share; 100,000,000 shares authorized;
31,449,905 and 24,248,695 shares issued and outstanding, respectively		  314,499   242,486 
Additional paid-in capital  233,742,019   200,354,488 
Accumulated deficit  (196,442,760)  (191,835,618)
Total shareholders’ equity  37,613,758   8,761,356 
Noncontrolling interest (Note 1)  (559,107)  (496,983)
Total equity  37,054,651   8,264,373 
         
Total liabilities and equity $38,497,522  $9,452,964 

(in thousands, except share and per share data)

 April 30,
2022		  October 31,
2021		 
   (Unaudited)     
ASSETS        
Current assets:        
Cash and cash equivalents $27,732  $29,128 
Short-term investments  4,499   6,599 
Prepaid expenses and other current assets  332   276 
Total current assets  32,563   36,003 
         
Operating lease right-of-use asset  234   254 
Total assets $32,797  $36,257 
         
LIABILITIES AND EQUITY        
Current liabilities:        
Accounts payable $93  $136 
Accrued expenses  1,057   1,095 
Operating lease liability  39   39 
Total current liabilities  1,189   1,270 
         
Operating lease liability, non-current  202   220 
Total liabilities  1,391   1,490 
         
Commitments and contingencies (Note 9)  -    -  
         
Equity:        
Shareholders’ equity:        
Preferred stock, par value $100 per share; 19,860 shares authorized; 0 shares issued or outstanding  -   - 
Series A convertible preferred stock, par value $100 per share; 140 shares authorized; 0 shares issued or outstanding  -   - 
Preferred stock        
Common stock, par value $.01 per share; 100,000,000 shares authorized; 30,154,708 and 30,050,894 shares issued and outstanding as of April 30, 2022 and October 31, 2021, respectively  302   301 
Additional paid-in capital  244,032   239,927 
Accumulated deficit  (212,163)  (204,790)
Total shareholders’ equity  32,171   35,438 
Noncontrolling interest (Note 1)  (765)  (671)
Total equity  31,406   34,767 
         
Total liabilities and equity $32,797  $36,257 

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

1

 

ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)

  2022  2021  2022  2021 
  For the three months ended  For the six months ended 
  April 30,  April 30, 
  2022  2021  2022  2021 
             
Revenue $-  $-  $-  $513 
                 
Operating costs and expenses:                
Inventor royalties, contingent legal fees, litigation and licensing expenses  -   -   -   385 
Research and development expenses (including non-cash share-based compensation expenses of $966, $447, $2,243 and $737, respectively)  1,735   1,022   3,573   1,850 
General and administrative expenses (including non-cash share-based compensation expenses of $715, $604, $1,793 and $1,300, respectively)  1,854   1,415   3,896   2,948 
Total operating costs and expenses  3,589   2,437   7,469   5,183 
                 
Loss from operations  (3,589)  (2,437)  (7,469)  (4,670)
                 
Interest income  1   -   2   1 
                 
Net loss  (3,588)  (2,437)  (7,467)  (4,669)
                 
Less: Net loss attributable to noncontrolling interest  (44)  (38)  (94)  (62)
                 
Net loss attributable to common shareholders $(3,544) $(2,399) $(7,373) $(4,607)
                 
Net loss per common share attributable to common shareholders:                
Basic and diluted $(0.12) $(0.08) $(0.24) $(0.17)
                 
Weighted average common shares outstanding:                
Basic and diluted  30,152   28,669   30,138   26,888 

  For the Three Months Ended  For the Six Months Ended 
  April 30,  April 30, 
  2021  2020  2021  2020 
             
Revenue $-  $-  $512,500  $- 
                 
Operating costs and expenses:                
Inventor royalties, contingent legal fees, litigation and
licensing expenses		  -   -   385,002   - 
Research and development expenses (including non-cash share-based compensation expenses of $447,176, $458,132, $737,382 and $855,655, respectively)  1,022,176   1,228,790   1,849,827   2,719,378 
General and administrative expenses (including non-cash share-based compensation expenses of $604,096, $651,954, $1,299,989 and $1,275,765, respectively)  1,415,106   1,441,347   2,948,084   2,580,628 
Total operating costs and expenses  2,437,282   2,670,137   5,182,913   5,300,006 
                 
Loss from operations  (2,437,282)  (2,670,137)  (4,670,413)  (5,300,006)
                 
Interest income  393   12,147   1,147   25,441 
                 
Net loss  (2,436,889)  (2,657,990)  (4,669,266)  (5,274,565)
                 
Less: Net loss attributable to noncontrolling interest  (38,038)  (17,897)  (62,124)  (41,929)
                 
Net loss attributable to common shareholders $(2,398,851) $(2,640,093) $(4,607,142) $(5,232,636)
                 
Net loss per common share attributable to common shareholders:                
Basic and diluted $(0.08) $(0.12) $(0.17) $(0.25)
                 
Weighted average common shares outstanding:                
Basic and diluted  28,669,475   21,155,505   26,887,974   20,927,212 

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

2

 

ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except share data)

FOR THE THREE MONTHS ENDED APRIL 30, 2022

  Shares  Par Value  Capital  Deficit  Equity  Interest  Equity 
        Additional     Total  Non-    
  Common Stock  Paid-in  Accumulated  Shareholders’  controlling  Total 
  Shares  Par Value  Capital  Deficit  Equity  Interest  Equity 
                      
Balance, January 31, 2022  30,132,319  $         301  $242,281  $(208,619) $33,963  $(721) $33,242 
Stock option compensation to employees and directors  -   -   1,462   -   1,462   -   1,462 
Stock options and warrants issued to consultants  -   -   219   -   219   -   219 
Common stock issued to consultants  20,000   1   63   -   64   -   64 
Common stock issued pursuant to employee stock purchase plan  2,389   -   7   -   7   -   7 
Net loss  -   -   -   (3,544)  (3,544)  (44)  (3,588)
Balance, April 30, 2022  30,154,708  $302  $244,032  $(212,163) $32,171  $(765) $31,406 

FOR THE THREE MONTHS ENDED APRIL 30, 2021

        Additional     Total  Non-    
  Common Stock  Paid-in  Accumulated  Shareholders’  controlling  Total 
  Shares  Par Value  Capital  Deficit  Equity  Interest  Equity 
                      
Balance, January 31, 2021  26,179,122  $261,791  $207,382,102  $(194,043,909) $13,599,984  $(521,069) $13,078,915 
Stock option compensation to employees and directors  -   -   880,776   -   880,776   -   880,776 
Stock options and warrants issued to consultants  -   -   170,496   -   170,496   -   170,496 
Common stock issued upon exercise of stock options  77,571   776   188,604   -   189,380   -   189,380 
Common stock issued pursuant to employee stock
purchase plan		  1,634   16   2,984   -   3,000   -   3,000 
Common stock issued in a public offering, net of
offering expenses of $2,208,150		  4,285,715   42,858   20,248,996   -   20,291,854   -   20,291,854 
Common stock issued in at-the-market offering, net of offering expenses of $156,265  905,863   9,058   4,868,061   -   4,877,119   -   4,877,119 
Net loss  -   -   -   (2,398,851)  (2,398,851)  (38,038)  (2,436,889)
                             
Balance, April 30, 2021  31,449,905  $314,499  $233,742,019  $(196,442,760) $37,613,758  $(559,107) $37,054,651 

  Shares  Par Value  Capital  Deficit  Equity  Interest  Equity 
        Additional     Total  Non-    
  Common Stock  Paid-in  Accumulated  Shareholders’  controlling  Total 
  Shares  Par Value  Capital  Deficit  Equity  Interest  Equity 
                      
Balance, January 31, 2021  26,179,122  $         262  $207,382  $(194,044) $13,600  $(521) $13,079 
Stock option compensation to employees and directors  -   -   881   -   881   -   881 
Stock options and warrants issued to consultants  -   -   170   -   170   -   170 
Common stock issued upon exercise of stock options  77,571   1   189   -   190   -   190 
Common stock issued pursuant to employee stock purchase plan  1,634   -   3   -   3   -   3 
Common stock issued in a public offering, net of offering expenses of $2,208  4,285,715   43   20,249   -   20,292   -   20,292 
Common stock issued in at-the-market offering, net of offering expenses of $156  905,863   9   4,868   -   4,877   -   4,877 
Net loss  -   -   -   (2,399)  (2,399)  (38)  (2,437)
Balance, April 30, 2021  31,449,905  $315  $233,742  $(196,443) $37,614  $(559) $37,055 

FOR THE THREE MONTHS ENDED APRIL 30, 2020

        Additional     Total  Non-    
  Common Stock  Paid-in  Accumulated  Shareholders’  controlling  Total 
  Shares  Par Value  Capital  Deficit  Equity  Interest  Equity 
                      
Balance, January 31, 2020  20,841,309  $208,413  $189,646,000  $(184,409,806) $5,444,607  $(447,007) $4,997,600 
Stock option compensation to employees and directors  -   -   1,055,331   -   1,055,331   -   1,055,331 
Stock options and warrants issued to consultants  -   -   54,755   -   54,755   -   54,755 
Common stock issued upon exercise of stock options  25,000   250   75,000   -   75,250   -   75,250 
Common stock issued pursuant to employee stock
purchase plan		  9,618   96   15,356   -   15,452   -   15,452 
Common stock issued in at-the-market offering, net of offering expenses of $57,324  603,408   6,034   1,275,818   -   1,281,852   -   1,281,852 
Net loss  -   -   -   (2,640,093)  (2,640,093)  (17,897)  (2,657,990)
                             
Balance, April 30, 2020  21,479,335  $214,793  $192,122,260  $(187,049,899) $5,287,154  $(464,904) $4,822,250 

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

3

 

ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except share data)

FOR THE SIX MONTHS ENDED APRIL 30, 2022

  Shares  Par Value  Capital  Deficit  Equity  Interest  Equity 
        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  -   -   3,598   -   3,598   -   3,598 
Stock options and warrants issued to consultants  -   -   437   -   437   -   437 
Common stock issued upon exercise of stock options and warrants  81,425   -   -   -   -   -   - 
Common stock issued to consultants  20,000   1   63   -   64   -   64 
Common stock issued pursuant to employee stock purchase plan  2,389   -   7   -   7   -   7 
Net loss  -   -   -   (7,373)  (7,373)  (94)  (7,467)
Balance, April 30, 2022  30,154,708  $302  $244,032  $(212,163) $32,171  $(765) $31,406 

FOR THE SIX MONTHS ENDED APRIL 30, 2021

        Additional     Total  Non-    
  Common Stock  Paid-in  Accumulated  Shareholders’  controlling  Total 
  Shares  Par Value  Capital  Deficit  Equity  Interest  Equity 
                      
Balance, October 31, 2020  24,248,695  $242,486  $200,354,488  $(191,835,618) $8,761,356  $(496,983) $8,264,373 
Stock option compensation to employees and directors  -   -   1,755,638   -   1,755,638   -   1,755,638 
Stock options and warrants issued to consultants  -   -   281,733   -   281,733   -   281,733 
Common stock issued upon exercise of stock options  107,451   1,075   292,529   -   293,604   -   293,604 
Common stock issued pursuant to employee stock purchase plan  1,634   16   2,984   -   3,000   -   3,000 
Common stock issued in a public offering, net of
offering expenses of $2,208,150		  4,285,715   42,858   20,248,996   -   20,291,854   -   20,291,854 
Common stock issued in at-the-market offering, net of offering expenses of $340,775  2,806,410   28,064   10,805,651   -   10,833,715   -   10,833,715 
Net loss  -   -   -   (4,607,142)  (4,607,142)  (62,124)  (4,669,266)
                             
Balance, April 30, 2021  31,449,905  $314,499  $233,742,019  $(196,442,760) $37,613,758  $(559,107) $37,054,651 

  Shares  Par Value  Capital  Deficit  Equity  Interest  Equity 
        Additional     Total  Non-    
  Common Stock  Paid-in  Accumulated  Shareholders’  controlling  Total 
  Shares  Par Value  Capital  Deficit  Equity  Interest  Equity 
                      
