SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
(Mark
One)
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þ
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the
quarterly period ended July 31, 2020
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Or
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the
transition period from
to
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Commission
file number 001-11504
CHAMPIONS
ONCOLOGY, INC.
(Exact name
of registrant as defined in its charter)
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Delaware
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52-1401755
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(State or
other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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One
University Plaza, Suite 307
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07601
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Hackensack,
New Jersey
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(Zip
Code)
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(Address of
principal executive offices)
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(201)
808-8400
(Registrant’s
telephone number, including area code)
Not
Applicable
(Former name,
former address and former fiscal year, if changed since last
report)
Securities
registered pursuant to Section 12(b) of the Act:
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Title of
Each Class
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Trading
Symbol(s)
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Name of Each
Exchange on Which Registered
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Common Stock, par value
$0.001 per share
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CSBR
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Nasdaq Capital
Market
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Securities
registered pursuant to Section 12(g) of the Act:
None.
Indicate by check
mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check
mark whether the registrant has submitted electronically every
Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit such files). Yes þ No ¨
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer” and “smaller
reporting company”, and "emerging growth company" in Rule 12b-2 of
the Exchange Act.
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Large accelerated
filer ¨
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Accelerated filer
¨
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Non-accelerated filer
þ
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Smaller reporting
company þ
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Emerging growth
company o
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If an emerging
growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. o
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No þ
The number
of Common Shares of the Registrant outstanding as of
September 4,
2020 was
12,727,888.
DOCUMENTS
INCORPORATED BY REFERENCE - None
INDEX TO
FORM 10-Q
FOR THE
QUARTERLY PERIOD ENDED JULY 31,
2020
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Item 1.
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Item 2.
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Item 3.
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Item 4.
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Item 1.
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Item 1A.
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Item 2.
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Item 3.
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Item 4.
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Item 5.
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Item 6.
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PART I –
FINANCIAL INFORMATION
Item 1.
Financial Statements
CHAMPIONS
ONCOLOGY, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Dollars in
Thousands)
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July 31,
2020
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April 30,
2020
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(unaudited)
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ASSETS
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Current
assets:
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Cash
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$
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6,943
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$
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8,342
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Accounts receivable,
net
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5,039
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4,770
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Prepaid expenses and other
current assets
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360
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385
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Total current
assets
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12,342
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13,497
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Operating
lease right-of-use assets, net
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5,673
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2,798
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Property and equipment,
net
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4,434
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3,993
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Other long-term
assets
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36
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128
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Goodwill
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335
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335
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Total
assets
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$
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22,820
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$
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20,751
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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Current
liabilities:
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Accounts payable
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$
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2,675
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$
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3,140
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Accrued
liabilities
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2,154
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2,502
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Current portion of finance
lease
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72
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125
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Current portion of operating
lease liabilities
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515
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503
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Deferred revenue
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5,669
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5,815
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Total current
liabilities
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11,085
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12,085
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Non-current operating lease
liabilities
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6,044
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3,170
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Other non-current
liabilities
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178
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178
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Total
liabilities
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$
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17,307
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$
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15,433
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Stockholders’
equity:
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Common stock, $.001 par
value; 200,000,000 shares authorized; 12,727,888 and 12,726,728
shares issued and outstanding as of July 31, 2020 and April 30,
2020, respectively
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13
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13
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Additional paid-in
capital
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78,098
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77,978
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Accumulated
deficit
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(72,598
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)
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(72,673
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)
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Total
stockholders’ equity
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5,513
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5,318
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Total
liabilities and stockholders’ equity
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$
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22,820
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$
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20,751
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The accompanying
notes are an integral part of these Condensed Consolidated
Financial Statements.
CHAMPIONS
ONCOLOGY, INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in
Thousands, Except Per Share Amounts)
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Three Months
Ended
July 31,
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2020
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2019
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Oncology services
revenue
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$
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9,547
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$
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6,737
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Costs and
operating expenses:
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Cost of oncology
services
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5,336
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3,752
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Research and
development
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1,597
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1,303
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Sales and
marketing
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1,208
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870
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General and
administrative
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1,382
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1,426
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Total costs and operating
expenses
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9,523
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7,351
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Income (loss) from
operations
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24
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(614
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)
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Other income
(expense):
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Other income
(expense)
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64
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(12
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)
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Income (loss) before
provision for income taxes
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88
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(626
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Provision for income
taxes
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13
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15
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Net income
(loss)
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$
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75
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$
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(641
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)
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Net income (loss) per common
share outstanding
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basic
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$
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0.01
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$
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(0.06
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)
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and diluted
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$
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0.01
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$
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(0.06
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Weighted average common
shares outstanding
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basic
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12,727,275
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11,619,538
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and diluted
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14,231,641
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11,619,538
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The accompanying
notes are an integral part of these Condensed Consolidated
Financial Statements.
CHAMPIONS
ONCOLOGY, INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’
EQUITY
(Dollars in
Thousands)
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Common
Stock
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Additional
Paid-in
Capital
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Accumulated
Deficit
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Total
Stockholders'
Equity
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Shares
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Amount
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Balance April
30, 2020
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12,726,728
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13
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$
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77,978
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$
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(72,673
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)
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$
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5,318
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Stock-based
compensation
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—
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—
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120
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$
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—
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$
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120
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Issuance of common stock on
exercise of stock options
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1,160
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—
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—
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$
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—
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$
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—
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Net income
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—
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—
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—
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75
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75
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Balance July
31, 2020
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12,727,888
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13
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$
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78,098
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$
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(72,598
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)
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$
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5,513
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Common
Stock
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Additional
Paid-in
Capital
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Accumulated
Deficit
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Total
Stockholders'
Equity
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Shares
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Amount
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Balance April
30, 2019
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11,619,538
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12
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$
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72,924
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$
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(70,698
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)
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$
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2,238
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Stock-based
compensation
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—
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—
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131
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—
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131
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Net loss
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—
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—
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—
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(641
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)
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(641
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)
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Balance July
31, 2019
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11,619,538
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12
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$
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73,055
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$
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(71,339
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)
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$
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1,728
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The accompanying
notes are an integral part of these Condensed Consolidated
Financial Statements.
CHAMPIONS
ONCOLOGY, INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in
Thousands)
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Three Months
Ended
July 31,
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2020
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2019
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Operating
activities:
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Net income
(loss)
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$
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75
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$
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(641
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)
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Adjustments to reconcile net
income (loss) to net cash provided by operating
activities:
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Stock-based
compensation
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120
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131
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Depreciation and amortization
expense
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277
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182
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Gain on termination of
operating lease
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(75
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)
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—
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Operating lease right-of use
assets
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(67
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)
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98
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Provision for doubtful
accounts
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(6
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)
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6
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Changes in operating assets
and liabilities:
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Accounts
receivable
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(263
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)
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480
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Prepaid expenses and other
current assets
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25
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52
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Accounts payable
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(465
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)
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(82
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)
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Accrued
liabilities
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(348
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)
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(410
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)
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Other non-current
liabilities
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1
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—
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Operating lease
liabilities
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157
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(42
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)
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Deferred revenue
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(146
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)
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(53
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)
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Net cash used in operating
activities
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(715
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)
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(279
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)
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Investing
activities:
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Purchase of property and
equipment
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(718
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)
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(749
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)
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Refund of security
deposit
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92
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—
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Net cash used in investing
activities
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(626
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)
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(749
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)
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Financing
activities:
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Finance lease
payments
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(58
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)
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(7
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)
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Net cash used in financing
activities
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(58
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)
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(7
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)
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Decrease in cash
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(1,399
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)
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(1,035
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)
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Cash at beginning of
period
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8,342
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3,237
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Cash at end of
period
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$
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6,943
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$
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2,202
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Non-cash
investing activities:
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Right-of-use assets obtained
in exchange for operating lease liabilities
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3,872
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3,205
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The accompanying
notes are an integral part of these Condensed Consolidated
Financial Statements.
