What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-09-14 compared with 2020-03-16 · 43 added, 47 removed, 64 unchanged (58% of the section changed)

14 unchanged sentences

You should not put undue reliance on any forward-looking statements.

We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws.

by applicable securities laws.

If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

Overview and Recent Developments

We are engaged in the development and sale of advanced technology solutions and products utilized in the development and use of oncology drugs.

Utilizing our TumorGraft Technology Platform (the "Platform"), a comprehensive Bank of unique, well chracterized PDX models, we provide select services to pharmaceutical and biotechnology companies seeking personalized approaches to drug development.

We are engaged in the development and sale of advanced technology solutions and products to personalize the development and use of oncology drugs.

Utilizing our TumorGraft Technology Platform (the "Platform"), a comprehensive Bank of unique, well characterized PDX models, we provide select services to pharmaceutical and biotechnology companies seeking personalized approaches to drug development.

By performing studies to predict the efficacy of oncology drugs, our Platform facilitates drug discovery with lower costs and increased speed of drug development as well as increased adoption of existing drugs.

Our Platform provides a novel approach to simulating the results of human clinical trials used in developing oncology drugs.

It can cost up to $100,000 per patient in oncology clinical trials and the typical cost for each phase of development per year increases from approximately $3 million in the pre-clinical setting to approximately $150 million in phase III.

We believe it costs up to $100,000 per patient in oncology clinical trials and the typical cost for each phase of development per year increases from approximately $3 million in the pre-clinical setting to approximately $150 million in phase III clinical trials.

Simulating trials before executing them provides benefits to both pharmaceutical companies and patients.

1 unchanged sentence

We plan to continue our efforts to expand our TumorGraft Technology Platform in order to expand our TOS program.

Our POS program will not be the focus of our growth moving forward.

In December 2019, a novel strain of coronavirus was first identified in Wuhan, Hubei Province, China.

Any outbreak of contagious diseases, or other adverse public health developments, could have a material and adverse effect on our business

We have previously disclosed that our POS program would not be the focus of our growth moving forward and this plan remains unchanged.

In December 2019, a novel strain of coronavirus, COVID-19, was first identified in Wuhan, China.

This virus continues to spread globally and, as of July 2020, has spread to over 200 countries, including the United States.

The spread of COVID-19 from China to other countries has resulted in the World Health Organization declaring the outbreak of COVID-19 as a “pandemic,” or a worldwide spread of a new disease, on March 11, 2020.

Many countries around the world imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus.

Employers are also required to increase, as much as possible, the capacity and arrangement for employees to work remotely.

In addition, on March 11, 2020, the President of the United States issued a proclamation to restrict travel to the United States from foreign nationals who have recently been in certain European and Latin American countries.

Although, to date, these restrictions have not impacted our operations, the effect on our business, from the spread of COVID-19 and the actions implemented by the governments of the United States and elsewhere across the globe, may worsen over time.

Any outbreak of contagious diseases, or other adverse public health developments, could have a material and adverse effect on our business operations.

These could include disruptions or restrictions on our ability to travel, pursue partnerships and other business transactions, receive shipments of biologic materials, as well as be impacted by the temporary closure of the facilities of suppliers.

We are actively monitoring the coronavirus outbreak and its potential impact on our supply chain and operations.

While we do not expect that the virus will have a material adverse effect on our business or financial results at this time, we are unable to accurately predict the impact that the coronavirus will have due to various uncertainties, including the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and actions that may be taken by governmental authorities.

The spread of an infectious disease, including COVID-19, may also result in the inability of our suppliers to deliver supplies to us on a timely basis.

In addition, health professionals may reduce staffing and reduce or postpone meetings with clients in response to the spread of an infectious disease.

Though we have not yet experienced such events, if they would occur, they could result in a period of business disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations.

However, as of the date of this Form 10-Q, we have not experienced a material adverse effect on our business nor the need for reduction in our work force;

and, currently, and we do not expect any material impact on our long-term activity.

The extent to which COVID-19 impacts our business will depend on future developments which are highly uncertain and cannot be predicted, including, but not limited to, new information which may emerge concerning the increased severity of COVID-19, the actions to contain COVID-19, or treat its impact.

Liquidity and Capital Resources

1 unchanged sentence

In the past, we have met these cash requirements through cash, working capital management, proceeds from certain private placements and public offerings of our securities, and sales of products and services.

For the nine months ended January 31, 2020 , the Company had net income of approximately $72,000 and cash flow from operations of $360,000 .

As of January 31, 2020 , the Company had an accumulated deficit of approximately $ 70.6 million , a working capital deficit of $0.3 million and cash of $3.3 million .

For the three months ended July 31, 2020 , the Company had net income of approximately $75,000 and cash used in operations of $715,000 .

As of July 31, 2020 , the Company had an accumulated deficit of approximately $ 72.6 million , working capital of $1.3 million , and cash of $6.9 million .

We believe that our cash on hand, together with expected positive cash flows from operations for fiscal year 2021, are adequate to fund operations through at least 12 months from the filing of this 10-Q.

3 unchanged sentences

The following table summarizes our operating results for the periods presented below (dollars in thousands):

For the Three Months Ended January 31,

Oncology services revenue

Costs and operating expenses:

Cost of oncology services

Research and development

Sales and marketing

General and administrative

Total costs and operating expenses

Income (loss) from operations

For the Nine Months Ended January 31,

For the Three Months Ended July 31,

Oncology services revenue

6 unchanged sentences

Income (loss) from operations

For the Three Months Ended July 31,

Oncology Services Revenue

Oncology services revenue was $9.0 million and $6.4 million for the three months ended January 31, 2020 and 2019 , respectively, an increase of $2.6 million or 40.2% .

Operating revenues were $23.4 million and $19.3 million for the nine months ended January 31, 2020 and 2019, respectively, an increase of $4.0 million or 20.8% .

The increase in revenue for both the three and nine month periods is due to increased sales, both in number and size of studies, and continuing to expand our customer base.

Oncology services revenue was $9.5 million and $6.7 million for the three months ended July 31, 2020 and 2019 , respectively, an increase of $2.8 million or 41.7% .

The increase in revenue for the three month period is due to increased sales, both in number and size of studies, an increase in demand for our services, the growth of the platform, and expansion of our product line.

Additionally, customers are seeking more complex study designs and end point analysis testing, leading to larger contracts, which contributed to revenue growth.

Cost of Oncology Services

Cost of oncology services for the three months ended January 31, 2020 and 2019 were $4.3 million and $3.4 million , respectively, an increase of $900,000 or 26.1% .

For the three months ended January 31, 2020 and 2019 , gross margins were 52.0% and 46.7% , respectively.

The increase in cost of oncology services for the three-month period was mainly due to an increase in compensation and supply expenses.

The overall expense increase is generally in line with the expected contribution based on the growth in revenue and study volume.

Cost of oncology solutions for the nine months ended January 31, 2020 and 2019 were $12.0 million and $10.0 million , respectively, an increase of $2.0 million or 20.0% .

For the nine months ended January 31, 2020 and 2019 , gross margins were 48.8% and 48.5% , respectively.

Cost of oncology services for the three months ended July 31, 2020 and 2019 were $5.3 million and $3.8 million , respectively, an increase of $1.6 million or 42.2% .

For the three months ended July 31, 2020 and 2019 , gross margins were 44.1% and 44.3% , respectively.

The increase in cost of oncology services for the three-month period was mainly due to an increase in compensation and outsourced lab service expenses.

With the exception of outsourced lab services, the overall expense increase is generally in line with the expected contribution based on the growth in revenue, study volume, and expansion into new services.

Gross margin varies based on timing differences between expense and revenue recognition and was impacted by the increase in costs on growing study volume in advance of revenue recognition.

The increase in cost of oncology services for the nine-month period was mainly due to an increase in compensation and supply expenses related to the growth in revenue and study volume.

The cost of outsourced lab services contributed to this effect.

Research and Development

Research and development expenses for the three months ended January 31, 2020 and 2019 were $1.4 million and $1.3 million , respectively.

Research and development expenses for the nine months ended January 31, 2020 and 2019 were $4.0 million and $3.6 million , respectively, an increase of $485,000 or 13.7% .

