ITUS CORPORATIONANIXA BIOSCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share and per share data)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(UNAUDITED)

1. BUSINESS AND FUNDING

Description of Business

As used herein, “we,” “us,” “our,” the “Company” or “ITUS”“Anixa” means ITUS CorporationAnixa Biosciences, Inc. and its wholly-owned subsidiaries.  From inception through October 2012, our primary operations involvedconsolidated subsidiaries unless otherwise indicated.

Anixa Biosciences, Inc. is a biotechnology company developing vaccines and therapies that are focused on critical unmet needs in oncology. Our vaccine programs include (i) the development of patented technologies ina preventative vaccine against triple negative breast cancer (“TNBC”), the areasmost lethal form of thin-film displaysbreast cancer, as well other forms of breast cancer and encryption.  Commencing in October 2012 the primary operations of the Company involved(ii) the development acquisition, licensing,of a preventative vaccine against ovarian cancer. Our therapeutics programs include (i) the development of a chimeric endocrine receptor T cell therapy, a novel form of chimeric antigen receptor T cell (“CAR-T”) technology, initially focused on treating ovarian cancer, which is being developed at our subsidiary, Certainty Therapeutics, Inc. (“Certainty”), and enforcement(ii) until March 2023, the development of patented technologies that were eitheranti-viral drug candidates for the treatment of Covid-19.

We hold an exclusive worldwide, royalty-bearing license to use certain intellectual property owned or controlled by the Company.

In JuneThe Cleveland Clinic Foundation (“Cleveland Clinic”) relating to certain breast cancer vaccine technology developed at Cleveland Clinic. The license agreement requires us to make certain cash payments to Cleveland Clinic upon achievement of 2015, the Company announced the formation of a new subsidiary, Anixa Diagnostics Corporation (“Anixa”),specific development milestones. Utilizing this technology, we are working in collaboration with Cleveland Clinic to develop a platformmethod to vaccinate women against contracting breast cancer, focused initially on TNBC. The focus of this vaccine is a specific protein, α-lactalbumin, that is only expressed during lactation in a healthy woman’s mammary tissue. This protein disappears when the woman is no longer lactating, but reappears in many forms of breast cancer, especially TNBC. Studies have shown that vaccinating against this protein prevents breast cancer in mice.

In October 2021, following the U.S. Food and Drug Administration’s (“FDA”) authorization to proceed, we commenced dosing patients in a Phase 1 clinical trial of our breast cancer vaccine. This study, which is being funded by a U.S. Department of Defense grant to Cleveland Clinic, is a multiple-ascending dose Phase 1 trial to determine the maximum tolerated dose (“MTD”) of the vaccine in patients with early-stage, triple-negative breast cancer as well as monitor immune response. The study is being conducted at Cleveland Clinic. The first segment of the study, Phase 1a, will consist of 18 to 24 patients who have completed treatment for non-invasive blood testsearly-stage, triple-negative breast cancer within the past three years and are currently tumor-free but at high risk for recurrence. Studies show that 42% of TNBC patients will have a recurrence of their cancer, with most of the recurrences occurring in the first two to three years after standard of care treatment. During the course of the Phase 1a study, participants will receive three vaccinations, each two weeks apart, and will be closely monitored for side effects and immune response. In January 2023, the number of participants in each dose cohort was expanded, and as of August 2023, we had completed vaccinating all patients in these expanded cohorts. In December 2023, we presented the immunological data collected to date at the San Antonio Breast Cancer Symposium. The data presented show that in the vaccinated women who had been tested to date, various levels of antigen-specific T cell responses were observed at all dose levels. We have begun vaccinating participants in up to three additional dose cohorts at dose levels higher than the currently determined MTD and lower than the highest dose where we observed dose limiting side effects. Further, we have commenced vaccination of participants in the second segment of the trial, Phase 1b, that includes participants who have never had cancer, but carry certain mutations in genes such as BRCA1, BRCA2 or PALB2, that indicate a greater risk of developing TNBC in the future, and have elected to have a prophylactic mastectomy. Finally, we have commenced vaccination of participants in the third segment of the trial, Phase 1c, that includes post-operative TNBC patients that have residual disease following treatment and are currently undergoing treatment with pembrolizumab (Keytruda®).

