UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 | ||
FORM 10-K | ||
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 31, 2015 | ||
or | ||
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ | ||
Commission file number: 0-11254 | ||
ITUS CORPORATION | ||
(Exact Name of Registrant as Specified in its Charter) | ||
Delaware | 11-2622630 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
12100 Wilshire Boulevard, Suite 1275 Los Angeles, CA 90025 (310) 484-5200 | ||
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant ' s Principal Executive Offices) | ||
Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.01 par value | ||
Securities registered pursuant to Section 12(g) of the Act: None | ||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [_] No [x] | ||
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [_] No [x] | ||
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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [x] No [_] | ||
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant ' s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] | ||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of " large accelerated filer, " " accelerated filer " and " smaller reporting company " in Rule 12b-2 of the Exchange Act.
Large accelerated filer [__] Accelerated filer [__]
Non-accelerated filer [__] (Do not check if a smaller reporting company) Smaller reporting company [x] | ||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [_] No [x] | ||
Aggregate market value of the voting stock (which consists solely of shares of common stock) held by non-affiliates of the registrant as of April 30, 2015 (the last business day of the registrant ' s most recently completed second fiscal quarter), computed by reference to the closing sale price of the registrant ' s common stock on the OTCQB on such date ($3.00 ): $23,589,150 | ||
On December 17, 2015, the registrant had outstanding 8,724,878 shares of common stock, par value $.01 per share, which is the registrant ' s only class of common stock. | ||
DOCUMENTS INCORPORATED BY REFERENCE: NONE | ||
TABLE OF CONTENTS
Page | ||||||
PART I |
| |||||
| ||||||
Item 1. | Business | 2 | ||||
Item 1A. | Risk Factors | 6 | ||||
Item 1B. | Unresolved Staff Comments | 18 | ||||
Item 2. | Properties. | 18 | ||||
Item 3. | Legal Proceedings | 18 | ||||
Item 4. | Mine Safety Disclosures | 18 | ||||
PART II | ||||||
Item 5. | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 18 | ||||
Item 6. | Selected Financial Data | 19 | ||||
Item 7. | Management ' s Discussion and Analysis of Financial Condition and Results of Operations. | 20 | ||||
Item 7A. | Quantitative and Qualitative Disclosures about Market Risk | 27 | ||||
Item 8. | Financial Statements and Supplementary Data | 27 | ||||
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 27 | ||||
Item 9A. | Controls and Procedures | 27 | ||||
Item 9B. | Other Information | 28 | ||||
PART III | ||||||
Item 10. | Directors, Executive Officers and Corporate Governance | 28 | ||||
Item 11. | Executive Compensation | 34 | ||||
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. | 42 | ||||
Item 13. | Certain Relationships and Related Transactions, and Director Independence | 46 | ||||
Item 14. | Principal Accounting Fees and Services | 47 | ||||
PART IV | ||||||
Item 15. | Exhibits, Financial Statement Schedules | 48 | ||||
1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
Information included in this Annual Report on Form 10-K (this " Report " ) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the " Securities Act " ), 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 this Report under " Item 1A. – Risk Factors " below. 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.
CERTAIN TERMS USED IN THIS REPORT
References in this Report to " we, " " us, " " our, " the " Company " or " ITUS " means ITUS Corporation unless otherwise indicated.
PART I
Item 1. Business.
Overview
We were incorporated on November 5, 1982 under the laws of the State of Delaware. From inception through October 2012, our primary operations involved the development of patented technologies in the areas of thin-film displays and encryption. In October of 2012 under the leadership of a new management team, the Company undertook a transformation process to recapitalize the Company, unencumber the Company ' s assets, seek reparations from a previous joint development partner, change the Company ' s name and ticker symbol, relocate the Company ' s headquarters and modernize its systems, and monetize patented technologies developed by the Company, or acquired from third parties. In July of 2015, the Company ' s stock was accepted for listing and began trading on the NASDAQ Capital Market.
2
research institute and a leading National Cancer Institute designated cancer research center, for the purpose of validating Anixa ' s cancer detection methodologies and establishing protocols for identifying certain biomarkers in the blood stream identified by Anixa and associated with solid tumors. In October of 2015, Anixa and Wistar announced very favorable results from initial testing of a small group of breast cancer patients and healthy controls. One hundred percent (100%) of the blood samples tested from breast cancer patients showed the presence of the biomarkers identified by Anixa, and none of the healthy patient blood samples contained the biomarkers. A more extensive clinical study is currently being conducted.
