What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-03-16 compared with 2022-12-13 · 35 added, 37 removed, 89 unchanged (45% of the section changed)

27 unchanged sentences

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.

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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.

All 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.

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

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.

For the nine months ended January 31, 2023, the Company had a net loss of approximately $2,774,000 and cash provided by operations of $4.7 million.

As of January 31, 2023, the Company had an accumulated deficit of approximately $74.8 million and cash on hand of $11.6 million.

We believe that our cash on hand, together with expected 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.

However, should our revenue expectations not materialize, we believe we have cost reduction strategies that could be implemented without disrupting the business or restructuring the Company.

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

For the Three Months Ended October 31,

For the Three Months Ended January 31,

Revenue 2022 % of

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Total costs and operating expenses 15,231 119.3 12,363 93.7 23.2

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

For the Six months ended October 31,

(Loss) Income from operations $ (2,458) (19.2) % $ 830 6.3 % (396.1) %

For the Nine months ended January 31,

Revenue 2022 % of

6 unchanged sentences

Total costs and operating expenses 43,534 106.7 35,314 97.4 23.3

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

(Loss) Income from operations $ (2,735) (6.7) $ 918 2.5 % (397.9) %

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.

Oncology services revenue, which is primarily derived from pharmacology studies, was $12.8 million and $13.2 million for the three months ended January 31, 2023 and 2022, respectively, a decrease of $420,000 or 3.2%.

The decrease in revenue resulted from an increase in cancellations on studies booked in prior quarters.

Oncology services revenue was $40.8 million and $36.2 million for the nine months ended January 31, 2023 and 2022, respectively, an increase of $4.6 million or 12.6%.

The increase in revenue was primarily due to growing 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.

Cost of oncology services for the three months ended January 31, 2023 and 2022 were $7.7 million and $6.4 million, respectively, an increase of $1.3 million or 20.2%.

Cost of oncology services for the nine months ended January 31, 2023 and 2022 were $22.2 million and $17.4 million, respectively, an increase of $4.8 million or 27.5%.

The increase in cost of oncology services was primarily from compensation expense for our pharmacology operational study teams.

For the three months ended January 31, 2023 and 2022, total gross margins were 39.7% and 51.4%, respectively.

For the nine months ended January 31, 2023 and 2022, total gross margins were 45.6% and 51.9%, respectively.

The lower margin for the fiscal year 2023 third quarter and year to date was the result of the increase in compensation expense as we staffed our operational teams to support bookings growth during the year, which failed to convert to revenue at the expected rate due to cancellations.

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.

Research and development expenses for the three months ended January 31, 2023 and 2022 were $3.2 million and $2.2 million, respectively, an increase of approximately $1.0 million or 46.8%.

Research and development expenses for the nine months ended January 31, 2023 and 2022 were $8.7 million and $6.8 million, respectively, an increase of approximately $1.9 million or 28.2%.

The increase for the three and nine-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.

Sales and marketing expenses for the three months ended January 31, 2023 and 2022 were $1.8 million and $1.5 million, respectively, an increase of $212,000, or 13.7%.

Sales and marketing expenses for the nine months ended January 31, 2023 and 2022 were $5.2 million and $4.8 million, respectively, an increase of $389,000, or 8.2%.

The increase for both periods was mainly due to compensation and conference expenses to support sales effort expansion.

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 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.

General and administrative expenses for the three months ended January 31, 2023 and 2022 were $2.6 million and $2.2 million, an increase of $342,000, or 15.4%, respectively.

General and administrative expenses for the nine months ended January 31, 2023 and 2022 were $7.5 million and $6.4 million, respectively, an increase of $1.1 million, or 17.9%.

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

The increase for the three and nine-month period was mainly due to an increase in compensation and 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 $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.

Net cash provided by operating activities was $1.6 million for the three months ended January 31, 2023 .

The Company generated cash from operating activities in fiscal year 2023, even with a net loss, primarily from a decrease in accounts receivable, in the ordinary course of business, and an increase in deferred revenue due to strong bookings.

Year to date net cash provided by operating activities was $4.7 million.

The cash provided by operating activities was primarily due a decrease in accounts receivable and an increase in accounts payable balances in the ordinary course of business, along with an increase in deferred revenue.

Cash Flows from Investing Activities

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.

Net cash used in investing activities was $2.1 million and $1.9 million for the nine months ended January 31, 2023 and 2022, 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 $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.

Net cash provided by financing activities was $86,000 for the nine months ended January 31, 2023 compared to cash provided by financing activities of $191,000 for the nine months ended January 31, 2022.

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

13 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