In November 2020, we executed a license agreement with Cleveland Clinic pursuant to which the Company was granted an exclusive worldwide, royalty-bearing license to use certain intellectual property owned or controlled by Cleveland Clinic relating to certain ovarian cancer vaccine technology. The license agreement requires us to make certain cash payments to Cleveland Clinic upon achievement of specific development milestones. This technology pertains to among other things, the use of vaccines for the early detectiontreatment or prevention of cancer.  That platform is called CchekÔ ovarian cancers which express the anti-Mullerian hormone receptor 2 protein containing an extracellular domain (“AMHR2-ED”). In Julyhealthy tissue, this protein regulates growth and development of 2015, ITUS announcedegg-containing follicles in the ovary. While expression of AMHR2-ED naturally and markedly declines during menopause, this protein is expressed at high levels in the ovaries of postmenopausal women with ovarian cancer. Researchers at Cleveland Clinic believe that a collaborativevaccine targeting AMHR2-ED could prevent the occurrence of ovarian cancer.

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

Our subsidiary, Certainty, is developing immuno-therapy drugs against cancer. Certainty holds an exclusive worldwide, royalty-bearing license to use certain intellectual property owned or controlled by The Wistar Institute (“Wistar”), the nation’s first independent biomedical research institute and a leading National Cancer InstituteNCI designated cancer research center, for the purpose of validating our cancer detection methodologies and establishing protocols for identifying certain biomarkers in the blood which we identified and which are known to be associated with malignancies.  In August of 2016 and again in August of 2017, ITUS announced the renewal and expansion of our relationship with Wistar.

From October of 2015 through January of 2017, ITUS announced that we had demonstrated the efficacy of our CchekÔ early cancer detection platform with 15 different types of cancer, including:  breast, lung, colon, melanoma, ovarian, liver, thyroid, pancreatic, appendiceal, uterine, osteosarcoma, leiomyosarcoma, liposarcoma, vulvar and prostate.  Breast, lung, colon and prostate cancers represent the four largest categories of cancer worldwide.

In November of 2017, the Company announced the formation of a new subsidiary, Certainty Therapeutics, Inc. (“Certainty”), to develop immuno-therapy drugs against cancer.  Certainty entered into a license agreement with Wistar pursuant to which Certainty was granted an exclusive worldwide, royalty-bearing license to use certain intellectual property owned or controlled by Wistar relating to Wistar’s chimeric endocrine receptor targeted therapy technology (such technology being akin to chimeric antigen receptor T-cell (“CAR-T”) technology).technology. We plan tohave initially focusfocused on the development of a treatment for ovarian cancer, but we also may pursue future 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.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, such equity stake subject to dilution by further funding of Certainty’s activities by the Company. Due to such Company funding, Wistar’s equity stake in Certainty was 4.6% as of January 31, 2024.

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On November 20, 2017, we announced that Certainty, entered into ain collaboration agreement with the H. Lee Moffitt Cancer Center and Research Institute, Inc. (“Moffitt”) to advance toward, has begun human clinical testing of the CAR-T technology licensed by Certainty from Wistar aimed initially at treating ovarian cancer. Certainty intendsAfter receiving authorization from the FDA, we commenced enrollment of patients in a Phase 1 clinical trial and treated the first patient in August 2022. Further, in May 2023 and August 2023, we treated the second and third patients in the trial, respectively, at the same dose level as the first patient, and the treatment was well-tolerated by the patients. In February 2024, we treated the first patient in the second dose cohort, where the patient was administered a three-times higher dose of cells than the patients in the first cohort. The treatment appears to workhave been well-tolerated by the patient. This study is a dose-escalation trial with researcherstwo arms based on route of delivery—intraperitoneal or intravenous—to determine the maximum tolerated dose in patients with recurrent epithelial ovarian cancer and to assess persistence, expansion and efficacy of the modified T cells. The study is being conducted at Moffitt and will consist of 24 to complete studies necessary48 patients who have received at least two prior lines of chemotherapy. The study is estimated to submit an Investigational New Drug (“IND”) application withbe completed in two to four years depending on multiple factors including when maximum tolerated dose is reached, the U.S. Food and Drug Administration (“FDA”).

