What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-07-24 compared with 2022-07-22 · 40 added, 42 removed, 130 unchanged (39% of the section changed)

15 unchanged sentences

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.

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.

We also sell Lumin Bioinformatics ("Lumin"), an oncology data-driven software program which 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.

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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.

During fiscal 2023, we recorded an asset impairment related to Lumin software development costs of $807,000.

Our drug discovery and development business leverages the computational and experimental capabilities within our platforms.

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We then employ the use of our proprietary experimental platforms to rapidly validate these targets for further drug development efforts.

We have a rich pipeline of targets at various stages of discovery and validation, with a select group that has progressed to therapeutic development.

We have a pipeline of targets at various stages of discovery and validation, with a select group that has progressed to early stage therapeutic development.

Our commercial strategy for the validated targets and therapeutics established from this business is wide-ranging and still being developed.

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General and administrative 10,240 19.0 9,117 18.6 12.3

Asset Impairment 807 1.5 — — 100.0

Total costs and operating expenses 59,126 109.7 48,502 98.8 21.9

Income from operations $ 607 1.2 % $ 366 0.8 % 65.8 %

(Loss) income from operations $ (5,256) (9.7) % $ 607 1.2 % (965.9) %

Oncology Services Revenue

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Cost of oncology services were $29.5 million and $23.6 million for the years ended April 30, 2023 and 2022, respectively, an increase of $5.9 million or 25.0%.

The increase in cost of oncology services was primarily from an increase in compensation and supply expenses resulting from the larger study sizes, and compensation expense for our SaaS platform.

These increases were offset by a decrease in outsourced lab services.

The increase in cost of oncology services was primarily from an increase in compensation

and supply expenses.

Gross margin was 45% for the twelve months ended April 30, 2023 compared to 52% for the twelve months ended April 30, 2022.

The improvement in gross margin was the direct result of decreasing the Company’s reliance on outsourcing and leveraging revenue growth over the fixed cost component of cost of sales.

The decrease in gross margin was the result of increasing costs in compensation and supplies to support revenue growth that didn't materialize as expected.

Research and Development

Research and development expense was $11.5 million and $9.4 million for the years ended April 30, 2023 and 2022, respectively, an increase of $2.2 million or 23.2%.

The increase was primarily due to the investments in new service capabilities and our drug discovery and development programs with the increase coming primarily from compensation and lab supply expenses.

Sales and Marketing

Sales and marketing expense was $7.0 million and $6.4 million for the years ended April 30, 2023 and 2022, respectively, an increase of $0.6 million or 9.8%.

The increase was mainly due to compensation expense.

Additionally, travel expense increased for our business development team as Covid-19 travel related restrictions eased.

The increase was mainly due to compensation expense, driven by the continued expansion of our business development teams, and marketing initiatives, including increased conference attendance due to the easing of Covid restrictions.

General and Administrative

General and administrative expense was $9.1 million and $6.5 million for the years ended April 30, 2022 and 2021, respectively, a decrease of $2.6 million, or 40.0%.

General and administrative expense was $10.2 million and $9.1 million for the years ended April 30, 2023 and 2022, respectively, an increase of $1.1 million, or 12.3%.

General and administrative expenses were primarily comprised of compensation, insurance, professional fees, IT, and depreciation and amortization expenses.

The general and administrative expenses increase was primarily due to increases in non-cash expenses, compensation and IT expenses for data storage and to support the overall infrastructure growth of the company.

Other Income (Expense)

Other expense was $24,000 and other income was $71,000 for the years ended April 30, 2022 and 2021, 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 $75,000 gain on operating lease termination offset by foreign currency transaction losses.

The general and administrative expenses increase was primarily due to increases in non-cash depreciation and amortization expenses.

Asset Impairment

During the fourth quarter of fiscal 2023, we assessed the recoverability of the Lumin capitalized software development costs by comparing the forecasted future revenues from Lumin sales, based on management’s best estimates and using appropriate assumptions and projections, to the carrying amount of the capitalized asset.

Several factors were considered in this analysis, including, the decrease in Lumin revenue growth from the prior year, the deceleration of new Lumin bookings in the current year, and the strategic consideration for additional capital investment into the platform, sales team, and marketing campaigns to bolster awareness and growth.

As the carrying value was determined not to be recoverable from future revenues, an impairment loss was recognized for the year ending April 30, 2023 equal to the amount by which the carrying amount exceeded the future revenues, or, its net book value at that date of $807,000.

There were no impairment charges for the year ending April 30, 2022.

Other Expense

Other expense, net was $11,000 and $24,000 for the years ended April 30, 2023 and 2022, respectively and resulted primarily from foreign currency transaction net losses offset by interest income.

Liquidity and Capital Resources

1 unchanged sentence

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 and sales of products and services.

For the years ended April 30, 2022 and 2021, the Company had net income of approximately $548,000 and $362,000, respectively.

As of April 30, 2022, the Company had an accumulated deficit of approximately $72.0 million, working capital of $2.2 million and cash of $9.0 million.

We believe that our cash on hand, together with expected cash flows from operations, are adequate to fund operations through at least August 2023.

For the years ended April 30, 2023 and 2022, the Company had a net loss of approximately $5.3 million and net income of approximately $548,000, respectively.

As of April 30, 2023, the Company had an accumulated deficit of approximately $77.3 million, negative working capital of $2.3 million and cash of $10.1 million.

For the twelve months ended April 30, 2023, the Company realized cash flow from operations of approximately $4.0 million.

Despite our negative working capital at this date, we believe that our cash on hand, together with expected cash flows from operations, are adequate to fund operations through at least August 2024.

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.

1 unchanged sentence

Cash Flows from Operating Activities

Net cash provided by (used in) operating activities was $6.5 million and ($1.7) million for the years ended April 30, 2022 and 2021, respectively.

The increase in cash provided was primarily due to improving cash based operational results and an increase in deferred revenue.

The increase in deferred revenue was primarily driven by cash received upon signing new studies, an indicator of the strength of the Company’s sales pipeline.

Changes in our working capital accounts were in the ordinary course of business operating activities.

Net cash provided by operating activities was $4.0 million and $6.5 million for the years ended April 30, 2023 and 2022, respectively.

The decrease in cash provided by operations resulted primarily from the net loss realized in fiscal 2023.

Cash generated from operations in 2023 was primarily due to changes in our working capital accounts in the ordinary course of business and an increase in deferred revenue.

Cash Flows from Investing Activities

Net cash used in investing activities was $2.9 million and $2.4 million for the years ended April 30, 2023 and 2022, respectively.

The cash used was for the investment in lab and computer equipment and software development.

The cash used was for the investment in lab and computer equipment.

Cash Flows from Financing Activities

Net cash provided by financing activities was $0.2 million and $1.2 million for the years ended April 30, 2022 and 2021, respectively.

Cash flows provided by financing activities was due to exercises of stock options and decreased from the prior year due to lower volume of exercises of options and warrants.

Net cash provided by financing activities was $11,000 and $207,000 for the years ended April 30, 2023 and 2022, respectively.

Cash flows provided by financing activities was due to exercises of stock options and decreased from the prior year due to lower volume of exercises.

During fiscal 2023, cash provided by financing was offset by cash used to repurchase common stock per our stock buyback program.

Critical Accounting Policies

5 unchanged sentences

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, recoverability of capitalized software development costs, and stock-based compensation and warrant assumptions.

Significant estimates of the Company include, among other things, accounts receivable realization, revenue recognition, valuation allowance for deferred tax assets, 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.

9 unchanged sentences

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.

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.

22 unchanged sentences

Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose and available for sale.

Capitalized costs are then amortized using the straight-line method over an estimated useful economic life of three years.

Capitalized costs are recorded as an asset and then amortized using the straight-line method over an estimated useful economic life of three years.

Capitalized software development costs are stated at gross cost less accumulated amortization.

1 unchanged sentence

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.

During fiscal 2023, we recorded an asset impairment charge related to software development costs of $807,000.

Accounting for Income Taxes

10 unchanged sentences

Any interest or penalties related to unrecognized tax benefits is recognized in income tax expense.

The Company has not accrued penalties or interest during the year ended April 30, 2022.

The Company has not accrued penalties or interest during the year ended April 30, 2023 as we believe the liability for uncertain tax positions accurately reflects penalties and/or interest as of this date.

Accounting Pronouncements Being Evaluated

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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 smaller reporting companies.

Early adoption is permitted.

We are currently assessing the impact of this update on our consolidated financial statements and have not yet determined the impact on our consolidated financial statements.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (ASC 740) — Simplifying the Accounting for Income Taxes.

ASU 2019-12 which modifies ASC 740 to simplify the accounting for income taxes.

The ASU removes certain exceptions for recognizing deferred taxes for investments, performing intra-period 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.

ASU 2019-12 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2020.

The Company adopted this guidance on May 1, 2021 and it did not have an impact on its consolidated financial statements.

The standard is effective May 1, 2023 for the Company.

We are currently assessing the impact of this update on our consolidated financial statements but we do not expect the adoption of the pronouncement to have a material impact on our balance sheet or results of operations.

Off-Balance Sheet Financing

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis