QUOTIENT LTD Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

0
You should read the following discussion and analysis of our financial condition
and results of operations in conjunction with the financial statements and the
related notes to those statements included later in this Annual Report on Form
10-K. In addition to historical financial information, the discussion below
contains forward-looking statements that reflect our plans, estimates, beliefs
and expectations that involve risks and uncertainties. Our actual results and
the timing of events could differ materially from those discussed in these
forward-looking statements. Factors that could cause or contribute to these
differences include those discussed below and elsewhere in this Annual Report,
particularly in ''Risk Factors.''

Insight

We were incorporated in Jersey, Channel Islands on January 18, 2012. On February
16, 2012, we acquired the entire issued share capital of Alba Bioscience Limited
(or Alba), Quotient Biodiagnostics, Inc. (or QBDI) and QBD (QS IP) Limited (or
QSIP) from Quotient Biodiagnostics Group Limited (or QBDG), our predecessor.

Our business

We are a commercial-stage diagnostics company committed to reducing healthcare
costs and improving patient care through the provision of innovative tests
within established markets. Our initial focus is on blood grouping and donor
disease screening, which is commonly referred to as transfusion diagnostics.
Blood grouping involves specific procedures performed at donor or patient
testing laboratories to characterize blood, which includes antigen typing and
antibody detection. Disease screening involves the screening of donor blood for
unwanted pathogens using two different methods, a serological approach (testing
for specific antigens or antibodies) and a molecular approach (testing for DNA
or RNA).

We have over 30 years of experience developing, manufacturing and
commercializing conventional reagent products used for blood grouping within the
global transfusion diagnostics market. We are developing MosaiQ, our proprietary
technology platform, to better address the comprehensive needs of this large and
established market. We believe MosaiQ has the potential to transform transfusion
diagnostics, significantly reducing the cost of blood grouping in the donor and
patient testing environments, while improving patient outcomes.

We currently operate as one business segment with 436 employees in the United
Kingdom, Switzerland and the United States as of March 31, 2022. Our principal
markets are the United States, Europe and Japan. Based on the location of the
customer, revenues outside the United States accounted for 45% and 35% of total
revenue during the years ended March 31, 2022 and 2021, respectively.

We have incurred net losses and negative cash flows from operations in each year
since we commenced operations in 2007. As of March 31, 2022, we had an
accumulated deficit of $725.0 million. We expect our operating losses will
continue for at least the next fiscal year as we continue our investment in the
commercialization of MosaiQ. Our total revenue was $38.5 million for the year
ended March 31, 2022 and $43.4 million for the year ended March 31, 2021. Our
net loss was $125.1 million for the year ended March 31, 2022 and $111.0 million
for the year ended March 31, 2021.

From our incorporation in 2012 to March 31, 2021, we have raised $160.0 million
of gross proceeds through the private placement of our ordinary and preference
shares and warrants, $433 million of gross proceeds from public offerings of our
shares and issuances of ordinary shares upon exercise of warrants and $145.0
million of gross proceeds from the issuance of 12% Senior Secured Notes, or the
"Secured Notes".

On May 26, 2021, we issued $95.0 million aggregate principal amount of the 4.75%
Convertible Notes due 2026 (the "Convertible Notes") and on June 2, 2021, we
issued an additional $10.0 million aggregate principal amount of the Convertible
Notes.

As discussed further below under "-Liquidity and Capital Resources," we have
approximately $18.1 million of cash invested in two funds that have suspended
redemptions, and there can be no assurance as to the timing or amount of future
distributions from these funds.

From March 31, 2022we had cash, cash equivalents and investments of
$83.2 million and $8.7 million restricted cash held in connection with our Secured Securities arrangements and the rental of our property in Eysins, Swiss.

Regulatory approval and business milestones

You should read the following regulatory and commercial milestones update in
conjunction with the discussion included under the sections ''Item 1. Business''
and ''Item 1A. Risk Factors''.

                                     - 46 -
--------------------------------------------------------------------------------

IH Extended and Patient Microarrays

Our extended IH microarray launched commercially in the European Union in the
first half of 2022 and we currently expect that our MosaiQ patient IH microarray
will commercially launch in the European Union before the end of calendar year
2023.

We are currently planning the commercial launch of the extended IH microarray and the patient IH microarray in United States occur in calendar year 2024.

SDS and MDS microchips

We are currently planning the commercial launch of the extended MosaiQ SDS microarray in
European Union take place before the end of the calendar year 2023 in United States before the end of calendar year 2024.

We are currently planning the commercial launch of the MosaiQ MDS microchip in the
European Union occur before the end of calendar year 2025.

CDS Microarrays

We currently expect commercial launch of the CDS autoimmune microarray in the
European Union and the United States to occur before the end of calendar year
2023.

We currently expect the commercial launch of the CDS Allergy Microarray to take place in the European Union before the end of calendar year 2024. Revenue

We generate product sales revenue from the sale of conventional reagent products
directly to hospitals, donor collection agencies and independent testing
laboratories in the United States, the United Kingdom and to distributors in
Europe and the rest of the world, and indirectly through sales to our OEM
customers. We recognize revenues in the form of product sales when the goods are
shipped. Products sold by standing purchase orders as a percentage of product
sales revenue were 66% and 67% for the years ended March 31, 2022 and 2021
respectively. We also provide product development services to our OEM customers.
We recognize revenue from these contractual relationships in the form of product
development fees, which are included in Other revenues. In addition, during the
year ended March 31, 2021, we began to generate sales revenue from the MosaiQ
COVID-19 Microarray in Europe and the United States. For a description of our
revenue recognition policies, see "-Critical Accounting Policies and Significant
Judgments and Estimates-Revenue Recognition and Accounts Receivable."

