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Item 2. Management’s Discussion and Analysis

2024-03-15 compared with 2023-12-13 · 38 added, 35 removed, 86 unchanged (46% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our historical results of operations and our liquidity and capital resources should be read in conjunction with the condensed consolidated financial statements and related notes that appear elsewhere in this Report and our most recent annual report for the year ended April 30, 2023, as filed on Form 10-K.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain “forward-looking statements,” which include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation, and availability of resources.

This Report contains certain “forward-looking statements,” which include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation, and availability of resources.

These forward-looking statements include, without limitation, statements regarding:

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Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved.

Forward-looking statements are based on information available at the time those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.

Forward-looking statements are

based on information available at the time those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.

Forward-looking statements speak only as of the date the statements are made.

Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those described in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended April 30, 2023, as updated in our subsequent reports filed with the SEC, including any updates found in Part II, Item 1A of this or other reports on Form 10-Q, if any.

Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those described in “Risk Factors” in Part I, Item 1A of our 2023 Annual Report, as updated in our subsequent reports filed with the SEC, including any updates found in Part II, Item 1A of this or other reports on Form 10-Q, if any.

You should not put undue reliance on any forward-looking statements.

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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 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.

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, 2024, the Company had a net loss of approximately $7.2 million and cash used in operations of approximately $4.3 million.

As of January 31, 2024, the Company had an accumulated deficit of approximately $84.5 million and cash on hand of approximately $4.5 million.

We believe that our cash on hand, together with expected cash flows from operations to be provided for during fiscal 2025, 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 October 31,

For the Three Months Ended January 31,

Revenue 2023 % of

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Loss from operations $ (2,577) (21.4) % $ (2,458) (19.2) % 4.8 %

For the Six months ended October 31,

For the Nine months ended January 31,

Revenue 2023 % of

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Total costs and operating expenses 43,238 119.6 43,534 106.7 (0.7)

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

Loss from operations $ (7,085) (19.6) $ (2,735) (6.7) % 159.0 %

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%.

Oncology services revenue, which is primarily derived from pharmacology studies, was $12.0 million and $12.8 million for the three months ended January 31, 2024 and 2023, respectively, a decrease of $0.8 million or 5.9%.

Oncology services revenue was $36.2 million and $40.8 million for the nine months ended January 31, 2024 and 2023, respectively, a decrease of

$4.6 million or 11.4%.

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.

Cost of oncology services for the three months ended January 31, 2024 and 2023 were $7.8 million and $7.7 million, respectively, an increase of $150,000 or 1.9%.

Cost of oncology services for the nine months ended January 31, 2024 and 2023 were $22.2 million and $22.2 million, respectively, a slight decrease of $43,000 or 0.2%.

The net increase in cost of oncology services for the three months ended January 31, 2024 was primarily from an increase in compensation expense and mouse costs.

For the three months ended January 31, 2024 and 2023, margins were 34.7% and 39.7%, respectively.

For the nine months ended January 2024 and 2023, margins were 38.7% and 45.6%, respectively.

The lower margin for both the three months and nine months ended January 31, 2024 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.

Research and development expenses for the three months ended January 31, 2024 and 2023 were $2.2 million and $3.2 million, respectively, a decrease of approximately $1.0 million or 31.7%.

Research and development expenses for the nine months ended January 2024 and 2023 were $7.5 million and $8.7 million, respectively, a decrease of approximately $1.2 million or 13.8%.

The decrease in both the three and nine month periods was primarily due to a reduction in investment related to 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 for the three months ended January 31, 2024 and 2023 were $1.8 million and $1.8 million, respectively, a slight increase of $36,000 or 2.0%.

Sales and marketing expenses for the nine months ended January 2024 and 2023 were $5.3 million and $5.2 million, respectively, an increase of $135,000 or 2.6%.

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 for the three months ended January 31, 2024 and 2023 were $2.8 million and $2.6 million, respectively, an increase of $195,000, or 7.6%.

General and administrative expenses for the nine months ended January 31, 2024 and 2023 were $8.3 million and $7.5 million, respectively, an increase of $811,000, or 10.8%.

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

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

The increase for the nine months ended January 31, 2024 was primarily from compensation and recruiting expenses and an increase in allowances for credit losses and bad debt reserves.

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

Cash Flows from Operating Activities

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.

For the nine months ended January 31, 2024, net cash used in operating activities was $4.3 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 $821,000 and $1.4 million for the six months ended October 31, 2023 and 2022, respectively.

Net cash used in investing activities was $947,000 and $2.1 million for the nine months ended January 31, 2024 and 2023, 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 $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.

Net cash used in financing activities was $382,000 for the nine months ended January 31, 2024.

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

Factors That May Adversely Affect our Results of Operations

Our results of operations may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control.

Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflicts in Ukraine and the Middle East.

We cannot at this time fully predict the likelihood of one or more of the above events, their duration, or magnitude or the extent to which they may negatively impact our business.

Critical Accounting Estimates and Policies

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Actual results could differ from those estimates.

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.

The Company’s critical accounting policies are summarized in our 2023 Annual Report.

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