Business context and reporting period
This is ITUS Corporation’s unaudited Form 10-Q for the three months ended January 31, 2016, filed February 19, 2016. Although the request identifies Anixa Biosciences Inc., the filing entity is ITUS Corporation; Anixa Diagnostics Corporation was a subsidiary focused on developing non-invasive blood tests for early cancer detection. Management expected Anixa to be the company’s primary focus in coming quarters. ITUS also retained limited patent-licensing activities.
Financial performance and position
| Metric | Q1 FY2016 | Q1 FY2015 |
|---|---|---|
| Revenue | $0 | $9.135 million |
| Operating costs and expenses | $1.472 million | $5.278 million |
| Operating income (loss) | $(1.472) million | $3.857 million |
| Net income (loss) | $(1.593) million | $3.752 million |
| Basic and diluted EPS | $(0.18) | $0.43 basic; $0.41 diluted |
| Cash used in operating activities | $0.532 million | Cash provided of $4.653 million |
- Cash and cash equivalents were $3.981 million at January 31, 2016; short-term certificates of deposit were $2.150 million. Combined, these totaled $6.131 million, down about $0.638 million from fiscal year-end.
- Total assets were $8.647 million and total liabilities were $5.056 million. Shareholders’ equity was $3.591 million.
- Current assets were $6.187 million and current liabilities were $1.244 million. The filing reports no conventional borrowings; the principal obligation was a $3.812 million patent-acquisition obligation, due no later than November 2017 and payable at the company’s option in cash or common stock. Interest expense of $124,000 was accretion on this obligation.
- Patent amortization was $81,000. The filing does not present a revenue-based operating margin for the current quarter because revenue was zero.
Material changes versus the prior comparable period
- Revenue fell to zero from $9.135 million, reflecting the absence of the prior-year $9.0 million AU Optronics settlement and $135,000 licensing revenue.
- The company moved from prior-year net income of $3.752 million to a $1.593 million net loss. The prior-year period included the settlement revenue and approximately $3.335 million of litigation and licensing expense, primarily related to the AUO settlement.
- Marketing, general and administrative expense declined about $442,000 to $1.331 million, principally due to lower employee stock-option expense; higher outside research and development expense partly offset the decrease.
- Operating cash flow shifted from $4.653 million provided to $532,000 used. Cash and short-term investments declined from approximately $6.769 million at October 31, 2015 to $6.131 million at January 31, 2016.
Outlook, risks, contingencies and unusual items
- Management stated that available cash, short-term investments and expected cash flows were expected to fund business activities for at least 12 months, based on information available February 19, 2016. It cautioned that projections may differ from actual results and that additional equity or debt financing might be needed; financing may be unavailable or dilutive. Failure to obtain funding or reduce expenses could require curtailing or ceasing operations.
- Anixa and The Wistar Institute were conducting a more extensive study following favorable initial testing of a small group of breast cancer patients and healthy controls. The initial results are not presented as conclusive evidence of clinical performance.
- On February 18, 2016, after the quarter ended, the Compensation Committee approved one-time cash bonuses of $200,000 each for Robert A. Berman and Dr. Amit Kumar.
- On February 17, 2016, the Federal Circuit affirmed an adverse patent-claim construction ruling in the company subsidiary’s Microsoft litigation. The filing said the lawsuit was not significant to ongoing operations and had no impact on the financial statements.
- The thin-film display development project was discontinued in February 2016. The filing reported no material changes to previously disclosed risk factors and no material pending legal proceedings beyond ordinary-course matters and patent enforcement suits.
Important facts for investors to verify
- Confirm the issuer and corporate history: this 2016 report is filed by ITUS Corporation, with Anixa Diagnostics described as its subsidiary.
- Track cash burn and financing needs against management’s stated 12-month liquidity expectation, including the cash-versus-stock settlement option for the patent obligation.
- Assess the progress, study size and validation of Anixa’s cancer-detection research; the initial results involved a small sample.
- Review subsequent filings for the effect of the post-quarter $400,000 in discretionary bonuses and developments following the Microsoft appeal ruling.
- Consider that the prior-year comparison included a one-time $9.0 million settlement, making reported year-over-year earnings and cash-flow comparisons unusually affected by nonrecurring items.