CHAMPIONS
ONCOLOGY, INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1.
Organization, Use of Estimates and Basis of
Presentation
Champions
Oncology, Inc. (the “Company”) is engaged in an end-to-end range of
research and development technology solutions and services to
improve the development and use of oncology drugs. The Company’s
TumorGraft Technology Platform is a novel approach to personalizing
cancer care based upon the implantation of human tumors in
immune-deficient mice. The Company provides a technology platform
to pharmaceutical and biotechnology companies using proprietary
TumorGraft studies, which the Company believes may be predictive of
how drugs may perform in clinical settings. Utilizing the
TumorGraft Technology Platform (the "Platform"), a comprehensive
Bank of unique, well characterized "Patient Derived XenoGrafts"
(PDX) models, the Company offers multiple services to
pharmaceutical and biotechnology companies seeking personalized
approaches to drug development. By performing studies to predict
the efficacy of oncology drugs, our Platform facilitates drug
discovery with lower costs and increased speed of drug development
as well as increased adoption of existing drugs.
The Company
has two operating subsidiaries:
Champions Oncology (Israel), Limited and Champions Biotechnology
U.K., Limited. For the three months ended July 31,
2020 and 2019, there were no revenues
earned by these subsidiaries.
The Company’s
foreign subsidiaries functional currency is the U.S. dollar.
Transaction gains and losses are recognized in earnings. The
Company is subject to foreign exchange rate fluctuations in
connection with the Company’s international
operations.
These unaudited
condensed consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and
Exchange Commission, or the SEC. All significant intercompany
transactions and accounts have been eliminated. Certain information
related to the Company’s organization, significant accounting
policies and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles
generally accepted in the United States, or GAAP, has been
condensed or omitted. The accounting policies followed in the
preparation of these unaudited condensed consolidated financial
statements are consistent with those followed in the Company’s
annual consolidated financial statements for the year ended
April 30,
2020, as
filed on Form 10-K. In the opinion of management, these unaudited
condensed consolidated financial statements contain all material
adjustments necessary to fairly state our financial position,
results of operations and cash flows for the periods presented and
the presentations and disclosures herein are adequate when read in
conjunction with the Company’s Annual Report on Form 10-K for the
year ended April 30,
2020. The
results of operations for the interim periods are not necessarily
indicative of the results of operations for a full fiscal
year.
The preparation
of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those
estimates.
Note 2.
Significant Accounting Policies
Cash and Cash Equivalents
The Company
considers only those investments which are highly liquid, readily
convertible to cash, and with original maturities of three months
or less to be cash equivalents. As of July 31, 2020
and April 30,
2020 the Company had no cash
equivalents.
Liquidity
Our liquidity
needs have typically arisen from the funding of our research and
development programs and the launch of new products, working
capital requirements, and other strategic initiatives. In the past,
we have met these cash requirements through our cash, working
capital management, proceeds from certain private placements and
public offerings of our securities, and sales of products and
services. For the three months ended
July 31,
2020, the
Company had net income of approximately $75,000 and cash used in operations
of $715,000. As of July 31,
2020, the
Company had an accumulated deficit of approximately
$72.6
million,
working capital of $1.3 million
and cash
of $6.9
million.
We believe that our cash on hand, together with expected net
positive cash used in operations for fiscal year 2021, are adequate
to fund operations through at least 12 months from the filing of
this 10-Q. However, should our revenue expectations not
materialize, we believe we have cost reduction strategies that
could be implemented without disrupting the business or
restructuring the Company. Should the Company be required to raise
additional capital, there can be no assurance that management would
be successful in raising such capital on terms acceptable to us, if
at all.
Leases
Effective May 1,
2019, the Company accounts for its leases under Accounting
Standards Codification ("ASC") Topic 842, Leases. Under this
guidance, arrangements meeting the definition of a lease are
classified as operating or financing leases and are recorded on the
consolidated balance sheet as both a right-of-use asset and lease
liability, calculated by discounting fixed lease payments over the
lease term at the rate implicit in the lease, if applicable, or the
Company’s incremental borrowing rate. As the Company's leases do
not provide an implicit rate, the Company uses an incremental
borrowing rate based on the information available at commencement
date in determining the present value of lease payments. Lease
liabilities are increased by interest and reduced by payments each
period, and the right-of-use asset is amortized over the lease
term. For operating leases, interest on the lease liability and the
amortization of the right-of-use asset result in straight-line rent
expense over the lease term.
Earnings Per Share
Basic net income
or loss per share is computed by dividing the net income or loss
for the period by the weighted-average number of shares of common
stock outstanding during the period. Diluted net income per share
is computed by dividing the net income or loss for the period by
the weighted-average number of shares of common stock plus dilutive
potential common stock considered outstanding during the period.
Such dilutive shares consist of incremental shares that would be
issued upon exercise of the Company’s common stock purchase
warrants and stock options.
|
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|
|
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|
Three Months
Ended
July 31,
|
|
|
|
2020
|
|
2019
|
|
|
Basic and diluted net (loss)
income per share computation (dollars in thousands):
|
|
|
|
|
|
|
|
Net income (loss)
attributable to common stockholders
|
$
|
75
|
|
|
$
|
(641
|
)
|
|
|
Weighted Average common
shares – basic
|
12,727,275
|
|
|
11,619,538
|
|
|
|
Basic net income (loss) per
share
|
$
|
0.01
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
Diluted income (loss) per
share computation:
|
|
|
|
|
|
|
|
Net income (loss)
attributable to common stockholders
|
$
|
75
|
|
|
$
|
(641
|
)
|
|
|
Income (loss) available to
common stockholders
|
$
|
75
|
|
|
$
|
(641
|
)
|
|
|
|
|
|
|
|
|
Weighted Average common
shares
|
12,727,275
|
|
|
11,619,538
|
|
|
|
Incremental shares from
assumed exercise of stock options
|
1,504,366
|
|
|
—
|
|
|
|
Adjusted weighted average
share – diluted
|
14,231,641
|
|
|
11,619,538
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per
share
|
$
|
0.01
|
|
|
$
|
(0.06
|
)
|
|
|
The following
table reflects the total potential share-based instruments
outstanding at July 31, 2020
and
2019
that could have
an effect on the future computation of dilution per common share,
had their effect not been anti-dilutive:
|
|
|
|
|
|
|
|
July
31,
|
|
2020
|
|
2019
|
Stock options
|
2,276,263
|
|
|
2,374,875
|
|
Warrants
|
—
|
|
|
1,669,773
|
|
|
|
|
|
Total common stock
equivalents
|
2,276,263
|
|
|
4,044,648
|
|
Income Taxes
Deferred income
taxes have been provided to show the effect of temporary
differences between the recognition of expenses for financial and
income tax reporting purposes and between the tax basis of assets
and liabilities, and their reported amounts in the consolidated
financial statements. In assessing the realizability of
deferred tax assets, the Company assesses the likelihood that
deferred tax assets will be recovered through tax planning
strategies or from future taxable income, and to the extent that
recovery is not likely or there is insufficient earnings history, a
valuation allowance is established. Our ability to utilize net
operating losses (“NOL”) carryforwards to offset our future taxable
income would be limited if we have undergone or were to undergo an
“ownership change” within the meaning of Section 382 of the
Internal Revenue Code (the “IRC”). The Company adjusts the
valuation allowance in the period management determines it is more
likely than not that deferred tax assets will or will not be
realized. Changes in valuation allowances from period to
period are included in the tax provision in the period of
change. As of July 31, 2020
and
April 30,
2020, the
Company provided a valuation allowance for all net deferred tax
assets, as recovery is not more likely than not based on an
insufficient history of earnings.
Tax positions are
positions taken in a previously filed tax return or positions
expected to be taken in a future tax return that are reflected in
measuring current or deferred income tax assets and liabilities
reported in the consolidated financial statements. Tax
positions include, but are not limited to, the
following:
|
|
•
|
An allocation or
shift of income between taxing jurisdictions;
|
|
|
•
|
The
characterization of income or a decision to exclude reportable
taxable income in a tax return; or
|
|
|
•
|
A decision to
classify a transaction, entity or other position in a tax return as
tax exempt.
|
The Company
reflects tax benefits only if it is more likely than not that the
Company will be able to sustain the tax position, based on its
technical merits. If a tax benefit meets this criterion,
it is measured and recognized based on the largest amount
of
benefit that is
cumulatively greater than 50% likely to be realized. The
Company recorded $178,000 and $178,000 of liabilities related to
uncertain tax positions relative to one of its foreign operations
as of July 31, 2020
and
April 30,
2020,
respectively.
The Company’s
practice is to recognize interest and/or penalties related to
income tax matters in income tax expense. The Company had no
accrual for interest or penalties on the Company’s balance sheets
at July 31, 2020
and
April 30,
2020, and
has not recognized interest and/or penalties in the statement of
operations for either period. We do not anticipate any significant
unrecognized tax benefits will be recorded during the next 12
months.
The provision for
income taxes for the three months ended July 31,
2020 and 2019 was $13,000 and $15,000, respectively, mainly
attributable to taxable income earned in Israel.
Revenue Recognition
All revenue is
generated from contracts with customers. The Company's arrangements
are service type contracts that mainly have a duration of less than
a year. The Company recognizes revenue when control of these
services is transferred to the customer in an amount, referred to
as the transaction price, that reflects the consideration to which
the Company is expected to be entitled in exchange for those
services. The Company determines revenue recognition utilizing the
following five steps: (1) identification of the contract with a
customer, (2) identification of the performance obligations in the
contract (promised goods or services that are distinct), (3)
determination of the transaction price, (4) allocation of the
transaction price to the performance obligations, and (5)
recognition of revenue when, or as, the Company transfers control
of the product or service for each performance obligation. The
Company records revenues net of any tax assessments by governmental
authorities, such as value added taxes, that are imposed on and
concurrent with specific revenue generating
transactions.
Pharmacology
Study, POS Services and Other Services
The Company
generally enters into contracts with customers to provide oncology
services with payments based on fixed-fee arrangements. At contract
inception, the Company assesses the services promised in the
contracts with customers to identify the performance obligations in
the arrangement. The Company's fixed-fee arrangements for oncology
services are considered a single performance obligation because the
Company provides a highly-integrated service.
The Company
recognizes revenue over time using a progress-based input method
since there is no single output measure that would fairly depict
the transfer of control over the life of the performance
obligation. Revenue is recognized for the single performance
obligation over time due to the Company's right to payment for work
performed to date and the performance does not create an asset with
an alternative use. The Company recognizes revenue as portions of
the overall performance obligation are completed as this best
depicts the progress of the performance obligation.
Variable Consideration
In some cases,
contracts provide for variable consideration that is contingent
upon the occurrence of uncertain future events, such as the success
of the initial performance obligation. Variable consideration is
estimated at the expected value or at the most likely amount
depending on the type of consideration. Estimated amounts are
included in the transaction price to the extent it is probable that
a significant reversal of cumulative revenue recognized will not
occur when the uncertainty associated with the variable
consideration is resolved. The estimate of variable consideration
and determination of whether to include estimated amounts in the
transaction price are based largely on an assessment of its
anticipated performance and all information (historical, current
and forecasted) that is reasonably available to the
Company.
Trade Receivables, Unbilled Services and Deferred
Revenue
In general,
billings and payments are established by contractual provisions
including predetermined payment schedules, which may or may not
correspond to the timing of the transfer of control of the
Company's services under the contract. In general, the Company's
intention in its invoicing (payment terms) is to maintain cash
neutrality over the life of the contract. Upfront payments, when
they occur, are intended to cover certain expenses the Company
incurs at the beginning of the contract. Neither the Company nor
its customers view such upfront payments and contracted payment
schedules as a means of financing. Unbilled services primarily
arise from the timing of payment terms and when an input method of
revenue recognition is utilized and revenue recognized exceeds the
amount billed to the customer.
Deferred revenue
consists of unearned payments received in excess of revenue
recognized. As the contracted services are subsequently performed
and the associated revenue is recognized, the deferred revenue
balance is reduced by the amount of the
revenue
recognized during the period. Deferred revenue is classified as a
current liability on the condensed consolidated balance sheet as
the Company expects to recognize the associated revenue in less
than one year.
Accounting Pronouncements Being Evaluated
In December 2019,
the Financial Accounting Standards Board ("FASB") issued Accounting
Standards Update ("ASU") 2019-12, Simplifying the Accounting for
Income Taxes. The ASU enhances and simplifies various aspects of
the income tax accounting guidance in ASC Topic 740 and removes
certain exceptions for recognizing deferred taxes for investments,
performing intraperiod allocation and calculating income taxes in
interim periods. The ASU also adds guidance to reduce complexity in
certain areas, including recognizing deferred taxes for tax
goodwill and allocating taxes to members of a consolidated group.
This ASU is effective for fiscal years beginning after December 15,
2020, and interim periods within those fiscal years with early
adoption permitted. We are currently assessing the impact of this
update on our consolidated financial statements.
In June 2016, the
FASB issued ASU No. 2016-13, "Financial Instruments - Credit
Losses". This update requires immediate recognition of management’s
estimates of current expected credit losses ("CECL"). Under the
prior model, losses were recognized only as they were incurred. The
new model is applicable to all financial instruments that are not
accounted for at fair value through net income. The standard is
effective for fiscal years beginning after December 15, 2022 for
public entities qualifying as small reporting companies. Early
adoption is permitted. We are currently assessing the impact of
this update on our consolidated financial statements.
Recently Adopted Accounting Pronouncements
In February 2016,
the FASB issued ASU No. 2016-02, "Leases", (Topic 842), which
required the Company to recognize lease assets and lease
liabilities (related to leases previously classified as operating
under previous U.S. GAAP) on its consolidated balance sheet for all
leases in excess of one year in duration. The ASU was effective for
the Company on May 1, 2019. The Company elected to adopt ASU
2016-02 using the modified retrospective method and, therefore,
have not recast comparative periods presented in its unaudited
consolidated financial statements. As permitted under ASU 2016-02,
the Company elected to account for the non-lease components
together with the lease components as a single lease component. The
Company recorded an operating lease right-of-use ("ROU") asset
of $3.2
million,
net of deferred rent of $900,000 and an operating lease
liability of $4.1 million
as of May 1,
2019. See Note 8 of this Form 10-Q for additional information and
required disclosures. Under Topic 842, the Company determined if an
arrangement is a lease at inception. ROU assets and liabilities are
recognized at commencement date based on the present value of
remaining lease payments over the lease term. For this purpose, the
Company considers only payments that are fixed and determinable at
the time of commencement. As the Company's leases do not provide an
implicit rate, the Company uses an incremental borrowing rate based
on the information available at commencement date in determining
the present value of lease payments.
In August 2018,
the FASB issued ASU 2018-15, which amends ASC 350-40,
Intangibles—Goodwill and Other—Internal-Use Software, to address a
customer’s accounting for implementation costs incurred in a cloud
computing arrangement ("CCA") that is a service contract. This
update aligns the accounting for costs incurred to implement a CCA
that is a service arrangement with the guidance on capitalizing
costs associated with developing or obtaining internal-use
software. This ASU was effective for and adopted by the Company on
May 1, 2020. The adoption had no material impact on our
consolidated financial statements.
In June 2018, the
FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic
718): Improvements to Nonemployee Share-Based Payment Accounting".
This ASU expands the scope of Topic 718, Compensation—Stock
Compensation (which currently only includes share-based payments to
employees) to include share-based payments issued to nonemployees
for goods or services. Under the new guidance, the existing
employee guidance will apply to nonemployee share based
transactions (as long as the transaction is not effectively a form
of financing), with the exception of specific guidance related to
the attribution of compensation cost. The cost of nonemployee
awards will continue to be recorded as if the grantor had paid cash
for the goods or services. The new accounting guidance was
effective for the Company on May 1, 2019. The Company adopted this
new rule beginning with its financial reporting for the quarter
ended January 31, 2019. The adoption had no material impact on our
consolidated financial statements.
On November 11,
2019, the FASB issued ASU 2019-08 which clarifies the
accounting for share-based payments issued as consideration payable
to a customer in accordance with ASC 606. Under the ASU, entities
apply the guidance in ASC 718 to measure and classify share-based
payments issued to a customer that are not in exchange for a
distinct good or service (i.e., share-based sales incentives). The
ASU was effective for the Company on May 1, 2020 and the adoption
had no material impact on our consolidated financial
statements.
Note 3.
Accounts Receivable, Unbilled Services and Deferred
Revenue
Accounts
receivable and unbilled services were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
July 31,
2020
|
|
April 30,
2020
|
Accounts
receivable
|
$
|
2,633
|
|
|
$
|
2,655
|
|
Unbilled
services
|
2,689
|
|
|
2,404
|
|
Total accounts receivable and
unbilled services
|
5,322
|
|
|
5,059
|
|
Less allowance for doubtful
accounts
|
(283
|
)
|
|
(289
|
)
|
Total accounts receivable,
net
|
$
|
5,039
|
|
|
$
|
4,770
|
|
Deferred revenue
was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
July 31,
2020
|
|
April 30,
2020
|
Deferred revenue
|
$
|
5,669
|
|
|
$
|
5,815
|
|
Deferred revenue
is shown as a current liability on the Company's condensed
consolidated balance sheet.
Note 4.
Revenue from Contracts with Customers
Oncology Services Revenue
The Company
recognizes revenue under ASC 606, Revenue Recognition - Revenue
from Customers ("ASC 606"). In accordance with ASC 606, revenue is
recognized when, or as, a customer obtains control of promised
services. The amount of revenue recognized reflects the
consideration to which the Company expects to be entitled to
receive in exchange for these services.
A performance
obligation is a promise (or a combination of promises) in a
contract to transfer distinct goods or services to a customer and
is the unit of accounting under ASC 606 for the purposes of revenue
recognition. A contract's transaction price is allocated to each
separate performance obligation based upon the standalone selling
price and is recognized as revenue, when, or as, the performance
obligation is satisfied. The majority of the Company's contracts
have a single performance obligation because the promise to
transfer individual services is not separately identifiable from
other promises in the contracts, and therefore, is not
distinct.
The majority of
the Company's revenue arrangements are service contracts that are
complete within a year or less. There are a few contracts that
range in duration between 1 and 3 years. Substantially all of the
Company's performance obligations, and associated revenue, are
transferred to the customer over time. Most of the Company's
contracts can be terminated by the customer without cause. In the
event of termination, the Company's contracts provide that the
customer pay the Company for services rendered through the
termination date. The Company generally receives compensation based
on a predetermined invoicing schedule relating to specific
milestones for that contract. In addition, in certain instances a
customer contract may include forms of variable consideration such
as performance increases or other provisions that can increase or
decrease the transaction price. This variable consideration is
generally awarded upon achievement of certain performance metrics.
For the purposes of revenue recognition, variable consideration is
assessed on a contract-by-contract basis and the amount to be
recorded is estimated based on the assessment of the Company's
anticipated performance and consideration of all information that
is reasonably available. Variable consideration is recognized as
revenue if and when it is deemed probable that a significant
reversal in the amount of cumulative revenue recognized will not
occur when the uncertainty associated with the variable
consideration is resolved in the future.
Amendments to
contracts are common. The Company evaluates each amendment which
meets the criteria of a contract modification under ASC 606. Each
modification is further evaluated to determine whether the contract
modification should be accounted for as a separate contract or as a
continuation of the original agreement. The Company accounts for
amendments as a separate contract if they meet the criteria under
ASC 606-10-25-12.
Other revenue
represents services provided to the pharmaceutical and
biotechnology companies. The Company does not consider these
services part of their core product offerings.
The following
tables represents disaggregated revenue for the three months ended July 31,
2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
July 31,
|
|
|
2020
|
|
2019
|
|
Pharmacology
services
|
$
|
9,413
|
|
|
$
|
6,530
|
|
|
Personalized oncology
services
|
113
|
|
|
180
|
|
|
Other
|
21
|
|
|
27
|
|
|
Total oncology services
revenue
|
$
|
9,547
|
|
|
$
|
6,737
|
|
|
Contract Balances
Contract assets
include unbilled amounts typically resulting from revenue
recognized in excess of the amounts billed to the customer for
which the right to payment is subject to factors other than the
passage of time. These amounts may not exceed their net realizable
value. Contract assets are classified as current. Contract
liabilities consist of customer payments received in advance of
performance and billings in excess of revenue recognized, net of
revenue recognized from the balance at the beginning of the period.
Contract assets and liabilities are presented on the balance sheet
on a net contract-by-contract basis at the end of each reporting
period. There were no material contract assets or liabilities
recorded on the condensed consolidated balance sheets as of
July 31,
2020 and
April 30, 2020.
Note 5.
Property and Equipment
Property and
equipment is recorded at cost and primarily consists of laboratory
equipment, furniture and fixtures, and computer equipment and
software. Depreciation and amortization is calculated on a
straight-line basis over the estimated useful lives of the various
assets ranging from three to nine years. Property and equipment
consisted of the following (table in thousands):
|
|
|
|
|
|
|
|
|
|
July 31,
2020
|
|
April 30,
2020
|
Furniture and
fixtures
|
$
|
238
|
|
|
$
|
180
|
|
Computer equipment and
software
|
1,689
|
|
|
1,209
|
|
Laboratory
equipment
|
5,437
|
|
|
4,818
|
|
Assets in
progress
|
114
|
|
|
554
|
|
Leasehold
improvements
|
4
|
|
|
4
|
|
|
|
|
|
Total property and
equipment
|
7,482
|
|
|
6,765
|
|
Less: Accumulated
depreciation
|
(3,048
|
)
|
|
(2,772
|
)
|
|
|
|
|
Property and equipment,
net
|
$
|
4,434
|
|
|
$
|
3,993
|
|
Depreciation and
amortization expense, excluding expense recorded under the finance
lease, was $224,000 and $145,000 for the three months ended July
31, 2020
and 2019, respectively.
As of
July 31,
2020 and April 30,
2020,
property, plant and equipment included gross assets held under
finance leases of $343,000 and $366,000, respectively. Related
depreciation expense was approximately $53,000 and $37,000 for the three months ended July
31, 2020
and 2019.
Finance Lease
In November 2014,
the Company entered into a finance lease for laboratory equipment.
The lease had costs of approximately $149,000, at inception, through
November 2019. The final lease payment under this finance
lease of $2,000 was paid during the three
months ended January 31, 2020. As of July 31, 2020
the asset has
been fully depreciated and book value is nil.
In July 2018, the
Company entered into a second finance lease for laboratory
equipment. The lease had total costs of approximately
$266,000, inclusive of interest and
taxes, with a monthly payment of approximately $11,000. Although the
lease
was originally
due to mature in July 2020, the Company decided to pay the
outstanding balance on February 1, 2019. As a result, the entire
outstanding balance of the lease was nil as of July 31,
2019.
In December 2019,
the Company entered into a finance lease for laboratory equipment.
The lease has costs of approximately $231,000, at inception, through
November 2020. This lease expires December 2020. The current
monthly finance lease payment is
approximately $19,000. The future minimum lease
payments remaining under this finance lease
are $77,000. The present value of
minimum future obligations is calculated based on interest rate
of 4.75%. Depreciation and
amortization expense related to this finance lease was
$53,100
for the three
months ended July 31, 2020.
Note 6.
Share-Based Payments
The Company has
in place a 2010 Equity Incentive Plan and a 2008 Equity Incentive
Plan. In general, these plans provide for stock-based compensation
in the form of (i) Non-statutory Stock Options; (ii) Restricted
Stock Awards; and (iii) Stock Appreciation Rights to the Company’s
employees, directors and non-employees. The plans also provide for
limits on the aggregate number of shares that may be granted, the
term of grants and the strike price of option awards.
Stock-based
compensation expense was recognized as follows (table in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
July 31,
|
|
|
2020
|
|
2019
|
|
General and
administrative
|
$
|
47
|
|
|
$
|
132
|
|
|
Sales and
marketing
|
48
|
|
|
22
|
|
|
Research and
development
|
4
|
|
|
3
|
|
|
Cost of oncology
services
|
21
|
|
|
(26
|
)
|
|
Total stock-based
compensation expense
|
$
|
120
|
|
|
$
|
131
|
|
|
Stock Option Grants
Black-Scholes
assumptions used to calculate the fair value of options granted
during the three months ended July 31,
2020 and 2019 were as follows:
|
|
|
|
|
|
|
Three Months
Ended
July 31,
|
|
|
2020
|
|
2019
|
|
Expected term in
years
|
6
|
|
—
|
|
Risk-free interest
rates
|
0.39%
|
|
—%
|
|
Volatility
|
72.64%
|
|
—%
|
|
Dividend yield
|
—%
|
|
—%
|
|
The weighted
average fair value of stock options granted during the
three months
ended July 31, 2020 was $9.85. There was
no
stock options
granted during the three months ended July 31, 2019.
The Company’s
stock options activity for the three months ended July 31,
2020 was
as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors
and
Employees
|
Non-
Employees
|
|
|
Total
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Aggregate
Intrinsic
Value
|
Outstanding, April 30,
2020
|
2,228,326
|
|
43,332
|
|
|
|
2,271,658
|
|
|
$
|
3.23
|
|
|
5.0
|
|
$
|
10,663,000
|
|
Granted
|
7,500
|
|
—
|
|
|
|
7,500
|
|
|
8.94
|
|
|
9.85
|
|
|
Exercised
|
|
|
(1,160
|
)
|
|
|
(1,160
|
)
|
|
4.20
|
|
|
|
|
|
|
Forfeited
|
(500
|
)
|
—
|
|
|
|
(500
|
)
|
|
2.51
|
|
|
|
|
|
|
Canceled
|
(312
|
)
|
(923
|
)
|
|
|
(1,235
|
)
|
|
4.95
|
|
|
|
|
|
Expired
|
—
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, July 31,
2020
|
2,235,014
|
|
41,249
|
|
|
|
2,276,263
|
|
|
3.24
|
|
|
4.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
as of July 31, 2020
|
2,235,014
|
|
41,249
|
|
|
|
2,276,263
|
|
|
3.24
|
|
|
4.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of
July 31, 2020
|
1,942,264
|
|
15,418
|
|
|
|
1,957,682
|
|
|
2.85
|
|
|
4.21
|
|
$
|
11,810,000
|
|
Note 7.
Leases
The Company
accounts for its leases under ASU 2016-02, "Leases", Topic
842.
Operating Leases
The Company
currently leases certain office equipment and its office and
laboratory facilities under non-cancelable operating leases. Rent
expense for operating leases is recognized on a straight-line basis
over the lease term from the lease commencement date through the
scheduled expiration date. Rent expenses totaled
$307,000
and
$239,000
for the three
months ended July 31, 2020 and 2019, respectively. The Company
considers its facilities adequate for its current operational
needs.
The Company
leases the following facilities:
|
|
•
|
One University
Plaza, Suite 307, Hackensack, New Jersey 07601, which, since
November 2011, serves as the Company’s corporate headquarters. The
lease expires in November 2021. The Company recognized
$20,000
and
$24,000
of rental costs
relative to this lease for the three months ended July 31, 2020 and
2019, respectively.
|
|
|
•
|
1330 Piccard
Drive Suite 025, Rockville, MD 20850, which consists of laboratory
and office space where the Company conducts operations related to
its primary service offerings. The Company executed this lease on
January 11, 2017. The operating commencement date was
August 11, 2017. This lease originally expired in August
2028.
|
|
|
◦
|
On March 30,
2020, the Company executed the first amendment to this lease to
expand the existing premises at 1330 Piccard Drive, Suite 025
("Expansion Premises") to add on Suites 050 and 104. This amendment
also extended the current lease term by six months. The Expansion
Premises operating lease commencement date was June 1, 2020 and,
under the amendment, both leases expire February 28,
2029.
|
|
|
◦
|
In accordance
with ASC 842, "Leases", the Company evaluated the first amendment
and also performed a reassessment of the existing lease for Suite
025 to determine the impact of the six-month term extension. As a
result of this assessment, the Company recognized an additional
operating ROU asset and related operating lease liability for Suite
025 of $118,000 and $125,000, respectively, as well as an
incremental net rent expense of $8,000 during the three months ended
July 31, 2020. The Company did not recognize the incremental rental
expense under this amendment during fiscal 2020 as the Expansion
Premises lease commencement date was during fiscal
2021.
|
|
|
◦
|
Upon the
Expansion Premises operating lease commencement date (June 1,
2020), the Company recognized an operating ROU asset and related
operating lease liability for Suites 050 and 104 of
$3.8
million,
each, respectively.
|
|
|
◦
|
For the leases
related to Piccard Drive, the Company recognized
$244,000
and
$151,000
of rental expense
for the three months ended July 31, 2020 and 2019.
|
|
|
•
|
1405 Research
Boulevard, Suite 125, Rockville, Maryland 20850 (“New Location”),
which consists of laboratory and office space where the Company
conducted operations related to its primary service offerings. The
Company executed this lease on November 1, 2018. The operating
commencement date was January 17, 2019. This lease was set to
expire in April 2024. The Company recognized
$43,000 and $64,000 of
rental expense for the three months ended July 31, 2020 and 2019,
respectively. The Company terminated this lease on June 30, 2020
and transitioned its activities from this location to the Expansion
Premises, as defined above, during the first quarter of fiscal
2021. Upon lease termination, the Company recognized a decrease in
the related operating ROU asset and operating lease liability of
approximately $850,000 and $926,000, respectively, as well as a
gain on lease termination of $76,000.
|
ROU assets and
lease liabilities related to our current operating leases are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
July 31,
2020
|
July 31,
2019
|
Operating lease right-of-use
assets, net
|
$
|
5,673
|
|
$
|
3,103
|
|
Current portion of operating
lease liabilities
|
515
|
|
457
|
|
Non-current portion of
operating lease liabilities
|
6,044
|
|
3,553
|
|
As of July 31, 2020, the
weighted average remaining operating lease term and the weighted
average discount rate were 8.42 years and 6.10%,
respectively.
Future minimum lease payments
due each fiscal year as follows (in thousands):
|
|
|
|
|
2021
|
$
|
1,117
|
|
2022
|
1,851
|
|
2023
|
1,818
|
|
2024
|
1,844
|
|
2025
|
1,867
|
|
Thereafter
|
7,268
|
|
Total
|
$
|
15,765
|
|
Refer to Note 5, Property and
Equipment, for more information on financing leases.
Note 8.
Related Party Transactions
Related party
transactions include transactions between the Company and its
shareholders, management, or affiliates. The following
transactions were in the normal course of operations and were
measured and recorded at the exchange amount, which is the amount
of consideration established and agreed to by the
parties.
Consulting Services
During the
three months
ended July 31, 2020 and 2019, the Company paid an
affiliate of a board member $18,000 for consulting services
unrelated to his duty as a board member. During
the three months ended July 31,
2020 and 2019, the Company paid an
affiliate of another board member $5,600 and 15,200,
respectively, for consulting services unrelated to their duties as
a board member. As of July 31,
2020,
$7,400 was due to these related
parties.
Note 9.
Commitments and Contingencies
Risks and uncertainties related to Covid-19
In December 2019,
a novel strain of coronavirus, COVID-19, was first identified in
Wuhan, China. This virus continues to spread globally and, as of
July 2020, has spread to over 200 countries, including the
United States. The spread of COVID-19 from China to other countries
has resulted in the World Health Organization declaring the
outbreak of COVID-19 as a “pandemic,” or a worldwide spread of a
new disease, on March 11, 2020. Many countries around the world
have imposed quarantines and restrictions
on travel and
mass gatherings to slow the spread of the virus. Employers are also
required to increase, as much as possible, the capacity and
arrangement for employees to work remotely. In addition, on March
11, 2020, the President of the United States issued a proclamation
to restrict travel to the United States from foreign nationals who
have recently been in certain European and Latin American
countries. Although, to date, these restrictions have not impacted
our operations, the effect on our business, from the spread of
COVID-19 and the actions implemented by the governments of the
United States and elsewhere across the globe, may worsen over
time.
Any
outbreak of contagious diseases, or other adverse public health
developments, could have a material and adverse effect on our
business operations. These could include disruptions or
restrictions on our ability to travel, pursue partnerships and
other business transactions, receive shipments of biologic
materials, as well as be impacted by the temporary closure of the
facilities of suppliers. The spread of an infectious disease,
including COVID-19, may also result in the inability of our
suppliers to deliver supplies to us on a timely basis. In addition,
health professionals may reduce staffing and reduce or postpone
meetings with clients in response to the spread of an infectious
disease. Though we have not yet experienced such events, if they
would occur, they could result in a period of business disruption,
and in reduced operations, any of which could materially affect our
business, financial condition and results of operations. However,
as of the date of this Form 10-Q, we have not experienced a
material adverse effect on our business nor the need for reduction
in our work force; and, currently, and we do not expect any
material impact on our long-term activity. The extent to which
COVID-19 impacts our business will depend on future developments
which are highly uncertain and cannot be predicted, including, but
not limited to, new information which may emerge concerning the
increased severity of COVID-19, the actions to contain COVID-19, or
treat its impact.
Legal Matters
The Company is
not currently party to any legal matters to its knowledge. The
Company is not aware of any other matters that would have a
material impact on the Company’s financial position or results of
operations.
Item 2.
Management’s Discussion and Analysis of Financial Condition
and Results of
Operations
The
following discussion of our historical results of operations and
our liquidity and capital resources should be read in conjunction
with the condensed consolidated financial statements and related
notes that appear elsewhere in this report and our most recent
annual report for the year ended April 30,
2020, as filed
on Form 10-K.
Forward-Looking
Statements
This Quarterly
Report on Form 10-Q contains certain “forward-looking statements,”
which include information relating to future events, future
financial performance, strategies, expectations, competitive
environment, regulation, and availability of resources. These
forward-looking statements include, without limitation, statements
regarding: proposed new programs; expectations that regulatory
developments or other matters will not have a material adverse
effect on our financial position, results of operations, or
liquidity; statements concerning projections, predictions,
expectations, estimates, or forecasts as to our business, financial
and operational results, and future economic performance; and
statements of management’s goals and objectives and other similar
expressions concerning matters that are not historical facts. Words
such as “may,” “should,” “could,” “would,” “predicts,” “potential,”
“continue,” “expects,” “anticipates,” “future,” “intends,” “plans,”
“believes,” “estimates” and similar expressions, as well as
statements in future tense, identify forward-looking
statements.
Forward-looking
statements should not be read as a guarantee of future performance
or results and will not necessarily be accurate indications of the
times at, or by, which such performance or results will be
achieved. Forward-looking statements are based on information
available at the time those statements are made or management’s
good faith belief as of that time with respect to future events,
and are subject to risks and uncertainties that could cause actual
performance or results to differ materially from those expressed in
or suggested by the forward-looking statements.
Forward-looking
statements speak only as of the date the statements are made.
Factors that could cause actual results to differ from those
discussed in the forward-looking statements include, but are not
limited to, those described in “Risk Factors” in Part I, Item 1A of
our Annual Report on Form 10-K for the fiscal year ended
April 30,
2020, as
updated in our subsequent reports filed with the SEC, including any
updates found in Part II, Item 1A of this or other reports on Form
10-Q, if any. You should not put undue reliance on any
forward-looking statements. We assume no obligation to update
forward-looking statements to reflect actual results, changes in
assumptions, or changes in other factors affecting forward-looking
information, except to the extent required
by applicable
securities laws. If we do update one or more forward-looking
statements, no inference should be drawn that we will make
additional updates with respect to those or other forward-looking
statements.
Overview and
Recent Developments
We are engaged in
the development and sale of advanced technology solutions and
products to personalize the development and use of oncology
drugs. Utilizing our TumorGraft Technology Platform (the
"Platform"), a comprehensive Bank of unique, well characterized PDX
models, we provide select services to pharmaceutical and
biotechnology companies seeking personalized approaches to drug
development. By performing studies to predict the efficacy of
oncology drugs, our Platform facilitates drug discovery with lower
costs and increased speed of drug development as well as increased
adoption of existing drugs.
Our Platform
provides a novel approach to simulating the results of human
clinical trials used in developing oncology drugs. We believe it
costs up to $100,000 per patient in oncology clinical trials and
the typical cost for each phase of development per year increases
from approximately $3 million in the pre-clinical setting to
approximately $150 million in phase III clinical trials. Simulating
trials before executing them provides benefits to both
pharmaceutical companies and patients. Pharmaceutical companies can
lower the risk of spending resources on drugs that do not show
significant anti-cancer activities and increase the chance that the
clinical development path they pursue will be focused on an
appropriate patient population and a successful combination with
other drugs.
We plan to
continue our efforts to expand our TumorGraft Technology Platform
in order to expand our TOS program. We have previously disclosed
that our POS program would not be the focus of our growth moving
forward and this plan remains unchanged.
In December 2019,
a novel strain of coronavirus, COVID-19, was first identified in
Wuhan, China. This virus continues to spread globally and, as of
July 2020, has spread to over 200 countries, including the
United States. The spread of COVID-19 from China to other countries
has resulted in the World Health Organization declaring the
outbreak of COVID-19 as a “pandemic,” or a worldwide spread of a
new disease, on March 11, 2020. Many countries around the world
imposed quarantines and restrictions on travel and mass gatherings
to slow the spread of the virus. Employers are also required to
increase, as much as possible, the capacity and arrangement for
employees to work remotely. In addition, on March 11, 2020, the
President of the United States issued a proclamation to restrict
travel to the United States from foreign nationals who have
recently been in certain European and Latin American countries.
Although, to date, these restrictions have not impacted our
operations, the effect on our business, from the spread of COVID-19
and the actions implemented by the governments of the United States
and elsewhere across the globe, may worsen over time.
Any
outbreak of contagious diseases, or other adverse public health
developments, could have a material and adverse effect on our
business operations. These could include disruptions or
restrictions on our ability to travel, pursue partnerships and
other business transactions, receive shipments of biologic
materials, as well as be impacted by the temporary closure of the
facilities of suppliers. The spread of an infectious disease,
including COVID-19, may also result in the inability of our
suppliers to deliver supplies to us on a timely basis. In addition,
health professionals may reduce staffing and reduce or postpone
meetings with clients in response to the spread of an infectious
disease. Though we have not yet experienced such events, if they
would occur, they could result in a period of business disruption,
and in reduced operations, any of which could materially affect our
business, financial condition and results of operations. However,
as of the date of this Form 10-Q, we have not experienced a
material adverse effect on our business nor the need for reduction
in our work force; and, currently, and we do not expect any
material impact on our long-term activity. The extent to which
COVID-19 impacts our business will depend on future developments
which are highly uncertain and cannot be predicted, including, but
not limited to, new information which may emerge concerning the
increased severity of COVID-19, the actions to contain COVID-19, or
treat its impact.
Liquidity
and Capital Resources
Our liquidity
needs have typically arisen from the funding of our research and
development programs and the launch of new products, working
capital requirements, and other strategic initiatives. In the past,
we have met these cash requirements through cash, working capital
management, proceeds from certain private placements and public
offerings of our securities, and sales of products and services.
For the three months ended
July 31,
2020, the
Company had net income of approximately $75,000 and cash used in operations
of $715,000. As of July 31,
2020, the
Company had an accumulated deficit of approximately
$72.6
million,
working capital of $1.3
million,
and cash of $6.9
million.
We believe that our cash on hand, together with expected positive
cash flows from operations for fiscal year 2021, are adequate to
fund operations through at least 12 months from the filing of this
10-Q. However, should our revenue expectations not materialize, we
believe we have cost reduction strategies that could be implemented
without disrupting the business or restructuring the Company.
Should the Company be required to raise additional capital, there
can be no assurance that management would be successful in raising
such capital on terms acceptable to us, if at all.
Operating
Results
The following
table summarizes our operating results for the periods presented
below (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
Three Months Ended July 31,
|
|
2020
|
|
%
of
Revenue
|
|
2019
|
|
%
of
Revenue
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oncology services
revenue
|
$
|
9,547
|
|
|
100.0
|
%
|
|
$
|
6,737
|
|
|
100.0
|
%
|
|
41.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Costs and
operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of oncology
services
|
5,336
|
|
|
55.9
|
|
|
3,752
|
|
|
55.7
|
|
|
42.2
|
|
Research and
development
|
1,597
|
|
|
16.7
|
|
|
1,303
|
|
|
19.3
|
|
|
22.6
|
|
Sales and
marketing
|
1,208
|
|
|
12.7
|
|
|
870
|
|
|
12.9
|
|
|
38.9
|
|
General and
administrative
|
1,382
|
|
|
14.5
|
|
|
1,426
|
|
|
21.2
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and operating
expenses
|
9,523
|
|
|
99.8
|
|
|
7,351
|
|
|
109.1
|
|
|
29.5
|
|
Income (loss) from
operations
|
$
|
24
|
|
|
0.2
|
%
|
|
$
|
(614
|
)
|
|
(9.1
|
)%
|
|
103.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended July 31,
|
Oncology Services Revenue
Oncology services
revenue was $9.5 million
and
$6.7
million for the three months ended July 31,
2020 and 2019, respectively, an increase
of $2.8
million or 41.7%. The increase in revenue for
the three month period is due to increased sales, both in number
and size of studies, an increase in demand for our services, the
growth of the platform, and expansion of our product line.