Our revenue is denominated in multiple currencies. Sales in the United States
and to certain of our OEM customers are denominated in U.S. Dollars. Sales in
Europe and the rest of the world are denominated primarily in U.S. Dollars,
Pounds Sterling or Euros. Our expenses are generally denominated in the
currencies in which our operations are located, which are primarily in the
United Kingdom, Switzerland and the United States. We operate globally and
therefore changes in foreign currency exchange rates may become material to us
in the future due to factors beyond our control.

Cost of revenues and operating expenses

Cost of revenue consists of direct labor expenses, including employee benefits,
overhead expenses, material costs and freight costs, along with the depreciation
of manufacturing equipment and leasehold improvements. Our gross profit
represents total revenue less the cost of revenue, gross margin represents gross
profit expressed as a percentage of total revenue, and gross margin on product
sales represents gross margin excluding other revenues as a percentage of
revenues excluding other revenues. We expect our overall cost of revenue to
increase in absolute U.S. Dollars as we continue to increase our product sales
volumes. However, we also believe that we can achieve efficiencies in our
manufacturing operations, primarily through increasing production volumes.

Our sales and marketing expenses include costs associated with our sales
organization for conventional reagent products, including our direct sales
force, as well as our marketing and customer service personnel, and the costs of
the MosaiQ commercial team. These expenses consist principally of salaries,
commissions, bonuses and employee benefits, as well as travel and other costs
related to our sales and product marketing activities. We expense all sales and
marketing costs as incurred. We expect sales and marketing expense to increase
in absolute U.S. Dollars, primarily as a result of commissions on increased
product sales in the United States and as we grow the MosaiQ commercial team.

Our research and development expenses include costs associated with performing
research, development, field trials and our regulatory activities, as well as
production costs incurred in advance of the commercial launch of MosaiQ.
Research and development

                                     - 47 -
--------------------------------------------------------------------------------

expenses include expenditures for research personnel, fees for contractual and consulting services, travel expenses, laboratory supplies and amortization of laboratory equipment.

We expense all research and development costs as incurred, net of government
grants received and tax credits. Our UK subsidiary claims certain tax credits on
its research and development expenditures and these are included as an offset to
our research and development expenses. Our research and development efforts are
focused on developing new products and technologies for the global transfusion
diagnostics market. We segregate research and development expenses for the
MosaiQ project from expenses for other research and development projects. We do
not maintain detailed records of these other costs by activity. We are nearing
completion of the initial development of MosaiQ and expect our costs associated
with field trials and regulatory approvals will increase at the same time as our
development costs decrease. As we move to commercialization of MosaiQ in the
donor testing market, we expect our overall research and development expense to
decrease.

Our general and administrative expenses include costs for our executive,
accounting and finance, legal, corporate development, information technology and
human resources functions. We expense all general and administrative expenses as
incurred. These expenses consist principally of salaries, bonuses and employee
benefits for the personnel performing these functions, including travel costs.
These expenses also include share-based compensation, professional service fees
(such as audit, tax and legal fees), costs related to our Board of Directors,
and general corporate overhead costs, which include depreciation and
amortization. We expect our general and administrative expenses to increase as
our business develops and also due to the costs of operating as a public
company, such as additional legal, accounting and corporate governance expenses,
including expenses related to compliance with the Sarbanes-Oxley Act, directors'
and officers' insurance premiums and investor relations expenses.

Net interest expense consists primarily of interest charges on our Secured Notes
and Convertible Notes, and the amortization of debt issuance and modification
costs, as well as accrued dividends on the 7% cumulative redeemable preference
shares issued in January 2015. We amortize debt issuance costs and modification
costs over the life of the note and report them as interest expense in our
statements of operations. Net interest also includes the expected costs of the
royalty rights agreements we entered into in October 2016, June 2018, December
2018 and May 2019 with the purchasers or holders of the Secured Notes, as
applicable. See Note 3 ''Debt'' and Note 8 ''Ordinary and Preference Shares -
Preference shares'' to our consolidated financial statements included in this
Annual Report for additional information.

Other income (expense), net consists of the change in fair value of our
convertible debt derivative, warrant liabilities, and impact of exchange rate
fluctuations. These include realized exchange fluctuations resulting from the
settlement of transactions in currencies other than the functional currencies of
our businesses. Monetary assets and liabilities that are denominated in foreign
currencies are measured at the period-end closing rate with resulting unrealized
exchange fluctuations. The functional currencies of our business are Pounds
Sterling, Swiss Franc, Euros, and U.S. Dollars depending on the entity.

As discussed in more detail below, provision for income taxes in the year ended
March 31, 2022 reflected the taxes payable on the taxable income of a subsidiary
and movement in deferred tax positions.

                                     - 48 -
--------------------------------------------------------------------------------

Operating results

Comparison of years ended March 31, 2022 and 2021

The following table sets forth, for the periods indicated, the amounts of certain components of our statements of income and the percentage of total revenue represented by these items, showing the changes from period to period.


                                                  Year-ended March 31,
                                         2022                              2021                          Change
                               Amount        % of revenue        Amount        % of revenue       Amount           %
                                                         (in thousands, except percentages)
Revenue:
Product sales                $   38,283                 99 %   $   35,787                 82 %   $   2,496             7 %
Other revenues                      231                  1 %        7,592                 18 %      (7,361 )         -97 %
Total revenue                    38,514                100 %       43,379                100 %      (4,865 )         -11 %
Cost of revenue                  23,569                 61 %       20,074                 46 %       3,495            17 %
Gross profit                     14,944                 39 %       23,305                 54 %      (8,361 )         -36 %
Operating expenses:
Sales and marketing              11,023                 29 %        9,849                 23 %       1,174            12 %
Research and development         58,691                152 %       53,727                124 %       4,964             9 %
General and administrative       49,058                127 %       42,426                 98 %       6,632            16 %
Total operating expenses        118,771                308 %      106,002                244 %      12,769            12 %
Operating (loss)               (103,827 )             -270 %      (82,697 )             -191 %     (21,130 )          26 %
Other income (expense):
Interest expense, net           (31,954 )              -83 %      (29,804 )              -69 %      (2,150 )           7 %
Other, net                       11,612                 30 %        2,723                  6 %       8,889           326 %
Total other expense, net        (20,342 )              -53 %      (27,081 )              -62 %       6,739           -25 %
Loss before income taxes       (124,169 )             -322 %     (109,778 )             -253 %     (14,391 )          13 %
Provision for income taxes         (961 )                -         (1,254 )                -           293           -23 %
Net loss                     $ (125,130 )             -325 %   $ (111,032 )             -256 %   $ (14,098 )          13 %




Revenue

Product sales revenue increased by 7% to $38.2 million for the year ended March
31, 2022, compared with $35.8 million for the year ended March 31, 2021 while
other revenues decreased by 97%. These changes are further explained below.
Products sold by standing purchase order were 66% of product sales for the year
ended March 31, 2022, compared with 67% for the year ended March 31, 2021.

The table below presents revenues by product group:

                                         Year-ended March 31,
                                  2022                           2021                        Change
                        Amount      % of revenue       Amount      % of revenue        Amount          %
                                                (in thousands, except percentages)
Revenue:
Product sales - OEM
customers              $ 25,653                67 %   $ 23,224                54 %   $    2,429           10 %
Product sales -
direct customers and
distributors             12,539                33 %     11,287                26 %        1,252           11 %
Product sales -
MosaiQ                       91                 0 %      1,276                 3 %       (1,185 )        -93 %
Other revenues              231                 1 %      7,592                18 %       (7,361 )        -97 %
Total revenue          $ 38,514               100 %   $ 43,379               100 %   $   (4,865 )        -11 %


OEM Sales. Product sales to OEM customers increased 10% to $25.7 million for the
year ended March 31, 2022, compared with $23.2 million for the year ended March
31, 2021. The increase was attributable to growth in incremental sales of
conventional reagent products to existing customers.

Direct Sales to Customers and Distributors. Direct product sales increased 11%
to $12.5 million for the year ended March 31, 2022 compared with $11.3 million
for the year ended March 31, 2021. This mainly consisted of direct sales in the
United States which

                                     - 49 -
--------------------------------------------------------------------------------

increased to $11.3 million in the year ended March 31, 2022 compared to $10.2 million in the year ended March 31, 2021 due to growth in sales to existing customers and expansion of our customer base.

Sales of MosaiQ products. Sales of MosaiQ during the year ended March 31, 2022 and 2021 consisted of revenue from our MosaiQ COVID-19 microgrid.

Other Revenues. Other revenues for the year ended March 31, 2022 arose from a
development project for an OEM customer. Other revenues for the year-ended March
31, 2021, arose from the recognition of an initial milestone payment of $7.5
million received from Ortho in respect of the development of the MosaiQ IH3
Microarray and a small development project for an OEM customer. See Note 1,
"Summary of Significant Accounting Policies - Revenue Recognition" to our
consolidated financial statements included in this Annual Report for additional
information.

Cost of sales and gross margin

Cost of revenue increased by 17% to $23.6 million for the year ended March 31,
2022, compared with $20.1 million for the year ended March 31, 2021. The
increase was driven by a $2.7 million write-down of certain raw materials and
work in process inventory associated with MosaiQ to net realizable value and a
7% increase in product sales.

Gross profit on total revenue in the year ended March 31, 2022 was $14.9
million, a decrease of 36% when compared with $23.3 million for the year ended
March 31, 2021. The change was attributable to the $7.4 million decrease in
other revenues (the associated cost of which was included in research and
development expenses) in the year ended March 31, 2021 and the write-down of
inventory of $2.7 million described above.

Gross profit on product sales, which excludes other revenues, was $14.7 million
for the year ended March 31, 2022 compared with $15.7 million for the year ended
March 31, 2021. This decrease was mainly attributable to the write-down of
inventory explained above and offset partially by sales of higher margin
products in the quarter. Gross margin on product sales, which excludes other
revenues, was 38% for the year ended March 31, 2022 compared with 44% for the
year ended March 31, 2021.

Sales and marketing expenses

Sales and marketing increased by 12% to $11.0 million for the year ended March
31, 2022, compared with $9.8 million for the year ended March 31, 2021. This
increase was attributable to greater personnel and other expenses related to the
planned commercial launch of MosaiQ and related travel costs. As a percentage of
total revenue, sales and marketing expenses were 29% for the year ended March
31, 2022 compared to 23% for the year ended March 31, 2021.

Research and development costs

Research and development expenses increased by 9% or $5.0 million to $58.7
million for the year ended March 31, 2022, compared with $53.7 million for the
year ended March 31, 2021. Our research and development expenses included
expenses of $1.5 million and $1.0 million in March 31, 2022 and March 31, 2021,
respectively, related to the costs of our intellectual property license with
TTP. Additionally, the increase in research and development costs is driven by
higher material expenditures associated with the development of MosaiQ, salary
and benefit costs, and the impact of foreign exchange on costs incurred in the
United Kingdom and Switzerland.

General and administrative expenses

General and administrative expenses increased 16% to $49.1 million for the year
ended March 31, 2022, compared with $42.4 million for the year ended March 31,
2021. This increase in the year ended March 31, 2022, was due to costs related
to the debt modification which occurred in October 2021, the impact of foreign
exchange on costs incurred in the United Kingdom and Switzerland, increases in
other advisory fees and offset by lower legal expenses related to our now
settled dispute with Ortho. We recognized $7.0 million of stock compensation
expense in the year ended March 31, 2022 compared with $5.0 million in the year
ended March 31, 2021. Stock compensation expense is recognized over the expected
vesting period of incentive awards. As a percentage of total revenue, general
and administrative expenses was 127% and 98% for the year ended March 31, 2022
and March 31, 2021, respectively.

                                     - 50 -
--------------------------------------------------------------------------------

Other income (expenses)

Net interest expense was $32.0 million for the year ended March 31, 2022,
compared with $29.8 million for the year ended March 31, 2021. Interest expense
in the year ended March 31, 2022 included $22.7 million of interest charges on
our Secured Notes and royalty liabilities compared with $30.3 million in the
year ended March 31, 2021. The reduced expense reflected changes in the royalty
cost estimates and a payment of principal in April 2022. Interest expense for
the year ended March 31, 2022 also included $8.5 million of interest charges
related to the Convertible Notes which were issued during the year ended March
31, 2022. In each of the years ended March 31, 2022 and March 31, 2021, net
interest expense also included $1.1 million of accrued dividends on the 7%
cumulative redeemable preference shares issued in January 2015.

In addition, in the year ended March 31, 2022 we recognized interest income of
$0.3 million on our money market deposits as compared with $1.6 million in the
year ended March 31, 2021.

Other, net was $11.6 million in income for the year-ended March 31, 2022
compared with $2.7 million in income for year-ended March 31, 2021. For the year
ended March 31, 2022 this comprised a $19.5 million gain related to the change
in fair value of derivatives liabilities and share liabilities and $6.9 million
of foreign exchange losses arising on monetary assets and liabilities
denominated in foreign currencies compared to $5.0 million of foreign exchange
gains for the year period ended March 31, 2021. We recorded a $1.0 million and
$2.3 million impairment charge related to our money market funds with Credit
Suisse for the year ended March 31, 2022 and 2021, respectively.

Provision for income taxes

Provision for income taxes in the year ended March 31, 2022 primarily reflects
taxes payable on the taxable income of a subsidiary and the impact of a change
in future tax rates on our deferred tax liabilities.

Provision for income taxes in the year ended March 31, 2021 reflected the taxes
payable on the taxable income of a subsidiary and the resolution of a major tax
uncertainty related to the treatment of tax depreciation allowances, which
resulted in a one-time tax charge of $1.5 million, a reduction of tax related to
certain tax credits related to research and development of $0.6 million, and
on-going tax charges of $0.4 million.

Cash and capital resources

Since our commencement of operations in 2007, we have incurred net losses and
negative cash flows from operations. As of March 31, 2022, we had an accumulated
deficit of $725.0 million. During the year ended March 31, 2022, we incurred a
net loss of $125.1 million and used $119.1 million of cash for operating
activities. During the year ended March 31, 2021, we incurred a net loss of
$111.0 million and used $77.6 million of cash for operating activities. As
described under results of operations, our use of cash during the years ended
March 31, 2022 and March 31, 2021 was primarily attributable to our investment
in the development of MosaiQ and corporate costs, including costs related to
being a public company.

From our incorporation in 2012 to March 31, 2020, we have raised $160.0 million
of gross proceeds through the private placement of our ordinary and preference
shares and warrants, $346.7 million of gross proceeds from public offerings of
our shares and issuances of ordinary shares upon exercise of warrants and $145.0
million of gross proceeds from the issuance of the Secured Notes.

On September 15, 2020we completed a public offering of 20,294,117 newly issued ordinary shares at a price of $4.25 per share that raised $86.3 million gross proceeds before deduction of subscription discounts and other offering costs $5.6 million.

On March 12, 2021, we announced that two funds managed by CSAM in which we had
invested an aggregate of approximately $110.35 million had suspended
redemptions. The investments into these funds were made in accordance with our
investment policy of making individual investments with a minimum of an A rating
from a leading credit-rating agency. Each fund holds short-term credit
obligations of various obligors. According to a press release issued by CSAM,
redemptions in the funds were suspended because "certain part of the Subfunds'
assets is currently subject to considerable uncertainties with respect to their
accurate valuation." CSAM subsequently began a liquidation of the funds.
Pursuant to the liquidation, we have already received cash distributions of
approximately $89.0 million.

While Credit Suisse has advised that the credit assets held by the funds are
covered by insurance that potentially will be available to cover losses the
funds would incur if any of the obligors on the funds' credit assets were to
default, we do not know if the funds will incur losses (net of insurance) on the
credit assets held by the funds. We believe, and have advised Credit Suisse,
that any such losses should be borne by Credit Suisse. On April 4, 2022, Credit
Suisse indicated in its Annual General Meeting that they expected that
litigation will be necessary to reinforce claims against individual debtors and
insurance companies and recovery is not expected to

                                     - 51 -
--------------------------------------------------------------------------------

occur over the next 12 months for any of our funds. Accordingly, we have determined that one of our two funds should be classified as long-term from March 31, 2022.

During the first quarter of fiscal year 2022, we issued and sold $105.0 million
aggregate principal amount of the Convertible Notes in a private offering to
institutional investors. The Convertible Notes are guaranteed by our material
subsidiaries. The Convertible Notes are unsecured, senior obligations and rank
equally in right of payment with all of our existing and future unsecured,
unsubordinated indebtedness. The Convertible Notes are convertible at the option
of the holders at an initial conversion rate of 176.3668 ordinary shares per
$1,000.00 principal amount of Convertible Notes, subject to adjustment. We have
the right to redeem the Convertible Notes in certain circumstances. For further
information about the Convertible Notes, please see our Current Report on Form
8-K filed with the SEC on May 27, 2021.