Balance, October 31, 2020  24,248,695  $         242  $200,355  $(191,836) $8,761  $(497) $8,264 
Stock option compensation to employees and directors  -   -   1,756   -   1,756   -   1,756 
Stock options and warrants issued to consultants  -   -   282   -   282   -   282 
Common stock issued upon exercise of stock options  107,451   1   292   -   293   -   293 
Common stock issued pursuant to employee stock purchase plan  1,634   -   3   -   3   -   3 
Common stock issued in a public offering, net of offering expenses of $2,208  4,285,715   44   20,248   -   20,292   -   20,292 
Common stock issued in at-the-market offering, net of offering expenses of $341  2,806,410   28   10,806   -   10,834   -   10,834 
Net loss  -   -   -   (4,607)  (4,607)  (62)  (4,669)
Balance, April 30, 2021  31,449,905  $315  $233,742  $(196,443) $37,614  $(559) $37,055 

FOR THE SIX MONTHS ENDED APRIL 30, 2020

        Additional     Total  Non-    
  Common Stock  Paid-in  Accumulated  Shareholders’  controlling  Total 
  Shares  Par Value  Capital  Deficit  Equity  Interest  Equity 
                      
Balance, October 31, 2019  20,331,754  $203,317  $186,849,299  $(181,817,263) $5,235,353  $(422,975) $4,812,378 
Stock option compensation to employees and directors  -   -   2,019,211   -   2,019,211   -   2,019,211 
Stock options and warrants issued to consultants  -   -   112,209   -   112,209   -   112,209 
Common stock issued upon exercise of stock options  43,900   439   103,291   -   103,730   -   103,730 
Common stock issued pursuant to employee stock purchase plan  9,618   96   15,356   -   15,452   -   15,452 
Common stock issued in at-the-market offering, net of offering expenses of $158,296  1,094,063   10,941   3,022,894   -   3,033,835   -   3,033,835 
Net loss  -   -   -   (5,232,636)  (5,232,636)  (41,929)  (5,274,565)
                             
Balance, April 30, 2020  21,479,335  $214,793  $192,122,260  $(187,049,899) $5,287,154  $(464,904) $4,822,250 

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

4

 

ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

  For the six months ended April 30, 
  2021  2020 
Cash flows from operating activities:        
Reconciliation of net loss to net cash used in operating activities:        
Net loss $(4,669,266) $(5,274,565)
Stock option compensation to employees and directors  1,755,638   2,019,211 
Stock options and warrants issued to consultants  281,733   112,209 
Depreciation of property and equipment  -   29,418 
Gain on sale of equipment  (5,447)  - 
Amortization of operating lease right-of-use asset  28,766   25,055 
Change in operating assets and liabilities:        
Prepaid expenses and other current assets  (57,650)  102,909 
Accounts payable  205,645   (415,039)
Accrued expenses  77,869   (45,343)
Operating lease liability  (29,234)  (24,509)
Net cash used in operating activities  (2,411,946)  (3,470,654)
         
Cash flows from investing activities:        
Disbursements to acquire short-term investments  (10,399,300)  (2,620,000)
Proceeds from maturities of short-term investments  2,640,000   2,350,000 
Purchase of property and equipment  -   (15,791)
Proceeds from sale of equipment  35,447   - 
Net cash used in investing activities  (7,723,853)  (285,791)
         
Cash flows from financing activities:        
Gross proceeds from sale of common stock in a public offering  22,500,004   - 
Expenses of the public offering  (2,208,150)  - 
Gross proceeds from sale of common stock in an at-the-market offering  11,174,490   3,192,131 
Expenses of the at-the-market offering  (340,775)  (158,296)
Proceeds from sale of common stock pursuant to employee stock purchase
plan		  3,000   15,452 
Proceeds from exercise of stock options  293,604   103,730 
Net cash provided by financing activities  31,422,173   3,153,017 
         
Net increase (decrease)in cash and cash equivalents  21,286,374   (603,428)
Cash and cash equivalents at beginning of period  6,417,061   3,491,625 
Cash and cash equivalents at end of period $27,703,435  $2,888,197 
         
Supplemental cash flow information:        
Cash proceeds from interest income $1,398  $22,920 
         
Supplemental disclosure of non-cash financing activity:        
Fair value of warrants issued in connection with the public offering $1,040,700  $- 

(in thousands)

  2022  2021 
  For the six months ended April 30, 
  2022  2021 
Cash flows from operating activities:        
Reconciliation of net loss to net cash used in operating activities:        
Net loss $(7,467) $(4,669)
Stock option compensation to employees and directors  3,598   1,756 
Stock options and warrants issued to consultants  437   282 
Common stock issued to consultants  64   - 
Gain on sale of equipment  -   (5)
Amortization of operating lease right-of-use asset  21   29 
Change in operating assets and liabilities:        
Prepaid expenses and other current assets  (56)  (58)
Accounts payable  (44)  205 
Accrued expenses  (37)  77 
Operating lease liability  (19)  (29)
Net cash used in operating activities  (3,503)  (2,412)
         
Cash flows from investing activities:        
Disbursements to acquire short-term investments  (4,249)  (10,399)
Proceeds from maturities of short-term investments  6,349   2,640 
Proceeds from sale of equipment  -   35 
Net cash provided by (used in) investing activities  2,100   (7,724)
         
Cash flows from financing activities:        
Gross proceeds from sale of common stock in a public offering  -   22,500 
Expenses of the public offering  -   (2,208)
Gross proceeds from sale of common stock in an at-the-market offering  -   11,175 
Expenses of the at-the-market offering  -   (341)
Proceeds from sale of common stock pursuant to employee stock purchase plan  7   3 
Proceeds from exercise of stock options  -   293 
Net cash provided by financing activities  7   31,422 
         
Net (decrease) increase in cash and cash equivalents  (1,396)  21,286 
Cash and cash equivalents at beginning of period  29,128   6,417 
Cash and cash equivalents at end of period $27,732  $27,703 

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

5

 

ANIXA BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BUSINESS AND FUNDING

Description of Business

As used herein, “we,” “us,” “our,” the “Company” or “Anixa” means Anixa Biosciences, Inc. and its consolidated subsidiaries. Our primary operations involve developing therapies and vaccines that are focused on critical unmet needs in oncology and infectious disease. Our therapeutics programs include (i) the development of a chimeric endocrine receptor T-cell technology,therapy, a novel form of chimeric antigen receptor T-cell (“CAR-T”) technology, initially focused on treating ovarian cancer, which is being developed at our subsidiary, Certainty Therapeutics, Inc. (“Certainty”), and (ii) the discovery and ultimately development of anti-viral drug candidates for the treatment of COVID-19 focused on inhibiting certain protein functions of the virus. Our vaccine programs include (i) the development of a preventative vaccine against breast cancer, specifically triple negative breast cancer (“TNBC”), the most lethal form of the disease,breast cancer, as well other forms of breast cancer and (ii) a preventative vaccine against ovarian cancer.

Our subsidiary, Certainty, Therapeutics, Inc. (“Certainty”), is developing immuno-therapy drugs against cancer. Certainty holds an exclusive worldwide, royalty-bearing license to use certain intellectual property owned or controlled by The Wistar Institute (“Wistar”), the nation’s first independent biomedical research institute and a leading National Cancer Institute designated cancer research center, relating to Wistar’s CAR-Tchimeric endocrine receptor targeted therapy technology. We have initially focused on the development of a treatment for ovarian cancer, but we also may also pursue applications of the technology for the development of treatments for additional solid tumors. The license agreement requires Certainty to make certain cash and equity payments to Wistar 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%(5%) of the common stock of Certainty.

Certainty, in collaboration with the H. Lee Moffitt Cancer Center and Research Institute, Inc. (“Moffitt”), is advancing toward human clinical testing itsof the CAR-T technology forlicensed by Certainty from Wistar aimed initially at treating ovarian cancer. We submitted an Investigational New Drug (“IND”) application toreceived authorization from the U.S. Food and Drug Administration (“FDA”) in March 2021. In AprilAugust 2021, the FDA informed us that they needed additional information before allowing us to proceed with thecommence enrollment and treatment of patients in a Phase 1 clinical trial. In May 2021,We began patient recruitment for the FDA provided ustrial in March 2022, and that process is ongoing. This study is a dose-escalation trial with two arms based on injection method—intraperitoneal or intravenous—to determine the detailsmaximum tolerated dose in patients with recurrent epithelial ovarian cancer and to assess persistence, expansion and efficacy of their information request,the modified T-cells. The study is being conducted at Moffitt and we are currently working with Moffittwill consist of 24 to address48 patients who have received at least two prior lines of chemotherapy. The study is estimated to be completed in two to four years depending on multiple factors including when maximum tolerated dose is reached and the FDA’s request. We anticipate submitting our response to the FDA in June 2021, after which the FDA will have approximately 30 days to respond. Assuming the FDA finds our response acceptable, we anticipate beginning the human clinical trials in the fourth quarterrate of 2021.patient recruitment.

In April 2020, we entered into a collaboration with OntoChem GmbH (“OntoChem”), to discover and ultimately develop anti-viral drug candidates against COVID-19. Through this collaboration, we utilized advanced computational methods, machine learning, and molecular modeling techniques to perform in silico screening of over 1.2 billion compounds in chemical libraries (including publicly available compounds and OntoChem’s proprietary libraries) to evaluate if any of these compounds could disrupt one of two key enzymes of SARS-CoV-2, the virus that causes the disease COVID-19.

6

 

The screening process resulted in the identification of multiple compounds that could potentially disrupt critical enzymes of the virus.virus, including the virus’ main protease, Mpro. Several of these compounds were synthesized and tested in in vitro biological assays. Upon completion of these biological assays, we identified two of the most promising compounds and tested them in animal models. In these animal studies, the two compounds were compared to Remdesivir, which isat the time the assays were performed was the only anti-viral drug approvedauthorized by the FDA for COVID-19. The data showed that administration of the drugs to infected hamsters did not cause any noticeable adverse effects, and monitoring of weight and general animal behavior demonstrated comparable efficacy between each of bothour compounds as well asand Remdesivir. Based on this promising data in the animal study, we are proceedingdirected our team to proceed to the next stage of drug development and havewe selected one of the compounds around which we have now begunour team is performing combinatorial synthetic medicinal chemistry to evaluate whether wepotency can increase potencybe increased and optimize pharmacokinetics. We anticipate completing this process by early fourth quarter of 2021.pharmacokinetics optimized.

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In May 2021, after completion of the aforementioned animal studies, OntoChem assigned its rights and obligations related to this collaboration to MolGenie GmbH (“MolGenie”), a company spun-out from OntoChem focused on drug discovery and development. As a result of the MolGenie spin-out, there was no change in the personnel working on our project, and the assignment caused no interruptions to the program’s development.

While use of preventative vaccines is widespread throughout much of the developed world, we believe that there is and will continue to be a need for effective treatments for COVID-19. We believe that there are a number of factors that have limited the effectiveness, both in the near and long term, of the vaccines currently in use, including, but not limited to, vaccine persistence, viral escape and perceptions of long-term safety resulting in vaccine resistance. Furthermore, there are currently two new anti-viral treatments, Pfizer’s Paxlovid, which is a combination therapy consisting of the protease-inhibitor nirmatrelvir and the antiretroviral ritonavir and Merck’s polymerase-inhibitor molnupiravir, that have recently been authorized for emergency use in the U.S. These treatments use oral formulations, while all other currently authorized or approved treatments require intravenous administration. As the main component of Pfizer’s treatment is a protease-inhibitor targeting Mpro, it is most similar to our compounds, and we therefore conducted a head-to-head analysis via a Fluorescence Resonance Energy Transfer (FRET) assay that tested the ability of the compounds to inhibit the function of Mpro. The results of this head-to-head in vitro analysis suggest that our compounds may be five times more effective at inhibiting Mpro than Pfizer’s nirmatrelvir.