The increase for both the three and nine-month periods is due to increased compensation and lab supply expense as we continued to invest in research and development to offer new PDx models, ex-vivo assays and to expand our endpoint analysis testing.

Research and development expenses for the three months ended July 31, 2020 and 2019 were $1.6 million and $1.3 million , respectively, an increase of approximately $300,000 or 22.6%.

The increase for the three month period is mainly due to increased compensation and lab supply expense as we continued to develop new service capabilities and endpoint testing analysis, and sequencing costs as we continued to characterize our TumorBank.

Sales and Marketing

Sales and marketing expenses for the three months ended January 31, 2020 and 2019 were $1.3 million and $0.9 million , respectively, an increase of $0.4 million , or 48.7% .

Sales and marketing expenses for the nine months ended January 31, 2020 and 2019 were $3.2 million and $2.1 million , respectively, an increase of $1.0 million or 47.6% .

The increase for both the three and nine-month periods is mainly due to compensation expense driven by the continued expansion of our sales force and commissions earned.

Sales and marketing expenses for the three months ended July 31, 2020 and 2019 were $1.2 million and $870,000 , respectively, an increase of $338,000 , or 38.9% .

The increase for the three month period is mainly due to compensation expense driven by the continued expansion of our sales force and commissions earned on increased sales.

General and Administrative

General and administrative expenses for the three months ended January 31, 2020 and 2019 were $1.6 million and $1.2 million , respectively, an increase of approximately $400,000 , or 27.2% .

The increase for the three-month period was mainly due to an increase in compensation and depreciation expenses as well as a non-recurring bad debt write-off.

General and administrative expenses for the nine months ended January 31, 2020 and 2019 were $4.1 million and $3.3 million , respectively, an increase of approximately $807,000 or 24.4% .

The increase for the nine-month period was mainly due to an increase in compensation, professional fees, and depreciation expenses offset by a reduction in recruiting costs.

General and administrative expenses for both the three months ended July 31, 2020 and 2019 were $1.4 million .

General and administrative expenses are primarily comprised of compensation, insurance, accounting fees, and depreciation expenses.

Inflation does not have a meaningful impact on the results of our operations.

1 unchanged sentence

Cash Flows from Operating Activities

Net cash provided by operating activities was $360,000 for the nine months ended January 31, 2020 compared to net cash provided by operating activities of $1.6 million for the nine months ended January 31, 2019 , respectively.

The reduction in cash provided by operating activities during the current period was primarily due to the operating loss in the first quarter ended July 31, 2019, and, a net decrease in working capital items due to timing differences in the ordinary course of business, including an increase in net accounts receivable of $334,000 and a decrease in accounts payable of approximately $913,000.

Net cash used in operating activities was $715,000 for the three months ended July 31, 2020 compared to net cash used in operating activities of $279,000 for the three months ended July 31, 2019 , respectively.

The decrease in cash from operating activities during the current period was primarily due to changes in current balance sheet accounts in the ordinary course of business, including an increase in net accounts receivable of $263,000 and a reduction in accounts payable and accrued expenses of approximately $813,000.

Cash Flows from Investing Activities

Net cash used in investing activities was $0.7 million and $0.7 million for the nine months ended January 31, 2020 and 2019 , respectively.

Cash used in investing activities was for the purchase of lab equipment required for the Company's new product and service offerings.

Net cash used in investing activities was $626,000 and $749,000 for the three months ended July 31, 2020 and 2019 , respectively.

Cash used in investing activities was primarily related to the purchase of lab equipment and the development of software required for the Company's new products and services.

Cash Flows from Financing Activities

Net cash provided by financing activities was $378,000 for the nine months ended January 31, 2020 compared to the net cash provided by financing activities of $1.4 million for the nine months ended January 31, 2019 , respectively.

The reduction in net cash from financing activities is due to a decrease in option and warrant exercises during the current period.

Net cash used in financing activities was $58,000 for the three months ended July 31, 2020 compared to the net cash used in financing activities of $7,000 for the three months ended July 31, 2019 , respectively.

Cash used in financing activities resulted from a reduction in option exercises during the current period.

Critical Accounting Estimates and Policies

12 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis