UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

or

 

Commission file number 001-11504

 

Registrant’s telephone number, including area code:

(201) 808-8400

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

DOCUMENTS INCORPORATED BY REFERENCE

 

INDEX TO FORM 10-K

FOR THE YEAR ENDED APRIL 30, 2021

As used in this Annual Report on Form 10-K (the "Annual Report"), “Champions Oncology, Inc.,” “Champions,” the “Company,” “we,” “ours,” and “us” refer to Champions Oncology, Inc. and its subsidiaries, except where the context otherwise requires or as otherwise indicated.

 

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act") that inherently involve risk and uncertainties.  Forward-looking statements may be identified by the words “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “will,” “may,” “likely” or similar expressions. Forward-looking statements in this Annual Report include statements about our business strategies and products development activities, including the anticipated benefits and risks associated with those strategies as well as statements about the sufficiency of our capital resources.  One should not place undue reliance on these forward-looking statements.  We cannot guarantee that we will achieve the plans, intentions or expectations expressed or implied in our forward-looking statement.  There are a number of important factors that could cause actual results, levels of activity, performance or events to differ materially from those expressed or implied in the forward-looking statements we make.  These important factors are described under “Risk Factors” set forth below.  In addition, any forward-looking statements we make in this Annual Report speak only as of the date of this document, and we do not intend to update any such forward-looking statements to reflect events or circumstances that occur after that date, except as required by law.  As a result of these and other factors, our stock price may fluctuate dramatically.

 

PART I

 

Overview

We are a technology-enabled research organization engaged in creating transformative technology solutions to be utilized in drug discovery and development. Our research center operates in both regulatory and non-regulatory environments and consists of a comprehensive set of computational and experimental research platforms. Our pharmacology, biomarker, and data platforms are designed to facilitate drug discovery and development at lower costs and increased speeds.

Through our technology platforms, we have designed an ecosystem of business lines consisting of:

Translational Oncology Solutions (TOS) Business

We have performed studies for approximately 500 different pharmaceutical and biotechnology companies over the past ten years, have a high rate of repeat business, and contract with pharmaceutical and biotechnology companies across North America, Europe and Asia. Studies are performed in a preclinical non-regulatory environment, as well as a Good Clinical Regulatory Practice (GCLP) regulatory environment for clinical evaluation. Typical studies are in the $100,000$125,000 price range, with an increasing number of studies in the $250,000 to $500,000 range. Studies performed in a regulatory environment can be much larger than those performed within a non-regulatory environment. Revenue from this business has grown at an average annual growth rate of 30%28% since 20152016 and represents the primary source of our current revenue stream.

Our sales and marketing efforts are dependent on a dedicated sales force of approximately 3631 professionals that sell our services directly to pharmaceutical and biotechnology companies. Our research services team is focused on identifying and selling studies to new customers as well as increasing our revenue from our existing customer base. We spend significant resources in informing our customers and reaching out to new contacts within companies that we currently serve. These efforts are aimed at moving our customers along the adoption curve for our research platforms, thereby increasing the number of studies and the average study size. Our success in these efforts is demonstrated by the growing number of customers who have increased their annual spend on our services over the past three years.

Our SaaS business development team is focused on identifying and selling subscriptions to new customers, ensuring a high level of use from these subscribers, and increasing our revenue from existing customers through the use of our cloud computing environment. Our sales approach is based on in informing our current research services customers and reaching out to new contacts within companies that we currently serve.

For the year ended April 30, 2021,2022, revenues from our products and services totaled approximately $40.9$49.1 million, an increase of approximately 28%20% from the previous year.

Our Current Strategy

Our Growth and Expansion Strategy

Our strategy is to continue to use our various platform technologies to drive multiple synergistic revenue streams.

Competition

 

Research and Development

 

For the years ended April 30, 20212022 and 2020,2021, we spent approximately $7.2$9.4 million and $5.9$7.2 million, respectively, to further develop our platforms. We continue to expand our TumorBank via the inclusion of tumor tissue and implanted models through research collaborations and relationships with hospitals and academic institutions. Our research and development efforts were focused on increasing our understanding of our TumorGraft models, their clinical predictability, improving growth and tumor take rates, and other biological and molecular characteristics of the models. We are investing in developing additional proprietary pharmacology platforms aimed at enhancing the scientific output and driving innovation in the oncology research sector.

 

Government Regulation

 

The research, development, and marketing of our products, the performance of our legacy POS testing services, and the operation of our facilities are generally subject to federal, state, local, or foreign legislation, including licensure of our laboratory located in Rockville, Maryland by the State of Maryland and compliance with federal, state, local or foreign legislation applicable to the use of live animals in scientific testing, research and education.

 

 

Human Capital Resources

 

As of July 16, 2021,15, 2022, we had 194230 full-time employees, including 6178 with doctoral or other advanced degrees. Of our workforce, 143181 employees are engaged in research and development and laboratory operations, 3631 employees are engaged in sales and marketing, and 1518 employees are engaged in finance and administration.  

We believe that our future success will depend, in part, on our ability to continue to attract, hire, and retain qualified personnel. We continue to seek additions to our science and technical staff, although the competition for such personnel in the pharmaceutical and biotechnology industries is intense. Attracting, developing, and retaining skilled and experienced employees in our industry is crucial to our ability to compete effectively. Our ability to recruit and retain such employees depends on a number of factors, including our corporate culture and work environment, our corporate philosophy, internal talent development and career opportunities, and compensation and benefits.

None of our employees are represented by a labor union or covered by collective bargaining agreements.  We have never experienced a work stoppage and believe our relationship with our employees is good.

 

Company History

 

We were incorporated as a merger and acquisition company under the laws of the State of Delaware on June 4, 1985, under the name “International Group, Inc.” In September 1985, the Company completed a public offering and shortly thereafter acquired the world-wide rights to the Champions sports theme restaurant concept and changed its name to “Champions Sports, Inc.” In 1997, the Company sold its Champions service mark and concept to Marriott International, Inc. and until 2005, was a consultant to Marriott International, Inc. and operated one Champions Sports Bar Restaurant. In January 2007, the Company changed its business direction to focus on biotechnology and subsequently changed its name to Champions Biotechnology, Inc. On May 18, 2007, the Company acquired Biomerk, Inc., at which time we began focusing on our current line of business. In April 2011, the Company changed its name to Champions Oncology, Inc. to reflect the Company's new strategic focus on developing advanced technologies to personalize the development and use of oncology drugs.

Available Information

 

 

You should carefully consider the risks described below together with all of the other information included in this Annual Report.  The risks and uncertainties described below are not the only ones we face.  Additional risks not presently known, or those we currently consider insignificant, may also impair our business operations in the future.

For the years ended April 30, 20212022 and 2020,2021, the Company had net income of approximately $362,000$548,000 and a net loss of approximately $2,093,000,$362,000, respectively.  As of April 30, 2021,2022, the Company has an accumulated deficit of approximately $72.5$72.0 million. As of April 30, 2021,2022, we had working capital of $1.4$2.2 million and cash of $4.7$9.0 million. We believe that our cash on hand, together with future improvedexpected cash flows from operations, are adequate to fund our operations through at least August 2022.2023.

The amount of our income or losses and liquidity requirements may vary significantly from year-to-year and quarter-to-quarter and will depend on, among other factors:

 

Currently, the Company derives revenue primarily from research services, while pursuing efforts to further develop its SaaS and drug discovery business units. We are investing resources to further grow our sales of all of our business units.  

 

To become sustainably profitable, we will need to generate revenues to offset our operating costs, including our research and development and general and administrative expenses. We may not achieve or if achieved, sustain our revenue or profit objectives. If ourwe incur losses increase in the future andand/or we are unable to obtain sufficient capital either from operations or externals sources, ultimately, we may have to cease operations.

