1.         BUSINESS AND FUNDING

Description of Business     

As used herein, “we,” “us,” “our,” the “Company” or “ITUS” means ITUS Corporation and its wholly-owned subsidiaries.  From inception through October 2012, our primary operations involved the development of patented technologies in the areas of thin-film displays and encryption.  Commencing in October 2012 the primary operations of the Company involved the development, acquisition, licensing, and enforcement of patented technologies that were either owned or controlled by the Company.

In June of 2015, the Company announced the formation of a new subsidiary, Anixa Diagnostics Corporation (“Anixa”), to develop a platform for non-invasive blood tests for the early detection of cancer.  That platform is called Cchek™.  In July of 2015, ITUS announced a collaborative research agreement with The Wistar Institute (“Wistar”), the nation’s first independent biomedical research institute and a leading National Cancer Institute 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 Cchek™ 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).  We plan to initially focus 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. 

On November 20, 2017, we announced that Certainty entered into a collaboration agreement with the H. Lee Moffitt Cancer Center and Research Institute, Inc. (“Moffitt”) to advance toward human clinical testing the CAR-T technology licensed by Certainty from Wistar aimed initially at treating ovarian cancer.  Certainty intends to work with researchers at Moffitt to complete studies necessary to submit an Investigational New Drug application with the U.S. Food and Drug Administration.

Over the next several quarters, we expect Cchek™ and Certainty’s ovarian cancer treatment 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.  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, our revenue was derived from technology licensing and the sale of patented technologies, including revenue from the settlement of litigation.  In addition to Anixa and Certainty, the Company may make investments in and form new companies to develop additional emerging technologies.

Funding

As of the date of filing of our last annual report on Form 10-K, there was substantial doubt about our ability to continue as a going concern due to the limited amount of cash, cash equivalents and short-term investments we held as compared to our projected cash needs for the ensuing 12 months. We evaluated our cash position and future plans for the Company and embarked on a plan to ensure we had sufficient resources to execute our plans.  Accordingly, over the past twelve months, we raised nearly $12 million through multiple financing arrangements, including a shareholder rights offering, a registered direct offering, and an at-the-market equity offering, and satisfied debt obligations through payments of cash and common stock. With no significant debt and approximately $6.8 million in cash, cash equivalents and short-term investments as of October 31, 2017, we believe that we have alleviated substantial doubt about our ability to continue as a going concern. 

Based on currently available information as of January 9, 2018, we believe that our existing cash, cash equivalents, short-term investments and expected cash flows will be sufficient to fund our activities for the next 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 are insufficient to continue to operate our business, or if we elect to invest in or acquire a company or companies that are synergistic with or complimentary to our technologies, we may be required to obtain more working capital.  We may seek to obtain working capital during our fiscal year ended 2018 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 could result in dilution to our stockholders.  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.  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 year ended October 31, 2017, cash used in operating activities was approximately $3,797,000.  Cash used in investing activities was approximately $2,735,000, resulting from the purchase of certificates of deposit totaling $5,501,000 which was offset by the proceeds on maturities of certificates of deposit totaling $2,751,000 and the sale of property and equipment of $45,000 offset by the purchase of property and equipment of approximately $30,000.  Cash provided by financing activities was approximately $7,383,000, resulting from the sale of common stock in a shareholder rights offering, an at-the-market offering and a registered direct offering of approximately $4,203,000, $3,461,000 and $3,212,000, respectively, and the proceeds from exercise of stock options of approximately $7,000, offset by payments made on a secured debenture of $3,000,000 and redemption of convertible preferred stock of $500,000.  As a result, our cash, cash equivalents, and short-term investments at October 31, 2017 increased approximately $3,601,000 to approximately $6,839,000 from approximately $3,238,000 at the end of fiscal year 2016.