News Column

COLLABRX, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations - (Amounts in thousands)

February 13, 2014

Special Note Regarding Forward Looking Statements

Information contained or incorporated by reference in this report contains forward-looking statements. These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology which constitutes projected financial information. These forward-looking statements are subject to risks, uncertainties and assumptions about the Company including, but not limited to, industry conditions, economic conditions and acceptance of new technologies. For a discussion of the factors that could cause actual results to differ materially from the forward-looking statements, see "Part II, Item 1A.-Risk Factors" and the "Liquidity and Capital Resources" section set forth in this section and such other risks and uncertainties as set forth below in this report or detailed in our other SEC reports and filings. We assume no obligation to update forward-looking statements.



The Company

Corporate Information

CollabRx, Inc., a Delaware corporation ("CollabRx," the "Company" or "we," "us," and "our"), is the recently renamed Tegal Corporation, ("Tegal"), which acquired a private company of the same name on July 12, 2012. Following approval by its stockholders on September 25, 2012, Tegal amended its charter and changed its name to "CollabRx, Inc." (the "Name Change").



Tegal was formed in December 1989 to acquire the operations of the former Tegal Corporation, a division of Motorola, Inc. Tegal's predecessor company was founded in 1972 and acquired by Motorola, Inc. in 1978. Tegal completed its initial public offering in October 1995.

Company Background

CollabRx (f/k/a Tegal) was formed in December 1989 to acquire the operations of the former Tegal Corporation, a division of Motorola, Inc. Until recently, we designed, manufactured, marketed and serviced specialized systems used primarily in the production of semiconductors and micro-electrical mechanical devices, including integrated circuits, memory devices, sensors, accelerometers and power devices. Beginning in late 2009, we experienced a sharp decline in revenues resulting from the collapse of the semiconductor capital equipment market and the global financial crisis. In a series of transactions from 2010 to 2012, we sold the majority of our operating assets and intellectual property portfolio. During the same time period, our Board of Directors evaluated a number of strategic alternatives, which included the continued operation of the Company as a stand-alone business with a different business plan, a merger with or into another company, a sale of the Company's remaining assets, and the liquidation or dissolution of the Company. We investigated opportunities within and outside the semiconductor capital equipment industry and evaluated a number of transactions involving other diversified technology-based companies. Throughout this process, we developed and refined our criteria for a business combination, with an eventual focus on the healthcare industry, and specifically information technology and services within the healthcare industry. In July 2012, we completed our acquisition of CollabRx (the "CollabRx Transaction"). Following approval by our stockholders on September 25, 2012, we amended our charter and changed our name to "CollabRx, Inc." (the "Name Change"). 19



--------------------------------------------------------------------------------

Index

Overview of our Current Business

CollabRx, Inc. is a development stage company just entering the commercialization phase of our business. We are focused on developing and delivering content-rich knowledge-based products and services that inform healthcare decision-making, with an emphasis on genomics-based "precision" medicine and big data analytics. Our proprietary content is organized in a knowledge base that expresses the relationship between genetic profiles and therapy considerations including molecular diagnostics, medical tests, clinical trials, drugs, biologics, and other information relevant for cancer treatment planning. We have developed a method for capturing how practicing physicians use this information in the clinical setting, by incorporating within the knowledge base the views of a large network of independent key opinion leaders in medicine and medical research. We search publicly available databases as source documents for our knowledge base. Such databases include those that are available, either free or on a commercial basis, in the areas of clinical trials, drugs, investigational compounds, biomarkers, bioinformatics, cancer ontology and literature. We aggregate, annotate and integrate these datasets for the purpose of defining the relationship of biomarkers to therapeutic strategies, drugs and clinical trials. None of the individual databases we utilize as sources provide information on the interrelationships of these discrete elements. In addition, CollabRx has developed a process for incorporating the guidance of our network of physician and research advisors in the selection of the most relevant data for specific diagnoses, histopathology data, prior treatments and biomarkers represented within the knowledge base. The result of this software- and expert-assisted process is proprietary content which includes decision rules, succinct statements of therapeutic strategy and a comprehensive listing of appropriate drugs and clinical trials, all related to specific aberrations which might be observed in connection with genomic testing. Although the process and results are proprietary, we always refer to the relevant source documentation that provides the support for the identification of an actionable biomarker, typically a peer-reviewed, published paper. In this way, we avoid the "black-box algorithm problem", which is prevalent in other companies' predictive analytical models, but is not currently a trusted methodology in medical practice. Our proprietary content is incorporated into our knowledge base, which is updated regularly with the assistance of a large network of independent advisors, and which forms the basis for all our products and services. Our knowledge base contains no individual patient data, nor do our processes for providing content include the review by our network of independent experts of any individual test data. The physicians and researchers within our network of advisors have agreed to participate in our efforts for an indefinite term, on an uncompensated basis, and without a formal agreement. The board assignments, biographies and current affiliations of all of our advisors are posted on our website. We currently deliver our proprietary content to users via web-based applications and services in the "cloud, " serving physicians and their patients in two settings: (i) at the point-of-care in the clinic and (ii) indirectly, as a part of a genetic test report provided to an ordering physician by a diagnostic testing laboratory, (i.e., the "lab"). Portions of our web-based applications are currently available free to physicians and patients through commercial on-line media partners. The content that we offer to laboratories is based on a "Software as a Service" or SaaS business model, in which our content is provided on a one-time, subscription or per test basis. We use the term "cloud" to mean a product or service that can be delivered via the Internet, usually on a pay-for-use or subscription basis, versus the purchase and installation of enterprise-based software, which typically requires investments in both software and hardware, often also requiring large-scale customization efforts. Our "Genetic Variant Annotation™" or "GVA" is a service offered to diagnostic testing laboratories, including academic medical centers and commercial laboratories. Our lab customers provide us with a test result, usually in the form of an electronic file that represents the results of a genomic test, typically from a "Next Generation Sequencing" ("NGS") or similar testing platform. The test results provided to us contain no patient-identifiable information. We analyze the test results for the purpose of identifying those aberrations which we have annotated in advance as being "actionable" (i.e., related to a therapeutic strategy). We provide the testing lab with a report, incorporating specific information regarding identified biomarkers and associated therapeutic strategies for each, along with relevant drugs and clinical trials, to a level and in a format that we have agreed in advance with our customer. We are compensated for this service either on a per-test or on a volume-adjusted subscription basis. This service is not available to the public and is not available on our website. Our Therapy Finder™ products are a series of cancer-specific, web-based apps which are accessed by physicians and patients, usually in the physician's office. After indicating a number of pre-set options related to stage of cancer, histopathology, prior treatments and presence of biomarkers on an input page, the physician is presented with a results page which explains the role of the biomarker, identifies a possible therapeutic strategy for that particular set of inputs, along with tabs associated with searchable lists of relevant drugs and clinical trials. Therapy Finders are an interactive, informational and educational resource for both physicians and patients, and can be used for decision-support. They neither contain nor store any patient identifiable information. The advisors associated with the development and updating of each app are prominently featured. The development and distribution of Therapy Finders is partially supported by sponsorships and advertising revenue. They are available free of charge through both a commercial channel and on our company website. Our aim is to make this tool available as widely as possible, through as many channels as possible, to help community physicians understand the relevance of biomarker testing and the availability of potential therapies for their advanced cancer patients. 20



--------------------------------------------------------------------------------

Index

Our Therapy Finder™ products are available free-of-charge on both our website and on the MedPage Today website. There is no material difference between the Therapy Finders presented on both websites. The only differences are cosmetic, such as background color and placement of individual frames. Initially, the language used in our Therapy Finders presented on our website was geared toward patients. When the opportunity arose in connection with MedPage Today, we modified the language to be more physician-friendly and indicated this by appending "Professional" to the title "Therapy Finder." In order to avoid confusion, we replaced the patient oriented version on our website with the professional version that is distributed through MedPage Today. At the same time, we also undertook to revise the other Therapy Finders appearing on our website, but not yet distributed through MedPage today, to the professional (physician-friendly) version, and labeled them as such. We anticipate offering both professional and patient oriented versions of our Therapy Finders in the future. The systems and approach that we have developed for knowledge aggregation, content creation and expert advisory management can be applied to many disease states, but we have chosen to focus initially on genomic medicine in cancer, which is sometimes referred to as "precision oncology." This is an area of tremendous activity and promise, where clinical research in genomics has given rise to scores of "targeted" therapies that have proven in many cases to prolong the lives of cancer patients. We believe that oncology is also the area of greatest need, where physicians and patients lack convenient access to clear and easy-to-understand information about which drugs, tests and clinical trials should be considered in constructing a cancer treatment plan based on the genetic profile of a tumor. Our overall vision is that we are at the dawn of an era of explosive growth of data and information generated at the molecular level that must be interpreted and contextualized into knowledge before it can be used effectively by either physicians or patients. We regard this knowledge as being the most valuable portion of the molecular diagnostic process and we believe that all sectors of the healthcare industry, including providers, insurers, drug developers and patients are potential users of this knowledge. We aim to deliver our proprietary interpretive content as quickly as possible and in as many usable forms as possible, via the Internet. The condensed consolidated financial statements have been prepared using the going concern basis, which assumes that we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. The condensed consolidated financial statements are prepared in conformity with generally accepted accounting principles ("GAAP"). Originally founded in 2008, CollabRx has developed clinical advisory networks, expert systems, proprietary tools and processes, and a pipeline of commercial data products and applications ("apps") for cancer. CollabRx Therapy Finders™, the Company's first commercial product, provides sophisticated, credible, personalized, and actionable information to physicians and patients for rapidly determining which medical tests, therapies, and clinical trials may be considered in cancer treatment planning with a specific emphasis on the tumor genetic profile. CollabRx combined three unique elements to solidify its position in advance of commercialization, namely the creation of a highly specialized knowledge base, specialized software tools and applications and a large network of independent experts. CollabRx's staff of PhD-level molecular biologists have worked directly on the curation of our oncology-specific knowledge base for over five years and are supported by others on our team who are trained in molecular biology and bioinformatics, along with consultants, contractors and interns. We do not believe that any of our current or planned products are subject to regulation by the United States Food and Drug Administration (the "FDA") and other regulatory authorities worldwide. However, our business could be adversely affected by any increased regulation of our customers. Changes in the level of regulation, including an increase in regulatory requirements, could subject us to regulatory approvals and delays in launching our products or result in a decrease in demand for our products. Modifying our products to comply with changes in regulations or regulatory guidance could require us to incur substantial costs. Further, changing regulatory requirements may render our products obsolete or make new products or product enhancements more costly or time consuming than we currently anticipate. Failure by us or our customers to comply with applicable regulations could result in increased regulatory scrutiny and enforcement. If our products fail to comply with government regulations or guidelines, we could incur significant liability or be forced to cease offering our applicable products or services. In both domestic and foreign markets, sales by our customers may depend, in large part, upon the availability of reimbursement from third-party payers. These third-party payers include government healthcare programs such as Medicare, managed care providers, private health insurers, and other organizations. Physicians and patients may not order genomic test services or products from our customers unless commercial third-party payers and government payers pay for all, or a substantial portion, of the list price, and certain commercial third-party payers may not agree to reimburse our customers if Centers for Medicaid and Medicare Services ("CMS") does not issue a positive coverage decision. There is currently no national coverage decision that determines whether and how certain genomic tests are covered by Medicare. In the absence of a national coverage decision, local Medicare contractors that administer the Medicare program in various regions have some discretion in determining coverage and therefore payment for such tests. Accordingly, if our customers do not receive full or partial reimbursement for their tests, our revenue and results of operations could be adversely affected. 21



--------------------------------------------------------------------------------

Index

Throughout most of fiscal 2012, our operations consisted mainly of our obligations under our management agreement with Sequel Power, LLC, a company dedicated to development of large-scale solar photovoltaic ("PV") power plants and in providing related advisory services. In January of 2011, we contributed $2 million in cash to Sequel Power in exchange for an approximate 25% economic interest and voting control on its Board of Managers. In connection with the investment, our President and CEO was appointed Chairman of Sequel Power. In addition to our management role in Sequel Power, we were engaged in the sale of remaining intellectual property from our discontinued operations in semiconductor capital equipment and in researching potential new investment opportunities in several areas, including solar technology, medical devices and health technology. On November 22, 2011, we made an investment of $300 in NanoVibronix, Inc. in the form of a convertible promissory note. NanoVibronix is a private company that develops medical devices and products that implement its proprietary therapeutic ultrasound technology which may be utilized for a variety of medical applications requiring low cost therapeutic ultrasound qualities. NanoVibronix is focused on creating products utilizing its unique, patented approach which enables the transmission of low-frequency, low-intensity ultrasound surface acoustic waves ("SAWs") through a variety of soft, flexible materials, including skin and tissue, enabling low-cost, breakthrough devices targeted at large, high-growth markets. We intend that our most recent acquisition of CollabRx, Inc. will form the core of our operations going forward. In September 2012, the Company changed its name to "CollabRx, Inc." and the Company's common stock, which previously traded under the ticker symbol "TGAL" on the Nasdaq Capital Market, began trading under the new ticker symbol "CLRX". We cannot assure you that we will be successful in pursuing our new strategic initiative in CollabRx. If our efforts do not succeed, we may need to raise additional capital which may include capital raises through the issuance of debt or equity securities. If additional funds are raised through the issuance of preferred stock or debt, these securities could have rights, privileges or preferences senior to those of our common stock, and debt covenants could impose restrictions on our operations. Moreover, such financing may not be available to us on acceptable terms, if at all. Failure to raise any needed funds would materially adversely affect us. It is not possible to predict when our business and results of operations will improve. In consideration of these circumstances, the Company may be forced to consider a merger with or into another company or the liquidation or dissolution of the Company, including through a bankruptcy proceeding. We cannot assure you that we will be successful in pursuing this or any other strategic alternatives. If we were to liquidate or dissolve the Company through or outside of a bankruptcy proceeding, you could lose all of your investment in the Company's common stock.



Discontinued Operations

Until 2011, we designed, manufactured, marketed and serviced specialized plasma etch systems used primarily in the production of micro-electrical mechanical systems devices, such as sensors, accelerometers and power devices. Previously, we also sold systems for the etching and deposition of materials found in other devices, such as integrated circuits and optoelectronic devices found in products such as smart phones, networking gear, solid-state lighting, and digital imaging. Beginning in December 2008, sales for our legacy etch and PVD systems fell dramatically as the global financial crisis impacted semiconductor manufacturing. According to Semiconductor Materials and Equipment International, total worldwide semiconductor capital equipment sales for calendar year 2009, in total, were only $15.9B, a decrease of 46.1% over calendar year 2008 capital equipment sales ($29.5B), which were, in turn, 31% lower than worldwide capital equipment sales in calendar year 2007 ($42.8B). As a result of such poor business conditions for semiconductor capital equipment, there were a significant number of consolidations and bankruptcies among semiconductor capital equipment suppliers. In a series of meetings in late May and early June 2009, our Board of Directors reviewed several basic strategic options presented by management. The Board decided at that time that we should retain an advisor to consider "strategic alternatives" for the Company, and to investigate opportunities for the sale of the Company or its assets. We retained Cowen & Co. for this purpose and received periodic briefings on those efforts during 2009 and 2010. In December 2009, having received no bona fide offers for the Company as a going concern, the Board and management agreed to continue operations and to offer selected asset groups to potential buyers. 22



--------------------------------------------------------------------------------

Index

On March 19, 2010, we completed the sale of the legacy Etch and PVD assets to OEM Group, Inc., Due to limited resources, we discontinued our development efforts in NLD at the end of fiscal 2010, and began offering these assets for sale to third-parties. At the same time, we began the process of closing and/or liquidating all of our other wholly-owned subsidiary companies, including SFI and Tegal GmbH, along with branches in Taiwan, Korea and Italy. The subsidiaries were then included in discontinued operations. Following our investment in Sequel Power, and as a result of our continuing efforts to reduce our operating losses, on February 9, 2011, the Company and SPTS entered into an Asset Purchase Agreement. That agreement included the sale of all of the shares of Tegal France, SAS, the Company's wholly-owned subsidiary and product lines and certain equipment, intellectual property and other assets relating to the DRIE systems and certain related technology. In accordance with generally accepted accounting principles, the DRIE business operations related to the designing, manufacturing, marketing and servicing of systems and parts within the semiconductor industry was presented in discontinued operations in our condensed consolidated financial statements. Amounts for the prior periods were reclassified to conform to this presentation. The exit from the DRIE operation was essentially completed by the end of the fourth quarter of our 2011 fiscal year.



Critical Accounting Policies and Estimates

We prepare the condensed consolidated financial statements in conformity with GAAP which requires management to make certain estimates, judgments and assumptions that affect the reported amounts in the accompanying condensed consolidated financial statements, disclosure of contingent assets and liabilities and related footnotes. Accounting and disclosure decisions with respect to material transactions that are subject to significant management judgment or estimates include but are not limited to revenue recognition, accounting for stock-based compensation, accounts for receivables and allowance for doubtful accounts and impairment of long-lived assets. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are defined as those that are required for management to make estimates, judgments and assumptions giving due consideration to materiality, in certain circumstances that affect amounts reported in the condensed, consolidated financial statements, and potentially result in materially different results under different conditions and assumptions. We based these estimates and assumptions on historical experience and evaluate them on an on-going basis to help ensure they remain reasonable under current conditions. Actual results could differ from those estimates. During the three months ended December 31, 2013, there were no significant changes to the critical accounting policies and estimates discussed in the Company's 2013 Annual Report on Form 10-K. 23



--------------------------------------------------------------------------------

Index

Results of Operations

The following table sets forth certain financial items for the three and nine months ended December 31, 2013 and 2012:

Three Months Ended Nine Months Ended December 31, December 31, 2013 2012 2013 2012 Revenue $ 56 $ - $ 577$ 50 Revenue - related party -- 25 -- 75 Total revenue 56 25 577 125 Cost of revenue 104 18 140 38 Gross (loss) profit (48 ) 7 437 87 Operating expenses: Engineering 473 - 1,199 390 Research and development 21 353 234 339 Sales and marketing 57 131 196 185 General and administrative 422 792 1,410 2,421 Total operating expenses 973 1,276 3,039 3,335 Operating loss (1,021 ) (1,269 ) (2,602 ) (3,248 ) Other income, net 7 9 33 29 Loss before income tax benefit (1,014 ) (1,260 ) (2,569 ) (3,219 ) Income tax benefit (20 ) (52 ) (61 ) (52 ) Loss from continuing operations (994 ) (1,208 ) (2,508 ) (3,167 ) Income (loss) from discontinued operations, net of taxes (10 ) 56 145 52 Net loss and comprehensive loss $ (1,004 )$ (1,152 ) $



(2,363 ) $ (3,115 )

Net loss per share from continuing operations: Basic and diluted $ (0.51 )$ (0.64 )$ (1.28 )$ (1.76 ) Net income (loss) per share from discontinued operations: Basic and diluted $ 0.00$ 0.03$ 0.07$ 0.03 Net loss per share: Basic and diluted $ (0.51 )$ (0.61 )$ (1.21 )$ (1.73 ) Weighted-average shares used in per share computation: Basic and diluted 1,963 1,884 1,955 1,798 Revenue Immediately prior to the acquisition of CollabRx, the Company's sole source of revenue was from management activities related to Sequel Power, a related party. Revenue for the three and nine months ended December 31, 2013 increased by $31 and $452, respectively, compared to the three and nine months ended December 31, 2012. The increases in the same periods relate to our acquisition of CollabRx.



As a percentage of total revenue for the three and nine months ended December 31, 2013 and 2012, international sales were 0%. The Company's historical operations had revenues in international markets. With the acquisition of CollabRx, we expect that international sales will once again account for a significant portion of future revenue.

In 2011, Pfizer made a one-time grant of $250 to the Cancer Commons initiative, which contracted with CollabRx to develop and publish a molecular disease model for lung cancer in that same year. CollabRx received $150 for this effort. Pfizer gave no material grants to CollabRx, nor did it invest any capital in CollabRx, and we have no continuing obligations to either Cancer Commons or Pfizer.



Gross Profit

Gross profit for the three months ended December 31, 2013 decreased $55 compared to the three months ended December 31, 2012. Gross profit for the nine months ended December 31, 2013 increased $350 compared to the nine months ended December 31, 2012. Our gross profit reflects the amortization of the Company's product specific software, which was included in the CollabRx acquisition and engineering expenses related to revenue in the three and nine months ended December 31, 2013 and 2012, respectively. 24



--------------------------------------------------------------------------------

Index

Our gross margins for the three and nine months ended December 31, 2013 were (85.7)% and 75.7%, respectively. Our gross margins for the three and nine months ended December 31, 2012, were 28.0% and 69.6%, respectively. These periods included revenue from our former Sequel Power activities, which were management services revenue with no costs incurred to record this revenue, as well as initial genomic information revenues with the amortization of acquired software included in cost of goods. Engineering Following the acquisition of CollabRx, engineering expenses consist primarily of salaries. The increase in Engineering expense of $473 and $809, respectively, for the three and nine months ended December 31, 2013, compared to the same periods in 2012, resulted from the CollabRx acquisition and the employees retained for those operations. The increase in Engineering expenses in fiscal 2013 compared to fiscal 2012 reflected compensation paid to scientists and engineers that became our employees in connection with the CollabRx acquisition, effective July 12, 2012, as well as additional hires and bonuses since the acquisition date. These increases were offset by reclassifying $74 of engineering expenses related the current period's cost of revenue. Engineering expenses for the nine months ended December 31, 2012 began with the date of the CollabRx acquisition, July 12, 2012. Prior to the CollabRx acquisition, the Company had exited from our core historical DRIE operations. We define "engineering" as those development activities that are related to products, content or services which have been offered for sale or for which we have been paid. We define research and development ("R&D") as those development activities which are not related to products which have been offered for sale or for which we have been paid. Research and Development Currently any expenses in R&D result from the change in categorization of certain employee related expenses from engineering to R&D. We include all of those employees who work both on engineering activities and R&D activities in the headcount within Engineering and allocate the expense to R&D, as categorized above. The efforts of the engineering group include supporting existing product offerings as well as developing future product offerings. Consequently, such expenses are segregated, and these expenses make up the total R&D expenses for the three and nine months ended December 31, 2013. The decrease in R&D expenses of $332 and $105 for the three and nine months ended December 31, 2013, respectively, compared to the same periods in 2012 reflected the slowing rate of Engineering efforts being related to R&D. Prior to the CollabRx acquisition, the Company had no expenses associated with R&D for continuing operations for the three and nine months ended December 31, 2012 due to the exit from our core historical DRIE operations.



With the sale of the last two patent lots in the preceding quarter, the Company has no other intellectual property related to discontinued operations.