 

In order to grow revenues, we must invest capital to implement our sales and marketing efforts and to successfully develop our technology platforms. Our sales and marketing efforts may never generate significant increases in revenues or achieve profitability and it is possible that we will be required to raise additional capital to continue our operations. If we must devote a substantial amount of time to raising capital, it will delay our ability to achieve our business goals within the time frames that we now expect, which could increase the amount of capital we need. In addition, the amount of time expended by our management on fundraising distracts them from concentrating on our business affairs. If we require additional capital and are not successful in raising the needed capital, we may have to cease operations.

 

 

We use reasonable efforts to assess and predict the expenses necessary to pursue our business strategies. However, implementing our business strategies may require more employees, capital equipment, supplies or other expenditure items than management has predicted. Similarly, the cost of compensating additional management, employees and consultants or other operating costs may be more than we estimate, which could result in ongoing and sustained losses.

 

Implementation of our business strategies will depend in large part on our ability to (i) attract and maintain a significant number of customers; (ii) effectively provide acceptable services to our customers; (iii) develop and license new products and technologies; (iv)  maintain appropriate internal procedures, policies, and systems; (v) hire, train, and retain skilled employees and management; (vi) continue to operate despite increasing competition in our industry; and (vii) establish, develop and maintain our name recognition. Our inability to obtain or maintain any or all these factors could impair our ability to implement our business strategies successfully, which could have material adverse effects on our results of operations and financial condition.

Our business could be adversely impacted by changes in FDA’s regulatory oversight of laboratory-developed tests such as our POS services that are currently under consideration or by other changes in the regulatory requirements applicable to our POS services imposed by the FDA or regulatory authorities in other countries in which our services are provided.

 

Our research services are performed in laboratories that are subject to state regulation and licensure requirements. Such regulation and requirements are subject to change, and may result in additional costs or delays in providing our products to our customers. In addition, the healthcare industry in general is highly regulated in the United States at both the federal and state

 

We currently utilize several office suites where our laboratories are located within one facility in Rockville, Maryland. If this facility was to be significantly damaged or destroyed, we could suffer a loss of our ongoing and future drug studies, as well as our TumorBank. In addition, we lease the laboratories from a third party. If we had a dispute with our landlord or otherwise could not utilize our space, it would take time to find and move to a new facility, which could negatively affect our results of operations.

Our research services operations depend on having a colony of live mice available. If this population experienced a health crisis, such as a virus or other pathogen, such crisis would affect the success of our existing and future business, as we would have to rebuild the population and repeat current studies.

 

Currently, we rely on the internet, word of mouth, and a small sales force to market our services. We have to compete with other pharmaceutical, biotechnology and life science technology and service companies to recruit, hire, train, and retain marketing and sales personnel. However, there can be no assurance that we will be able to develop in-house sales, and as a result, we may not be able to generate product revenue. 

 

Our success, currently, is dependent upon the efforts of several full-time key employees, the loss of the services of one or more of which would have a material adverse effect on our business and financial condition. We intend to continue to develop our management team and attract and retain qualified personnel in all functional areas to expand and grow our business. This may be difficult in the healthcare industry where competition for skilled personnel is intense.

We haveIn fiscal 2021, we identified that there iswas a material weaknesses in our internal control over financial reporting, which if not remediated, could materially adversely affect our ability to timely and accurately report our results of operations and financial condition. ThisWe believe this material weakness has notsince been fully remediated as of the filing date of this Form 10-K. If we

As described in “Part II, Item 9A - Controls and Procedures,” of this Form 10-K we have concluded that there iswas a material weakness in our internal control over financial reporting.reporting in our prior fiscal reporting year. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. It is necessary for us to maintain effective internal control over financial reporting to prevent fraud and errors and to maintain effective disclosure controls and procedures so that we can provide timely and reliable financial and other information.

Specifically, our risk assessment procedures over certain of our contractual arrangements requiring the payment of royalties for the licensing of technology from third-parties did not adequately identify the risks and consider the Company's obligations based on the recognition of oncology services revenue.revenue for the prior fiscal year. As a result, the Company had missing process level controls over the review of royalty arrangements and the timely determination and recognition of related liabilities.