Based upon and following the results of the more extensive clinical study, Anixa will determine what further studies are necessary and whether and when to begin the process of seeking regulatory approval for a cancer screening test or tests utilizing Anixa ' s technology. One manner of seeking regulatory approval is to have a lab certified to run the Anixa cancer screening tests pursuant to the Clinical Laboratory Improvement Act of 1988 ( " CLIA " ). Among other things, CLIA requires clinical laboratories that perform diagnostic testing to be certified by the state in which the lab is located, as well as the Center for Medicare and Medicaid Services. If Anixa seeks regulatory approval pursuant to CLIA, only those laboratories that are certified under CLIA to run the Anixa diagnostic test would be able to process test samples. CLIA certification may or may not require additional studies. Anixa could seek to establish its own CLIA certified laboratory to run the diagnostic tests, or Anixa could potentially contract with an existing CLIA certified lab, and seek to have that laboratory certified to run the Anixa diagnostic test.
Another manner of obtaining regulatory approval would be to seek to have an Anixa diagnostic test or tests approved by The Food and Drug Administration ( " FDA " ) pursuant to what are commonly referred to as either the 510(K) process, or the Premarket Application ( " PMA " ) process. The appropriate pathway for FDA approval would depend upon a variety of factors, including the intended use of the test, and the risks associated with such use. FDA approval can take several years and would entail additional clinical studies.
The decision of whether and when to seek CLIA certification or FDA approval of a diagnostic test or tests utilizing Anixa ' s technology will be dependent on a variety of factors, including the results from Anixa ' s more extensive clinical study, the capital requirements of each approval process, the landscape for competitive diagnostic testing, and the time and resources required by each approval process. It is possible that Anixa may seek to have one or more diagnostic tests approved via CLIA certification, and other diagnostic test or tests approved by the FDA, or that Anixa may seek simultaneous approval of a particular diagnostic test or tests.
Over the next several quarters, we expect Anixa to be the primary focus of the Company. As part of our legacy operations, the Company has outsourced a small development project in connection with one of the Company ' s thin-film display technologies, and through certain of its subsidiary companies, the Company remains engaged in limited patent licensing activities in the areas of encryption and advanced materials. We do not expect these activities to be a significant part of the Company ' s ongoing operations.
Over the past several quarters, our revenue has been derived from technology licensing and the sale of patented technologies, including in connection with the settlement of litigation. In
3
addition to Anixa, the Company expects to make investments in and form new companies to develop additional emerging technologies.
AU Optronics Lawsuit and Settlement
On December 29, 2014, the Company and AU Optronics Corporation ( " AUO " ) entered into a Settlement Agreement, and a Patent Assignment Agreement, resolving a lawsuit filed by the Company against AUO in connection with the joint development and commercialization of two of the Company ' s thin-film display technologies. The Company received an aggregate of $9,000,000 from AUO, and transferred certain patents to AUO as part of the settlement.
Competition
Background
Continuing scientific advances and discoveries, the ability to more quickly process and analyze large amounts of scientific data, and decreases in the cost of sophisticated equipment and technologies, have resulted in the potential for significant advances in cancer treatment, and in particular, cancer diagnostics. Cancer statistics gathered over the past several decades provide overwhelming evidence that the earlier that cancers are detected, the greater the survival rates. Up until now, doctors have primarily relied upon technologies such as imaging (x-rays, CT Scans, MRI ' s, PET Scans, Ultrasounds) and biopsies and other invasive procedures for cancer detection and cancer diagnoses. In many cases, these diagnostic procedures were performed after patients exhibited one or more symptoms of cancer, at which point the cancer may likely no longer be at an early stage. Existing diagnostic technologies such as imaging have gotten better, and invasive diagnostic procedures such as colonoscopies have become more accurate and less risky, and we expect these types of traditional diagnostic tools to continue to predominate the cancer diagnostic market for the foreseeable future.
However, we believe that with advancing medical knowledge, improvements in equipment and technologies, and reduction in costs of new technologies, our industry will create new types of cancer diagnostic testing that will outperform many of the traditional diagnostic tests, eliminate many of the negative consequences of existing diagnostic testing, and ultimately predominate the cancer diagnostic market.
Anixa has identified a class of biomarkers that it believes are present in the blood of patients with tumor based cancers, and is perfecting a process and methodology for detecting those biomarkers. The goal is to create a platform that can be used to launch a series of simple and affordable blood tests that can be used to detect and monitor many of the most deadly forms of cancer, including lung cancer, breast cancer, ovarian cancer, colon cancer, pancreatic cancer, and others. It is unlikely that the Company will initially simultaneously launch tests for each of the cancers identified above, and that specific and individual cancer tests for both the cancer screening and cancer monitoring markets will be launched over time.
Statistics from The American Cancer Society indicate that one out of every two males, and one out of every three females, will develop some form of cancer during their lifetimes. With approximately 200 million adults in the United States alone, we believe that the market for new,
4
non-invasive cancer diagnostic technologies and testing will be enormous, and that there will be sufficient demand to support many different technologies and tests.
