What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-09-12 compared with 2022-03-15 · 41 added, 47 removed, 68 unchanged (56% of the section changed)

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expectations that regulatory developments or other matters will not have a material adverse effect on our financial position, results of operations, or liquidity;

statements concerning projections, predictions, expectations, estimates, or forecasts as to our business, financial and operational results, and future economic performance;

statements concerning projections, predictions, expectations, estimates, or forecasts as to our

business, financial and operational results, and future economic performance;

and statements of management’s goals and objectives and other similar expressions concerning matters that are not historical facts.

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Overview and Recent Developments

We are engaged in creating transformative technology solutions to be utilized in oncology drug discovery and development.

We are a technology-enabled research organization engaged in creating transformative technology solutions to be utilized in drug discovery and development.

Our research center consists of a comprehensive set of computational and experimental research platforms.

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These studies include the use of our in vivo, ex vivo, analytical and computational platforms.

We are engaged in the development and sale of advanced technology solutions and products to personalize the development and use of oncology drugs through our Translational Oncology Solutions ("TOS").

This technology ranges from computational-based discovery platforms, unique oncology software solutions, and innovative and proprietary experimental tools such as in vivo, ex vivo and biomarker platforms.

Utilizing our TumorGraft Technology Platform ("The Platform"), a comprehensive Bank of unique, well characterized 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.

As part of our growth strategy, we launched Lumin Bioinformatics ("Lumin"), a new oncology data-driven software program, during fiscal 2021.

Our Lumin software contains comprehensive information derived from our research services and clinical studies.

Lumin leverages Champions’ large Datacenter coupled with analytics and artificial intelligence to provide a robust tool for computational cancer research.

Lumin leverages our large Datacenter coupled with analytics and artificial intelligence to provide a robust tool for computational cancer research.

It is the combination of the Datacenter and the analytics that create a unique foundation for Lumin.

Insights developed using Lumin can provide the basis for biomarker hypotheses, reveal potential mechanisms of therapeutic resistance, and guide the direction of additional preclinical evaluations.

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Our discovery strategy utilizes our rich and unique Datacenter, coupled with artificial intelligence and other advanced computational analytics, to identify novel therapeutic targets.

We employ the use of our proprietary experimental platforms to rapidly validate these targets for further drug development efforts.

We have a rich pipeline of targets at various stages of discovery and validation, with a select group that has progressed to therapeutic development, and we plan to continue investing in this research and development.

Our commercial strategy for the validated targets and therapeutics established from this business is wide-ranging and still being developed.

We then employ the use of our proprietary experimental platforms to rapidly validate these targets for further drug development efforts.

We have a rich pipeline of targets at various stages of discovery and validation, with a select group that has progressed to therapeutic development.

Our commercial strategy for the validated targets and therapeutics established from this business is

wide-ranging and still being developed.

It will depend on many factors, and will be specific for each target or therapeutic area identified.

Any expenses associated with this part of our business are research and development and are expensed as incurred.

We regularly evaluate strategic options to create additional value from our drug discovery business, which may include, but are not limited to, potential spin-out transactions or capital raises.

Liquidity and Capital Resources

Our liquidity needs have typically arisen from the funding of our research and development programs and the launch of new products, working capital requirements, and other strategic initiatives.

In the past, we have met these cash requirements through cash on hand, 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, 2022, the Company had net income of approximately $892,000 and cash provided by operations of $5.7 million.

As of January 31, 2022, the Company had an accumulated deficit of approximately $71.6 million, working capital of $2.3 million, and cash on hand of $8.7 million.

Recently, we have met these cash requirements through cash, working capital management, and sales of products and services.

In the past, we have also received proceeds from certain private placements and public offerings of our securities.

For the three months ended July 31, 2022, the Company had a net loss of approximately $319,000 and cash used in operations of $195,000.

As of July 31, 2022, the Company had an accumulated deficit of approximately $72.3 million, working capital of $1.8 million, and cash of $8.1 million.

We believe that our cash on hand, together with expected positive cash flows from operations for fiscal year 2023, 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 January 31,

Revenue 2021 % of

Oncology services revenue $ 13,193 100.0 % $ 10,812 100.0 % 22.0 %

Costs and operating expenses:

Cost of oncology services 6,406 48.6 4,623 42.8 38.6

Research and development 2,181 16.5 1,879 17.4 16.1

Sales and marketing 1,549 11.7 1,492 13.8 3.8

General and administrative 2,227 16.9 1,836 17.0 21.3

Total costs and operating expenses 12,363 93.7 9,830 91.0 25.8

Income from operations $ 830 6.3 % $ 982 9.1 % (15.5) %

For the Nine Months Ended January 31,

For the Three Months Ended July 31,

Revenue 2021 % of

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Oncology Services Revenue

Oncology services revenue, which is primarily derived from pharmacology studies, was $13.2 million and $10.8 million for the three months ended January 31, 2022 and 2021, respectively, an increase of $2.4 million or 22.0%.

Oncology services revenue was $36.2 million and $30.5 million for the nine months ended January 31, 2022 and 2021, respectively, an increase of

$5.8 million or 18.9%.

The increase in revenue is due to continued demand for our core services and the expansion of both our platform and product lines driving increased sales, both in number and size of studies.

Oncology services revenue, which is primarily derived from pharmacology studies, was $13.7 million and $11.3 million for the three months ended July 31, 2022 and 2021, respectively, an increase of $2.5 million or 22.1%.