As further described in Part II, Item 9A in this Annual Report on Form 10-K, while we are in the process of implementingbelieve that we have implemented and carried out a remediation plan to remediate this material weakness, there can be no assurance that this will not occur in future reports. We may identify additional material weaknesses in our internal control over financial reporting in the future. If

Because our industry is very competitive and many of our competitors have substantially greater capital resources and more experience in research and development, we may not succeed in selling or increasing sales of our products and technologies.

 

We are engaged in a rapidly changing and highly competitive field. Potential competitors in the United States and abroad are numerous and include providers of clinical research services, most of which have substantially greater capital resources and more experience in research and development capabilities. Furthermore, new companies will likely enter our market from the United States and abroad, as scientific developments surrounding other pre-clinical and clinical services grow in the multibillion dollar oncology marketplace.  Our competitors may succeed in selling their products to our pharmaceutical and biotech customers more effectively than we sell our products.  In addition, academic institutions, hospitals, governmental agencies, and other public and private research organizations also may conduct similar research, seek patent protection, and may develop and commercially introduce competing products or technologies on their own or through joint ventures. If one or more of our competitors succeeds in developing similar technologies and products that are more effective or successful than any of those that we currently sell or will develop, our results of operations will be significantly adversely affected.

 

It is important in the healthcare industry to obtain patent and trade secret protection for new technologies, products, and processes. Our success will depend, in part, upon our ability to obtain, enjoy, and enforce protection for any products we have, develop or acquire under United States and foreign patent laws and other intellectual property laws, preserve the confidentiality of our trade secrets, and operate without infringing the proprietary rights of third parties. Where appropriate, we will seek patent protection for certain aspects of our technology. However, while our TumorGraft Technology Platform is proprietary and requires significant know-how to both initiate and operate, it is not patented. It is, therefore, possible for competitors to develop other implantation procedures, or to discover the same procedures utilized by us, that could compete with us in our market.

 

It also is unclear whether efforts to secure our trade secrets will provide useful protection. While we will use reasonable efforts to protect our trade secrets, our employees or consultants may unintentionally or willfully disclose our proprietary information to competitors resulting in a loss of protection. Enforcing a claim that someone else illegally obtained and is using our trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Finally, our competitors may independently develop equivalent knowledge, methods and know-how.

We rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific

Claims by others that our products infringe their patents or other intellectual property rights could adversely affect our financial condition.

 

The healthcare industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Patent applications are maintained in secrecy in the United States and also are maintained in secrecy outside the United States until the application is published. Accordingly, we can conduct only limited searches to determine whether our technology

Our revenue is primarily derived from studies performed for pharmaceutical and biotechnology companies to assist in the development of oncology drugs. There are many factors that could result in the change of our customers development plans for specific drugs, including without limitation to their research and development budgets and drug development strategies. These changes could lead to the cancellation or modification of on-going or planned studies. This would have a negative impact on the Company’s revenue growth and profit margin.

Under Section 382 of the Internal Revenue Code of 1986, as amended, referred to as the Internal Revenue Code, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability to use its pre-change net operating loss carry-forwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. We believe that our 2016 public offering, taken together with our private placements and other transactions that have occurred over the past five years,since then, may have triggered an “ownership change” limitation. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carry-forwards to offset U.S. federal taxable income may be subject to limitations, which potentially could result in increased future tax liability to us.

Trading activity in our common stock is and has been limited. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations of the price of our common stock. There can be no assurance that a more active market for our common stock will develop, or if one should develop, there is no assurance that it will be sustained. This could severely limit the liquidity of our common stock, and would likely have a material adverse effect on the market price of our common stock and on our ability to raise additional capital. Furthermore, like many stocks quoted on the Nasdaq Capital Market, trading in our common stock is thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance.

