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Item 2. Management’s Discussion and Analysis

2023-12-13 compared with 2023-09-13 · 45 added, 27 removed, 76 unchanged (49% of the section changed)

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Our pharmacology, biomarker, and data platforms are designed to facilitate drug discovery and development at lower costs and increased speeds.

We perform studies which we believe may predict the efficacy of experimental oncology drugs or approved drugs as stand-alone therapies or in combination with other drugs and can stimulate the results of human clinical trials.

These studies include in vivo studies that rely on implanting multiple tumors from our TumorBank in mice and testing the therapy of interest on these tumors.

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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, 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.

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, 2023, the Company had a net loss of approximately $4.6 million and cash used in operations of approximately $3.4 million.

As of October 31, 2023, the Company had an accumulated deficit of approximately $82.0 million and cash on hand of approximately $5.5 million.

We believe that our cash on hand, together with expected cash flows from operations to be provided for the remainder of fiscal year 2024, are adequate to fund operations through at least 12 months from the filing of this Report.

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 July 31,

For the Three Months Ended October 31,

Revenue 2022 % of

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Loss from operations $ (1,955) (16.9) % $ 7 — % (28,028.6) %

For the Six months ended October 31,

Revenue 2022 % of

Oncology services revenue $ 24,134 100.0 % $ 28,026 100.0 % (13.9) %

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.

Costs and operating expenses:

Cost of oncology services 14,302 59.3 14,495 51.7 (1.3)

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 5,308 22.0 5,491 19.6 (3.3)

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 3,491 14.5 3,392 12.1 2.9

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 5,540 23.0 4,925 17.6 12.5

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.

Total costs and operating expenses 28,641 118.7 28,303 101.0 1.2

(Loss) Income from operations $ (4,507) (18.7) $ (277) (1.0) % 1,527.1 %

Oncology Services Revenue

Oncology services revenue, which is primarily derived from pharmacology studies, was $11.6 million and $14.3 million for the three months ended October 31, 2023 and 2022, respectively, a decrease of $2.7 million or 19.0%.

Oncology services revenue was $24.1 million and $28.0 million for the six months ended October 31, 2023 and 2022, respectively, a decrease of $3.9 million or 13.9%.

The decrease in revenue resulted from an increase in study cancellations during fiscal year 2023, thereby reducing our net bookings and available convertible revenue in the current year.

Cost of Oncology Services

Cost of oncology services for the three months ended October 31, 2023 and 2022 were $6.6 million and $7.4 million, respectively, a decrease of $825,000 or 11.1%.

Cost of oncology services for the six months ended October 31, 2023 and 2022 were $14.3 million and $14.5 million, respectively, a decrease of $193,000 or 1.3%.

The decrease in cost of oncology services for the three months ended October 31, 2023 was primarily from a decrease in compensation and supply expenses and outsourced lab services.

For the six months ended October 31, 2023, the decrease was primarily from a reduction in compensation expense.

For the three months ended October 31, 2023 and 2022, margins were 42.8% and 47.9%, respectively.

For the six months ended October 2023 and 2022, margins were 40.7% and 48.3%, respectively.

The lower margin for both the three months and six months ended October 31, 2023 resulted primarily from a decline in top line revenue against a generally unchanged cost base.

Research and Development

Research and development expenses for the three months ended October 31, 2023 and 2022 were $2.5 million and $2.6 million, respectively, a slight decrease of approximately $89,000 or 3.4%.

Research and development expenses for the six months ended October 2023 and 2022 were $5.3 million and $5.5 million, respectively, a decrease of approximately $183,000 or 3.3%.

Approximately $2.5 million of the Company’s research and development expenses in the first half of 2024 was directed towards our target discovery program.

Sales and Marketing

Sales and marketing expenses for the three months ended October 31, 2023 and 2022 were $1.8 million and $1.7 million, respectively, a slight increase of $95,000 or 5.6%.

Sales and marketing expenses for the six months ended October 2023 and 2022 were $3.5 million and $3.4 million, respectively, a slight increase of $99,000 or 2.9%.

Sales and marketing expenses are primarily comprised of compensation expenses to support business development.

General and Administrative

General and administrative expenses for the three months ended October 31, 2023 and 2022 were $2.6 million and $2.5 million, respectively, an increase of $73,000, or 2.9%.

General and administrative expenses for the the six months ended October 2023 and 2022 were $5.5 million and $4.9 million, respectively, an increase of $615,000, or 12.5%.

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 increase for both the three months and six months ended October 31, 2023 was primarily from compensation and recruiting expenses.

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

Cash Flows from Operating Activities

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.

Net cash provided by operating activities was $600,000 for the three months ended October 31, 2023, primarily due from increases in accounts receivable collections and deferred revenue.

For the six months ended October 31, 2023, net cash used in operating activities was $3.4 million.

The cash used in operating activities was primarily due to the loss for the period resulting from lower revenue.

Cash Flows from Investing Activities

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

Net cash used in investing activities was $821,000 and $1.4 million for the six months ended October 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 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.

Net cash used in financing activities was $382,000 for the six months ended October 31, 2023.

The cash used was for the the Company's stock repurchase program, offset by cash received from stock option exercises.

Critical Accounting Estimates and Policies

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.

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.

Actual results could differ from those estimates.

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Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting companies.

We are a smaller reporting companies company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.

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