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, 2021, as filed on Form 10-K. Forward-Looking Statements 18
-------------------------------------------------------------------------------- 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. These forward-looking statements include, without limitation, statements regarding: proposed new programs; expectations that regulatory developments or other matters will not have a material adverse effect on our financial position, results of operations, or liquidity; statements concerning projections, predictions, expectations, estimates, or forecasts as to our business, financial and operational results, and future economic performance; and statements of management's goals and objectives and other similar expressions concerning matters that are not historical facts. Words such as "may," "should," "could," "would," "predicts," "potential," "continue," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar expressions, as well as statements in future tense, identify forward-looking statements. 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 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, 2021, 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. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Overview and Recent Developments We are engaged in creating transformative technology solutions to be utilized in oncology drug discovery and development. Our research center consists of a comprehensive set of computational and experimental research platforms. 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. Studies may also include bioinformatics analysis that reveal the differences in the genetic signatures of the tumors that responded to a therapy as compared to the tumors that did not respond. Additionally, we provide computational or experimental support to identify novel therapeutic targets, select appropriate patient populations for clinical evaluation, identify potential therapeutic combination strategies, and develop biomarker hypothesis of sensitivity or resistance. These studies include the use of our in vivo, ex vivo, analytical and computational platforms. As part of our growth strategy, we launched Lumin Bioinformatics ("Lumin"), a new oncology data-driven software program, during fiscal 2021. Our Lumin software contains comprehensive information derived from our research services and clinical studies. Lumin leverages Champions' large Datacenter coupled with analytics and artificial intelligence to provide a robust tool for computational cancer research. 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 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, and we plan to continue investing in this research and development. Our commercial strategy for the validated targets and therapeutics established from this business is wide-ranging and still being developed. It will depend on many factors, and will be specific for each target or therapeutic area identified.
Cash and capital resources
19 -------------------------------------------------------------------------------- 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. In the past, we have met these cash requirements through cash on hand, working capital management, proceeds from certain private placements and public offerings of our securities, and sales of products and services. For the nine months ended
January 31, 2022, the Company had net income of approximately $892,000and cash provided by operations of $5.7 million. As of January 31, 2022, the Company had an accumulated deficit of approximately $71.6 million, working capital of $2.3 million, and cash on hand of $8.7 million. We believe that our cash on hand, together with expected positive cash flows from operations for fiscal year 2022, 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. 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.
The following table summarizes our operating results for the periods presented below (in thousands of dollars):
For the three months ended
% of % of % 2022 Revenue 2021 Revenue Change Oncology services revenue
$ 13,193100.0 % $ 10,812100.0 % 22.0 % Costs and operating expenses: Cost of oncology services 6,406 48.6 4,623 42.8 38.6 Research and development 2,181 16.5 1,879 17.4 16.1 Sales and marketing 1,549 11.7 1,492 13.8 3.8 General and administrative 2,227 16.9 1,836 17.0 21.3 Total costs and operating expenses 12,363 93.7 9,830 91.0 25.8 Income from operations $ 8306.3 % $ 9829.1 % (15.5) %
For the nine months ended
% of % of % 2022 Revenue 2021 Revenue Change Oncology services revenue
$ 36,232100.0 % $ 30,476100.0 % 18.9 % Costs and operating expenses: Cost of oncology services 17,411 48.1 15,603 51.2 11.6 Research and development 6,783 18.7 5,125 16.8 32.4 Sales and marketing 4,764 13.1 4,048 13.3 17.7 General and administrative 6,356 17.5 4,686 15.4 35.6 Total costs and operating expenses 35,314 97.5 29,462 96.6 19.9 Income from operations $ 9182.5 $ 1,0143.3 % (9.5) % Oncology Services Revenue Oncology services revenue, which is primarily derived from pharmacology studies, was $13.2 millionand $10.8 millionfor the three months ended January 31, 2022and 2021, respectively, an increase of $2.4 millionor 22.0%. Oncology services revenue was $36.2 millionand $30.5 millionfor the nine months ended January 31, 2022and 2021, respectively, an increase of 20 --------------------------------------------------------------------------------
Cost of oncology services
Cost of oncology services for the three months ended
January 31, 2022and 2021 were $6.4 millionand $4.6 million, respectively. For the three months ended January 31, 2022and 2021, gross margins were 51.4% and 57.2%, respectively. Cost of oncology services for the nine months ended January 31, 2022and 2021 were $17.4 millionand $15.6 million, respectively. For the nine months ended January 31, 2022and 2021, gross margins were 51.9% and 48.8%, respectively. Cost of sales for the three months ended January 31, 2021were atypically low resulting in an unusually high gross margin. The gross margins for the nine month periods ended January 2022and 2021, respectively, were more indicative of margin trends. The current year to date improvement was primarily due to the reduction in outsourced lab work which offset the increase in compensation and lab supply expenses resulting from the increase in study volume. Additionally, the increase in gross margin demonstrated the inherent leverage in our operating model. Research and Development Research and development expenses for the three months ended January 31, 2022and 2021 were $2.2 millionand $1.9 million, respectively, an increase of approximately $302,000or 16.1%. Research and development expenses for the nine months ended January 31, 2022and 2021 were $6.8 millionand $5.1 million, respectively, an increase of approximately $1.7 millionor 32.4%. The increase for the three and nine month periods was mainly due to increased compensation and sequencing costs related to our increased investment in our therapeutic target discovery platform.
Sales and Marketing
Sales and marketing expenses for the three months ended
January 31, 2022and 2021 were $1.5 million, respectively. Sales and marketing expenses for the nine months ended January 31, 2022and 2021 were $4.8 millionand $4.0 million, respectively, an increase of $716,000, or 17.7%. The increase for the nine month period is mainly due to compensation expense driven by the expansion of our research services business development team and the addition of a Software as a Service ("SaaS") business development team.
General and administrative
General and administrative expenses for the three months ended
January 31, 2022and 2021 were $2.2 millionand $1.8 million, an increase of $391,000, or 21.3%. General and administrative expenses for the nine months ended January 31, 2022and 2021 were $6.4 millionand $4.7 million, an increase of $1.7 million, or 35.6%. The increase was primarily due to an increase in compensation as well as an increase in IT related expenses to support the overall infrastructure growth of the organization. Cash Flows
The following discussion covers the main components of our cash flows:
Cash flow from operating activities
Net cash provided by operating activities was
$5.7 millioncompared to net cash provided by operations of $299,000for the nine months ended January 31, 2022and 2021, respectively. The cash generated from operating activities during the current period was primarily due to improving operating income excluding stock compensation and depreciation and amortization expenses.
Cash flow from investing activities
Net cash used in investing activities was
Cash flow from financing activities
21 -------------------------------------------------------------------------------- Net cash provided by financing activities was
$191,000for the nine months ended January 31, 2022compared to cash provided by financing activities $1.1 millionfor the nine months ended January 31, 2021. Cash provided by financing activities decreased primarily due to a reduction in the number of options exercised compared to the prior year.
Critical accounting estimates and policies
The preparation of these condensed consolidated financial statements in conformity with accounting principles generally accepted in
the United Statesrequires 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 compensation and warrant assumptions. 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 SECon July 26, 2021.
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
We have no off-balance sheet debt or similar obligations. We have no transactions or obligations with related parties that are not disclosed, consolidated or reflected in our reported results of operations or financial condition. We do not guarantee any third party debt.
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