On June, 24, 2022, the Company announced the pricing of an underwritten public
offering of 66,666,667 ordinary shares and ordinary share equivalents for
aggregate gross proceeds of $20.0 million. The aggregate net proceeds to the
Company from this offering are expected to be approximately $18.5 million, after
deducting underwriting discounts and commissions and other estimated offering
expenses payable by the Company. In addition, the Company has granted the
underwriters a 30-day option to purchase up to an additional 10,000,000 of its
ordinary shares. Closing of the offering is subject to customary closing
conditions.

From March 31, 2022we had cash, cash equivalents and investments of
$83.2 million and $8.7 million restricted cash held in connection with our Secured Securities arrangements and the rental of our property in Eysins, Swiss.

We expect to fund our operations in the near-term, including the ongoing
development of MosaiQ through successful field trial completion, achievement of
required regulatory authorizations and commercialization from a combination of
funding sources. These expected funding sources include the use of existing
available cash and investment balances, the sale of rights and other assets, and
the issuance of new equity or debt.


Cash requirements

                                     - 52 -
--------------------------------------------------------------------------------


The Company's cash requirements within the next twelve months include accounts
payable, accrued compensation and benefits, accrued expenses and other
liabilities, lease liabilities, and other purchase commitments. We expect the
cash required for these obligations to primarily be generated through cash from
operations, existing available cash, and through equity raising and debt
financing which is disclosed within our subsequent events footnotes.

Our long-term cash requirements under our various contractual obligations and commitments include:

Debt obligations including royalties. See Note 3 "Debt" and to our consolidated
financial statements included in this Annual Report for additional information.,
for further detail of our long term debt and timing of expected future payments.
Interest coupon payments are typically paid semi-annually.

7% cumulative redeemable preference shares. See Note 8 "Ordinary and Preference
Shares - Preference shares" for additional discussion regarding the timing of
payments with our preference shares.

Operating leases and financing. See Note 13 “Lease commitments” for more details on our obligations and the timing of expected future lease payments.

STRATEC Biomedical manufacturing agreement. We have entered into a manufacturing
agreement with STRATEC in connection with the supply of MosaiQ instruments over
a six year period. The total remaining purchase obligation under this agreement
is $61 million using March 31, 2022 exchange rates with $9.7 million expected
due over the next 12 months. Subsequent to year-end, our contract with STRATEC
was amended. We now expect $14.1 million to be due over the next twelve months
and the total purchase obligation to remain at $61 million.

Purchase and Other Obligations. These include $27.7 million whose $26.4 million should be paid within the next twelve months. These amounts exclude liabilities already disclosed in our Consolidated Balance Sheet as of March 31, 2022.

Other Liabilities. These include other long-term liabilities reflected in our
Consolidated Balance Sheets as of March 31, 2022, including obligations
associated with certain Swiss employee pension arrangements, unrecognized tax
benefits and various long-term liabilities. There is uncertainty as to the
timing of these payments.

Cash flow for the years ended March 31, 2022 and 2021

Operational activities

Net cash used in operating activities was $119.0 million during the year ended
March 31, 2022, which included net losses of $125.1 million and non-cash items
of $9.5 million. Non-cash items were depreciation and amortization expense of
$7.4 million, share-based compensation expense of $6.2 million, deferred lease
rentals of $0.6 million, Swiss pension costs of $0.7 million, amortization of
deferred debt issue costs and discounts of $11.0 million, accrued preference
share dividends of $1.0 million and provision for income taxes of $1.0 million,
impairment of investments of $1.0 million less change in fair value of
derivative instruments of $19.4 million. We also experienced a net cash outflow
of $3.4 million from changes in operating assets and liabilities during the
period, consisting of a $.2 million increase in inventories, a $1.8 million
increase in other assets, a $3.7 million decrease in accrued compensation and
benefits and a $1.1 million increase in accounts receivable, offset by a $3.4
million increase in accounts payable and accrued liabilities.

Net cash used in operating activities was $77.6 million during the year ended
March 31, 2021, which included net losses of $111.0 million and non-cash items
of $32.7 million. Non-cash items were depreciation and amortization expense of
$8.4 million, share-based compensation expense of $5.0 million, deferred lease
rentals of $0.7 million, Swiss pension costs of $1.1 million, amortization of
deferred debt issue costs of $13.0 million, impairment of short term investments
of $2.3 million, accrued preference share dividends of $1.0 million and deferred
income taxes of $1.3 million. We also experienced a net cash inflow of $0.8
million from changes in operating assets and liabilities during the period,
consisting of a $0.5 million increase in inventories, a $0.5 million increase in
other assets and a $3.4 million decrease in accounts payable and accrued
liabilities, offset by a $0.6 million decrease in accounts receivable and a $4.5
million increase in accrued compensation and benefits.

Investing activities

Net cash from investing activities was $44.1 million in the year ended March 31,
2022, compared to $43.4 million in the year ended March 31, 2021. We divested
$46.9 million net from our short-term investments in the year ended March 31,
2021, compared to investing $47.7 million net in our short term investments in
the year ended March 31, 2021. Purchases of property and equipment in the year
ended March 31, 2022 were $2.8 million and $4.3 million during the year end
March 31, 2021 and were mainly related to payments for MosaiQ instruments and IT
upgrades.

                                     - 53 -
--------------------------------------------------------------------------------

Fundraising activities

Net cash provided by financing activities was $87.6 million during the year ended March 31, 2022made up of $100.5 million generated by the issue of Convertible Bonds, net of debt issue costs, offset by $12.1 million
repayment of secured notes, expenses related to vested restricted stock units of $0.1 million and $0.7 million lease repayments.

Net cash provided by financing activities was $80.3 million during the year ended March 31, 2021made up of $80.7 million generated by the issuance of ordinary shares on September 15, 2020 and $0.2 million generated by the exercise of stock options, offset by $0.6 million lease repayments.

Operating and Capital Expenditure Requirements

We have not achieved profitability on an annual basis since we commenced
operations in 2007 and we expect to incur net losses for at least the next
fiscal year. As we move towards the commercial launch of MosaiQ in the donor
testing market, we expect our operating expenses during the year ended March 31,
2023 to be similar to those of the year ended March 31, 2022, as we continue to
invest in growing our customer base, expanding our marketing and distribution
channels, completing field trials and regulatory filings, hiring additional
employees and investing in other product development opportunities while
development expenditure on MosaiQ reduces.

From March 31, 2022we had cash, cash equivalents and investments of
$83.2 million and $8.7 million restricted cash held in connection with our Secured Securities arrangements and the rental of our property in Eysins, Swiss.

On June, 24, 2022, the Company announced the pricing of an underwritten public
offering of 66,666,667 ordinary shares and ordinary share equivalents for
aggregate gross proceeds of $20.0 million. The aggregate net proceeds to the
Company from this offering are expected to be approximately $18.5 million, after
deducting underwriting discounts and commissions and other estimated offering
expenses payable by the Company.

Our future capital requirements will depend on many factors, including:

?
our progress in developing and commercializing MosaiQ and the cost required to
complete development, obtain regulatory approvals and complete our manufacturing
scale up;

?

our ability to pursue successful alternatives to commercialize MosaiQ in the patient market;

?

our ability to manufacture and sell our conventional reagent products, including the costs and timing of future expansion of our sales and marketing efforts;

?

the impact of the COVID-19 pandemic on the global economy, our business and our development schedule for MosaiQ;

?

our ability to recover the balance of approximately $21.4 million funds invested in two funds which have suspended redemptions;

?

our ability to collect our accounts receivable;

?

our ability to generate cash from our operations;

?

any business or technology acquisitions we may undertake; and

?

our ability to penetrate our existing market and new markets.

The Company has expenditure plans over the twelve months from the date these
financial statements are issued that exceed its current and recently raised cash
and investment balances, raising substantial doubt about its ability to continue
as a going concern. The Company expects to fund its operations, including the
ongoing development of MosaiQ through successful field trial completion,
achievement of required regulatory authorizations and commercialization, from
existing available cash and investment balances, the sale of rights and other
assets, and the issuance of new equity or debt.

                                     - 54 -
--------------------------------------------------------------------------------

Critical Accounting Policies and Significant Judgments and Estimates

We have prepared our consolidated financial statements in accordance with U.S.
GAAP. Our preparation of these consolidated financial statements requires us to
make estimates, assumptions and judgments that affect the reported amounts of
assets, liabilities, expenses and related disclosures at the date of the
consolidated financial statements, as well as revenue and expenses during the
reporting periods. We evaluate our estimates and judgments on an ongoing basis.
We base our estimates on historical experience and on various other factors that
we believe are reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results could therefore
differ materially from these estimates under different assumptions or
conditions.

While our significant accounting policies are described in more detail in Note 1
to our consolidated financial statements included in this Annual Report, we
believe the following accounting policies to be critical to the judgments and
estimates used in the preparation of our financial statements.

Revenue recognition and accounts receivable

Revenue is recognized in accordance with Accounting Standards Update, or ASU,
2014-09, Revenue from Contracts with Customers. Product revenue is recognized at
a point in time upon transfer of control of a product to a customer, which is
generally at the time of delivery at an amount based on the transaction price.
Customers have no right of return except in the case of damaged or ineffective
goods and we have not experienced any significant returns of our products.

We also earn revenue from the provision of development services to a small
number of OEM customers. These development service contracts are reviewed
individually to determine the nature of the performance obligations and the
associated transaction prices. In recent years, our product development revenues
have been commensurate with achieving milestones specified in the respective
development agreements relating to those products. These milestones may include
the approval of new products by the European or U.S. regulatory authorities,
which are not within our control. While there can be no assurance that this will
continue to be the case, the nature of the milestones has been such that they
effectively represent completion of our performance obligations under a
particular part of a development program. Should we fail to achieve these
milestones, we are not entitled under the terms of the development agreements to
any compensation related to the work undertaken to date. As a result, we
typically fully recognize milestone-related revenues as the contractual
milestones are achieved.

Accounts receivable consist primarily of amounts due from OEM customers,
hospitals, donor testing laboratories, and distributors. Accounts receivable are
reported net of an allowance for uncollectible accounts, which we also refer to
as doubtful accounts. The allowance for doubtful accounts represents a reserve
for estimated losses resulting from our inability to collect amounts due from
our customers. Direct sales, where we may make many low value sales to a large
number of customers, represents a larger risk of doubtful accounts, as opposed
to OEM customer sales consisting primarily of a small number of well established
businesses with whom we have a long trading history. The collectability of our
trade receivables balances is regularly evaluated based on a combination of
factors such as the aging profile of our receivables, past history with our
customers, changes in customer payment patterns, customer credit-worthiness and
any other relevant factors. Based on these assessments, we adjust the reserve
for doubtful accounts recorded in our financial statements.

Inventories

We record inventories at the lower of cost (at standard costs, approximating
average costs) or market (net realizable value), net of reserves. We record
adjustments to inventory based upon historic usage, expected future demand and
shelf life of the products held in inventory. We also calculate net realizable
value based on projected future manufacturing costs. If production cost
improvements are not achieved in future periods, reserves against inventory
could increase. We also calculate our inventory value based on the standard cost
of each product. This approach requires us to analyze variances arising in the
production process to determine whether they reflect part of the normal cost of
production, and should therefore be reflected as inventory value, or whether
they are a period cost and should thus not be included in inventory.