Additionally, customers are seeking more complex study designs and
end point analysis testing, leading to larger contracts, which
contributed to revenue growth.
Cost of Oncology Services
Cost of oncology
services for the three months ended July 31,
2020 and 2019 were $5.3 million
and
$3.8
million,
respectively, an increase of $1.6 million
or
42.2%. For the
three months
ended July 31, 2020 and 2019, gross margins were
44.1%
and
44.3%, respectively. The increase
in cost of oncology services for the three-month period was mainly
due to an increase in compensation and outsourced lab service
expenses. With the exception of outsourced lab services, the
overall expense increase is generally in line with the expected
contribution based on the growth in revenue, study volume, and
expansion into new services. Gross margin varies based on timing
differences between expense and revenue recognition and was
impacted by the increase in costs on growing study volume in
advance of revenue recognition. The cost of outsourced lab services
contributed to this effect.
Research
and Development
Research and
development expenses for the three months ended July 31,
2020 and 2019 were $1.6 million
and
$1.3
million,
respectively, an increase of approximately $300,000 or 22.6%.
The increase for the three month period is mainly due to
increased compensation and lab supply expense as we continued to
develop new service capabilities and endpoint testing analysis, and
sequencing costs as we continued to characterize our
TumorBank.
Sales and Marketing
Sales and
marketing expenses for the three months ended July 31,
2020 and 2019 were $1.2 million
and
$870,000, respectively, an increase
of $338,000, or 38.9%. The increase for the three
month period is mainly due to compensation expense driven by the
continued expansion of our sales force and commissions earned on
increased sales.
General and Administrative
General and
administrative expenses for both the three months ended July 31,
2020 and 2019 were $1.4
million.
General and administrative expenses are primarily comprised of
compensation, insurance, accounting fees, and depreciation
expenses.
Inflation
Inflation does
not have a meaningful impact on the results of our
operations.
Cash Flows
The following
discussion relates to the major components of our cash
flows:
Cash Flows
from Operating Activities
Net cash used in
operating activities was $715,000 for the three months ended July 31,
2020 compared to net cash used in
operating activities of $279,000 for the three months ended July 31,
2019,
respectively. The decrease in cash from operating activities during
the current period was primarily due to changes in current balance
sheet accounts in the ordinary course of business, including an
increase in net accounts receivable of $263,000 and a reduction in accounts
payable and accrued expenses of approximately
$813,000.
Cash Flows
from Investing Activities
Net cash used in
investing activities was $626,000 and $749,000 for the three months ended July 31,
2020 and 2019, respectively. Cash used in
investing activities was primarily related to the purchase of lab
equipment and the development of software required for the
Company's new products and
services.
Cash Flows
from Financing Activities
Net cash used in
financing activities was $58,000 for the three months ended July 31,
2020 compared to the net cash used
in financing activities of $7,000 for the three months ended
July 31, 2019, respectively. Cash used in
financing activities resulted from a reduction in option exercises
during the current period.
Critical
Accounting Estimates and Policies
The preparation
of these condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States
requires management to apply methodologies and make estimates and
assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Significant
estimates of the Company include, among other things, accounts
receivable realization, revenue recognition (replacement of
licensed tumors), valuation allowance for deferred tax assets,
valuation of goodwill, and stock compensation and warrant
assumptions. Actual results could differ from those estimates. The
Company’s critical accounting policies are summarized in the
Company’s Annual Report on Form 10-K, filed with the SEC on July
28, 2020.
Recent Accounting Pronouncements
For detailed
information regarding recently issued accounting pronouncements and
the expected impact on our condensed consolidated financial
statements, see Note 2, "Significant Accounting Policies" in the
accompanying Notes to Condensed Consolidated Financial Statements
included in Item 1 of this Report on Form 10-Q.
Off-Balance Sheet Financing
We have no
off-balance sheet debt or similar obligations. We have
no transactions or obligations with related parties that are not
disclosed, consolidated into or reflected in our reported results
of operations or financial position. We do not guarantee
any third-party debt.
Item 3.
Quantitative and Qualitative Disclosures About Market
Risk
Not applicable to
smaller reporting companies.
Item 4.
Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
It is
management’s responsibility to establish and maintain “disclosure
controls and procedures” as such term is defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934. Our management, with the
participation of our Chief Executive Officer and our Chief
Financial Officer have reviewed and evaluated the effectiveness of
our disclosure controls and procedures as of the end of the period
covered by this quarterly report. Based on that evaluation, our
management, including our Chief Executive Officer and our Chief
Financial Officer, have concluded that our disclosure controls and
procedures were effective as of July 31, 2020
at the reasonable
assurance level in ensuring that information required to be
disclosed in the reports that we file or submit under the
Securities Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms and is accumulated and
communicated to management, including our Chief Executive Officer
and our Chief Financial Officer as appropriate, to allow timely
decisions regarding required disclosure.
Changes in
Internal Control Over Financial Reporting
There were no
changes in our internal control over financial reporting in
connection with the evaluation required by Rule 13a-15(d) of the
Exchange Act that occurred during the period covered by this
Quarterly Report on Form 10-Q that have materially affected, or are
reasonably likely to materially affect, our internal control over
financial reporting.
PART II –
OTHER INFORMATION
Item 1.
Legal Proceedings
None.
Item 1A.
Risk Factors
As a smaller
reporting company, we are not required to provide the information
required by this Item; however, the discussion of our business and
operations should be read together with the Risk Factors set forth
in our Annual Report on Form 10K filed with the Securities and
Exchange Commission on July 28, 2020. Such risks and uncertainties
have the potential to affect our business, financial condition,
results of operations, cash flow, strategies or prospects in a
material and adverse manner.
Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds.
None.
Item 3.
Defaults Upon Senior Securities
None.
Item 4. Mine
Safety Disclosures
Not
applicable.
Item 5.
Other Information
None.
Item 6.
Exhibits
|
|
|
|
No.
|
|
Exhibit
|
31.1*
|
|
|
31.2*
|
|
|
32.1**
|
|
|
|
|
|
|
|
101.INS*
|
|
XBRL Instance
Document.
|
101.SCH*
|
|
XBRL Taxonomy Extension
Schema Document.
|
101.CAL*
|
|
XBRL Taxonomy Extension
Calculation Linkbase Document.
|
101.DEF*
|
|
XBRL Taxonomy Extension
Definition Linkbase Document.
|
101.LAB*
|
|
XBRL Taxonomy Extension Label
Linkbase Document.
|
101.PRE*
|
|
XBRL Taxonomy Extension
Presentation Linkbase Document.
|
* filed
herewith
** furnished
herewith
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
|
|
CHAMPIONS
ONCOLOGY, INC.
|
|
(Registrant)
|
|
|
Date: September 14,
2020
|
By:
|
/s/ Ronnie
Morris
|
|
|
Ronnie Morris
|
|
|
Chief Executive
Officer
|
|
|
(principal
executive officer)
|
|
|
|
Date: September 14,
2020
|
By:
|
/s/ David Miller
|
|
|
David Miller
|
|
|
Chief Financial
Officer
|
|
|
(principal
financial and accounting officer)
|