On January 29, 2018, we announced the results of a study augmenting data from our preliminary study released in December 2016. The majorityrate of patient samples collected for this study were from breast cancerenrollment, and prostate cancer patients, but several other types were also included. Withhow long we maintain the additional cancers included in this study, we have now demonstrated our technology with 20 types of cancer from solid tumors. In addition to the 15 cancer types noted above, we have evaluated bladder, cervical, head and neck, gastric and testicular cancers.two different delivery methods.

Over the next several quarters, we expect Cchek™the development of our vaccines and Certainty’s ovarian cancer treatmenttherapeutics to be the primary focus of the Company. As part of our legacy operations, the Company remains engaged in limited patent licensing activities in the area of encrypted audio/video conference calling.its various patent portfolios. We do not expect these activities to be a significant part of the Company’s ongoing operations nor do we expect these activities to require material financial resources or attention of senior management.

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

Funding and Management’s Plans

During the three months ended January 31, 2018, cash used in operating activities was approximately $1,340,000.  Net cash provided by investing activities was approximately $847,000, which reflects the purchase of certificates of deposit totaling $1,250,000, offset by proceeds from the sale or maturity of certificates of deposit totaling $2,100,000 and the purchase of property and equipment of approximately $3,000.  As a result, our cash, cash equivalents and short-term investments at January 31, 2018 decreased by approximately $1,342,000 to approximately $5,497,000 from approximately $6,839,000 at the end of fiscal year 2017.

Based on currently available information as of March 8, 2018,12, 2024, we believe that our existing cash, cash equivalents, short-term investments and expected cash flows will be sufficient to fund our activities for at least the next 12twelve 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 complimentarycomplementary to our technologies, we may be required to obtain more working capital. During the three months ended January 31, 2024, we raised approximately $2,196,000, net of expenses, through an at-the-market equity offering of 555,820 shares of common stock, under which offering we may issue up to $100 million 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 January 31, 2024, we may sell an additional approximately $98 million of common stock. We may seek to obtain working capital during our fiscal year ending 20182024 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 couldwill result in dilution to our shareholders.  Additionally, the sale of equity securities or issuance of debt securities may be subject to certain security holder approvals or may result in the downward adjustment of the exercise or conversion price of our outstanding securities.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.

2. SIGNIFICANT ACCOUNTING POLICIES

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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 fiscal year ended October 31, 2017.2023. The accompanying October 31, 20172023 condensed consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“US GAAP”).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 January 31, 2018,2024, and results of operations and cash flows for the interim periods represented. The results of operations for the three months ended January 31, 20182024 are not necessarily indicative of the results to be expected for the entire year.

Noncontrolling Interest

Noncontrolling interest represents Wistar’s equity ownership in Certainty and is presented as a component of equity. The following table sets forth the changes in noncontrolling interest for the three months ended January 31, 2018:2024 (in thousands):

SCHEDULE OF CHANGES IN NONCONTROLLING INTEREST

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Revenue Recognition

Our revenue has been derived solely from technology licensing and the sale of patented technologies. Revenue is recognized when (i) persuasive evidenceupon transfer of control of intellectual property rights and satisfaction of other contractual performance obligations to licensees in an arrangement exists, (ii) allamount 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 have been substantially performed pursuant to transfer goods and services, identifying the termsperformance obligations in the contract, determining the transaction price and allocating the transaction price to separate performance obligations, estimating the timing of the arrangement, (iii) amounts are fixedsatisfaction of performance obligations, determining whether a promise to grant a license is distinct from other promised goods or determinable,services and (iv) the collectability of amounts is reasonably assured.evaluating whether a license transfers to a customer at a point in time or over time.