Income taxes

We account for income taxes under the asset and liability method, which
requires, among other things, that deferred income taxes be provided for
temporary differences between the tax basis of our assets and liabilities and
their financial statement reported amounts. In addition, deferred tax assets are
recorded for the future benefit of utilizing NOLs and research and development
credit carry forwards. A valuation allowance is established when necessary to
reduce deferred tax assets to the amount expected to be realized.

                                     - 55 -
--------------------------------------------------------------------------------


We follow the accounting guidance for uncertainties in income taxes, which
prescribes a recognition threshold and measurement process for recording
uncertain tax positions taken, or expected to be taken, in a tax return in the
financial statements. Additionally, the guidance also prescribes the
derecognition, classification, accounting in interim periods and disclosure
requirements for uncertain tax positions. We accrue for the estimated amount of
taxes for uncertain tax positions if it is more likely than not that we would be
required to pay such additional taxes. An uncertain tax position will not be
recognized if it has less than a 50% likelihood of being sustained.

We had no accrued interest or penalties associated with unrecognized tax positions, and no such interest or penalties were accrued during the year ended March 31, 2022.

Stock compensation expense

Stock compensation expense is measured at the grant date based on the fair value
of the award and is recognized as an expense in the income statement over the
vesting period of the award. The fair value of option awards at the grant date
is calculated using the Black-Scholes model, which use a number of assumptions
to determine the fair value. Details of the assumptions used are set out in the
notes to the consolidated financial statements included in this Annual Report.

Defined benefit pension obligations

We account for the pension obligations of our Swiss subsidiary as a defined
benefit plan under Accounting Standards Codification Topic 715 Compensation -
Retirement Benefits, or ASC 715. This requires that an actuarial valuation be
performed to determine the funded status of the pension arrangements. The
actuarial valuation is based on a number of assumptions including the expected
return on plan assets, withdrawal and mortality rates, discount rate, and rate
of increase in employee compensation levels.

Assumptions are determined based on our data and appropriate market indicators,
and are evaluated each year as of the plans' measurement date. Should any of
these assumptions change, they would have an effect on net periodic pension
costs and the unfunded benefit obligation.

The expected long-term rate of return on plan assets reflects the average rate
of earnings expected on the funds invested, or to be invested, to provide for
the benefits included in the projected benefit obligations. In determining the
expected long-term rate of return on plan assets, we consider the relative
weighting of plan assets, the historical performance of total plan assets and
individual asset classes and economic and other indicators of future
performance.

The discount rate reflects the rate we would have to pay to purchase high-quality investments that would provide sufficient cash to settle our current pension obligations. A decrease of 25 basis points in the discount rate changes the projected benefit obligation by approximately $1.3 million for our diet.

Royalty Liability

The royalty rights agreements entered into in connection with the issuances of
our Secured Notes and the amendment of the related indenture are treated as
sales of future revenues that meet the requirements of Accounting Standards
Codification Topic 470 "Debt" to be treated as debt. The royalty rights
agreements are individually amortized under the effective interest rate method.
The Company recognizes interest expense over the estimated term of the royalty
rights agreements. Estimating the future cash outflows under the royalty rights
agreements requires us to make certain estimates and assumptions about future
sales of MosaiQ products. These estimates of the magnitude and timing of MosaiQ
sales are subject to significant variability due to the current status of
development of MosaiQ products, and thus are subject to significant uncertainty.
Therefore, the estimates are likely to change as we gain experience of marketing
MosaiQ, which may result in future adjustments to the accretion of the interest
expense and the amortized cost based carrying value of the royalty liability
associated with the royalty rights agreements.


Valuation and impairment of long-lived assets

Long-lived assets to be held and used, including property, plant, and equipment,
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets or asset group may not be recoverable.
Factors we consider important that could trigger an impairment review include,
but are not limited to, the following:

?
significant underperformance relative to expected historical or projected future
operating results;
?
significant negative industry or economic trends; or
?
significant changes or developments in strategy or operations that negatively
affect the utilization of our long-lived assets.

                                     - 56 -
--------------------------------------------------------------------------------


Given the status of the project the valuation of the property, plant and
equipment associated with MosaiQ are reviewed each quarter. Determination of
recoverability is based on an estimate of undiscounted future cash flows
resulting from the use of the assets and their eventual disposition. In the
event that such cash flows are not expected to be sufficient to recover the
carrying amount of the assets, the assets are written down to their fair values.
Estimating the future cash outflows for this purpose requires us to make certain
estimates and assumptions about future sales of MosaiQ products. These estimates
of the magnitude and timing of MosaiQ sales are subject to significant
variability due to the current status of development of MosaiQ products, and
thus are subject to significant uncertainty. We measure any impairment based on
a projected discounted cash flow method using a discount rate determined by
management to be commensurate with the risk inherent in our current business
model.

Changes in these estimates and assumptions could have a significant impact on the determination of the fair value of these assets.

Valuation of short-term investments

On March 12, 2021, we announced that two funds managed by CSAM in which we had
invested an aggregate of approximately $110.35 million had suspended
redemptions. The investments into these funds were made in accordance with our
investment policy of making individual investments with a minimum of an A rating
from a leading credit-rating agency. Each fund holds short-term credit
obligations of various obligors. According to a press release issued by CSAM,
redemptions in the funds were suspended because "certain part of the Subfunds'
assets is currently subject to considerable uncertainties with respect to their
accurate valuation." CSAM subsequently began a liquidation of the funds.
Pursuant to the liquidation, we have already received cash distributions of
approximately $89.0 million.

