What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-12-13 compared with 2022-09-12 · 46 added, 29 removed, 80 unchanged (48% of the section changed)

6 unchanged sentences

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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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.

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.

As part of our growth strategy, we launched Lumin Bioinformatics ("Lumin"), an oncology data-driven software program.

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

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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.

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.

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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.

For the six months ended October 31, 2022, the Company had a net loss of approximately $335,000 and cash provided by operations of $3.1 million.

As of October 31, 2022, the Company had an accumulated deficit of approximately $72.3 million, working capital of $1.9 million, and cash of $10.8 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 July 31,

For the Three Months Ended October 31,

Revenue 2021 % of

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Income from operations $ 7 — % $ 263 2.2 % (97.3) %

For the Six months ended October 31,

Revenue 2021 % of

Oncology services revenue $ 28,026 100.0 % $ 23,039 100.0 % 21.6 %

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.

Costs and operating expenses:

Cost of oncology services 14,495 51.7 11,005 47.8 31.7

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 5,491 19.6 4,603 20.0 19.3

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 3,392 12.1 3,214 14.0 5.5

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 4,925 17.6 4,129 17.9 19.3

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%.

Total costs and operating expenses 28,303 101.0 22,951 99.6 23.3

Income (loss) from operations $ (277) (1.0) $ 88 0.4 % (414.8) %

Oncology Services Revenue

Oncology services revenue, which is primarily derived from pharmacology studies, was $14.3 million and $11.8 million for the three months ended October 31, 2022 and 2021, respectively, an increase of $2.5 million or 21.2%.

Oncology services revenue was $28.0 million and $23.0 million for the six months ended October 31, 2022 and 2021, respectively, an increase of $5.0 million or 21.6%.

The increase in revenue was primarily due to continued demand for our services and platform expansion leading to larger in-vivo and ex-vivo pharmacology studies.

Cost of Oncology Services

Cost of oncology services for the three months ended October 31, 2022 and 2021 were $7.4 million and $5.6 million, respectively, an increase of $1.8 million or 32.7%.

Cost of oncology services for the six months ended October 31, 2022 and 2021 were $14.5 million and $11.0 million, respectively, an increase of $3.5 million or 31.7%.

The increase in cost of oncology services was primarily from compensation, mice and supply expenses for pharmacology studies and compensation expense for our SaaS platform.

For the three months ended October 31, 2022 and 2021, total gross margins were 47.9% and 52.4%, respectively.

For the six months ended October 31, 2022 and 2021, total gross margins were 48.3% and 52.2%, respectively.

For the three months ended October 31, 2022 and 2021, gross margins for pharmacology services were 50.5% and 53.1%, respectively.

For the six months ended October 31, 2022 and 2021, gross margins for pharmacology services were 51.1% and 52.8%, respectively.

The lower pharmacology margins resulted from an increase in up-front study related expenses in advance of the revenue recognition.

Additionally, Lumin related depreciation and amortization expense during the three and six months ended October 31, 2022 was higher compared to the three and six months ended October 31, 2021, contributing to the total margin decline.

Research and Development

Research and development expenses for the three months ended October 31, 2022 and 2021 were $2.6 million and $2.3 million, respectively, an increase of approximately $305,000 or 13.3%.

Research and development expenses for the six months ended October 31, 2022 and 2021 were $5.5 million and $4.6 million, respectively, an increase of approximately $888,000 or 19.3%.

The increase for the three and six-month periods 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 October 31, 2022 and 2021 were $1.7 million and $1.6 million, respectively, an increase of $60,000, or 3.7%.

Sales and marketing expenses for the six months ended October 31, 2022 and 2021 were $3.4 million and $3.2 million, respectively, an increase of 178,000, or 5.5%.

The increase for both periods was mainly due to compensation expense.

General and Administrative

General and administrative expenses for the three months ended October 31, 2022 and 2021 were $2.5 million and $2.0 million, an increase of $552,000, or 27.9%.

General and administrative expenses for the six months ended October 31, 2022 and 2021 were $4.9 million and $4.1 million, an increase of $800,000, or 19.3%.

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 increase for the three and six-month period was mainly due to an increase in compensation and IT related expenses to support the overall infrastructure growth of the Company.

Additionally, bad debt expense increased during the three and six-month periods ended October 31, 2022, compared to the three and six-month periods ended October 31, 2021.

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

Cash Flows from Operating Activities

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.

Net cash provided by operating activities was $3.1 million compared to net cash provided by operations of $1.4 million for the six months ended October 31, 2022 and 2021, respectively.

The cash provided by operating activities during the current period was primarily due to positive operating results excluding non-cash expenses combined with increases in accounts receivable collections and accounts payable balances in the ordinary course of business.

Cash Flows from Investing Activities

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

Net cash used in investing activities was $1.4 million and $1.5 million for the six months ended October 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 $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.

Net cash provided by financing activities was $86,000 for the six months ended October 31, 2022 compared to cash provided by financing activities of $123,000 for the six months ended October 31, 2021.

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

Critical Accounting Estimates and Policies

The preparation of these condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to apply methodologies and make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

The preparation of these condensed consolidated financial statements in conformity with GAAP in the United States requires management to apply methodologies and make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

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.

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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