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Item 2. Management’s Discussion and Analysis

2023-09-13 compared with 2023-03-16 · 30 added, 51 removed, 73 unchanged (53% of the section changed)

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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"), an oncology data-driven software program.

We offer Lumin Bioinformatics ("Lumin"), an oncology data-driven Software as a Service (SaaS) program.

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

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.

Our drug discovery and development business leverages the computational and experimental capabilities within our platforms.

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

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

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

We have a 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.

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

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.

For the three months ended July 31, 2023, the Company had a net loss of approximately $2.6 million and cash used in operations of approximately $4.0 million.

As of July 31, 2023, the Company had an accumulated deficit of approximately $79.9 million and cash on hand of approximately $4.9 million.

We believe that our cash on hand, together with expected cash flows from operations for the remainder of fiscal year 2024, 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 January 31,

Revenue 2022 % of

Oncology services revenue $ 12,773 100.0 % $ 13,193 100.0 % (3.2) %

Costs and operating expenses:

Cost of oncology services 7,699 60.3 6,406 48.6 20.2

Research and development 3,202 25.1 2,181 16.5 46.8

Sales and marketing 1,761 13.8 1,549 11.7 13.7

General and administrative 2,569 20.1 2,227 16.9 15.4

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

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

For the Nine months ended January 31,

For the Three Months Ended July 31,

Revenue 2022 % of

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Total costs and operating expenses 15,113 120.3 14,029 102.0 7.7

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

Loss from operations $ (2,552) (20.3) % $ (284) (2.1) % 798.6 %

Oncology Services Revenue

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.

Oncology services revenue, which is primarily derived from pharmacology studies, was $12.6 million and $13.7 million for the three months ended July 31, 2023 and 2022, respectively, a decrease of $1.2 million or 8.6%.

The decrease in revenue resulted from an increase in study cancellations during the prior year which resulted in lower revenue conversion in the first quarter of fiscal year 2024.

Cost of Oncology Services

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.

Cost of oncology services for the three months ended July 31, 2023 and 2022 were $7.7 million and $7.1 million, respectively, an increase of $0.6 million or 9.0%.

The increase in cost of oncology services was primarily from outsourced lab services.

For the three months ended July 31, 2023 and 2022, margins were 38.8% and 48.7%, respectively.

The lower margin for the current fiscal year resulted primarily from a higher expense base on lower revenue conversion.

Research and Development

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.

Research and development expenses for the three months ended July 31, 2023 and 2022 were $2.8 million and $2.9 million, respectively, a slight decrease of approximately $0.1 million or 3.3%.

Approximately $1.2 million of the Company’s R&D expense in the first quarter of 2024 was directed towards our target discovery program.

Sales and Marketing

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.

Sales and marketing expenses for the three months ended July 31, 2023 and 2022 were $1.7 million.

Sales and marketing expenses are primarily comprised of compensation and conference expenses to support sales efforts.

General and Administrative

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.

General and administrative expenses for the three months ended July 31, 2023 and 2022 were $2.9 million and $2.4 million, an increase of $542,000, or 22.6%, respectively.

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

The increase was primarily due to an increase in bad debt expense and provision for credit losses of approximately $160,000 and non-cash stock-based compensation expense.

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

Cash Flows from Operating Activities

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.

Net cash used in operating activities was $4.0 million for the three months ended July 31, 2023 compared to cash used in operations of $195,000 for the three-months ended July 31, 2022.

The cash used in operating activities was due to the quarter’s operating loss, primarily due to the expected lower revenue conversion, an increase in accounts receivable due to timing differences in the ordinary course of business, and a decrease in deferred revenue as a result of study cancellations.

Cash Flows from Investing Activities

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.

Net cash used in investing activities was $668,000 and $754,000 for the three months ended July 31, 2023 and 2022, respectively.

The cash used in investing activities was 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 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.

Net cash used in financing activities was $590,000 for the three months ended July 31, 2023 compared to cash provided by financing activities of $0 for the three months ended July 31, 2022.

Cash was utilized for the Company's stock repurchase program which was slightly offset by an increase in stock option exercise activity.

Critical Accounting Estimates and Policies

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.

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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The Company’s critical accounting policies are summarized in the Company’s Annual Report on Form 10-K, filed with the SEC on July 24, 2023.

Recent Accounting Pronouncements

For detailed information regarding recently issued accounting pronouncements and the expected impact on our condensed consolidated financial statements, see Note 2, "Significant Accounting Policies" in the accompanying Notes to Condensed Consolidated Financial Statements included in Item 1 of this Report on Form 10-Q.

Off-Balance Sheet Financing

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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