Sales and Marketing

Following the acquisition of CollabRx, sales and marketing expenses consist primarily of salaries. The change in sales and marketing expense of $(74) and $11 for the three and nine months ended December 31, 2013, respectively, compared to the same periods in 2012 resulted from the CollabRx acquisition. These increases were offset by the reclassification of $12 of marketing expenses related to the current period's cost of revenue. The Company had no expenses associated with sales and marketing for the first quarter of the prior fiscal year due to the exit from our core historical DRIE operations. Sales and Marketing expenses for the nine months ended December 31, 2012 began with the date of the CollabRx acquisition, July 12, 2012.



General and Administrative

General and administrative expenses consist of salaries, legal, accounting and related administrative services and expenses associated with general management, finance, information systems, human resources and investor relations activities. The decreases in general and administrative expenses of $370 and $1,011 for the three and six month periods ended December 31, 2013, respectively, compared to the same periods in 2012 was due primarily to lower expenses related to employees together with lower expenses for stock compensation, legal and consulting services. 25



--------------------------------------------------------------------------------

Index

Other Income, net

Other income, net primarily consists of the change in fair value of the common stock warrant liability and interest earned on our NanoVibronix investment.

Income Taxes

As a result of the acquisition of CollabRx by stock purchase, the Company had no tax basis in the intangible assets acquired. During the three and nine months ended December 31, 2013, the Company recognized $20 and $61, respectively, in tax benefit as a result of this difference.



During the three months ended December 31, 2012, there was no income tax expense or benefit for federal and state income taxes reflected in our condensed consolidated statements of operations due to our net loss and a valuation allowance on the resulting deferred tax asset.

As of March 31, 2013, the Company had net operating loss carryforwards of approximately $111.8 million and $64.9 million for federal and state tax purposes, respectively. The federal net operating loss carryforward will begin to expire in the year ending March 31, 2020 and the state of California net operating loss carryforward began to expire in the year ended March 31, 2013. At March 31, 2013, the Company also had research and experimentation credit carryforwards of $1.3 million and $0.8 million for federal and state income tax purposes, respectively. A portion of the federal credit began to expire in the year ended March 31, 2012 and the state of California will never expire under current law. Net operating loss carryforwards and R&D credits can only offset 90% of taxable income. Discontinued Operations Discontinued operations consists of interest income from accounts related to discontinued operations, other income, gains and losses on the disposal of fixed assets of discontinued operations, gains and losses on foreign exchange and interest income on money market accounts, as well as the reclassification of net expenses associated with our exit from our historical core operations. For the three and nine months ended December 31, 2013 the Company had a net gain from discontinued operations and sale of discontinued assets. Net income from discontinued operations decreased by $66 compared to the three months ended December 31, 2012. Net income from discontinued operations increased by $93 compared to the nine months ended December 31, 2012. The change resulted from the sale of the last two patent lots related to NLD as well as from the final closing of bank accounts in its Italian subsidiary and a federal tax refund regarding discontinued operations and the final closing of foreign subsidiaries. In the three months ended December 31, 2013, the Company recognized a net cash loss of $10 in discontinued operations. In the nine months ended December 31, 2013, the Company recognized a net gain of $145 in discontinued operations primarily as a result of the sale of the last two patent lots for approximately $365 in the second quarter offset by $98 in related expenses. Also in the second quarter the Company recognized $6 of income from discontinued operations. The second quarter gain was offset by the first quarter loss when the Company recognized a reclassification out of accumulated other comprehensive loss and into Loss from Discontinued Operations, net of taxes. The reclassification is primarily related to the recognition of a non-cash loss of $142 from the of foreign exchange differences from its former Tegal foreign subsidiaries, primarily as a result of the final closing of the former Tegal German subsidiary. Also in the first quarter, the Company recognized $20 resulting from the final closing of bank accounts in its Italian subsidiary and a federal tax refund regarding discontinued operations, and a net $4 non cash gain related to the write off of discontinued assets and liabilities in its foreign subsidiaries.



The Company received permission to close the German subsidiary in June 2013. No further audits or reviews are anticipated by foreign taxing authorities.

With the closure of the former Tegal's foreign subsidiaries and the sale of the Company's last two patent lots, the Company has no other assets related to discontinued operations.

26



--------------------------------------------------------------------------------

Index

Contractual Obligations

The following summarizes our contractual obligations as of December 31, 2013, and the effect such obligations are expected to have on our liquidity and cash flows in future periods (in thousands). Contractual obligations: Less than After Total 1 Year 1-3 Years 3-5 Years 5 Years Non-cancelable operating lease obligations $ 463$ 123$ 253$ 87 $ - Total contractual cash obligations $ 463$ 123$ 253$ 87 $ - Most leases provide for the Company to pay real estate taxes and other maintenance expenses. Rent expense for operating leases related to discontinued operations, net of sublease income, was $0 for the three and nine months ended December 31, 2013. Rent expense for operating leases related to discontinued operations, net of sublease income, was $0 for the three and nine months ended December 31, 2012. Rent expense for operating leases related to continuing operations, net of sublease income, was $30 and $100 for the three and nine month periods ended December 31, 2013. Rent expense for operating leases related to continuing operations net of sublease income, was $30 and $55 for the three and nine month periods ended December 31, 2012, respectively. As of September 1, 2012, we maintain our headquarters, encompassing our executive office and storage areas in San Francisco, California. We have a primary lease for office space, consisting of 2,614 square feet, which expires August 31, 2017. Prior to moving to San Francisco, we were located in Petaluma, California. We had a primary lease for office space, consisting of 2,187 square feet, which expired August 31, 2012. We rent storage/workspace areas on a monthly basis. We own all of the equipment used in our facilities. Such equipment consists primarily of computer related assets. Certain of our past sales contracts included provisions under which customers would be indemnified by us in the event of, among other things, a third party claim against the customer for intellectual property rights infringement related to our products. There are no limitations on the maximum potential future payments under these guarantees. We have accrued no amounts in relation to these provisions as no such claims have been made, and we believe we have valid, enforceable rights to the intellectual property embedded in our products.



Liquidity and Capital Resources

For the nine months ended December 31, 2013 and the fiscal year ended March 31, 2013, we financed our operations from existing cash on hand and the net proceeds from the sale of discontinued assets, as disclosed in prior and current filings. Net cash used in operating activities during the nine months ended December 31, 2013 was $1,656. The primary changes in our cash flow statement for the nine months ended December 31, 2013 compared to the corresponding period in the prior fiscal year were due to our acquisition of CollabRx, a net loss of $2,363, partially offset by changes in assets and liabilities of discontinued operations, stock compensation expense and changes in accounts receivable due to revenues related to our new operations. Net cash used in operating activities during the nine months ended December 31, 2012 was $2,833, due primarily to our acquisition of CollabRx, a net loss of $3,115, and stock compensation expense, partially offset by a VAT refund related to the discontinued operations in our former French subsidiary in the amount of 312 Euros. The condensed consolidated financial statements contemplate the realization of assets and the satisfaction of liabilities in the normal course of business for the foreseeable future. We incurred net losses of $2,363 and $3,115 for the nine months ended December 31, 2013 and 2012, respectively. We used cash flows from operations of $1,656 and $2,833 for the nine months ended December 31, 2013 and 2012, respectively. We believe that our existing cash will be adequate to fund operations through fiscal year 2014. While CollabRx, Inc. will form the core of our business and operations going forward, we cannot assure you that we will be successful in pursuing our new strategic initiative in CollabRx. It is not possible to predict when our business and results of operations will improve. In consideration of these circumstances, the Company may be forced to consider a merger with or into another company or the liquidation or dissolution of the company, including through a bankruptcy proceeding. If we were to liquidate or dissolve the company through or outside of a bankruptcy proceeding, you could lose all of your investment in the Company's common stock.



Off-Balance Sheet Arrangements

We do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts.

27



--------------------------------------------------------------------------------

Index


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses


Story Tools