Business context and reporting period
This is ITUS Corporation’s Form 10-Q for the three months ended January 31, 2017, compared with the three months ended January 31, 2016. The filing is under ITUS Corporation, not Anixa Biosciences Inc.; Anixa Diagnostics Corporation was an ITUS subsidiary developing the Cchek cancer-detection platform. ITUS said Cchek was expected to be its primary focus, while legacy patent-licensing activity was not expected to be significant.
Financial performance and position
| Metric | Q1 FY2017 | Q1 FY2016 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Operating costs and expenses | $1.395 million | $1.472 million |
| Operating loss | $1.395 million | $1.472 million |
| Interest expense | $195,299 | $123,901 |
| Net loss | $1.589 million | $1.593 million |
| Deemed dividend to preferred stockholder | $2.009 million | None |
| Net loss attributable to common stockholders | $3.598 million | $1.593 million |
| Basic and diluted loss per share | $0.41 | $0.18 |
| Cash used in operating activities | $729,913 | $532,381 |
There was no revenue, so a revenue margin is not meaningful. Research and development expense was $451,630 versus $458,051; marketing, general and administrative expense was $859,885 versus $873,423. Litigation and licensing expense fell to $2,121 from $59,641. Higher interest expense primarily reflected $54,000 accrued on the new secured debenture; the remainder mainly represented accretion on patent-acquisition obligations.
At January 31, 2017, cash and cash equivalents were $1.400 million and short-term certificates of deposit were $600,000, totaling $2.000 million in reported cash and short-term investments. Current assets were $2.069 million and current liabilities were $3.724 million (an approximate 0.56 current ratio). Total liabilities were $8.037 million, including a $3.000 million current secured debenture and a $4.313 million patent-acquisition obligation. Shareholders’ equity was negative $3.819 million. Cash, cash equivalents and short-term investments declined about $1.238 million from fiscal year-end 2016.
Material changes, outlook and risks
- ITUS redeemed its $3.5 million Series A preferred stock for $500,000 cash, a $3.0 million secured debenture bearing 12% interest, and a five-year warrant for 500,000 shares. The debenture is secured by company assets; $1.0 million is due by June 1, 2017 and the balance by November 11, 2017. The transaction generated a $2.009 million deemed dividend, which increased the loss attributable to common stockholders but was not an operating expense.
- The company stated that available cash, investments and expected operating cash flows might not be sufficient to fund activities and debt obligations for the next 12 months. It announced a rights offering of up to $12 million, with a subscription period scheduled for March 3–24, 2017, subject to extension. Additional financing was uncertain and could dilute shareholders or carry other adverse terms. The statements were prepared on a going-concern basis.
- Patent-acquisition obligations had a discounted present value of $4.313 million and were due no later than November 2017, subject to reduction by royalties. ITUS announced an intention to issue 947,606 common shares to Meetrix Communications in satisfaction of an obligation; the filing does not establish that the share issuance had been completed by the report date.
- Management reported preliminary Cchek study results of 92% sensitivity and 92% specificity across 88 samples (54 cancer-patient samples and 34 healthy-patient samples), and said the platform’s efficacy had been demonstrated for 15 cancer types. These are company-reported findings; the filing does not provide enough detail here to assess independent validation or commercial readiness.
- Management cited funding availability, dilution, operating-cost reductions and the ability to sustain operations as key risks. It reported no material change 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 whether the rights offering closed, how much it raised, and the resulting share count and dilution.
- Verify repayment or restructuring of the secured debenture, including the June and November 2017 maturities and any restrictions imposed by its lien.
- Confirm whether the announced 947,606-share settlement of the Meetrix patent obligation was completed and how it affected shares outstanding.
- Assess the Cchek study design, sample selection, independent replication, regulatory pathway and commercial prospects behind the reported performance and cancer-type claims.
- Track cash burn, liquidity and progress toward revenue; the quarter reported no revenue and management warned that funding could be insufficient for the next 12 months.