Patent Licensing Revenue

In certain instances, our pastOur revenue arrangements have providedprovide 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 hadhave no further obligations.   As such,obligations with respect to the earnings process was complete and revenue has been recognizedgranted 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 the execution of the agreement, when collectability was reasonably assured,agreement. Accordingly, the performance obligations from these arrangements are satisfied and when all other revenue recognition criteria were met.100% of the revenues are recognized upon execution of the agreements.

Intangible AssetsCost of Revenues

Our only identifiable intangible assets are patents and patent rights.  We capitalize patent and patent rights acquisitionCost of revenues include the costs and amortizeexpenses 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 consist primarily of employee compensation, payments to third parties for research and development activities and other direct costs associated with developing our therapeutics and vaccines. We recognize research and development expenses as incurred. Advance payments for future research and development activities are deferred and expensed as the services are performed. We recognize our preclinical studies and clinical trial expenses based on the services performed pursuant to contracts with research institutions, clinical research organizations (“CROs”), clinical manufacturing organizations (“CMOs”), and other parties that conduct and manage various stages of research and development activities on our behalf. Fees for such services are recognized based on management’s estimates after considering the activities and tasks completed by each service provider in a given period, the time period over which services are expected to be performed, and the level of effort expended in each reporting period.

Investment Policy

The Company’s investment policy is to acquire debt securities with fixed maturities and contractual cash flows that the Company has the positive intent and ability to hold to maturity. These securities are recorded at amortized cost, over the estimated economic useful life.  We did not capitalizenet of any patent acquisition costs during the three months ended January 31, 2018applicable discount which is amortized to interest income, and 2017.  We recorded patent amortization expense of approximately $81,000 during each of the three-month periods ended January 31, 2018 and 2017, respectively.are accounted for as held-to-maturity securities.

2.         3. STOCK BASED COMPENSATION

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

Stock Option Compensation Expense

TheWe account for stock options granted to employees, directors and consultants using the accounting guidance in ASC 718, Stock Compensation (“ASC 718”). We estimate the fair value of service-based stock options on the date of grant, using the Black-Scholes pricing model, and recognize compensation cost forexpense over the requisite service basedperiod of the grant. We recorded stock-based compensation expense related to service-based stock options granted to employees and directors of approximately $1,108,000 and $957,000 during the three months ended January 31, 2024 and 2023.

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 recognized as an expenseexpensed on a straight-line basis over the requisite service period (the vesting period of the stock option) which is one to tenthree years. We recorded stock-based compensation expense related to stock options granted to employees and directors of approximately $214,000 and $260,000 during the three months ended January 31, 2018 and 2017, respectively.

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For service based stock options granted to consultants we estimate the fair value of the stock options and recognize expense at each reporting period using the Black-Scholes pricing model.  We recorded stock-based compensationconsulting expense related to stock options granted to consultants of approximately $53,000$56,000 and $-0-$81,000 during the three months ended January 31, 20182024 and 2017,2023, respectively.

Stock Option ActivityPlans

During the three months ended January 31, 2024, 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 2017,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 January 31, 2024 and 2023, we granted options to purchase 50,0001,335,000 shares and 106,0001,505,000 shares of common stock, respectively, to employees directors and consultants, at weighted averagewith exercise prices of $2.30 and $5.00ranging from $4.19 to $4.81 per share, respectively, pursuant to the ITUS Corporation 20102018 Share Incentive Plan (the "2010 Share Plan”).Plan. During the three months ended January 31, 20182024 and 2017,2023, stock options to purchase 28,60024,000 and 2,2001,261 shares of common stock, respectively, were exercised on a cash basis, with aggregate proceeds of approximately $-0-$67,000 and $6,000,$3,000, respectively. Under certain circumstances,During the three months ended January 31, 2023, stock options may beto purchase 1,111 shares of common stock, of which 808 shares were withheld, were exercised on a cashless basis. During the three months ended January 31, 2018 and 2017, 5,515 and -0- shares of common2024, no stock respectively,options were withheld in connection withexercised on a cashless exercises of stock options.basis.