We hold an exclusive worldwide, royalty-bearing license to use certain intellectual property owned or controlled by The Cleveland Clinic Foundation (“Cleveland Clinic”) relating to certain breast cancer vaccine technology developed at Cleveland Clinic. WeUtilizing this technology, we are working in collaboration with Cleveland Clinic to develop a method to vaccinate women against contracting breast cancer, focused specifically on TNBC. AThe focus of this vaccine is a specific protein, alpha-lactalbumin, has been identifiedα-lactalbumin, that is only expressed during lactation in a healthy woman’smother’s mammary tissue. This protein disappears when the womanmother 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

Following the FDA’s authorization to proceed with clinical trials in December 2020, in October 2021, we received authorization from the FDA to commence enrollment and treatment ofcommenced dosing patients in a Phase 1a clinical trial. We are performing the activities necessary to prepare for treatment of patients in the Phase 1a1 clinical trial of our breast cancer vaccine. Funded by a U.S. Department of Defense grant, this study is a multiple-ascending dose Phase 1 trial to determine the maximum tolerated dose of the vaccine in patients with early-stage, triple-negative breast cancer as well as monitor immune response. The study is being conducted at Cleveland Clinic and we anticipatewill consist of 18 to 24 patients who have completed treatment for early-stage, triple-negative breast cancer within the past three years and are currently tumor-free but at high risk for recurrence. During the course of the study, participants will receive three vaccinations, each two weeks apart, and will be closely monitored for side effects and immune response. The study is roughly one-fourth of the way complete and is estimated to be completed by the end of calendar year 2022. Initial indications suggest that an immune response is being prepared to treat the first enrolled patient in July 2021.observed.

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In November 2020, we executed a license agreement with Cleveland Clinic pursuant to which the Company was granted an exclusive worldwide, royalty-bearing license to use certain intellectual property owned or controlled by Cleveland Clinic relating to certain ovarian cancer vaccine technology. This technology pertains to among other things, the use of vaccines for the treatment or prevention of ovarian cancers which express the anti-Mullerian hormone receptor II2 protein containing an extracellular domain (“AMHR2-ED”). In healthy tissue, this protein regulates growth and development of egg-containing follicles in the ovary. While expression of AMHR2-ED naturally and markedly declines after menopause, this protein is expressed at high levels in the ovaries of postmenopausal women with ovarian cancer. Researchers at Cleveland Clinic believe that a vaccine targeting AMHR2-ED could prevent the occurrence of ovarian cancer. We entered into a joint development agreement with Cleveland Clinic to advance this vaccine technology toward human clinical testing.

In May 2021, Cleveland Clinic was granted an award for our ovarian cancer vaccine technology by the National Cancer Institute’s (“NCI”) PREVENT program. The NCI is a part of the National Institutes of Health. The PREVENT program is a peer-reviewed agent development program designed to support preclinical development of innovative interventions and biomarkers for cancer prevention and interception towards clinical trials. The scientific and financial resources of the PREVENT program will be used for our ovarian cancer vaccine technology to perform virtually all pre-clinical research and development, manufacturing and IND-enabling studies. This work will be performed at NCI facilities, by NCI scientific staff and with NCI financial resources.resources and will require no material financial expenditures by the Company, nor the transfer of any rights to the Company’s assets.

Over the next several quarters, we expect the development of our breast and ovarian cancer vaccines, our COVID-19 therapeutic discovery program and Certainty’s CAR-T technology to be the primary focus of the Company. As part of our legacy operations, the Company remains engaged in limited patent licensing activities regarding the Cchek™its liquid biopsy platform (operations for which were suspended in July 2020), as well asand in the area of encrypted audio/video conference calling. We do not expect these activities to be a significant part of the Company’s ongoing operations nor do we expect these activities to require material financial resources or attention of senior management.

Over the past several years, our revenue was derived from technology licensing and the sale of patented technologies, including revenue from the settlement of litigation. We have not generated any revenue to date from our therapeutics or vaccine programs. In addition, while we pursue our therapeutics and vaccine programs, we may also make investments in and form new companies to develop additional emerging technologies. We do not expect to begin generating revenue with respect to any of our current therapy or vaccine programs in the near term. We hopeOur strategy is to achieve a profitable outcome by eventually licensing our technologies to large pharmaceutical companies that have the resources and infrastructure in place to manufacture, market and sell our technologies as therapeutics or vaccines. The eventual licensing of any of our technologies may take several years, if it is to occur at all, and may depend on positive results from human clinical trials.

7

Funding and Management’s Plans

Based on currently available information as of June 10, 2021,2022, we believe that our existing cash, cash equivalents, short-term investments and expected cash flows will be sufficient to fund our activities for at least the next twelve months. We have implemented a business model that conserves funds by collaborating with third parties to develop our technologies. However, our projections of future cash needs and cash flows may differ from actual results. If current cash on hand, cash equivalents, short-term investments and cash that may be generated from our business operations are insufficient to continue to operate our business, or if we elect to invest in or acquire a company or companies or new technology or technologies that are synergistic with or complementary to our technologies, we may be required to obtain more working capital. During the six months ended April 30, 2021, we raised approximately $20,292,000, net of expenses, through a public offering in which we sold an aggregate of 4,285,715 shares of common stock and approximately $10,834,000, net of expenses, through our at-the-market equity program in which we sold an aggregate of 2,806,410 shares of common stock. Under our at-the-market equity program which is currently effective and may remain available for us to use in the future, as of April 30, 2021, we may sell an additional approximately $29.6 million of common stock. We may seek to obtain working capital during our fiscal year 20212022 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.

8

 

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, certain information and disclosures required by generally accepted accounting principles in annual financial statements have been omitted or condensed. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures included in our Annual Report on Form 10-K for the year ended October 31, 2020.2021. The accompanying October 31, 20202021 condensed consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by US GAAP. The condensed consolidated financial statements include all adjustments of a normal recurring nature which, in the opinion of management, are necessary for a fair statement of our financial position as of April 30, 2021,2022, and results of operations and cash flows for the interim periods represented. The results of operations for the three and six months ended April 30, 20212022 are not necessarily indicative of the results to be expected for the entire year.

8

Noncontrolling Interest

Noncontrolling interest represents Wistar’s equity ownership in Certainty and is presented as a component of equity. The following table sets forth the changes in noncontrolling interest for the six months ended April 30, 2021:2022 (in thousands):

SCHEDULE OF NONCONTROLLING INTEREST AS A COMPONENT OF EQUITY

Balance, October 31, 2020 $(496,983)
Net loss attributable to noncontrolling interest  (62,124)
Balance, April 30, 2021 $(559,107)
Balance, October 31, 2021 $(671)
Net loss attributable to noncontrolling interest  (94)
Balance, April 30, 2022 $(765)

Revenue Recognition

Our revenue has been derived solely from technology licensing and the sale of patented technologies. Revenue is recognized upon transfer of control of intellectual property rights and satisfaction of other contractual performance obligations to licensees in an amount that reflects the consideration we expect to receive.

We follow the accounting guidance of Accounting Standards Codification 606 (“ASC 606”), Revenue from Contracts with Customers. In accordance with ASC 606 we are requiredOur revenue recognition policy requires us to make certain judgments and estimates in connection with the accounting for revenue. Such judgments and estimatesareas 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.

9

 

Our revenue arrangements provide for the payment, within 30 days of execution of the agreement, of contractually determined, one-time, paid-up license fees in settlement of litigation and in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company. These arrangements typically include some combination of the following: (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patented technologies owned or controlled by the Company, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) the dismissal of any pending litigation. In such instances, the intellectual property rights granted have been perpetual in nature, extending until the expiration of the related patents. Pursuant to the terms of these agreements, we have no further obligations with respect to the granted intellectual property rights, including no obligation to maintain or upgrade the technology, or provide future support or services. Licensees obtained control of the intellectual property rights they have acquired upon execution of the agreement. Accordingly, the performance obligations from these agreements were satisfied and 100% of the revenue was recognized upon the execution of the agreements.

Cost of Revenues

Cost of revenues include the costs and expenses incurred in connection with our patent licensing and enforcement activities, including inventor royalties paid to original patent owners, contingent legal fees paid to external counsel, other patent-related legal expenses paid to external counsel and licensing and enforcement related research, consulting and other expenses paid to third-parties. These costs are included under the caption “Operating costs and expenses” in the accompanying condensed consolidated statements of operations.

Research and Development Expenses

Research and development expenses, consisting primarily of employee compensation, payments to third parties for research and development activities and other direct costs associated with developing immuno-therapy drugs against cancer, developing anti-viral drug candidates for COVID-19, developing our breast cancer vaccine, and developing our ovarian cancer vaccine, are expensed in the consolidated financial statements in the period incurred.

2. STOCK BASED COMPENSATION

The Company maintains stock equity incentive plans under which the Company grants incentive stock options, non-qualified stock options, stock appreciation rights, stock awards, performance awards, or stock units to employees, directors and consultants.

Stock Option Compensation Expense

The compensation cost for service-based stock options granted to employees and directors is measured at the grant date, based on the fair value of the award using the Black-Scholes pricing model, and is expensed on a straight-line basis over the requisite service period (the vesting period of the stock option) which is one to four years. We recorded stock-based compensation expense related to service-based stock options granted to employees and directors of approximately $875,000 and $881,000 during the three months ended April 30, 2022 and 2021, respectively, and approximately $1,605,000 and $1,756,000 during the six months ended April 30, 2022 and 2021, respectively.

For stock options granted to employees and directors that vest based on market conditions, such as the trading price of the Company’s common stock exceeding certain price targets, we use a Monte Carlo Simulation in estimating the fair value at grant date and recognize compensation cost over the implied service period (median time to vest). On June 1, 2021, our Chairman and Chief Executive Officer and our President, Chief Operating Officer and Chief Financial Officer were awarded market condition stock options for 2,000,000 shares and 100,000 shares of common stock, respectively, that vest in four equal installments upon the Company’s share price achieving targets ranging from $5.00 to $8.00 per share, with implied service periods of three to fifteen months. We recorded market condition stock-based compensation expense during the three months ended April 30, 2022 and 2021 of approximately $587,000 and $0, respectively, and approximately $1,993,000 and $0 during the six months ended April 30, 2022 and 2021, respectively.

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The compensation cost for service-based stock options granted to consultants is measured at the grant date, based on the fair value of the award using the Black-Scholes pricing model, and is expensed on a straight-line basis over the requisite service period (the vesting period of the stock option) which is one to three years. We recorded stock-based consulting expense related to stock options granted to consultants of approximately $109,000 and $132,000 during the three months ended April 30, 2022 and 2021, respectively, and approximately $218,000 and $186,000 during the six months ended April 30, 2022 and 2021, respectively.

Stock Option Plans

During the three months ended April 30, 2022, we had two stock option plans: the Anixa Biosciences, Inc. 2010 Share Incentive Plan (the “2010 Share Plan”) and the Anixa Biosciences, Inc. 2018 Share Incentive Plan (the “2018 Share Plan”), which were adopted by our Board of Directors on July 14, 2010 and January 25, 2018, respectively. The 2018 Share Plan was approved by our shareholders on March 29, 2018.

Stock Option Activity

During the three months ended April 30, 2022 and 2021, we granted options to purchase 1,400,000 shares and 250,000 shares of common stock, respectively, and during the six months ended April 30, 2022 and 2021, we granted options to purchase 1,430,000 shares and 1,380,000 shares of common stock, respectively, to employees and consultants, with exercise prices ranging from $2.62 to $5.30 per share, pursuant to the 2018 Share Plan. During the three months ended April 30, 2022 and 2021, stock options to purchase 0 shares of common stock and 77,571 shares of common stock, net of 7,937 shares withheld on a cashless exercise, respectively, were exercised with aggregate proceeds of $0 and $0, respectively. During the six months ended April 30, 2022 and 2021, stock options to purchase 46,909 shares of common stock, net of 53,091 shares withheld on a cashless exercise and 107,451 shares of common stock, net of 7,937 shares withheld on a cashless exercise, respectively, were exercised with aggregate proceeds of $0 and $0, respectively.