 

We may issue additional shares of common stock, which will reduce shareholders’ percentage ownership and may dilute per share value. Our certificate of incorporation authorizes the issuance of 200,000,000 shares of common stock. As of July 16, 2021,20, 2022, we had 13,415,06613,522,441 shares of common stock issued and outstanding. The future issuance of all or part of the remaining authorized common stock would result in substantial dilution in the percentage of the common stock held by existing shareholders. The issuance of common stock for future services, acquisitions, or other corporate actions may have the effect of diluting the value of the shares held by existing shareholders, and might have an adverse effect on any market for our common stock.

     

To the extent that we raise additional funds by issuing equity securities or convertible debt securities in the future, our stockholders may experience significant dilution. Sale of additional equity and/or convertible debt securities at prices below certain levels will trigger anti-dilution provisions with respect to certain securities we have previously sold. If additional funds are raised through a credit facility or the issuance of debt securities or preferred stock, lenders under the credit facility or holders of these debt securities or preferred stock would likely have rights that are senior to the rights of holders of our common stock, and any credit facility or additional securities could contain covenants that would restrict our operation.

 

We have historically supported our operations through the issuance of equity and may continue to do so in the future. Although we may not be successful in obtaining financing through equity sales on terms that are favorable to us, if at all, any such sales that do occur could result in substantial dilution to the interests of existing holders of our common stock.

Additionally, the sale of a substantial number of shares of our common stock or other equity securities to any new investors, or the anticipation of such sales, could cause the trading price of our common stock to fall.

 

The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the price they paid for it. The market price for our common stock may be influenced by many factors, including:

 

 

Certain provisions of our certificate of incorporation and bylaws, and our contractual agreements could make it difficult for or prevent a third party from acquiring control of us or changing our board of directors and management. These provisions include:

 

The Delaware General Corporation Law contains provisions that may have the effect of making it more difficult or delaying attempts by others to obtain control of us, even when these attempts may be in the best interests of our stockholders. We also are subject to the anti-takeover provisions of the Delaware General Corporation Law, which prohibit us from engaging in a “business combination” with an “interested stockholder” unless the business combination is approved in a prescribed manner and prohibit the voting of shares held by persons acquiring certain numbers of shares without obtaining requisite approval. The statutes have the effect of making it more difficult to effect a change in control of a Delaware company.

Collectively, our officers, our directors and three significant stockholders own or exercise voting and investment control of approximately 55%67% of our outstanding common stock as of July 16, 2021.20, 2022. As a result, investors may be prevented from affecting matters involving our company, including:

Furthermore, this concentration of voting power could have the effect of delaying, deterring or preventing a change of control or other business combination that might otherwise be beneficial to our stockholders. This significant concentration of share

We have not paid any cash dividends in the past and have no plans to issue cash dividends in the future, which could cause the value of our common stock to have a lower value than other similar companies which do pay cash dividends.

We have not paid any cash dividends on our common stock to date and do not anticipate any cash dividends being paid to holders of our common stock in the foreseeable future. While our dividend policy will be based on the operating results and capital needs of the business, it is anticipated that any earnings will be retained to finance our future expansion. As we have no plans to issue cash dividends in the future, our common stock could be less desirable to other investors and as a result, the value of our common stock may decline, or fail to reach the valuations of other similarly situated companies who have historically paid cash dividends in the past.

The trading market for our common stock may be influenced by the research and reports that securities or industry analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our common stock adversely, or provide more favorable relative recommendations about our competitors, the price of our common stock would likely decline. If any analyst who may cover us was to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the price of our common stock or trading volume to decline.

Approximate Number of Holders of Common Stock

 

As of July 16, 202120, 2022 there were approximately 1,900 record holders of the Company’s common stock.

 

Dividends

 

Holders of our common stock are entitled to receive such dividends as may be declared by our Board of Directors.  No dividends have been declared or paid with respect to our common stock and no dividends are anticipated to be paid in the foreseeable future.  Any future decisions as to the payment of dividends will be at the discretion of our Board of Directors, subject to applicable law.