Stock Option Plans

As of January 31, 2018, we have two stock option plans:  the ITUS Corporation 2003 Share Incentive Plan (the "2003 Share Plan") and the 2010 Share Plan which were adopted by our Board of Directors on April 21, 2003 and July 14,

The 2010 respectively. 

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 20032010 Share Plan, the plan terminated with respect to the ability to grant future optionsawards on April 21, 2013.July 14, 2020. Information regarding the 20032010 Share Plan for the three months ended January 31, 20182024 is as follows:

SCHEDULE OF OPTION ACTIVITY

The following table summarizes information about stock options outstanding and exercisable under the 20032010 Share Plan as of January 31, 2018:2024:

SCHEDULE OF OUTSTANDING AND EXERCISABLE

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The 20102018 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 January 31, 2018,2024, the 20102018 Share Plan had 802,450883,906 shares available for future grants. Information regarding the 20102018 Share Plan for the three months ended January 31, 20182024 is as follows:

SCHEDULE OF OPTION ACTIVITY

The following table summarizes information about stock options outstanding and exercisable under the 20102018 Share Plan as of January 31, 2018:2024:

SCHEDULE OF OUTSTANDING AND EXERCISABLE

In additionEmployee Stock Purchase Plan

The Company maintains the Anixa Biosciences, Inc. Employee Stock Purchase Plan (the “ESPP”) which permits eligible employees to options granted underpurchase shares at not less than 85% of the 2003 Share Plan andmarket value of the 2010 Share Plan,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 grantthree months ended January 31, 2024 and 2023, no shares were purchased under the ESPP.

Warrants

As of stock optionsJanuary 31, 2024, we had warrants outstanding to purchase 1,780,000 shares.  300,000 shares of common stock at $6.56 per share, issued during fiscal year 2021 and expiring on March 22, 2026.

Information regarding stock options outstanding that were not granted under the 2003 Plan or the 2010 PlanCompany’s warrants for the three months ended January 31, 20182024 is as follows:

SCHEDULE OF WARRANTS ACTIVITY

The following table summarizes information about stock optionsthe Company’s outstanding and exercisable that were not granted under the 2003 Share Plan or the 2010 Share Planwarrants as of January 31, 2018:2024:

SCHEDULE OF OUTSTANDING AND EXERCISABLE

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Stock Awards

We account for stock awards granted to employees, directors and consultants based on the grant date market price of the underlying common stock.  During the three months ended January 31, 2018 and 2017, we issued 5,347 shares and 3,463 shares, respectively, of common stock to consultants for services rendered.  We recorded consulting expense for the three months ended January 31, 2018 and 2017 of approximately $15,000 and $18,000, respectively, for the shares of common stock issued to consultants. 

3.         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 liabilitiesinstruments 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 liabilitiesinstruments 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 liabilitiesinstruments 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.instrument.

The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of January 31, 2018:2024 (in thousands):

SCHEDULE OF FAIR VALUE MEASUREMENTS

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The following table presents the hierarchy for our financial assets measured at fair value on a recurring basis as of October 31, 2017:2023 (in thousands):

Our non-financial assets that are measured on a non-recurring basis include our patents andare property and equipment and other assets which are measured using fair value techniques whenever events or changes in circumstances indicate a condition of impairment exists. The estimated fair value of prepaid expenses and other current assets, accounts payable and accrued expenses approximates their individual carrying amounts due to the short-term nature of these measurements. Cash and cash equivalents are stated at carrying value which approximates fair value.

4.         SHORT-TERM INVESTMENTS

At January 31, 2018 and October 31, 2017, we had certificates of deposit of $2,650,000 and $3,500,000, respectively, which were classified as short-term investments and reported at fair value. 