2010 Share Plan

The 2010 Share Plan provided for the grant of nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to employees, directors and consultants. In accordance with the provisions of the 2010 Share Plan, the plan terminated with respect to the ability to grant future awards on July 14, 2020. Information regarding the 2010 Share Plan for the six months ended April 30, 2022 is as follows:

SCHEDULE OF OPTION ACTIVITY

  Shares  Weighted
Average Exercise
Price Per Share		  Aggregate
Intrinsic Value
(in thousands)		 
Options outstanding at October 31, 2021  1,1,718,634  $2.82     
Exercised  (100,000) $2.92     
Options outstanding and exercisable at
April 30, 2022		  

1,618,634		  $2.81  $1,182 

The following table summarizes information about stock options outstanding and exercisable under the 2010 Share Plan as of April 30, 2022:

SCHEDULE OF OUTSTANDING AND EXERCISABLE

Range of
Exercise Prices		  

Number
Outstanding and

Exercisable

  

Weighted Average
Remaining
Contractual Life

(in years)

  Weighted
Average
Exercise Price		 
$0.67 - $2.30   527,500   4.0  $1.54 
$2.58 - $3.13   577,000   2.7  $2.76 
$3.46 - $5.30   514,134   6.0  $4.16 

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2018 Share Plan

The 2018 Share Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to employees, directors and consultants. As of April 30, 2022, the 2018 Share Plan had 600,000 shares available for future grants. Information regarding the 2018 Share Plan for the six months ended April 30, 2022 is as follows:

SCHEDULE OF OPTION ACTIVITY

  Shares  Weighted
Average Exercise
Price Per Share		  Aggregate Intrinsic Value
(in thousands)		 
Options outstanding at October 31, 2021  7,409,992  $3.76     
Granted  1,430,000  $2.74     
Options outstanding at April 30, 2022  8,839,992  $3.60  $1,371 
Options exercisable at April 30, 2022  4,364,161  $3.63  $426 

The following table summarizes information about stock options outstanding and exercisable under the 2018 Share Plan as of April 30, 2022:

SCHEDULE OF OUTSTANDING AND EXERCISABLE

   Options Outstanding  Options Exercisable 
Range of
Exercise Prices		  Number
Outstanding		  

Weighted
Average
Remaining
Contractual Life

(in years)

  Weighted
Average
Exercise Price		  Number
Exercisable		  

Weighted
Average
Remaining
Contractual Life

(in years)

  Weighted
Average
Exercise Price		 
$2.09 - $3.87   5,369,992   7.9  $3.24   3,298,050   7.0  $3.49 
$3.96 - $5.30   3,470,000   8.5  $4.16   1,066,111   7.6  $4.07 

Non-Plan Options

In addition to options granted under stock option plans, during the years ended October 31, 2012 and 2013, the Board of Directors approved the grant of stock options to certain employees and directors. Information regarding stock options that were granted outside of share plans for the six months ended April 30, 2022 is as follows:

SCHEDULE OF OPTION ACTIVITY

  Shares  Weighted
Average Exercise
Price Per Share		  Aggregate Intrinsic Value
(in thousands)		 
Options outstanding at October 31, 2021  1,642,000  $2.58     
Options outstanding and exercisable at
April 30, 2022		  1,642,000  $2.58  $1,108 

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The following table summarizes information about stock options outstanding and exercisable that were granted outside of share plans as of April 30, 2022:

SCHEDULE OF OUTSTANDING AND EXERCISABLE

Range of

Exercise Prices

  

Number
Outstanding

and

Exercisable

  

Weighted Average Remaining Contractual Life

(in years)

  Weighted
Average
Exercise Price		 
$2.58   1,642,000   0.3  $2.58 

Stock Awards

For stock awards granted to employees, directors and consultants that vest upon grant, we recognize expense at the date of grant based on the grant date closing price of the underlying common stock. We did not grant any stock awards that vested upon grant during the six months ended April 30, 2022 or 2021.

Employee Stock Purchase Plan

The Company maintains the Anixa Biosciences, Inc. Employee Stock Purchase Plan (the “ESPP”) which permits eligible employees to purchase shares at not less than 85% of the market value of the Company’s common stock on the offering date or the purchase date of the applicable offering period, whichever is lower. The plan was adopted by our Board of Directors on August 13, 2018 and approved by our shareholders on September 27, 2018. During the six months ended April 30, 2022 and 2021, employees purchased 2,389 and 1,634 shares, respectively, with aggregate proceeds of approximately $7,000 and $3,000, respectively.

Warrants

On October 30, 2020, we issued a warrant, expiring on October 30, 2025, to purchase 60,000 shares of common stock at $2.06 per share, vesting over five months, to a consultant for investor relations services. We recorded consulting expense of approximately $38,000 and $96,000, respectively, during the three and six months ended April 30, 2021, based on the fair value of the warrant on the date of grant recognized on a straight-line basis over the vesting period. On November 16, 2021, the warrant was exercised on a cashless basis and 25,484 shares were withheld as payment.

On November 1, 2021 we issued a warrant, expiring on October 30, 2026, to purchase 60,000 shares of common stock at $4.77 per share, vesting over five months, to a consultant for investor relations services. We recorded consulting expense of approximately $110,000 and $220,000, respectively, during the three and six months ended April 30, 2022, based on the fair value of the warrant on the date of grant recognized on a straight-line basis over the vesting period.

As of April 30, 2022, we also had warrants outstanding to purchase 300,000 shares of common stock at $6.56 per share, issued during fiscal year 2021 and expiring on March 22, 2026.

3. FAIR VALUE MEASUREMENTS

US GAAP defines fair value and establishes a framework for measuring fair value. We have categorized our financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

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Financial assets and liabilities recorded in the accompanying condensed consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1 – Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market which we have the ability to access at the measurement date.

Level 2 – Financial assets and liabilities whose values are based on quoted market prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets.

Level 3 – Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset and liabilities.

The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of April 30, 2022:

SCHEDULE OF FAIR VALUE MEASUREMENTS

  Level 1  Level 2  Level 3  Total 
     (in thousands)    
Money market funds:                
Cash equivalents $25,294  $-  $-  $25,294 
Certificates of deposit:                
Cash equivalents  2,250   -   -   2,250 
Short-term investments  -   1,200       1,200 
U. S. treasury bills                
Short-term investments  -   3,299   -   3,299 
Total financial assets $27,544  $4,499  $-  $32,043 

The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31, 2021:

  Level 1  Level 2  Level 3  Total 
     (in thousands)    
Money market funds:                
Cash equivalents $28,949  $-  $-  $28,949 
Certificates of deposit:                
Short term investments  -   2,000   -    2,000 
U. S. treasury bills          -     
Short-term investments  -   4,599   -   4,599 
Total financial assets $28,949  $6,599  $-  $35,548 

The estimated fair value of prepaid expenses and other current assets and accounts payable approximates their individual carrying amounts due to the short-term nature of these instruments. Cash balances are stated at carrying value which approximates fair value.

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4. ACCRUED EXPENSES

Accrued expenses consist of the following as of:

SCHEDULE OF ACCRUED EXPENSES

  April 30,  October 31, 
  2022  2021 
  (in thousands) 
Payroll and related expenses $477  $492 
Accrued royalty and contingent legal fees  577   577 
Accrued other  3   26 
Accrued expenses $1,057  $1,095 

5. NET LOSS PER SHARE OF COMMON STOCK

Basic net loss per common share (“Basic EPS”) is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted net loss per common share (“Diluted EPS”) is computed by dividing net loss by the weighted average number of common shares and dilutive common share equivalents and convertible securities then outstanding. Diluted EPS for all periods presented is the same as Basic EPS, as the inclusion of the effect of common share equivalents then outstanding would be anti-dilutive. For this reason, excluded from the calculation of Diluted EPS for the six months ended April 30, 2022 and 2021, were stock options to purchase 12,100,626 and 8,813,626 shares, respectively, and warrants to purchase 360,000 and 860,000 shares, respectively.

6. EFFECT OF RECENTLY ADOPTED AND ISSUED PRONOUNCEMENTS

In January 2020, the FASB issued Accounting Standards Update 2020-01 (“ASU 2020-01”) Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). The amendments in ASU 2020-01 clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. These amendments improve current GAAP by reducing diversity in practice and increasing comparability of the accounting for these interactions. The amendments in this update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The adoption of this standard did not have a material impact on our condensed consolidated financial statements and related disclosures.

In August 2020, the FASB issued Accounting Standards Update 2020-06 (“ASU 2020-06”), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in ASU 2020-06 include guidance on convertible instruments and the derivative scope exception for contracts in an entity’s own equity and simplifies the accounting for convertible instruments which include beneficial conversion features or cash conversion features by removing certain separation models in Subtopic 470-20. Additionally, ASU 2020-06 will require entities to use the “if-converted” method when calculating diluted earnings per share for convertible instruments. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. We do not expect the adoption of this standard to have a material impact on our condensed consolidated financial statements and related disclosures.

In May 2021, the FASB issued Accounting Standards Update 2021-04 (“ASU No. 2021-04”), Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The guidance in ASU 2021-04 requires the issuer to treat a modification of an equity-classified written call option (the “option”) that does not cause the option to become liability-classified as an exchange of the original option for a new option. This guidance applies whether the modification is structured as an amendment to the terms and conditions of the option or as termination of the original option and issuance of a new option. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. We do not expect the adoption of this standard to have a material impact on our condensed consolidated financial statements and related disclosures.

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In October 2021, the FASB issued Accounting Standards Update 2021-08 (“ASU No. 2021-08”), Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, to require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The amendments in this update should be applied prospectively and are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We do not expect the adoption of this standard to have a material impact on our condensed consolidated financial statements and related disclosures.

7. INCOME TAXES

We recognize deferred tax assets and liabilities for the estimated future tax effects of events that have been recognized in our financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized. We have provided a full valuation allowance against our deferred tax asset due to our historical pre-tax losses and the uncertainty regarding the realizability of these deferred tax assets.

We have substantial net operating loss carryforwards for Federal and California income tax returns. These net operating loss carryforwards could be subject to limitations under Internal Revenue Code section 382. We have 0 unrecognized income tax benefits as of April 30, 2022 and October 31, 2021 and we account for interest and penalties related to income tax matters, if any, in general and administrative expenses.

8. LEASES

We lease approximately 2,000 square feet of office space at 3150 Almaden Expressway, San Jose, California (our principal executive offices) from an unrelated party pursuant to an operating lease that was to expire on September 30, 2021. Effective August 17, 2021, the lease was amended to extend the expiration date to September 30, 2024, with an option to extend the lease an additional two years. Our base rent is approximately $5,000 per month and the lease provides for annual increases of approximately 3% and an escalation clause for increases in certain operating costs. The amendment to the lease resulted in a right-of-use asset and lease liability of approximately $260,000 with a discount rate of 10%. Rent expense was approximately $17,000 and $16,000, respectively, for the three months ended April 30, 2022 and 2021, and approximately $33,000 and $32,000, respectively, for the six months ended April 30, 2022 and 2021.

For operating leases, the lease liability is initially measured at the present value of the unpaid lease payments. The remaining 53-month lease term as of April 30, 2022 for the Company’s lease includes the noncancelable period of the lease and the additional two-year option period that the Company expects to exercise. All right-of-use assets are reviewed for impairment when indications of impairment are present.

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As of April 30, 2022, the annual minimum future lease payments of our operating lease liabilities were as follows:

SCHEDULE of MINIMUM LEASE PAYMENTS

For Periods Ended October 31, Operating
Leases		 
  (in thousands) 
2022 $32 
2023  66 
2024  67 
2025  70 
2026  65 
Total future minimum lease payments, undiscounted  300 
Less: Imputed interest  59 
Present value of future minimum lease payments $241 

9. COMMITMENTS AND CONTINGENCES

Litigation Matters

Other than lawsuits related to the enforcement of our patent rights, we are not a party to any material pending legal proceedings, nor are we aware of any pending litigation or legal proceeding against us that would have a material adverse effect upon our results of operations or financial condition.

Impact of Coronavirus Pandemic

The ongoing global outbreak of COVID-19 has resulted in significant governmental measures being implemented to control the spread of the virus, and while the breadth of these measures has been reduced recently, the Company cannot predict their scope or the severity of the outbreak in the future, and these developments and measures could materially and adversely affect the Company’s business, the operations of the Company’s collaboration partners, and the Company’s results of operations and financial condition. The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business and has taken steps to minimize its impact on the Company’s business. Although COVID-19 has not had a material adverse impact on the Company’s operations and its clinical and preclinical programs, the extent to which COVID-19 ultimately impacts the Company’s business, results of operations or financial condition will depend on future developments which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the occurrence of new mutations of the SARS-CoV-2 virus, new information that may emerge concerning the severity of COVID-19 or the effectiveness of actions taken to contain the pandemic or mitigate its impact, among others. Certain of the Company’s collaboration partners have experienced shutdowns or other business disruptions. As a result, the Company’s ability to conduct its business in the manner and on the timelines presently planned could be materially or negatively affected, which could have a material adverse impact on the Company’s business, results of operations and financial condition.

10. SEGMENT INFORMATION

We follow the accounting guidance of ASC 280 “Segment Reporting” (“ASC 280”). Reportable operating segments are determined based on the management approach. The management approach, as defined by ASC 280, is based on the way that the chief operating decision-maker organizes the segments within an enterprise for making operating decisions and assessing performance. While our results of operations are primarily reviewed on a consolidated basis, the chief operating decision-maker manages the enterprise in 4 reportable segments, each with different operating and potential revenue generating characteristics: (i) CAR-T Therapeutics, (ii) Cancer Vaccines, (iii) Anti-Viral Therapeutics and (iv) Other. The following represents selected financial information for our segments for the three and six months ended April 30, 2022 and 2021 and as of April 30, 2022 and October 31, 2021, in thousands:

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SCHEDULE of SEGMENT INFORMATION 

   2022   2021   2022   2021 
  For the Three Months Ended April 30,  For the Six Months
Ended April 30,		 
  2022  2021  2022  2021 
Net Loss:                
CAR-T Therapeutics $(1,399) $(1,446) $(3,010) $(2,406)
Cancer Vaccines  (1,423)  (662)  (2,780)  (1,569)
Anti-Viral Therapeutics  (757)  (310)  (1,661)  (791)
Other  (9)  (19)  (16)  97 
Total $(3,588) $(2,437) $(7,467) $(4,669)
Net loss $(3,588) $(2,437) $(7,467) $(4,669)
Total operating costs and expenses $3,589  $2,437  $7,469  $5,183 
Less non-cash share-based compensation  (1,681)  (1,051)  (4,036)  (2,037)
Operating costs and expenses excluding non-cash share-based compensation $1,908  $1,386  $3,433  $3,146 
Operating costs and expenses excluding non-cash share based compensation:                
CAR-T Therapeutics $759  $935  $1,427  $1,492 
Cancer Vaccines  740   299   1,220   837 
Anti-Viral Therapeutics  402   138   774   409 
Other  7   14   12   408 
Total $1,908  $1,386  $3,433  $3,146 
Operating costs and expenses excluding non-cash share based compensation expense $1,908  $1,386  $3,433  $3,146 

  April 30,
2022		  October 31,
2021		 
Total assets:        
CAR-T Therapeutics $13,014  $15,068 
Cancer Vaccines  12,680   13,276 
Anti-Viral Therapeutics  6,883   7,368 
Other  220   545 
Total $32,797  $36,257 
Total Asset $32,797  $36,257 

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

The Company’s consolidated revenue of $513,000 and inventor royalties, contingent legal fees, litigation and licensing expense of $385,000 for the six months ended April 30, 2021 were solely related to our encrypted audio/video conference calling technology, which is included in our Other segment. All our revenue is generated domestically (United States) based on the country in which the licensee is located.

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

Information included in this Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are not statements of historical facts, but rather reflect our current expectations concerning future events and results. We generally use the words “believes,” “expects,” “intends,” “plans,” “anticipates,” “likely,” “will” and similar expressions to identify forward-looking statements. Such forward-looking statements, including those concerning our expectations, involve risks, uncertainties and other factors, some of which are beyond our control, which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks, uncertainties and factors include, but are not limited to, those factors set forth in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021 and the condensed consolidated financial statements included in this Report. Except as required by applicable law, including the securities laws of the United States, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this Report.

GENERAL

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

RESULTS OF OPERATIONS

Three months ended April 30, 2022 compared with three months ended April 30, 2021

Revenue

We had no revenue during the three months ended April 30, 2022 and 2021.

Over the past several years, our revenue, if any, was derived from technology licensing and the sale of patented technologies, including revenue from the settlement of litigation. We have not generated any revenue to date from our therapeutics or vaccine programs. In addition, while we pursue our therapeutics and vaccine programs, we may also make investments in and form new companies to develop additional emerging technologies. We do not expect to begin generating revenue with respect to any of our current therapy or vaccine programs in the near term. We intend to achieve a profitable outcome by eventually licensing our technologies to large pharmaceutical companies that have the resources and infrastructure in place to manufacture, market and sell our technologies as therapeutics or vaccines. The eventual licensing of any of our technologies may take several years, if it is to occur at all, and may depend on positive results from human clinical trials.

Inventor Royalties, Contingent Legal Fees, Litigation and Licensing Expenses

We had no inventor royalties, contingent legal fees, litigation and licensing expenses during the three-month periods ended April 30, 2022 and 2021.

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Research and Development Expenses

Research and development expenses are related to the development of our cancer therapeutics and vaccine programs and our anti-viral drug program, and increased by approximately $713,000 to approximately $1,735,000 in the three months ended April 30, 2022, from approximately $1,022,000 in the three months ended April 30, 2021. The increase in research and development expenses was primarily due to an increase in employee stock option compensation expense of approximately $529,000, an increase in employee compensation and related costs, other than stock option compensation expense, of approximately $254,000, an increase in outside research and development expense related to our anti-viral drug program of approximately $81,000, offset by a decrease of approximately $158,000 in outside research and development related to our CAR-T therapeutics program.

Research and development expenses incurred in the three months ended April 30, 2022 associated with each of our development programs consisted of approximately $709,000 for CAR-T therapeutics, approximately $695,000 for cancer vaccines and approximately $331,000 for anti-viral therapeutics.

General and Administrative Expenses

General and administrative expenses increased by approximately $439,000 to approximately $1,854,000 in the three months ended April 30, 2022, from approximately $1,415,000 in the three months ended April 30, 2021. The increase in general and administrative expenses was primarily due to an increase in employee compensation and related costs, other than stock option compensation expense, of approximately $250,000, an increase in investor and public relations expense of approximately $199,000, an increase in employee stock option compensation expense of approximately $54,000, offset by a decrease of approximately $52,000 of consultant stock option and warrant expense.

Interest Income

Interest income was approximately $1,000 and $0 in the three month periods ended April 30, 2022 and 2021.

Net Loss Attributable to Noncontrolling Interest

The net loss attributable to noncontrolling interest, representing Wistar’s 5% ownership interest in Certainty’s net loss, was approximately $44,000 and $38,000, respectively, in the three months ended April 30, 2022 and 2021.

Six months ended April 30, 2022 compared with six months ended April 30, 2021

Revenue

We had no revenue during the six months ended April 30, 2022.

For the six months ended April 30, 2021, we recorded revenue of approximately $513,000 from one license agreement. The license agreement provided for a one-time, non-recurring, lump sum payment in exchange for a non-exclusive retroactive and future license, and covenant not to sue. Pursuant to the terms of the agreement, we have no further obligations with respect to the granted intellectual property rights, including no obligation to maintain or upgrade the technology, or provide future support or services. Accordingly, the performance obligations from this license agreement were satisfied and 100% of the revenue was recognized upon execution of the license agreement.

As discussed in Note 1 to our condensed consolidated financial statements, as part of our legacy operations, the Company remains engaged in limited patent licensing activities which we do not expect to be a significant part of our ongoing operations or revenue, nor do we expect these activities to require material financial resources or attention of senior management.

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We have not generated any revenue to date from our therapeutics or vaccine programs. In addition, while we pursue our therapeutics and vaccine programs, we may also make investments in and form new companies to develop additional emerging technologies. We do not expect to begin generating revenue with respect to any of our current therapy or vaccine programs in the near term. We intend to achieve a profitable outcome by eventually licensing our technologies to large pharmaceutical companies that have the resources and infrastructure in place to manufacture, market and sell our technologies as therapeutics or vaccines. The eventual licensing of any of our technologies may take several years, if it is to occur at all, and may depend on positive results from human clinical trials.

Inventor Royalties, Contingent Legal Fees, Litigation and Licensing Expenses

We had no inventor royalties, contingent legal fees, litigation and licensing expenses during the six-month period ended April 30, 2022.

Inventor royalties, contingent legal fees, litigation and licensing expenses for the six months ended April 30, 2021 were approximately $385,000. Inventor royalties and contingent legal fees are expensed in the period that the related revenues are recognized. Litigation and licensing expenses related to patent assertion, other than contingent legal fees, are expensed in the period incurred.

Research and Development Expenses

Research and development expenses are related to the development of our cancer therapeutics and vaccine programs and our anti-viral drug program, and increased by approximately $1,723,000 to approximately $3,573,000 in the six months ended April 30, 2022, from approximately $1,850,000 in the six months ended April 30, 2021.

The increase in research and development expenses was primarily due to an increase in employee stock option compensation expense of approximately $1,446,000, an increase in employee compensation and related costs, other than stock option compensation expense, of approximately $340,000, an increase in outside research and development expense related to our anti-viral drug program of approximately $96,000, an increase in outside research and development expense related to ovarian cancer program of approximately $71,000, an increase of approximately $59,000 of consultant stock option and warrant expense, offset by a decrease of approximately $180,000 in outside research and development related to our CAR-T therapeutics program and a decrease in license fees of approximately $110,000.

Research and development expenses incurred in the six months ended April 30, 2022 associated with each of our development programs consisted of approximately $1,452,000 for CAR-T therapeutics, approximately $1,403,000 for cancer vaccines and approximately $718,000 for anti-viral therapeutics.

General and Administrative Expenses

General and administrative expenses increased by approximately $948,000 to approximately $3,896,000 in the six months ended April 30, 2022, from approximately $2,948,000 in the six months ended April 30, 2021.

The increase in general and administrative expenses was primarily due to an increase in employee stock option compensation expense of approximately $550,000, an increase in investor and public relations expense of approximately $432,000, an increase employee compensation and related costs, other than stock option compensation expense, of approximately $226,000, offset by a decrease in directors stock option expense of approximately $154,000 and as decrease in consultant stock option and warrant expense of approximately $124,000.

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Interest Income

Interest income was approximately $2,000 and $1,000 in the six month periods ended April 30, 2022 and 2021.

Net Loss Attributable to Noncontrolling Interest

The net loss attributable to noncontrolling interest, representing Wistar’s 5% ownership interest in Certainty’s net loss, was approximately $94,000 and $62,000, respectively, in the six months ended April 30, 2022 and 2021.

LIQUIDITY AND CAPITAL RESOURCES

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

Based on currently available information as of June 10, 2022, we believe that our existing cash, cash equivalents, short-term investments and expected cash flows will be sufficient to fund our activities for at least the next twelve months. We have implemented a business model that conserves funds by collaborating with third parties to develop our technologies. However, our projections of future cash needs and cash flows may differ from actual results. If current cash on hand, cash equivalents, short-term investments and cash that may be generated from our business operations are insufficient to continue to operate our business, or if we elect to invest in or acquire a company or companies or new technology or technologies that are synergistic with or complementary to our technologies, we may be required to obtain more working capital. We may seek to obtain working capital during our fiscal year 2022 or thereafter through sales of our equity securities or through bank credit facilities or public or private debt from various financial institutions where possible. We cannot be certain that additional funding will be available on acceptable terms, or at all. If we do identify sources for additional funding, the sale of additional equity securities or convertible debt will result in dilution to our stockholders. We can give no assurance that we will generate sufficient cash flows in the future to satisfy our liquidity requirements or sustain future operations, or that other sources of funding, such as sales of equity or debt, would be available or would be approved by our security holders, if needed, on favorable terms or at all. If we fail to obtain additional working capital as and when needed, such failure could have a material adverse impact on our business, results of operations and financial condition. Furthermore, such lack of funds may inhibit our ability to respond to competitive pressures or unanticipated capital needs, or may force us to reduce operating expenses, which would significantly harm the business and development of operations.

During the six months ended April 30, 2022, cash used in operating activities was approximately $3,503,000. Cash provided by investing activities was approximately $2,100,000, resulting from the proceeds on maturities of short term investments of approximately $6,349,000, which was offset by the purchase of short term investments totaling approximately $4,249,000. Cash provided by financing activities was approximately $7,000. As a result, our cash, cash equivalents, and short-term investments at April 30, 2022 decreased approximately $3,496,000 to approximately $32,231,000 from approximately $35,727,000 at the end of fiscal year 2021.

CRITICAL ACCOUNTING POLICIES

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

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We believe that, of the significant accounting policies discussed in Note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021, the following accounting policies require our most difficult, subjective or complex judgments:

●Revenue Recognition; and
●Stock-Based Compensation.

Revenue Recognition

Our revenue has been derived solely from technology licensing and the sale of patented technologies. Revenue is recognized upon transfer of control of intellectual property rights and satisfaction of other contractual performance obligations to licensees in an amount that reflects the consideration we expect to receive.