Cancer Diagnostic Technologies
If successful, we believe Anixa ' s cancer diagnostic testing will have several advantages over existing diagnostic technologies. For example, repeated exposure to radiation from x-ray technologies, such as mammograms, has become an increasing concern for the medical community, causing authorities to re-evaluate the recommended frequency of such x-ray based tests. Traditional biopsies are often impossible for some tumor based cancers depending on the location of the tumor, and are invasive, expensive, and painful enough to warrant only limited use for other tumor based cancers even when the tumor can be accessed. In addition, such biopsies are limited in their inability to detect the heterogeneity of many cancerous tumors, and the ongoing mutations that are often evident as the tumor progresses. False positives in existing testing such as the PSA test, result in otherwise healthy patients being misdiagnosed, and subject to unnecessary follow-on treatments and medical procedures. Patient inconvenience, risk of side effects from anesthesia, and risk of other complications result in low patient compliance with otherwise effective cancer screening tests such as the colonoscopy. These are just a few examples of the challenges with traditional tests that Anixa ' s technology seeks to eliminate. Such will be the foundation for the competitive advantages that Anixa ' s expects to have over existing diagnostic testing.
Many public and private companies have announced plans and ongoing research efforts to launch non-invasive cancer diagnostic tests, and tools that can be used for non-invasive cancer testing. These companies include well established, and successful biotech companies, start-ups, and companies of all sizes. Almost every bodily fluid, including blood, plasma, urine, saliva, and excrement, are being studied for biomarkers or indicators of one or more types of cancer. The term that has been used to describe the category of this type of non-invasive cancer diagnostic testing is " Liquid Biopsy " . In general, most of these companies are focused on identifying and analyzing one of three types of biomarkers: circulating tumor cells ( " CTC ' s " ), circulating tumor DNA ( " ctDNA " ), and Exosomes. Each of these types of biomarkers has their advantages and disadvantages, and we expect that tests incorporating these and other biomarkers will make their way into the cancer diagnostic marketplace.
Anixa believes that its diagnostic platform has the potential for at least three distinct advantages over the types of biomarker tests referred to above. First, it appears that the biomarkers that Anixa is using may be present in multiple types of tumor based cancers. As a result, our technology could become the basis of a diagnostic platform from which multiple tests could be launched for multiple types of solid tumor based cancers. Most biomarkers are associated with and useful for only one type or sub-type of cancer. Second, it appears that the biomarkers that Anixa is using may be present in both advanced, and early stages of cancers. Third, Anixa ' s potential methodology for detecting the biomarkers that Anixa is using is significantly less expensive than the technologies commonly used for tests based on CTC ' s, ctDNA, and Exosomes.
Employees
As of October 31, 2015, on a consolidated basis, we had six full-time employees.
5
Other
We were incorporated on November 5, 1982 under the laws of the State of Delaware. From inception through the end of October 2012, our primary operations involved the development of patented technologies in the areas of thin-film displays and encryption. Our current business model includes investing in and forming new companies to develop emerging technologies, including our Anixa Diagnostics Corporation, our cancer diagnostics subsidiary.
Our principal executive offices are located at 12100 Wilshire Boulevard, Suite 1275, Los Angeles, California 90025, our telephone number is 310-484-5200 and our Internet website address is www.ITUScorp.com. We make available free of charge on or through our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements on Schedule 14A, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the Securities and Exchange Commission (the " SEC " ). Alternatively, you may also access our reports at the SEC ' s website at www.sec.gov. You may also read and copy any document we file with the SEC at the SEC ' s public reference room located at 100 F Street, NE, Washington, DC 20549, on official business days during the hours of 10:00 a.m. and 3:00 p.m. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room.
Item 1A.
Risk Factors.
Our business involves a high degree of risk and uncertainty, including the following risks and uncertainties:
Risks Related to Our Financial Condition and Operations
We have a history of losses and may incur additional losses in the future .
On a cumulative basis we have sustained substantial losses and negative cash flows from operations since our inception. As of October 31, 2015, our accumulated deficit was approximately $146,149,000. As of October 31, 2015, we had approximately $6,769,000 in cash and cash equivalents and short-term investments, and working capital of approximately $6,302,000. We incurred losses of approximately $1,379,000 in fiscal year 2015. We expect to incur material research and development expenses and to continue incurring significant legal and general and administrative expenses in connection with our operations. As a result, we anticipate that we will incur losses in the future.
We may need additional funding in the future which may not be available on acceptable terms, or at all, and, if available, may result in dilution to our stockholders.
Based on currently available information as of December 21, 2015, we believe that our existing cash, cash equivalents, short-term investments and expected cash flows will be sufficient to enable us to continue our business activities for at least 12 months. 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
6