What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-12-14 compared with 2020-09-14 · 46 added, 27 removed, 80 unchanged (48% 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.

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.

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

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.

phase III clinical trials.

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

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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.

This virus continues to spread globally and, as of December 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.

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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.

We continue to monitor our operations and applicable government recommendations and requirements.

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

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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 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 .

For the six months ended October 31, 2020, the Company had net income of approximately $76,000 and cash provided by operations of $164,000.

As of October 31, 2020, the Company had an accumulated deficit of approximately $72.6 million, working capital of $2.2 million, and cash of $8.6 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.

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

For the Three Months Ended July 31,

For the Three Months Ended October 31,

Revenue 2019 % of

Oncology services revenue $ 10,117 100.0 % $ 7,625 100.0 % 32.7 %

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Total costs and operating expenses 10,110 99.9 7,334 96.2 37.9

Income from operations $ 7 0.1 % $ 291 3.8 % 97.6 %

For the Six months ended October 31,

Revenue 2019 % of

Oncology services revenue $ 19,664 100.0 % $ 14,362 100.0 % 36.9 %

Costs and operating expenses:

Cost of oncology services 10,980 55.8 7,633 53.1 43.8

Research and development 3,247 16.5 2,644 18.4 22.8

Sales and marketing 2,556 13.0 1,847 12.9 38.4

General and administrative 2,850 14.5 2,561 17.8 11.3

Total costs and operating expenses 19,633 99.8 14,685 102.2 33.7

Income (loss) from operations $ 31 0.2 $ (323) (2.2) % (109.6) %

For the Three Months Ended July 31,

Oncology Services Revenue

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.

Oncology services revenue was $10.1 million and $7.6 million for the three months ended October 31, 2020 and 2019, respectively, an increase of $2.5 million or 32.7%.

Oncology services revenue was $19.7 million and $14.4 million for the six months ended October 31, 2020 and 2019, respectively, an increase of $5.3 million or 36.9%.

The increase in revenue for both the three and six month periods is due to increased sales, both in number and size of studies, and the expansion of both our platform and product lines.

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 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.

Cost of oncology services for the three months ended October 31, 2020 and 2019 were $5.6 million and $3.9 million, respectively, an increase of $1.8 million or 45.4%.

For the three months ended October 31, 2020 and 2019, gross margins were 44.2% and 49.1%, respectively.

Cost of oncology services for the six months ended October 31, 2020 and 2019 were $11.0 million and $7.6 million, respectively, an increase of $3.3 million or 43.8%.

For the six months ended October 31, 2020 and 2019, gross margins were 44.2% and 46.9%, respectively.

The increase in cost of oncology services for the three and six month periods was mainly due to an increase in compensation, lab supply, 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 cost of outsourced lab services contributed to this effect.

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

The cost of outsourced lab services amplified this impact.

Research and Development

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.

Research and development expenses for the three months ended October 31, 2020 and 2019 were $1.7 million and $1.3 million, respectively, an increase of approximately $308,000 or 23.0%.

Research and development expenses for the six months ended October 31, 2020 and 2019 were $3.2 million and $2.6 million, respectively, an increase of approximately $603,000 or 22.8%.

The increase for the three and six month periods is mainly due to increased compensation and lab supply expense as we continued to develop new service capabilities and endpoint testing analysis.

Additionally, we incurred sequencing costs as our investment in characterizing our TumorBank continues, adding valuable data to our platform.

Sales and Marketing

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.

Sales and marketing expenses for the three months ended October 31, 2020 and 2019 were $1.3 million and $977,000, respectively, an increase of $371,000, or 38.0%.

Sales and marketing expenses for the six months ended October 31, 2020 and 2019 were $2.6 million and $1.8 million, respectively, an increase of $709,000, or 38.4%.

The increase for the three and six month periods is mainly due to compensation expense driven by the continued investment in expanding our business development team.

General and Administrative

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.

General and administrative expenses for the three months ended October 31, 2020 and 2019 were $1.5 million and $1.1 million, an increase of $333,000, or 29.3%.

General and administrative expenses for the six months ended October 31, 2020 and 2019 were $2.9 million and $2.6 million, respectively, an increase of $289,000, or 11.3%.

General and administrative expenses are primarily comprised of compensation, insurance, accounting fees, and depreciation expenses and have increased to support the overall infrastructure growth of the company.

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

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Cash Flows from Operating Activities

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.

Net cash provided by operating activities was $164,000 and $81,000 for the six months ended October 31, 2020 and 2019.

The increase 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 offset by an increase in accounts payable and accrued liabilities.

Cash Flows from Investing Activities

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

Net cash used in investing activities was $1.1 million and $522,000 for the six months ended October 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 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.

Net cash provided by financing activities was $1.2 million for the six months ended October 31, 2020 compared to the net cash used in financing activities of $12,000 for the six months ended October 31, 2019, respectively.

Cash provided in financing activities resulted from an increase in option exercises during the current period.

Critical Accounting Estimates and Policies

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Significant estimates of the Company include, among other things, accounts receivable realization, revenue recognition (replacement of licensed tumors), valuation allowance for deferred tax assets, valuation of goodwill, and stock compensation and warrant assumptions.

Actual results could differ from those estimates.

Actual results could

differ from those estimates.

The Company’s critical accounting policies are summarized in the Company’s Annual Report on Form 10-K, filed with the SEC on July 28, 2020.

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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