Our revenue recognition policy requires us to make certain judgments and estimates in connection with the accounting for revenue. Such areas may include determining the existence of a contract and identifying each party’s rights and obligations to transfer goods and services, identifying the performance obligations in the contract, determining the transaction price and allocating the transaction price to separate performance obligations, estimating the timing of satisfaction of performance obligations, determining whether a promise to grant a license is distinct from other promised goods or services and evaluating whether a license transfers to a customer at a point in time or over time.

Our revenue arrangements provide for the payment, within 30 days of execution of the agreement, of contractually determined, one-time, paid-up license fees in settlement of litigation and in consideration for the grant of certain intellectual property rights for patented technologies owned or controlled by the Company. These arrangements typically include some combination of the following: (i) the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patented technologies owned or controlled by the Company, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) the dismissal of any pending litigation. In such instances, the intellectual property rights granted have been perpetual in nature, extending until the expiration of the related patents. Pursuant to the terms of these agreements, we have no further obligations with respect to the granted intellectual property rights, including no obligation to maintain or upgrade the technology, or provide future support or services. Licensees obtained control of the intellectual property rights they have acquired upon execution of the agreement. Accordingly, the performance obligations from these agreements were satisfied and 100% of the revenue was recognized upon the execution of the agreements.

Cost of Revenues

Cost of revenues include the costs and expenses incurred in connection with our patent licensing and enforcement activities, including inventor royalties paid to original patent owners, contingent legal fees paid to external counsel, other patent-related legal expenses paid to external counsel and licensing and enforcement related research, consulting and other expenses paid to third-parties. These costs are included under the caption “Operating costs and expenses” in the accompanying condensed consolidated statements of operations.

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Research and Development Expenses

Research and development expenses, consisting primarily of employee compensation, payments to third parties for research and development activities and other direct costs associated with developing immuno-therapy drugs against cancer, preventative cancer vaccines and anti-viral drug candidates for COVID-19, are expensed in the accompanying condensed consolidated financial statements in the period incurred.

2. PUBLIC OFFERING

On March 25, 2021, the Company completed a public offering in which we sold an aggregate of 4,285,715 shares of its common stock, which represented 15.8% of the Company’s outstanding shares at the time of the offering, at a public offering price of $5.25 per share. The Company realized net proceeds of approximately $20,292,000 from the public offering, after deducting underwriting discounts and deal expenses. In connection with the public offering, the Company issued to certain designees of the underwriter, as compensation, warrants expiring on March 22, 2026, to purchase 300,000 shares of common stock at $6.5625 per share.

3. STOCK BASED COMPENSATION

The Company maintains stock equity incentive plans under which the Company grants incentive stock options, non-qualified stock options, stock appreciation rights, stock awards, performance awards, or stock units to employees, directors and consultants.

Stock Option Compensation Expense

The compensation cost for service-based stock options granted to employees and directors is measured at the grant date, based on the fair value of the award using the Black-Scholes pricing model, and is expensed on a straight-line basis over the requisite service period (the vesting period of the stock option) which is one to four years. We recorded stock-based compensation expense related to service-based stock options granted to employees and directors of approximately $881,000 and $1,055,000 during the three months ended April 30, 2021 and 2020, respectively, and approximately $1,756,000 and $2,019,000 during the six months ended April 30, 2021 and 2020, respectively.

For stock options granted to employees and directors that vest based on market conditions, such as the trading price of the Company’s common stock exceeding certain price targets, we use a Monte Carlo Simulation in estimating the fair value at grant date and recognize compensation cost over the implied service period (median time to vest). On May 8, 2018, we issued market condition options to purchase 1,500,000 shares of common stock, to our Chairman, President and Chief Executive Officer, vesting at target trading prices of $5.00 to $8.00 per share before May 31, 2021, with implied service periods of three to seven months. In October 2018, the first tranche of 500,000 shares of market condition options became exercisable upon achieving an average closing price above $5.00 per share for twenty consecutive trading days. The second and third tranches did not vest as of May 31, 2021. We did not record any market condition stock-based compensation expense during the six months ended April 30, 2021 and 2020.

The compensation cost for service-based stock options granted to consultants is measured at the grant date, based on the fair value of the award using the Black-Scholes pricing model, and is expensed on a straight-line basis over the requisite service period (the vesting period of the stock option) which is one to three years. We recorded stock-based consulting expense related to stock options granted to consultants of approximately $132,000 and $55,000 during the three months ended April 30, 2021 and 2020, respectively, and approximately $186,000 and $112,000 during the six months ended April 30, 2021 and 2020, respectively.

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Stock Option Plans

During the six months ended April 30, 2021, 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. Further, we had an additional stock option plan: the Anixa Biosciences, Inc. 2003 Share Incentive Plan (the “2003 Share Plan”), under which all outstanding options expired during the six months ended April 30, 2020.

Stock Option Activity

During the three months ended April 30, 2021 and 2020, we granted options to purchase 250,000 shares and -0- shares of common stock, respectively, and during the six months ended April 30, 2021 and 2020, we granted options to purchase 1,380,000 shares and 800,000 shares of common stock, respectively, to employees and consultants, with exercise prices ranging from $2.83 to $5.30 per share, pursuant to the 2018 Share Plan. During the three months ended April 30, 2021 and 2020, stock options to purchase 77,571 shares, net of 7,937 shares withheld on a cashless exercise, and 25,000 shares of common stock, respectively, were exercised with aggregate proceeds of approximately $189,000 and $75,000, respectively. During the six months ended April 30, 2021 and 2020, stock options to purchase 107,451 shares, net of 7,937 shares withheld on a cashless exercise, and 43,900 shares of common stock, respectively, were exercised with aggregate proceeds of approximately $294,000 and $104,000, respectively.

2003 Share Plan

The 2003 Share Plan provided for the grant of nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to employees, directors and consultants. In accordance with the provisions of the 2003 Share Plan, the plan terminated with respect to the ability to grant future awards on April 21, 2013.

Information regarding the 2003 Plan for the six months ended April 30, 2020 is as follows:

  Shares  Weighted
Average Exercise
Price Per Share		  Aggregate
Intrinsic
Value		 
Options outstanding at October 31, 2019  400  $17.00     
Forfeited/Expired  (400) $17.00     
Options outstanding and exercisable at
April 30, 2020		  -  $-0-  $-0- 

2010 Share Plan

The 2010 Share Plan provided for the grant of nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to employees, directors and consultants. In accordance with the provisions of the 2010 Share Plan, the plan terminated with respect to the ability to grant future awards on July 14, 2020.

Information regarding the 2010 Share Plan for the six months ended April 30, 2021 is as follows:

  Shares  Weighted
Average Exercise
Price Per Share		  Aggregate
Intrinsic
Value		 
Options outstanding at October 31, 2020  1, 1,907,534  $2.82     
Exercised  (37,500) $2.40     
Forfeited/Expired  (10,400) $4.57     
Options outstanding at April 30, 2021  1 1,859,634  $2.82  $3,899,138 
Options exercisable at April 30, 2021  1, 1,820,884  $2.82  $3,809,375 

11

The following table summarizes information about stock options outstanding and exercisable under the 2010 Share Plan as of April 30, 2021:

  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

 
$ 0.67 - $ 2.30  527,500   5.06  $1.54   513,750   5.03  $1.56 
$ 2.58 - $ 3.13  818,000   2.90  $2.80   818,000   3.27  $2.80 
$ 3.46 - $ 5.30  514,134   7.00  $4.16   489,134   6.99  $4.20 

Information regarding the 2010 Share Plan for the six months ended April 30, 2020 is as follows:

   Shares  Weighted
Average Exercise
Price Per Share		  Aggregate
Intrinsic
Value		 
Options outstanding at October 31, 2019   1,998,668  $2.80     
Exercised   (43,900) $2.36     
Forfeited/Expired   (5,534) $2.58     
Options outstanding at April 30, 2020   1,949,234  $2.81  $291,195 
Options exercisable at April 30, 2020   1,740,484  $2.85  $213,820 

The following table summarizes information about stock options outstanding and exercisable under the 2010 Share Plan as of April 30, 2020:

   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

 
$ 0.67 - $2.30  561,500   6.03  $1.56   480,250   5.84  $1.66 
$ 2.58 - $ 3.13  853,200   3.28  $2.79   853,200   3.72  $2.79 
$ 3.46 - $ 5.75  534,534   7.69  $4.16   407,034   7.54  $4.38 

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2018 Share Plan

The 2018 Share Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, stock awards, performance awards and stock units to employees, directors and consultants. As of April 30, 2021, the 2018 Share Plan had 1,757,937 shares available for future grants.

Information regarding the 2018 Share Plan for the six months ended April 30, 2021 is as follows:

  Shares  Weighted
Average Exercise
Price Per Share		  Aggregate Intrinsic Value 
Options outstanding at October 31, 2020  4,346,661  $3.69     
Granted  1,380,000  $3.28     
Exercised  (33,888) $3.81     
Forfeited/Expired  (392,781) $3.70     
Options outstanding at April 30, 2021  5,299,992  $3.58  $7,000,292 
Options exercisable at April 30, 2021  2,626,391  $3.66  $3,215,984 

The following table summarizes information about stock options outstanding and exercisable under the 2018 Share Plan as of April 30, 2021:

   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 - $3.70   3,975,000   7.87  $3.38   1,901,945   7.37  $3.55 
$3.84 - $5.30   1,324,992   7.19  $4.16   724,446   7.43  $3.96 

Information regarding the 2018 Share Plan for the six months ended April 30, 2020 is as follows:

  Shares  Weighted
Average Exercise
Price Per Share		  Aggregate Intrinsic Value 
Options outstanding at October 31, 2019  3,935,500  $3.74     
Granted  800,000  $3.85     
Options outstanding at April 30, 2020  4,735,000  $3.76  $-0- 
Options exercisable at April 30, 2020  2,107,779  $3.75  $-0- 

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The following table summarizes information about stock options outstanding and exercisable under the 2018 Share Plan as of April 30, 2020:

   Options Outstanding  Options Exercisable 
Range of Exercise Prices  Number Outstanding  

Weighted Average Remaining Contractual Life

(in years)

  Weighted  Average Exercise Price  Number Exercisable  

Weighted Average Remaining Contractual Life

(in years)

  Weighted Average Exercise Price 
$3.70   3,100,000   8.03  $3.70   1,566,666   8.03  $3.70 
$3.84 - $4.61   1,635,000   8.92  $3.88   541,113   8.37  $3.75 

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”).

Information regarding Non-Plan Options for the six months ended April; 30, 2021 is as follows:

  Shares  Weighted
Average Exercise
Price Per Share		  Aggregate
Intrinsic
Value		 
Options outstanding at October 31, 2020  1,698,000  $2.58     
Exercised  (44,000) $2.58     
Options outstanding and exercisable at
April 30, 2021		  1,654,000  $2.58  $3,812,470 

The following table summarizes information about Non-Plan Options outstanding and exercisable as of April 30, 2021:

Range of
Exercise Prices		  Number
Outstanding
and
Exercisable		  Weighted Average Remaining Contractual Life
(in years)		  Weighted
Average
Exercise Price		 
$2.58   1,654,000   1.31  $2.58 

Information regarding Non-Plan Options for the six months ended April 30, 2020 is as follows:

  Shares  Weighted Average Exercise Price Per Share  Aggregate Intrinsic Value 
Options outstanding at October 31, 2019  1,698,000  $2.58     
Options outstanding and exercisable at
April 30, 2020		  1,698,000  $2.58  $-0- 

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The following table summarizes information about Non-Plan Options outstanding and exercisable as of April 30, 2020:


Range of
Exercise Prices		  

Number
Outstanding

and

Exercisable

  

Weighted Average
Remaining
Contractual Life

(in years)

   Weighted
Average
 Exercise Price		 
$2.58   1,698,000   2.25  $2.58 

On June 1, 2021, stock options to purchase 2,990,000 shares were granted under the 2018 Share Plan. Each of our non-employee directors was awarded options for 30,000 shares that vest over one year. Our Lead Independent Director, our Chairman, President and Chief Executive Officer and our Chief Operating Officer and Chief Financial Officer were awarded options for 200,000 shares, 500,000 shares and 100,000 shares, respectively, that vest over three years. Further, our Chairman, President and Chief Executive Officer and our Chief Operating Officer and Chief Financial Officer were awarded options for 2,000,000 shares and 100,000 shares, respectively, that vest in four equal installments upon the Company’s share price achieving targets ranging from $5.00 to $8.00 per share.

Stock Awards

On May 8, 2018, a restricted stock award of 1,500,000 shares of common stock was granted under the 2018 Share Plan to our Chairman, President and Chief Executive Officer. The restricted stock award was to vest in its entirety upon achievement of a target trading price of $11.00 per share of the Company’s common stock before May 31, 2021. The restricted stock award did not vest as of May 31, 2021. For restricted stock awards vesting upon achievement of a price target of our common stock we use a Monte Carlo Simulation in estimating the fair value at grant date and recognize compensation cost over the implied service period (median time to vest). We did not record any compensation expense related to the restricted stock award during the six months ended April 30, 2021 and 2020.

Employee Stock Purchase Plan

The Company maintains the Anixa Biosciences, Inc. Employee Stock Purchase Plan (the “ESPP”) which permits eligible employees to purchase shares at not less than 85% of the market value of the Company’s common stock on the offering date or the purchase date of the applicable offering period, whichever is lower. The plan was adopted by our Board of Directors on August 13, 2018 and approved by our shareholders on September 27, 2018. During the six months ended April 30, 2021 and 2020, employees purchased 1,634 and 9,618 shares, respectively, with aggregate proceeds of approximately $3,000 and $15,000, respectively.

Warrants

On October 30, 2020 we issued a warrant, expiring on October 30, 2025, to purchase 60,000 shares of common stock at $2.06 per share, vesting over five months, to a consultant for investor relations services. We recorded consulting expense of approximately $38,000 and $96,000, respectively, during the three and six months ended April 30, 2021, based on the fair value of the warrant on the date of grant recognized on a straight-line basis over the vesting period. We did not record any consulting expense related to warrants during the three and six months ended April 30, 2020.

As discussed in Note 2, in connection with the March 25, 2021 public offering 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. No warrants were issued during the six-month period ended April 30, 2020.

As of April 30, 2021, we also had warrants outstanding to purchase 500,000 shares of common stock at $5.03 per share, issued during fiscal year 2017 and expiring on November 30, 2021.

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4. FAIR VALUE MEASUREMENTS

US GAAP defines fair value and establishes a framework for measuring fair value. We have categorized our financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities recorded in the accompanying condensed consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1 - Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market which we have the ability to access at the measurement date.

Level 2 - Financial assets and liabilities whose values are based on quoted market prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets.

Level 3 – Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset and liabilities.

The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of April 30, 2021:

  Level 1  Level 2  Level 3  Total 
Money market funds:                
Cash and cash equivalents $27,038,700  $-  $-  $27,038,700 
Certificates of deposit:                
Cash and cash equivalents  500,000   -   -   500,000 
Short-term investments  -   2,000,000   -   2,000,000 
Treasury bills and bonds:                
Short-term investments  -   8,399,300   -   8,399,300 
                 
Total financial assets $27,538,700  $10,399,300  $-  $37,938,000 

The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31, 2020:

  Level 1  Level 2  Level 3  Total 
Money market funds:                
Cash and cash equivalents $3,902,292  $-  $-  $3,902,292 
Certificates of deposit:                
Cash and cash equivalents  2,250,000   -   -   2,250,000 
Short-term investments  -   2,640,000   -   2,640,000 
                 
Total financial assets $6,152,292  $2,640,000  $-  $8,792,292 

Our non-financial assets that are measured on a non-recurring basis include our 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 and cash equivalents are stated at carrying value which approximates fair value.

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5. ACCRUED EXPENSES

Accrued expenses consist of the following as of:

  April 30,  October 31, 
  2021  2020 
Payroll and related expenses $310,641  $415,331 
Accrued royalty and contingent legal fees  577,190   449,691 
Accrued collaborative research and license expense  61,853   30,000 
Accrued other  29,210   6,003 
  $978,894  $901,025 

6. NET LOSS PER SHARE OF COMMON STOCK

Basic net loss per common share (“Basic EPS”) is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted net loss per common share (“Diluted EPS”) is computed by dividing net loss by the weighted average number of common shares and dilutive common share equivalents and convertible securities then outstanding. Diluted EPS for all periods presented is the same as Basic EPS, as the inclusion of the effect of common share equivalents then outstanding would be anti-dilutive. For this reason, excluded from the calculation of Diluted EPS for the six months ended April 30, 2021 and 2020, were stock options to purchase 8,813,626 and 8,382,234 shares, respectively, and warrants to purchase 860,000 and 500,000 shares, respectively.

7. EFFECT OF RECENTLY ADOPTED AND ISSUED PRONOUNCEMENTS

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-02 (“ASU 2016-02”) Accounting Standards Codification Topic 842, Leases (“ASC 842”), which supersedes Topic 840, Leases, and which requires lessees to recognize most leases on the balance sheet. The new lease standard does not substantially change lessor accounting. For public companies, the standard was effective for the first interim reporting period within annual periods beginning after December 15, 2018, although early adoption was permitted. Lessees and lessors were required to apply the new standard at the beginning of the earliest period presented in the financial statements in which they first apply the new guidance. In July 2018, FASB issued ASU 2018-11, Leases, which provides an additional transition option for an entity to apply the provisions of ASC 842 by recognizing a cumulative effect adjustment at the effective date of adoption without adjusting the prior comparative periods presented. The requirements of this standard include a significant increase in required disclosures. The Company adopted ASU 2016-02 on November 1, 2019. The adoption of this standard did not have a material impact on our condensed consolidated financial statements. See Note 9 regarding the accounting and disclosures related to our office lease.

8. INCOME TAXES

We recognize deferred tax assets and liabilities for the estimated future tax effects of events that have been recognized in our financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized. We have provided a full valuation allowance against our deferred tax asset due to our historical pre-tax losses and the uncertainty regarding the realizability of these deferred tax assets.

We have substantial net operating loss carryforwards for Federal and California income tax returns. These net operating loss carryforwards could be subject to limitations under Internal Revenue Code section 382. We have no unrecognized income tax benefits as of April 30, 2021 and October 31, 2020 and we account for interest and penalties related to income tax matters, if any, in general and administrative expenses.

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9. 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 expires September 30, 2021. 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. Rent expense was approximately $16,000 and $16,000, respectively, for the three months ended April 30, 2021 and 2020, and approximately $32,000 and $32,000, respectively, for the six months ended April 30, 2021 and 2020.

On November 1, 2019, the Company adopted ASC 842, which increases transparency and comparability by recognizing a lessee’s rights and obligations resulting from leases by recording them on the balance sheet as lease assets and lease liabilities. The new guidance requires the recognition of the right-of-use (“ROU”) assets and related operating lease liabilities on the balance sheet. The Company adopted the new guidance using the modified retrospective approach on November 1, 2019.

For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments. The remaining 5-month lease term as of April 30, 2021 for the Company’s lease includes the noncancelable period of the lease. The lease does not contain a Company option to extend the lease or an option to extend the lease controlled by the lessor. All ROU assets are reviewed for impairment.

Balance sheet information related to the Company’s lease is presented below:

  Balance Sheet
Location		 April 30,
2021		  October 31,
2020		 
Operating Lease:          
Right-of-use asset Operating lease right-of-use asset $25,574  $54,340 
Right-of-use liability, current Operating lease liability  25,964   55,198 

As of April 30, 2021, the annual minimum lease payments of our operating lease liabilities were as follows:

  

Operating

Leases

 
2021 future minimum payments, undiscounted $26,880 
Less: Imputed interest  (916)
Present value of future minimum lease payments $25,964 

10. COMMITMENTS AND CONTINGENCIES

Litigation Matters

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.

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Impact of Coronavirus Pandemic

On March 10, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The virus and actions taken to mitigate its spread have had and are expected to continue to have a broad adverse impact on the economies and financial markets of many countries, including the geographical areas in which the Company operates and conducts its business, and which the Company’s partners operate and conduct their business. We are currently following the recommendations of local health authorities to minimize exposure risk for our team members and visitors. However, while the outlook is improving, and there has been a loosening of restrictions in many of the areas in which we and our partners operate and conduct our business, the scale and scope of this pandemic is unknown, and the duration of the business disruption and related financial impact cannot be reasonably estimated at this time. While we have implemented specific business, continuity plans to reduce the potential impact of COVID-19, there is no guarantee that our continuity plans will be successful.

We have experienced certain disruptions to our business such as temporary closure of our offices and similar disruptions have occurred for our partners. Specifically, the outbreak has caused temporary shutdowns of the laboratories and other service providers that we rely on to develop our programs, and those laboratories and service providers that have been operating or that have begun operating recently have been doing so with more limited capacity due to social distancing requirements. As a result, our progress has been slowed and there is no assurance that we will be able to meet our previously announced timelines regarding the advancement of our programs.

The extent to which COVID-19 or any other health epidemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. Accordingly, COVID-19 could have a material adverse effect on our business, results of operations, financial condition and prospects.

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11. 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 five reportable segments, each with different operating and potential revenue generating characteristics: (i) CAR-T Therapeutics, (ii) Cancer Vaccines, (iii) Anti-Viral Therapeutics, (iv) Cancer Diagnostics and (v) Patent Licensing activities. The following represents selected financial information for our segments for the three and six months ended April 30, 2021 and 2020 and as of April 30, 2021 and October 31, 2020:

  For the Three Months Ended
April 30,		  For the Six Months Ended
April 30,		 
  2021  2020  2021  2020 
Net Income/(Loss):                
CAR-T Therapeutics $(1,445,758) $(495,030) $(2,406,494) $(1,125,363)
Cancer Vaccines  (662,367)  (170,271)  (1,568,703)  (365,867)
Anti-Viral Therapeutics  (309,755)  (309,504)  (790,561)  (309,504)
Cancer Diagnostics  (13,409)  (1,679,027)  (22,371)  (3,469,673)
Patent Licensing  (5,600)  (4,158)  118,863   (4,158))
Total $(2,436,889) $(2,657,990) $(4,669,266) $(5,274,565)
                 
Total operating costs and expenses $2,437,282  $2,670,137  $5,182,913  $5,300,006 
Less non-cash share-based compensation  (1,051,272)  (1,110,086))  (2,037,371)  (2,131,420)
Operating costs and expenses
excluding non-cash share-based
compensation		 $1,386,010  $1,560,051  $3,145,542  $3,168,586 
Operating costs and expenses excluding
non-cash share based compensation:		                
CAR-T Therapeutics $934,714  $223,822  $1,492,394  $570,163 
Cancer Vaccines  298,537   67,059   836,525   165,329 
Anti-Viral Therapeutics  138,175   221,018   408,431   221,018 
Cancer Diagnostics  10,291   1,044,889   16,723   2,208,813 
Patent Licensing  4,293   3,263   391,469   3,263 
Total $1,386,010  $1,560,051   3,145,542  $3,168,586 

  April 30,
2021		  October 31,
2020		 
Total assets:        
CAR-T Therapeutics $25,906,018  $2,988,124 
Cancer Vaccines  8,265,734   946,923 
Anti-Viral Therapeutics  3,825,876   2,464,361 
Cancer Diagnostics  332,450   2,869,529 
Patent Licensing  167,444   184,027 
Total $38,497,522  $9,452,964 

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

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

Information included in this Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are not statements of historical facts, but rather reflect our current expectations concerning future events and results. We generally use the words “believes,” “expects,” “intends,” “plans,” “anticipates,” “likely,” “will” and similar expressions to identify forward-looking statements. Such forward-looking statements, including those concerning our expectations, involve risks, uncertainties and other factors, some of which are beyond our control, which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks, uncertainties and factors include, but are not limited to, those factors set forth in our Annual Report on Form 10-K for the fiscal year ended October 31, 2020 and the condensed consolidated financial statements included in this Report. Except as required by applicable law, including the securities laws of the United States, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this Report.

GENERAL

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

RESULTS OF OPERATIONS

Three months ended April 30, 2021 compared with three months ended April 30, 2020

Revenue

Over the past several years, our revenue was derived from technology licensing and the sale of patented technologies, including revenue from the settlement of litigation. We have not generated any revenue to date from our therapeutics or vaccine programs. In addition, while we pursue our therapeutics and vaccine programs, we may also make investments in and form new companies to develop additional emerging technologies. We do not expect to begin generating revenue with respect to any of our current therapy or vaccine programs in the near term. 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 therapeutics or vaccines. The eventual licensing of any of our technologies may take several years, if it is to occur at all, and may depend on positive results from human clinical trials.

We had no revenue during the three-month periods ended April 30, 2021 and 2020.

Inventor Royalties, Contingent Legal Fees, Litigation and Licensing Expenses

We had no inventor royalties, contingent legal fees, litigation and licensing expenses during the three-month periods ended April 30, 2021 and 2020.

Research and Development Expenses

Research and development expenses incurred in the three months ended April 30, 2021 associated with each of our development programs consisted of approximately $548,000 for CAR-T therapeutics, approximately $336,000 for cancer vaccines, approximately $118,000 for anti-viral therapeutics and $-0- for cancer diagnostic.

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Research and development expenses are related to the development of our cancer therapeutics, vaccine and diagnostics programs and our anti-viral drug program, and decreased by approximately $207,000 to approximately $1,022,000 in the three months ended April 30, 2021, from approximately $1,229,000 in the three months ended April 30, 2020. The decrease in research and development expenses was primarily due to a decrease in outside research and development expense related to our cancer diagnostics program of approximately $305,000 and decreases in employee compensation and related costs, other than stock option compensation expense, of approximately $124,000 and employee stock option compensation expense of approximately $89,000, all due to the suspension of development of our cancer diagnostics program. In addition, no license payments related to our collaborative agreement with OntoChem concerning discovery and development of anti-viral drugs for COVID-19 were required in the current period compared to approximately $111,000 in the prior year period. These decreases in expenses were offset by an increase in research and development expenses related to our other development programs of approximately $331,000 and an increase in consultant stock option and warrant expense of approximately $78,000.

General and Administrative Expenses

General and administrative expenses decreased by approximately $26,000 to approximately $1,415,000 in the three months ended April 30, 2021, from approximately $1,441,000 in the three months ended April 30, 2020. The decrease in general and administrative expenses was primarily due to a decrease in employee compensation and related costs, other than stock option expense, of approximately $100,000, a decrease in consultant expense of approximately $78,000, a decrease in director compensation of approximately $38,000, offset by an increase in patent expense of approximately $110,000, an increase in shareholder relations expense of approximately $54,000 and an increase in corporate insurance expense of approximately $25,000.

Interest Income

Interest income decreased by approximately $12,000 to less than $1,000 in the three months ended April 30, 2021, from approximately $12,000 in the comparable prior year period as a result of a decrease in interest rates.

Net Loss Attributable to Noncontrolling Interest

The net loss attributable to noncontrolling interest, representing Wistar’s 5% ownership interest in Certainty’s net loss, was approximately $38,000 and $18,000, respectively, in the three months ended April 30, 2021 and 2020.

Six months ended April 30, 2021 compared with six months ended April 30, 2020

Revenue

For the six months ended April 30, 2021, we recorded revenue of approximately $513,000 from one license agreement. The license agreement provided for a one-time, non-recurring, lump sum payment in exchange for a non-exclusive retroactive and future license, and covenant not to sue. Pursuant to the terms of the agreement, we have no further obligations with respect to the granted intellectual property rights, including no obligation to maintain or upgrade the technology, or provide future support or services. Accordingly, the performance obligations from this license agreement were satisfied and 100% of the revenue was recognized upon execution of the license agreement. As discussed in Note 1 to our condensed consolidated financial statements, as part of our legacy operations, the Company remains engaged in limited patent licensing activities which we do not expect to be a significant part of our ongoing operations or revenue.

22

We had no revenue during the six-month period ended April 30, 2020.

Inventor Royalties, Contingent Legal Fees, Litigation and Licensing Expenses

Inventor royalties, contingent legal fees, litigation and licensing expenses increased to approximately $385,000 in the six months ended April 30, 2021 from $-0- in the six months ended April 30, 2020. The increase was primarily due to the increase in related revenues. Inventor royalties and contingent legal fees are expensed in the period that the related revenues are recognized. Litigation and licensing expenses related to patent assertion, other than contingent legal fees, are expensed in the period incurred.

Research and Development Expenses

Research and development expenses incurred in the six months ended April 30, 2021 associated with each of our development programs consisted of approximately $910,000 for CAR-T therapeutics, approximately $630,000 for cancer vaccines, approximately $288,000 for anti-viral therapeutics and approximately $2,000 for cancer diagnostic.

Research and development expenses are related to the development of our cancer therapeutics, vaccine and diagnostics programs and our anti-viral drug program, and decreased by approximately $869,000 to approximately $1,850,000 in the six months ended April 30, 2021, from approximately $2,719,000 in the six months ended April 30, 2020. The decrease in research and development expenses was primarily due to a decrease in outside research and development expense related to our cancer diagnostics program of approximately $816,000 and decreases in employee compensation and related costs, other than stock option compensation expense, of approximately $394,000 and employee stock option compensation expense of approximately $194,000, all due to the suspension of development of our cancer diagnostics program. These expense reductions were offset by an increase in research and development expenses related to our other development programs of approximately $428,000 and an increase in consultant expense of approximately $51,000.

General and Administrative Expenses

General and administrative expenses increased by approximately $367,000 to approximately $2,948,000 in the six months ended April 30, 2021, from approximately $2,581,000 in the six months ended April 30, 2020. The increase in general and administrative expenses was primarily due to non-recurring income in the prior year period resulting from the discharge in January 2020 of a disputed liability of approximately $337,000 upon the expiration of the vendor’s statutory right to pursue collection of the disputed liability, an increase in patent expense of approximately $186,000, an increase in corporate insurance expense of approximately $47,000, an increase in directors compensation of approximately $43,000, offset by a decrease in employee compensation and related costs, other than stock option compensation expense, of approximately $248,000.

Interest Income

Interest income decreased by approximately $24,000 to approximately $1,000 in the six months ended April 30, 2021, from approximately $25,000 in the comparable prior year period as a result of a decrease in interest rates.

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Net Loss Attributable to Noncontrolling Interest

The net loss attributable to noncontrolling interest, representing Wistar’s 5% ownership interest in Certainty’s net loss, was approximately $62,000 and $42,000, respectively, in the six months ended April 30, 2021 and 2020.

LIQUIDITY AND CAPITAL RESOURCES

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

Based on currently available information as of June 10, 2021, 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. During the six months ended April 30, 2021, we raised approximately $20,292,000, net of expenses, through a public offering in which we sold an aggregate of 4,285,715 shares of common stock and approximately $10,834,000, net of expenses, through our at-the-market equity program in which we sold an aggregate of 2,806,410 shares of common stock. Under our at-the-market equity program which is currently effective and may remain available for us to use in the future, as of April 30, 2021, we may sell an additional approximately $29.6 million of common stock. We may seek to obtain working capital during our fiscal year 2021 or thereafter through sales of our equity securities or through bank credit facilities or public or private debt from various financial institutions where possible. We cannot be certain that additional funding will be available on acceptable terms, or at all. If we do identify sources for additional funding, the sale of additional equity securities or convertible debt 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.

During the six months ended April 30, 2021, cash used in operating activities was approximately $2,412,000. Cash used in investing activities was approximately $7,724,000, resulting from the purchase of short-term investments of approximately $10,399,000, which was offset by the proceeds on maturities of short-term investments of approximately $2,640,000 and the proceeds from the sale of equipment of approximately $35,000. Cash provided by financing activities was approximately $31,422,000, resulting from net proceeds of approximately $20,292,000 from a public offering of 4,285,715 shares of common stock, the sale of 2,806,410 shares of common stock in an at-the-market equity offering of approximately $10,834,000, proceeds from exercise of stock options of approximately $294,000 and proceeds from the sale of common stock pursuant to employee stock purchase plan of approximately $3,000. As a result, our cash, cash equivalents, and short-term investments at April 30, 2021 increased approximately $29,046,000 to approximately $38,103,000 from approximately $9,057,000 at the end of fiscal year 2020.

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CRITICAL ACCOUNTING POLICIES

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

We believe that, of the significant accounting policies discussed in Note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended October 31, 2020, the following accounting policies require our most difficult, subjective or complex judgments:

Revenue Recognition; and

Stock-Based Compensation

Revenue Recognition

Our revenue has been derived solely from technology licensing and the sale of patented technologies. Revenue is recognized upon transfer of control of intellectual property rights and satisfaction of other contractual performance obligations to licensees in an amount that reflects the consideration we expect to receive.

We follow the accounting guidance of Accounting Standards Codification 606 (“ASC 606”), Revenue from Contracts with Customers. In accordance with ASC 606 we are required to make certain judgments and estimates in connection with the accounting for revenue. Such judgments and estimates 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.

Stock-Based Compensation

The compensation cost for service-based stock options granted to employees, directors and consultants is measured at the grant date, based on the fair value of the award using the Black-Scholes pricing model, and is recognized as an expense on a straight-line basis over the requisite service period (the vesting period of the stock option) which is one to four years. For employee options vesting if the trading price of the Company’s common stock achievesexceeds certain price targets, we use a Monte Carlo Simulation in estimating the fair value at grant date and recognize compensation cost over the implied service period.

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For stock awards granted to employees and directors that vest at date of grant, we recognize expense based on the grant date market price of the underlying common stock. For restricted stock awards vesting upon achievement of a price target of our common stock, we use a Monte Carlo Simulation in estimating the fair value at grant date and recognize compensation cost over the implied service period (median time to vest).

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The Black-Scholes pricing model and the Monte Carlo Simulation we use to estimate fair value requires valuation assumptions of expected term, expected volatility, risk-free interest rates and expected dividend yield. The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding. For employees we use the simplified method, which is a weighted average of the vesting term and contractual term, to determine expected term. The simplified method was adopted since we do not believe that historical experience is representative of future performance because of the impact of the changes in our operations and the change in terms from historical options. For consultants, we use the contract term for expected term. 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 grants. 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 dividends and our expectation not to pay dividends in the future.

We will reconsider use of the Black-Scholes pricing model and the Monte Carlo Simulation 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 future periods, the compensation expense that we record may differ significantly from what we have recorded in the current period.

EFFECT OF RECENTLY ISSUED PRONOUNCEMENTS

We do not believe that any of the recently issued accounting pronouncements will have a material effect on the Company’s consolidated financial statements.

Item3.Quantitative and Qualitative Disclosures About Market Risk.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As of April 30, 2021,2022, we had investments in short-term, fixed rate and highly liquid instruments that have historically been reinvested when they mature throughout the year. Although our existing instruments are not considered at risk with respect to changes in interest rates or markets for these instruments, our rate of return on these securities could be affected at the time of reinvestment, if any.

Item4.Controls and Procedures.

Item 4. Controls and Procedures.

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

There was no change in our internal control over financial reporting during the second quarter of fiscal year 20212022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

WeOther than lawsuits related to the enforcement of our patent rights, we are not involved ina party to any litigation or othermaterial pending legal proceedings, and management is notnor are we aware of any pending litigation or legal proceeding against us that would have a material adverse effect upon our results of operations or financial condition.

Item 1A. Risk Factors.Factors.

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended October 31, 2020.2021.

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

Item 3. Defaults Upon Senior SecuritiesSecurities.. None.

Item 4. Mine Safety DisclosuresDisclosures.. Not Applicable.

Item 5. Other InformationInformation.. None.

Item 6. Exhibits.

10.1Assignment Agreement dated May 1, 2021, between the Company, OntoChem GmbH and MolGenie GmbH.
10.231.1Amendment 2 to the Collaboration Agreement between the Company and MolGenie GmbH. (Certain information has been redacted in the marked portions of the exhibit.)
31.1Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated June 10, 2021.2022.
31.231.2Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated June 10, 2021.2022.
32.132.1Statement of Chief Executive Officer, pursuant to Section 1350 of Title 18 of the United States Code, dated June 10,2021.10, 2022.
32.232.2Statement of Chief Financial Officer, pursuant to Section 1350 of Title 18 of the United States Code, dated June 10, 2021.2022.
101.INSInline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB Inline XBRL Taxonomy Extension Label Linkbase
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase
104Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

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SIGNATURES

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

ANIXA BIOSCIENCES, INC.
By:/s/ Dr. Amit Kumar
Dr. Amit Kumar
Chairman President and
Chief Executive Officer
June 10, 20212022(Principal Executive Officer)
By:/s/ Michael J. Catelani
Michael J. Catelani
President, Chief Operating Officer and
Chief Financial Officer
June 10, 2022(Principal Financial and
June 10, 2021Accounting Officer)

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