Champions Oncology(CSBR) - 2019 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and related disclosures Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Champions Oncology, Inc., including the balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining the company's organization, significant accounting policies, and specific financial line items for the periods ended January 31, 2019, and April 30, 2018 Condensed Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific dates Condensed Consolidated Balance Sheets ($ Thousands) | Metric | January 31, 2019 (unaudited) ($ Thousands) | April 30, 2018 ($ Thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------- | | Total Current Assets | 7,527 | 5,060 | | Total Assets | 10,911 | 8,078 | | Total Current Liabilities | 7,704 | 7,453 | | Total Liabilities | 8,588 | 8,075 | | Total Stockholders' Equity | 2,323 | 3 | Unaudited Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net income or loss over specific periods Unaudited Condensed Consolidated Statements of Operations ($ Thousands) | Metric | Three Months Ended Jan 31, 2019 ($ Thousands) | Three Months Ended Jan 31, 2018 ($ Thousands) | Nine Months Ended Jan 31, 2019 ($ Thousands) | Nine Months Ended Jan 31, 2018 ($ Thousands) | | :--------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Oncology services revenue | 6,430 | 5,082 | 19,348 | 15,319 | | Total costs and operating expenses | 6,800 | 5,149 | 18,962 | 16,074 | | Income (loss) from operations | (370) | (67) | 386 | (755) | | Net income (loss) | (369) | (76) | 381 | (844) | | Basic and diluted EPS | (0.03) | (0.01) | 0.03 | (0.08) | Condensed Consolidated Statement of Changes in Stockholders' Equity This section outlines the changes in the company's equity components over a specified period Condensed Consolidated Statement of Changes in Stockholders' Equity ($ Thousands) | Metric | May 1, 2018 Balance ($ Thousands) | Jan 31, 2019 Balance ($ Thousands) | | :--------------------------------- | :-------------------------------- | :--------------------------------- | | Common Stock Amount | 11 | 12 | | Additional Paid-in Capital | 72,070 | 72,756 | | Accumulated Deficit | (70,826) | (70,445) | | Total Stockholders' Equity | 3 | 2,323 | - Total stockholders' equity increased significantly from $3,000 as of May 1, 2018, to $2,323,000 as of January 31, 2019, driven by net income, stock-based compensation, and issuance of common stock from option/warrant exercises[13] Unaudited Condensed Consolidated Statements of Cash Flows This section presents the cash inflows and outflows from operating, investing, and financing activities Unaudited Condensed Consolidated Statements of Cash Flows ($ Thousands) | Cash Flow Activity | Nine Months Ended Jan 31, 2019 ($ Thousands) | Nine Months Ended Jan 31, 2018 ($ Thousands) | | :---------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net cash from operating activities | 1,610 | (1,235) | | Net cash from investing activities | (693) | (1,017) | | Net cash from financing activities | 1,387 | 19 | | Increase/(decrease) in cash and restricted cash | 2,304 | (2,233) | | Cash and restricted cash at end of period | 3,310 | 1,062 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the financial statements Note 1. Organization, Use of Estimates and Basis of Presentation This note describes the company's business, operational structure, and key accounting assumptions - Champions Oncology, Inc. specializes in oncology drug research and development technology solutions and services, utilizing its TumorGraft Technology Platform for Translational Oncology Solutions (TOS) for pharmaceutical companies and Personalized Oncology Solutions (POS) for physicians[19] - The company operates with two foreign subsidiaries, Champions Oncology (Israel), Limited and Champions Biotechnology U.K., Limited, which generated no revenue for the reported periods[20] Note 2. Significant Accounting Policies This note outlines the critical accounting principles and methods used in preparing the financial statements Cash, Cash Equivalents and Restricted Cash This sub-note details the composition and changes in the company's cash and restricted cash balances - Restricted cash of $150,000 as of April 30, 2018, previously held as collateral for corporate credit cards, was reclassified to cash by January 31, 2019, as the issuing bank deemed renewal unnecessary after the CD matured in October 2018[24] Cash, Cash Equivalents and Restricted Cash ($ Thousands) | Metric | January 31, 2019 (unaudited) ($ Thousands) | April 30, 2018 ($ Thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------- | | Cash | 3,310 | 856 | | Restricted cash | — | 150 | | Total cash and restricted cash | 3,310 | 1,006 | Liquidity This sub-note discusses the company's ability to meet its short-term and long-term financial obligations - The Company's liquidity needs are primarily for R&D, new product launches, working capital, and strategic initiatives, historically met through cash, working capital management, and proceeds from securities offerings[26] Liquidity Metrics ($ Thousands) | Metric | As of January 31, 2019 ($ Thousands) | | :-------------------- | :----------------------------------- | | Net income (9 months) | 381 | | Cash flow from operations (9 months) | 1,600 | | Accumulated deficit | (70,400) | | Negative working capital | (177) | | Cash | 3,300 | - Management believes current cash and improved operational cash flows are sufficient to fund operations through at least March 2020, but acknowledges no assurance for raising additional capital if needed[26] Earnings Per Share This sub-note explains the calculation of basic and diluted earnings per share - Basic and diluted EPS are calculated by dividing net income/loss by the weighted-average common shares outstanding, with dilutive shares including common stock purchase warrants and stock options[28] Earnings Per Share and Shares Outstanding | Metric | Three Months Ended Jan 31, 2019 | Three Months Ended Jan 31, 2018 | Nine Months Ended Jan 31, 2019 | Nine Months Ended Jan 31, 2018 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic and Diluted EPS | $(0.03) | $(0.01) | $0.03 | $(0.08) | | Weighted Average Common Shares Outstanding (Basic) | 11,508,180 | 10,994,434 | 11,257,314 | 10,987,797 | | Weighted Average Common Shares Outstanding (Diluted) | 11,508,180 | 10,994,434 | 13,909,063 | 10,987,797 | Income Taxes This sub-note provides information on the company's income tax provisions, deferred taxes, and uncertain tax positions - The Company provides a valuation allowance for all net deferred tax assets due to an insufficient history of earnings, indicating that recovery is not more likely than not[31] - The income tax provision for the nine months ended January 31, 2019, was $0, compared to $18,000 for the same period in 2018[35] - The Company has recorded $151,000 in liabilities for uncertain tax positions related to foreign operations as of January 31, 2019, and April 30, 2018[33] Revenue Recognition This sub-note describes the company's policies and methods for recognizing revenue from customer contracts - Revenue is generated from service-type contracts, primarily less than a year in duration, and recognized when control of services is transferred to the customer, reflecting the expected consideration[36] - The Company's fixed-fee oncology service arrangements are considered a single performance obligation, with revenue recognized over time using a progress-based input method[38][39] - Variable consideration, contingent on uncertain future events, is estimated and included in the transaction price if a significant reversal of cumulative revenue is improbable upon resolution of uncertainty[40] Accounting Pronouncements Being Evaluated This sub-note identifies new accounting standards under assessment for future impact on financial statements - The Company is currently assessing the impact of ASU 2018-15 (Cloud Computing Arrangement implementation costs) and ASU No. 2016-13 (Financial Instruments - Credit Losses) on its consolidated financial statements, both effective for fiscal years beginning after December 15, 2019[43][44] - The adoption of ASU No. 2016-02 (Leases) on May 1, 2019, is expected to have a material impact on the consolidated balance sheet by recognizing operating leases as right-of-use assets and lease liabilities, but not on statements of operations or cash flows[46] Recently Adopted Accounting Pronouncements This sub-note details the impact of recently implemented accounting standards on the financial statements - The Company adopted ASU 2018-07 (Nonemployee Share-Based Payment Accounting) for the quarter ended January 31, 2019, with no material impact[47] - ASU 2016-18 (Restricted Cash) and ASU No. 2016-15 (Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments) were adopted on May 1, 2018, with no material impact on consolidated financial statements[49][50] - ASU 2014-09 (Revenue from Contracts with Customers) was adopted on May 1, 2018, using the modified retrospective method, which did not have a material measurement impact on consolidated financial statements[51] Note 3. Accounts Receivable, Unbilled Services and Deferred Revenue This note provides details on the company's accounts receivable, unbilled services, and deferred revenue balances Accounts Receivable, Unbilled Services and Deferred Revenue ($ Thousands) | Metric | January 31, 2019 (unaudited) ($ Thousands) | April 30, 2018 ($ Thousands) | | :---------------------------------------- | :--------------------------------------- | :--------------------------- | | Deferred revenue | 4,723 | 4,704 | | Accounts receivable, net | 3,919 | 3,917 | - Deferred revenue, classified as a current liability, increased slightly from $4,704,000 to $4,723,000, while net accounts receivable remained stable at approximately $3,919,000[54][55][56] Note 4. Revenue from Contracts with Customers This note provides a breakdown of revenue by service category and explains the application of ASC 606 - The Company adopted ASC 606 on May 1, 2018, recognizing revenue when customers obtain control of promised services, with most contracts having a single performance obligation completed within a year[57][58][59] Revenue from Contracts with Customers ($ Thousands) | Revenue Category | Three Months Ended Jan 31, 2019 ($ Thousands) | Three Months Ended Jan 31, 2018 ($ Thousands) | Nine Months Ended Jan 31, 2019 ($ Thousands) | Nine Months Ended Jan 31, 2018 ($ Thousands) | | :----------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Pharmacology services | 5,988 | 4,447 | 18,037 | 13,600 | | Personalized oncology services | 416 | 259 | 1,024 | 1,077 | | Other | 26 | 376 | 287 | 642 | | Total oncology services revenue | 6,430 | 5,082 | 19,348 | 15,319 | Note 5. Property and Equipment This note details the company's property and equipment, including additions, depreciation, and capital leases Property and Equipment, Net ($ Thousands) | Asset Category | January 31, 2019 (unaudited) ($ Thousands) | April 30, 2018 ($ Thousands) | | :-------------------------- | :--------------------------------------- | :--------------------------- | | Total property and equipment | 4,479 | 3,551 | | Less: Accumulated depreciation | (1,901) | (1,468) | | Property and equipment, net | 2,578 | 2,083 | - Net property and equipment increased by $495,000 from April 30, 2018, to January 31, 2019, primarily due to additions in laboratory equipment and computer equipment[66] - Depreciation and amortization expense increased significantly for both the three-month ($127,000 vs. $98,000) and nine-month ($353,000 vs. $233,000) periods ended January 31, 2019, compared to 2018[66] - The Company entered into a second capital lease for laboratory equipment in July 2018 for approximately $266,000, which was paid off on February 1, 2019, and is included as a current liability[68] Note 6. Share-Based Payments This note describes the company's share-based compensation plans and related expenses Total Stock-Based Compensation Expense ($ Thousands) | Metric | Three Months Ended Jan 31, 2019 ($ Thousands) | Three Months Ended Jan 31, 2018 ($ Thousands) | Nine Months Ended Jan 31, 2019 ($ Thousands) | Nine Months Ended Jan 31, 2018 ($ Thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Total stock-based compensation expense | 335 | 152 | 498 | 848 | - Stock-based compensation expense increased for the three months ended January 31, 2019, due to increased expense from stock options granted, but decreased for the nine-month period compared to the prior year, which included a $57,000 option modification charge[73] - As of January 31, 2019, there was $970,000 in unrecognized stock-based compensation to be expensed over 4.3 years[73] Stock Option Activity | Stock Option Activity | Outstanding, May 1, 2018 | Granted | Exercised | Forfeited | Canceled | Expired | Outstanding, Jan 31, 2019 | | :-------------------- | :----------------------- | :------ | :-------- | :-------- | :-------- | :------ | :------------------------ | | Total Options | 2,705,845 | 206,790 | (357,242) | (8,375) | (40,183) | (16,667) | 2,490,168 | | Weighted Average Exercise Price | $2.85 | $9.86 | $2.18 | — | $2.10 | — | $3.45 | | Aggregate Intrinsic Value | $5,265,000 | — | $2,782,000 | — | $370,626 | — | $22,036,000 | Note 7. Related Party Transactions This note discloses transactions between the company and its related parties - The Company paid $54,000 to a Board member for