5. ACCRUED EXPENSES

Accrued expenseexpenses consist of the following as of:

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6. PREFERRED STOCK REDEMPTION

On November 11, 2016, the holder of all our outstanding Series A Preferred Stock (the “Series A Preferred”) with an aggregate stated value of $3,500,000 exercised its right of redemption to receive such amount from proceeds from the sale of the Company’s equity securities.  On December 6, 2016, we entered into an agreement with the holder of the Series A Preferred setting forth the terms under which such redemption would take place (the “Series A Redemption Terms”).  Pursuant to the Series A Redemption Terms, on December 9, 2016 the holder of the Series A Preferred received (i) $500,000 in cash, (ii) a 12% secured debenture evidencing the remaining $3,000,000 amount to be redeemed, $1,000,000 of which was due on or before June 1, 2017 and the remainder of which was due November 11, 2017 (the “Redemption Debenture”), and (iii) a 5 year warrant to purchase 500,000 shares of the Company’s common stock at an exercise price equal to 10% below the thirty (30) day volume weighted average closing price of our common stock at closing (the “Redemption Warrant”). The Redemption Debenture was secured by a lien on the Company’s assets and prohibited the Company from incurring any senior indebtedness other than equipment financing in connection with the Company’s business.  The Redemption Debenture was paid in full during fiscal year 2017. 

The difference between the fair value of the consideration given to the holder of our Series A Preferred and the carrying value of the Series A Preferred represents a return to the preferred shareholder which is treated in a similar manner as that of dividends paid on preferred stock.  In the redemption, the Series A Preferred holder received $500,000 in cash, the Redemption Debenture with a present value of approximately $2,999,000 and the Redemption Warrant with a fair value of approximately $2,801,000, determined using the Black Scholes pricing model, and waived the Series A Preferred’s conversion right with an intrinsic value of approximately $792,000, resulting in total consideration given to the Series A Preferred holder of approximately $5,508,000.  The difference between the fair value of the consideration and the $3,500,000 carrying value of the Series A Preferred resulted in a deemed dividend to the Series A Preferred holder of approximately $2,008,000.

7.         NET INCOME (LOSS)LOSS PER SHARE OF COMMON STOCK

Basic net income (loss)loss per common share (“Basic EPS”) is computed by dividing net income (loss)loss by the weighted average number of common shares outstanding. Diluted net income (loss)loss per common share (“Diluted EPS”) is computed by dividing net income (loss)loss by the weighted average number of common shares and dilutive common share equivalents and convertible securities then outstanding. The treasury stock method reduces the dilutive effect of potentially dilutive securities as it assumes that any cash proceeds (from the issuance of potentially dilutive securities) are used to buy back shares at the average share price during the period.

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 three months ended January 31, 20182024 and 2017,2023, were stock options to purchase 3,458,84612,497,094 and 3,162,27211,821,500 shares, respectively, and warrants to purchase 829,400300,000 and 837,405300,000 shares, respectively.

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8.         7. EFFECT OF RECENTLY ADOPTED AND ISSUED PRONOUNCEMENTS

In May 2014,October 2021, the Financial Accounting Standards Board ("FASB")FASB issued Accounting Standards Update 2014-09 (“ASU 2014-09”),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. This amendment updates addressingAt the acquisition date, an acquirer should account for the related revenue from contracts in accordance with customers, which clarifies existing accounting literature relating to howTopic 606 as if it had originated the contracts. The amendments in this update should be applied prospectively and when a company recognizes revenue. Under the standard, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services.  This standard update isare effective for interim and annual reporting periodsfiscal years beginning after December 15, 2016, and were to be applied retrospectively or the cumulative effect as of the date of adoption, with early application not permitted.  In July 2015, a one-year deferral of the effective date of the new guidance was approved.  We do not expect the2022, including interim periods within those fiscal years. The adoption of ASU 2014-09 tothis standard did not have a material impact on our consolidated financial statements and related disclosures.