Recent Sales by the Company of Unregistered Securities

 

None.

 

Repurchases of Securities

None.

Use of Proceeds

None.

 

Overview and Recent Developments

We are a technology-enabled research organization engaged in creating transformative technology solutions to be utilized in drug discovery and development. Our research center consists of a comprehensive set of computational and experimental research platforms. Our pharmacology, biomarker, and data platforms are designed to facilitate drug discovery and development at lower costs and increased speeds. We perform studies which we believe may predict the efficacy of experimental oncology drugs or approved drugs as stand-alone therapies or in combination with other drugs and can stimulate the results of human clinical trials. These studies include in vivo studies that rely on implanting multiple tumors from our TumorBank in mice and testing the therapy of interest on these tumors. Studies may also include bioinformatics analysis that reveal the differences in the genetic signatures of the tumors that responded to a therapy as compared to the tumors that did not respond. Additionally, we provide computational or experimental support to identify novel therapeutic targets, select appropriate patient populations for clinical evaluation, identify potential therapeutic combination strategies, and develop

We are engaged in the development and sale of advanced technology solutions and products to personalize the development and use of oncology drugs through our Translational Oncology Solutions ("TOS"). This technology ranges from computational-based discovery platforms, unique oncology software solutions, and innovative and proprietary experimental tools such as in vivo, ex vivo and biomarker platforms. Utilizing our TumorGraft Technology Platform ("The Platform"), a comprehensive Bank of unique, well characterized 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.

As part of our growth strategy, we launched Lumin Bioinformatics ("Lumin"), a new oncology data-driven software program, during fiscal 2021. Our Lumin software contains comprehensive information derived from our research services and clinical studies. Lumin leverages Champions’ large Datacenter coupled with analytics and artificial intelligence to provide a robust tool for computational cancer research. It is the combination of the Datacenter and the analytics that create a unique foundation for Lumin. Insights developed using Lumin can provide the basis for biomarker hypotheses, reveal potential mechanisms of therapeutic resistance, and guide the direction of additional preclinical evaluations.

Our drug discovery and development business leverages the computational and experimental capabilities within our platforms. Our discovery strategy utilizes our rich and unique Datacenter, coupled with artificial intelligence and other advanced computational analytics, to identify novel therapeutic targets. We then employ the use of our proprietary experimental platforms to rapidly validate these targets for further drug development efforts.

Results of Operations

 

The following table summarizes our operating results for the periods presented below (dollars in thousands):

 

Oncology services revenue, which is primarily derived from research services, was $41.0$49.1 million and $32.1$41.0 million, for the years ended April 30, 20212022 and 20202021, respectively, an increase of $8.9$8.1 million, or 27.8%19.7%. The increase in revenue iswas primarily due to

 

Research and development expense was $7.2$9.4 million and $5.9$7.2 million for the years ended April 30, 20212022 and 2020,2021, respectively, an increase of $1.3$2.2 million or 22.9%30.3%. The increase is mainlywas primarily due to the investmentinvestments in new service capabilities and our drug discovery and development programs with the increase coming primarily from compensation and lab supply expenses. Additionally, we incurred costs stemming from our investment in adding valuable data to our platform.

 

General and administrative expense was $6.5$9.1 million and $6.6$6.5 million for the years ended April 30, 20212022 and 2020,2021, respectively, a decrease of $102,000,$2.6 million, or (1.5)%40.0%. General and administrative expenses were primarily comprised of compensation, insurance, professional fees, IT, and depreciation and amortization expenses. In 2020, the CEO received a one time remuneration for salary not taken in prior years, resulting in theThe general and administrative expenses decreaseincrease was primarily due to increases in 2021. Excluding the one-time payment, generalnon-cash expenses, compensation and administrativeIT expenses increased $650,000 which was usedfor data storage and to support the overall infrastructure growth of the company.