The increase in revenue was primarily due to the expansion of our platform and offerings creating demand for our services and leading to larger pharmacology studies in both our in-vivo and ex-vivo platforms.

Cost of Oncology Services

Cost of oncology services for the three months ended January 31, 2022 and 2021 were $6.4 million and $4.6 million, respectively.

For the three months ended January 31, 2022 and 2021, gross margins were 51.4% and 57.2%, respectively.

Cost of oncology services for the nine months ended January 31, 2022 and 2021 were $17.4 million and $15.6 million, respectively.

For the nine months ended January 31, 2022 and 2021, gross margins were 51.9% and 48.8%, respectively.

Cost of sales for the three months ended January 31, 2021 were atypically low resulting in an unusually high gross margin.

The gross margins for the nine month periods ended January 2022 and 2021, respectively, were more indicative of margin trends.

The current year to date improvement was primarily due to the reduction in outsourced lab work which offset the increase in compensation and lab supply expenses resulting from the increase in study volume.

Additionally, the increase in gross margin demonstrated the inherent leverage in our operating model.

Cost of oncology services for the three months ended July 31, 2022 and 2021 were $7.1 million and $5.4 million, respectively, an increase of $1.7 million or 30.7%.

The increase in cost of oncology services was primarily from compensation, mice and supply expenses resulting from larger study sizes and compensation expense for our SaaS platform.

For the three months ended July 31, 2022 and 2021, gross margins were 48.7% and 52.0%, respectively.

The lower margin resulted from an

increase in study related expenses in advance of the revenue recognition.

Additionally, SaaS costs were expensed during the three months ended July 31, 2022 compared to capitalized during the three months ended July 31, 2021.

Research and Development

Research and development expenses for the three months ended January 31, 2022 and 2021 were $2.2 million and $1.9 million, respectively, an increase of approximately $302,000 or 16.1%.

Research and development expenses for the nine months ended January 31, 2022 and 2021 were $6.8 million and $5.1 million, respectively, an increase of approximately $1.7 million or 32.4%.

The increase for the three and nine month periods was mainly due to increased compensation and sequencing costs related to our increased investment in our therapeutic target discovery platform.

Research and development expenses for the three months ended July 31, 2022 and 2021 were $2.9 million and $2.3 million, respectively, an increase of approximately $583,000 or 25.3%.

The increase for the three-month period was mainly due to compensation and lab supply expense related to the investment in our therapeutic drug discovery platform.

Sales and Marketing

Sales and marketing expenses for the three months ended January 31, 2022 and 2021 were $1.5 million, respectively.

Sales and marketing expenses for the nine months ended January 31, 2022 and 2021 were $4.8 million and $4.0 million, respectively, an increase of $716,000, or 17.7%.

The increase for the nine month period is mainly due to compensation expense driven by the expansion of our research services business development team and the addition of a Software as a Service ("SaaS") business development team.

Sales and marketing expenses for the three months ended July 31, 2022 and 2021 were $1.7 million and $1.6 million, respectively, an increase of $118,000, or 7.5%.

The increase was mainly due to compensation expense.

General and Administrative

General and administrative expenses for the three months ended January 31, 2022 and 2021 were $2.2 million and $1.8 million, an increase of $391,000, or 21.3%.

General and administrative expenses for the nine months ended January 31, 2022 and 2021 were $6.4 million and $4.7 million, an increase of $1.7 million, or 35.6%.

The increase was primarily due to an increase in compensation as well as an increase in IT related expenses to support the overall infrastructure growth of the organization.

General and administrative expenses for the three months ended July 31, 2022 and 2021 were $2.4 million and $2.2 million, an increase of $244,000, or 11.3%.

General and administrative expenses are primarily comprised of compensation, insurance, professional fees, IT, and depreciation and amortization expenses.

The increase was mainly due to an increase in IT related expenses to support the overall infrastructure growth of the company.

The following discussion relates to the major components of our cash flows:

Cash Flows from Operating Activities

Net cash provided by operating activities was $5.7 million compared to net cash provided by operations of $299,000 for the nine months ended January 31, 2022 and 2021, respectively.

The cash generated from operating activities during the current period was primarily due to improving operating income excluding stock compensation and depreciation and amortization expenses.

Net cash used in operating activities was $195,000 compared to net cash provided by operations of $216,000 for the three months ended July 31, 2022 and 2021, respectively.

The cash used in operating activities during the current period was primarily due to reduction in accounts payable and accrued liability balances.

Cash Flows from Investing Activities

Net cash used in investing activities was $1.9 million and $2.3 million for the nine months ended January 31, 2022 and 2021, respectively.

The cash used in investing activities was primarily for the investment in additional lab equipment and software development.

Net cash used in investing activities was $754,000 and $907,000 for the three months ended July 31, 2022 and 2021, respectively.

The cash used in investing activities was primarily for the investment in additional lab and computer equipment.

Cash Flows from Financing Activities

Net cash provided by financing activities was $191,000 for the nine months ended January 31, 2022 compared to cash provided by financing activities $1.1 million for the nine months ended January 31, 2021.

Cash provided by financing activities decreased primarily due to a reduction in the number of options exercised compared to the prior year.

Net cash provided by financing activities was $0 for the three months ended July 31, 2022 compared to cash used by financing activities $2,000 for the three months ended July 31, 2021.

The decrease on cash provided by financing is related to decrease in stock options exercise activity.

Critical Accounting Estimates and Policies

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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