While Credit Suisse has advised that the credit assets held by the funds are
covered by insurance that potentially will be available to cover losses the
funds would incur if any of the obligors on the funds' credit assets were to
default, we do not know if the funds will incur losses (net of insurance) on the
credit assets held by the funds.

On April 22, 2021, Credit Suisse published its FY 2021 Q1 press release with
commentary related to the Credit Suisse Supply Chain Finance Investment Grade
Fund and the Credit Suisse (Lux) Supply Chain Finance Fund. Notably, Credit
Suisse indicated that investors in the funds should assume losses will be
incurred. Additionally on April 4, 2022, Credit Suisse indicated in its Annual
General Meeting that they expected that litigation will be necessary to
reinforce claims against individual debtors and insurance companies and recovery
is not expected to occur over the next 12 months for one of our funds.
Therefore, we determined that one of our two funds should be classified as
long-term as of March 31, 2022.

As of March 31, 2021, we evaluated the investments in the CSAM managed funds for
impairment and determined that our investment in one of the funds was impaired.
The Company recognized an impairment expense of $2.3 million of impairment
expense during March 2021 related to this fund. Based on information shared by
Credit Suisse in April 4, 2022, we determined that a further impairment of $1.0
million was required related to litigation costs incurred by Credit Suisse which
Credit Suisse communicated would be deducted from investor recoveries.

We view the liquidation of the supply chain finance funds as a fluid situation
with a significant amount of valuation uncertainty. We will closely monitor the
situation and in the event that new information is released that provides
valuation clarity will evaluate the accounting implications accordingly. We
believe, and has advised Credit Suisse, that any losses on the supply chain
funds should be borne by Credit Suisse. We will pursue all available options to
recoup the full amount of its investment in the supply chain funds prior to
liquidation.

Convertible loan derivatives

The Convertible Notes are accounted for in accordance with ASC 470-20, Debt with
Conversion and Other Options ("ASC 470-20") and ASC 815-40, Contracts in
Entity's Own Equity ("ASC 815-40"). Based upon the Company's analysis, it was
determined the Convertible Notes contain embedded features that need to be
separately accounted for as a derivative liability component. The proceeds
received from the issuance of the convertible debt instruments were bifurcated
and recorded as a liability within convertible loan derivatives in the
consolidated balance sheet. The convertible loan derivatives are measured at
fair value and changes are recognized within other, net in the accompanying
consolidated financial statements.

The fair value of the convertible loan derivatives have been determined by
utilizing a single factor lattice model using market-based observable inputs.
The value of these derivatives could vary materially based on changes in these
inputs and any such changes could materially impact our reported results.

                                     - 57 -
--------------------------------------------------------------------------------

Leases

At the inception of an arrangement, we determine whether the arrangement is or
contains a lease based on the unique facts and circumstances present. A lease is
a contract, or part of a contract, that conveys the right to control the use of
identified property, plant or equipment (an identified asset) for a period of
time, in exchange for consideration. We determine if the contract conveys the
right to control the use of an identified asset for a period of time. We assess
throughout the period of use whether we have both of the following: (1) the
right to obtain substantially all of the economic benefits for use of the
identified asset, and (2) the right to direct the use of the identified asset.
This determination is reassessed if the terms of the contract are changed. We
also review the terms of the lease in accordance with Accounting Standards
Update, or "ASU", 2016-02, "Leases" in order to determine whether the lease
concerned is a finance or an operating lease. Most leases with a term greater
than one year are recognized on the balance sheet as right-of-use assets, lease
liabilities and, if applicable, long-term lease liabilities. We have elected not
to recognize on the balance sheet leases with terms of one year or less.

For finance leases, an asset is included within property and equipment and a
lease liability equal to the present value of the minimum lease payments is
included in current or long-term liabilities. Interest expense is recorded over
the life of the lease at a constant rate.

Operating lease liabilities and their corresponding right-of-use assets are
recorded based on the present value of lease payments over the expected
remaining lease term. The operating lease right-of-use assets also include any
lease payments made prior to the commencement date and any initial direct costs
incurred, less any lease incentives received. The interest rate implicit in
lease contracts is typically not readily determinable. As a result, we utilize
our incremental borrowing rates, which are the rates incurred to borrow on a
collateralized basis over a similar term an amount equal to the lease payments
in a similar economic environment. The incremental borrowing rate is determined
at lease commencement, or as of April 1, 2019 for operating leases existing upon
the adoption of ASU 2016-02. The incremental borrowing rate is subsequently
reassessed upon modification to the lease arrangement. Operating lease expense
is recognized on a straight-line basis over the lease term.

In accordance with the guidance in ASU 2016-02, components of a lease should be
split into three categories: lease components (e.g., land, building, etc.),
non-lease components (e.g., common area maintenance, maintenance, consumables,
etc.), and non-components (e.g., property taxes, insurance, etc.). Although
separation of lease and non-lease components is required, certain practical
expedients are available. In particular, entities may elect a practical
expedient to not separate lease and non-lease components and instead account for
each lease component and the related non-lease component together as a single
component. We have elected to account for the lease and non-lease components of
each of its operating leases as a single lease component and allocate all of the
contract consideration to the lease component only. The lease component results
in an operating lease right-of-use asset being recorded on the balance sheet and
amortized on a straight-line basis as lease expense.

Finance lease assets and operating lease right-of-use assets are tested for impairment in accordance with our accounting policy for long-lived assets.

Recent accounting pronouncements

There are no recently issued but not yet adopted accounting pronouncements that are expected to have a material effect on the Company’s consolidated financial statements and related disclosures.

                                     - 58 -

————————————————– ——————————

© Edgar Online, source Previews

Share.

Comments are closed.