Other expense was $24,000 and other income was $71,000 and other expense was $42,000 for the years ended April 30, 2022 and 2021, and 2020, respectively. Other expense for the year ended April 30, 2022 resulted primarily from foreign currency transaction losses. Other income for the year ended April 30, 2021 was primarily attributable to a $72,000$75,000 gain on operating lease termination. Other expense in the prior year resulted fromtermination offset by foreign currency transaction losses and fees offset by a gain on disposal of equipment.losses.

 

 

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 our cash on hand, working capital management, proceeds from certain private placements and public offerings of our securities

Cash Flows

The following discussion relates to the major components of our cash flows:

 

Net cash used in investing activities was $3.2$2.4 million and $2.2$3.2 million for the years ended April 30, 20212022 and 2020,2021, respectively. The increase in cash used was for the investment in additional lab and computer equipment and software development.

 

Critical Accounting Policies

 

 

 

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States or GAAP. The preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. Significant estimates of the Company include, among other things, accounts receivable realization, revenue recognition (replacement of licensed tumors), valuation allowance for deferred tax assets, valuationrecoverability of goodwill,capitalized software development costs, and stock-based compensation and warrant assumptions. We base our estimates on historical experience, our observance of trends in particular areas and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated.

 

Stock-Based Payments

 

We typically recognize expense for stock-based payments based on the fair value of awards on the date of grant. We use the Black-Scholes option pricing model to estimate fair value. The option pricing model requires us to estimate certain key assumptions such as expected life, volatility, risk free interest rates, and dividend yield to determine the fair value of stock-based awards. These assumptions are based on historical information and management judgment. We expense stock-based payments over the period that the awards are expected to vest. In the event of forfeitures, compensation expense is adjusted. We report cash flows resulting from tax deductions in excess of the compensation cost recognized from those options (excess tax benefits) as financing cash flows when the cash tax benefit is received.

Capitalized software development costs are not limited to: (1) a significant adverse change in legal factors, market conditions, or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating goodwill for impairment, we may first perform an assessment qualitatively whether itstated at gross cost less accumulated amortization. Recoverability of these capitalized costs is more likely than not that a reporting unit’s carrying amount exceeds its fair value, referred to as a “step zero” approach. Subsequently (if necessary after step zero), an entity should perform its goodwill impairment testdetermined at each balance sheet date by comparing the fair value of a reporting unit with its carrying value. Under FASB's ASU 2014-02, Topic 350, "Intangibles—Goodwillforecasted future revenues from the related product, based on management’s best estimates using appropriate assumptions and Other" goodwill impairment is measured asprojections at the excess oftime, to the carrying amount of the reporting unit over its fair value.capitalized software development costs. If the carrying value is determined not to be recoverable from future revenues, an impairment loss is recognized equal to the amount by which the carrying amount exceeds the future revenues.

 

We use the asset and liability method to account for income taxes. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets.  In preparing the consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate.  This process involves estimating the actual current tax liability together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, depreciation on property, plant and equipment, goodwill and losses for tax and accounting purposes.  These differences result in deferred tax assets, which include tax loss carry-forwards, and liabilities, which are included within the consolidated balance sheet.  We then assess the likelihood that deferred tax assets will be recovered from future taxable income, and to the extent that recovery is not likely or there is insufficient operating history, a valuation allowance is established. To the extent a valuation allowance is established or increased in a period, we include an expense within the tax provision of the consolidated statements of operations. As of April 30, 20212022 and 2020,2021, we have established a full valuation allowance for all deferred tax assets.

 

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.

 

 

Conclusion Regarding the Effectiveness ofManagement's Report on Disclosure Controls and Procedures

The Company’sOur management, under the supervision and with the participation of our Principal Executive Officer (our Chief Executive Officer) and Principal Financial Officer and(our Chief Financial Officer,Officer), has evaluated the effectiveness of our disclosure controls and procedures as of April 30, 2022, the end of our fiscal year covered by this annual report. The term “disclosure controls and procedures,” as defined in RuleRules 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as amended (the “Exchange Act”) as of April 30, 2021. In designing and evaluating our disclosuremeans controls and procedures. other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired controltheir objectives, and management necessarily is required to applyapplies its judgment in evaluating the cost-benefit relationship between the benefit of desired controls and procedures and the cost of implementing newpossible controls and procedures. Based upon thison the evaluation of our disclosure controls and procedures as of April 30, 2022, that consider remediation efforts commenced by the Company as a result of the material weakness noted during the assessment of the effectiveness of the Company’s management, includinginternal controls over financial reporting as of and for the year ended April 30, 2021, our Chief Executive Officer and Chief Financial Officer have concluded that, as of April 30, 2021, due to the material weakness in our internal control over financial reporting described below,2022, our disclosure controls and procedures were notare effective.

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’sThis rule defines internal control over financial reporting isas a

A system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A material weakness is aany deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’sour company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Management has assessed the effectiveness ofBased upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was effective as of April 30, 2021, based on criteria established in Internal Control-Integrated Framework (2013) issued2022, the year covered by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment of those criteria, we identified the following deficiencies in our internal control described below.this Annual Report.

For the year ended April 30, 2021, we identified a material weakness in the consolidated financial statements close process. Specifically, our risk assessment procedures over certain of our contractual arrangements requiring the payment of royalties for the licensing of technology from third-parties did not adequately identify the risks and consider the Company’s obligations based on the recognition of oncology services revenue. As a result, the Company had missing process level controls over the review of royalty arrangements and the timely determination and recognition of related liabilities.

However, the control deficiencies create a reasonable possibility that a material misstatement inDuring fiscal year 2022, the Company’s consolidated financial statements will not be prevented or detected on a timely basismanagement designed and we concluded that our internal control over financial reporting as of April 30, 2021, was not effective due to a material weakness in internal control.

Changes in Internal Controls

Other than the remediation of the prior year material weakness, identified above, there were no other changes in the Company’s internal controls over financial reporting during the quarteryear ended April 30, 2021,2022, that materially affected, or were reasonably likely to materially affect the Company’s internal control over financial reporting.

 

 

PART III

 

 

 

 

PART IV

(a)1. Financial Statements

 

 

(a)2. Financial Statement Schedules

(a)3. Exhibits required to be filed by Item 601 of Regulation S-K.

* Filed herewith

** Furnished hereto.

SIGNATURES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CHAMPIONS ONCOLOGY, INC.

CONSOLIDATED BALANCE SHEETS

AS OF APRIL 30

(In Thousands except for shares)

CHAMPIONS ONCOLOGY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands Except Share and Per Share Amounts)

CHAMPIONS ONCOLOGY, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(In Thousands except for shares)

CHAMPIONS ONCOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

 

CHAMPIONS ONCOLOGY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Basis of Presentation

Champions Oncology, Inc. (the “Company”), is engaged in transforming drug discovery and development through data-driven research strategies and innovative pharmacology, biomarker and data platforms. The Company’s TumorGraft Technology Platform is a novelan 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 facilitatesis designed to facilitate drug discovery with lower costs and increased speed of drug development as well as increased adoption of existing drugs.

 

The Company has 23 operating subsidiaries: Champions Oncology (Israel), Limited and Champions Biotechnology U.K., Limited.Limited, and Champions Oncology S.R.L. For the years ended April 30, 20212022 and 2020,2021, there were no revenues earned by these subsidiaries.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company operates in 1 reportable business segment.

Note 2. Summary of Significant Accounting Policies

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

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. Foreign currency balances are translated at each month end to US dollars, and any resulting gain or loss is recognized in our results of operations, as the amounts are not material.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, among other things, accounts receivable realization, revenue recognition, valuation allowance for deferred tax assets, valuation of goodwill, recoverability of capitalized software development costs, and stock-based compensation and warrant assumptions.  We base our estimates on historical experience, our observance of trends in particular areas and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources.  Actual amounts could differ significantly from amounts previously estimated.