consulting services in both the nine-month periods ended January 31, 2019 and 2018[79] - An affiliate of a board member received $54,000 for consulting services in the nine months ended January 31, 2019, a decrease from $73,000 in the prior year[79] Note 8. Commitments and Contingencies This note outlines the company's contractual obligations and potential liabilities - Total rent expenses for operating leases increased to $583,000 for the nine months ended January 31, 2019, from $480,000 in the prior year[80] - The Company entered into a new lease for laboratory and office space at 1405 Research Boulevard, Rockville, Maryland, effective January 17, 2019, expiring in January 2024[86] Future Minimum Lease Payments ($ Thousands) | Fiscal Year Ended April 30, | Future Minimum Lease Payments ($ Thousands) | | :-------------------------- | :------------------------------------------ | | 2019 (remaining) | 155 | | 2020 | 1,077 | | 2021 | 1,161 | | 2022 | 1,139 | | 2023 | 1,102 | | Thereafter | 4,225 | | Total | 8,859 | Note 9. Lines of Credit This note provides information on the company's credit facilities and their status - A $1.5 million line of credit agreement with a national bank, entered into on October 30, 2017, matured on October 29, 2018, and was not renewed, as the Company believes it is not currently necessary for working capital needs[90] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, liquidity, and capital resources, highlighting key operational results and recent developments Forward-Looking Statements This section cautions readers about inherent risks and uncertainties in future-oriented statements - The report contains forward-looking statements regarding future events, financial performance, strategies, and expectations, which are subject to risks and uncertainties that could cause actual results to differ materially[93][94] - The Company assumes no obligation to update forward-looking statements unless required by applicable securities laws[95] Overview and Recent Developments This section provides a general description of the company's business and recent operational highlights - Champions Oncology develops and sells advanced technology solutions for oncology drug development, leveraging its TumorGraft Technology Platform to provide services to pharmaceutical and biotechnology companies[96] - The TumorGraft Technology Platform aims to simulate human clinical trials, reducing drug development costs and accelerating drug discovery, while focusing future growth on the Translational Oncology Solutions (TOS) program[97][98] Liquidity and Capital Resources This section discusses the company's financial resources and its ability to meet ongoing cash needs - The Company's liquidity needs are driven by R&D, new product launches, working capital, and strategic initiatives, historically funded by cash, working capital management, and proceeds from securities offerings[101] Liquidity and Capital Resources Metrics ($ Thousands) | Metric | As of January 31, 2019 ($ Thousands) | | :-------------------- | :----------------------------------- | | Net income (9 months) | 381 | | Cash flow from operations (9 months) | 1,600 | | Accumulated deficit | (70,400) | | Negative working capital | (177) | | Cash | 3,300 | - Management believes current cash and improved cash flows from operations are sufficient to fund operations through at least March 2020, but there's no guarantee of successfully raising additional capital if required[101] Operating Results This section analyzes the company's financial performance, including revenue and expense trends Oncology Services Revenue This sub-section analyzes the revenue generated from the company's oncology services Oncology Services Revenue ($ Thousands) | Period | 2019 Revenue ($ Thousands) | 2018 Revenue ($ Thousands) | % Change | | :-------------------------- | :------------------------- | :------------------------- | :------- | | Three Months Ended Jan 31 | 6,430 | 5,082 | 26.5% | | Nine Months Ended Jan 31 | 19,348 | 15,319 | 26.3% | - The increase in oncology services revenue for both periods is attributed to higher sales volume (number and size of studies), an expanding customer base, and platform growth[103] Cost of Oncology Services This sub-section examines the expenses directly associated with providing oncology services Cost of Oncology Services ($ Thousands) | Period | 2019 Cost ($ Thousands) | 2018 Cost ($ Thousands) | % Change | | :-------------------------- | :---------------------- | :---------------------- | :------- | | Three Months Ended Jan 31 | 3,429 | 2,473 | 38.7% | | Nine Months Ended Jan 31 | 9,963 | 7,737 | 28.8% | Gross Margin | Period | 2019 Gross Margin | 2018 Gross Margin | | :-------------------------- | :---------------- | :---------------- | | Three Months Ended Jan 31 | 46.7% | 51.3% | | Nine Months Ended Jan 31 | 48.5% | 49.5% | - The increase in cost of oncology services is primarily due to higher salary and mice costs resulting from increased study volume, leading to a decrease in gross margins due to timing differences between expense and revenue recognition[105] Research and Development This sub-section details the expenses incurred for the company's research and development activities Research and Development Expense ($ Thousands) | Period | 2019 Expense ($ Thousands) | 2018 Expense ($ Thousands) | % Change | | :-------------------------- | :------------------------- | :------------------------- | :------- | | Three Months Ended Jan 31 | 1,269 | 1,045 | 21.4% | | Nine Months Ended Jan 31 | 3,550 | 3,308 | 7.3% | - Increased R&D expenses for both periods are attributed to lab costs and salaries associated with new product development[106] Sales and Marketing This sub-section analyzes the expenses related to the company's sales and marketing efforts Sales and Marketing Expense ($ Thousands) | Period | 2019 Expense ($ Thousands) | 2018 Expense ($ Thousands) | % Change | | :-------------------------- | :------------------------- | :------------------------- | :------- | | Three Months Ended Jan 31 | 879 | 627 | 40.2% | | Nine Months Ended Jan 31 | 2,138 | 1,862 | 14.8% | - The rise in sales and marketing expenses for both periods is primarily due to increased commissions paid to the business development team based on bookings[107] General and Administrative This sub-section discusses the overhead expenses not directly tied to production or sales General and Administrative Expense ($ Thousands) | Period | 2019 Expense ($ Thousands) | 2018 Expense ($ Thousands) | % Change | | :-------------------------- | :------------------------- | :------------------------- | :------- | | Three Months Ended Jan 31 | 1,223 | 1,004 | 21.8% | | Nine Months Ended Jan 31 | 3,311 | 3,167 | 4.5% | - General and administrative expenses increased for the three-month period due to higher stock-based compensation and salary expenses, while the nine-month increase was mainly from recruiting and salary expenses[108] Inflation This sub-section assesses the impact of inflation on the company's financial performance - Inflation does not have a meaningful impact on the Company's operating results[109] Cash Flows This section provides an overview of the company's cash inflows and outflows across different activities Cash Flows from Operating Activities This sub-section details cash generated or used by the company's core business operations Net Cash Flow from Operating Activities ($ Thousands) | Period | Net Cash Flow from Operating Activities ($ Thousands) | | :-------------------------- | :---------------------------------------------------- | | Nine Months Ended Jan 31, 2019 | 1,600 | | Nine Months Ended Jan 31, 2018 | (1,200) | - The significant improvement in cash flow from operating activities is primarily due to an increase in net income and favorable timing of ordinary business fluctuations in current operating accounts[111] Cash Flows from Investing Activities This sub-section outlines cash used for or generated from investment-related activities Net Cash Flow from Investing Activities ($ Thousands) | Period | Net Cash Flow from Investing Activities ($ Thousands) | | :-------------------------- | :---------------------------------------------------- | | Nine Months Ended Jan 31, 2019 | (693) | | Nine Months Ended Jan 31, 2018 | (1,000) | - Cash used in investing activities decreased, reflecting continued capital investment for product and service expansion in 2019, compared to higher outflows in 2018 for a new lab facility[112] Cash Flows from Financing Activities This sub-section describes cash flows related to debt, equity, and dividend transactions Net Cash Flow from Financing Activities ($ Thousands) | Period | Net Cash Flow from Financing Activities ($ Thousands) | | :-------------------------- | :---------------------------------------------------- | | Nine Months Ended Jan 31, 2019 | 1,400 | | Nine Months Ended Jan 31, 2018 | 19 | - The significant increase in net cash provided by financing activities is primarily due to the exercise of stock options[113] Critical Accounting Estimates and Policies This section highlights accounting estimates requiring significant management judgment - Key accounting estimates include accounts receivable realization, revenue recognition, valuation allowance for deferred tax assets, goodwill valuation, and stock compensation/warrant assumptions, which require management judgment and can impact reported financial amounts[114] Recent Accounting Pronouncements This section refers to detailed information on new accounting standards - Detailed information on recently issued accounting pronouncements and their expected impact is provided in Note 2, 'Significant Accounting Policies,' within the financial statements[115] Off-Balance Sheet Financing This section confirms the absence of certain financial arrangements not recorded on the balance sheet - The Company has no off-balance sheet debt, similar obligations, or undisclosed related-party transactions, and does not guarantee any third-party debt[116] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that quantitative and qualitative disclosures about market risk are not applicable to smaller reporting companies - Quantitative and qualitative disclosures about market risk are not applicable to smaller reporting companies[117] Item 4. Controls and Procedures This section details the management's evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section assesses the effectiveness of controls ensuring accurate and timely financial reporting - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of January 31, 2019, ensuring timely and accurate reporting of required information[118][120] Changes in Internal Control Over Financial Reporting This section reports any material changes in the company's internal controls - There were no material changes in internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q[121] PART II – OTHER INFORMATION This section contains additional disclosures not covered in the financial statements Item 1. Legal Proceedings This section confirms that the Company is not currently involved in any legal proceedings - The Company is not currently party to any legal matters and is unaware of any other matters that would materially impact its financial position or results of operations[89][124] Item 1A. Risk Factors This section outlines the primary risk factor related to the Company's ability to meet its cash requirements and continue as a going concern beyond March 2020 - The Company may not be able to meet its cash requirements beyond March 2020 without continued improved cash flows from operations, reducing activities, or obtaining additional capital, which could jeopardize its ability to continue as a going concern[125][126] Risk Factors Metrics ($ Thousands) | Metric | As of January 31, 2019 ($ Thousands) | | :-------------------- | :----------------------------------- | | Net income (9 months) | 381 | | Cash flow from operations (9 months) | 1,600 | | Accumulated deficit | (70,400) | | Negative working capital | (177) | | Cash | 3,300 | Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports that there were no unregistered sales of equity securities or use of proceeds during the period - There were no unregistered sales of equity securities or use of proceeds during the reporting period[128] Item 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities - There were no defaults upon senior securities during the reporting period[129] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[130] Item 5. Other Information This section indicates that there is no other information to report - There is no other information to report in this section[131] Item 6. Exhibits This section lists the exhibits filed or furnished with the Form 10-Q, including certifications and XBRL documents - Exhibits include Section 302 Certifications from the Principal Executive Officer and Principal Financial Officer, Certification Pursuant to 18 U.S.C. Section 1350, and various XBRL Taxonomy Extension Documents[133] SIGNATURES This section formally attests to the accuracy and completeness of the report by authorized officers Signatures This section contains the signatures of the registrant's authorized officers, confirming the filing of the report - The report is duly signed on behalf of CHAMPIONS ONCOLOGY, INC. by Ronnie Morris, Chief Executive Officer, and David Miller, Chief Financial Officer, on March 18, 2019[135][136][137]