What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-09-13 compared with 2024-03-15 · 35 added, 48 removed, 76 unchanged (52% of the section changed)

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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.

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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.

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.

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

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Liquidity and Capital Resources

Under ASC Subtopic 205-40, Presentation of Financial Statements—Going Concern (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued.

The following conditions raised substantial doubt about our ability to continue as a going concern:

a history of net losses, working capital deficits, accumulated deficit and declining cash position.

Going concern matters are more fully discussed in Notes to the Consolidated Financial Statements, Note 2, Summary of Significant Accounting Policies.

No adjustments have been made to the financials statements as a result this uncertainty.

Our liquidity needs have typically arisen from the funding of our research and development programs and the launch of new products, working capital requirements, and other strategic initiatives.

Recently, we have met these cash requirements through cash, working capital management, and sales of products and services.

Most recently, we have met these cash requirements through cash on hand, 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 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.

Should the Company be required to raise additional capital, there can be no assurance that management would be successful in raising such capital on terms acceptable to us, if at all.

For the three months ended July 31, 2024, the Company had net income of approximately $1.3 million and cash provided by operations of approximately $311,000.

As of July 31, 2024, the Company had an accumulated deficit of approximately $83.3 million and cash on hand of approximately $2.9 million.

While we believe we have strategies to increase our revenues and reduce our costs which can be implemented without disrupting the business or completely restructuring the Company, there can be no assurances.

In order to continue to fund our operations we may need to raise additional equity or debt capital in the near term and cannot provide any assurance that we will be successful in doing so, and if we can, on whether the terms will be acceptable to us.

If we are unable to obtain additional financing in the near future, we may be required to pursue a reorganization proceeding, including under applicable bankruptcy or insolvency laws.

Operating Results

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

For the Three Months Ended January 31,

Revenue 2023 % of

Oncology services revenue $ 12,019 100.0 % $ 12,773 100.0 % (5.9) %

Costs and operating expenses:

Cost of oncology services 7,849 65.3 7,699 60.3 1.9

Research and development 2,186 18.2 3,202 25.1 (31.7)

Sales and marketing 1,797 15.0 1,761 13.8 2.0

General and administrative 2,764 23.0 2,569 20.1 7.6

Total costs and operating expenses 14,596 121.4 15,231 119.3 (4.2)

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

For the Nine months ended January 31,

For the Three Months Ended July 31,

Revenue 2023 % of

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Oncology Services Revenue

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.

Oncology services revenue, which is primarily derived from pharmacology studies, was $14.1 million and $12.6 million for the three months ended July 31, 2024 and 2023, respectively, an increase of $1.5 million or 11.9%.

Operational improvements and efficiencies implemented in the prior year led to an increase in our bookings to revenue conversion percentage contributing to the revenue growth.

Cost of Oncology Services

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.

Cost of oncology services for the three months ended July 31, 2024 and 2023 were $7.1 million and $7.7 million, respectively, a decrease of $612,000 or 8.0%.

The decrease in cost of sales was primarily from a decline in outsourced lab services.

Research and Development

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.

Research and development expense for the three months ended July 31, 2024 and 2023 were $1.5 million and $2.8 million, respectively, a decrease of approximately $1.3 million or 47.9%.

The decrease in the three month period was primarily due to a reduction in investment in our developmental programs including target discovery.

Sales and Marketing

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 for the three months ended July 31, 2024 and 2023 were $1.7 million, with a slight decrease of $17,000 or 1.0%.

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 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 for the three months ended July 31, 2024 and 2023 were $2.5 million and $2.9 million, respectively, a decrease of $413,000, or 14.0%.

General and administrative expenses are primarily comprised of compensation, insurance, professional fees, IT and depreciation and amortization 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 decrease for the three months ended July 31, 2024 was primarily from a decrease in compensation and employee recruitment expenses.

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

Cash Flows from Operating Activities

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.

For the three months ended July 31, 2024, net cash provided by operating activities was $311,000.

The cash provided by operating activities was primarily due to income from operations offset by changes in our working capital accounts in the ordinary course of business.

Cash Flows from Investing Activities

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.

Net cash used in investing activities was $0 and $668,000 for the three months ended July 31, 2024 and 2023, respectively.

The cash used in investing activities for the prior year period 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 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.

Net cash used in financing activities was $37,000 for the three months ended July 31, 2024 and $590,000 for the three months ended July 31, 2023.

The cash used in the current year was for financing lease payments.

The cash used in the prior year period was for the Company's stock repurchase program offset slightly 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.

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 effects of the resurgence of COVID-19 and/or its variants or the emergence of new viruses, 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

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-based compensation and warrant assumptions.

The preparation of these condensed consolidated financial statements in conformity with GAAP 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, and stock-based compensation assumptions.

Actual results could differ from those estimates.

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Quantitative and Qualitative Disclosures About Market Risk

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.

We are a smaller reporting 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