CHAMPIONS ONCOLOGY, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion of our historical results of operations and our liquidity and capital resources should be read in conjunction with the condensed consolidated financial statements and related notes that appear elsewhere in this Report and our 2024 Annual Report. Forward-Looking Statements This Report contains certain “forward-looking statements,” which include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation, and availability of resources. These forward-looking statements include, without limitation, statements regarding: proposed new programs; expectations that regulatory developments or other matters will not have a material adverse effect on our financial position, results of operations, or liquidity; statements concerning projections, predictions, expectations, estimates, or forecasts as to our business, financial and operational results, and future economic performance; and statements of management’s goals and objectives and other similar expressions concerning matters that are not historical facts. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Forward-looking statements speak only as of the date the statements are made. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those described in “Risk Factors” in Part I, Item 1A of our 2024 Annual Report, as updated in our subsequent reports filed with the SEC, including any updates found in Part II, Item 1A of this or other reports on Form 10-Q, if any. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Overview and Recent Developments We are 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 simulate 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 biomarker hypothesis of sensitivity or resistance. These studies include the use of our in vivo, ex vivo, analytical and computational platforms. 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. We offer Lumin Bioinformatics ("Lumin"), an oncology data-driven Software as a Service ("SaaS") program. Our Lumin software contains comprehensive information derived from our research services and clinical studies. Lumin leverages our large Datacenter coupled with analytics and artificial intelligence to provide a robust tool for computational cancer research. 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 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 validate these targets for further drug development efforts. We have a pipeline of targets at various stages of discovery and validation, with a select group that has progressed to therapeutic development. Our commercial strategy for the validated targets and therapeutics established from this business is wide-ranging and still being developed. It will depend on many factors, and will be specific for each target or therapeutic area identified. All expenses associated with this part of our business are research and development and are expensed as incurred. We regularly evaluate strategic options to create additional value from our drug discovery business, which may include, but are not limited to, potential spin-out transactions or capital raises. Liquidity and Capital Resources Under ASC Subtopic 205-40, Presentation of Financial Statements—Going Concern (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. The following conditions raised substantial doubt about our ability to continue as a going concern: a history of net losses, working capital deficits, accumulated deficit and declining cash position. Going concern matters are more fully discussed in Notes to the Consolidated Financial Statements, Note 2, Summary of Significant Accounting Policies. No adjustments have been made to the financial statements as a result this uncertainty. 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. Most recently, we have met these cash requirements through cash on hand, working capital management, and sales of products and services. In the past, we have also received proceeds from certain private placements and public offerings of our securities. For the six months ended October 31, 2024, the Company had net income of approximately $2.0 million and cash provided by operations of approximately $28,000. As of October 31, 2024, the Company had an accumulated deficit of approximately $82.6 million and cash on hand of approximately $2.8 million. While we believe we have strategies to increase our revenues and reduce our costs which can be implemented without disrupting the business or completely restructuring the Company, there can be no assurances. In order to continue to fund our operations we may need to raise additional equity or debt capital in the near term and cannot provide any assurance that we will be successful in doing so, and if we can, on whether the terms will be acceptable to us. If we are unable to obtain additional financing in the near future, we may be required to pursue a reorganization proceeding, including under applicable bankruptcy or insolvency laws. Operating Results The following table summarizes our operating results for the periods presented below (dollars in thousands): For the Three Months Ended October 31, 2024 % of Revenue 2023 % of Revenue % Change Oncology services revenue $ 13,489 100.0 % $ 11,573 100.0 % 16.6 % Costs and operating expenses: Cost of oncology services 7,428 55.1 6,618 57.2 12.2 Research and development 1,689 12.5 2,515 21.7 (32.8) Sales and marketing 1,751 13.0 1,795 15.5 (2.5) General and administrative 1,889 14.0 2,600 22.5 (27.3) Total costs and operating expenses 12,757 94.6 13,528 116.9 (5.7) Income (loss) from operations $ 732 5.4 % $ (1,955) (16.9) % (137.4) % For the Six Months Ended October 31, 2024 % of Revenue 2023 % of Revenue % Change Oncology services revenue $ 27,550 100.0 % $ 24,134 100.0 % 14.2 % Costs and operating expenses: Cost of oncology services 14,500 52.6 14,302 59.3 1.4 Research and development 3,143 11.4 5,308 22.0 (40.8) Sales and marketing 3,430 12.5 3,491 14.5 (1.7) General and administrative 4,416 16.0 5,540 23.0 (20.3) Total costs and operating expenses 25,489 92.5 28,641 118.7 (11.0) Income (loss) from operations $ 2,061 7.5 $ (4,507) (18.7) % (145.7) % Oncology Services Revenue Oncology services revenue, which is primarily derived from pharmacology studies, was $13.5 million and $11.6 million for the three months ended October 31, 2024 and 2023, respectively, an increase of $1.9 million or 16.6%. Oncology services revenue was $27.6 million and $24.1 million for the six months ended October 31, 2024 and 2023, respectively, an increase of $3.4 million or 14.2%. The increase in revenue for both the three-month and six-month periods is primarily due to a strengthening in our bookings, as customers’ budgets have expanded, leading to revenue growth; and, operational improvements and efficiencies implemented. The operational improvements have enabled the Company to convert bookings to revenue at a higher percentage. Cost of Oncology Services Cost of oncology services for the three months ended October 31, 2024 and 2023 were $7.4 million and $6.6 million, respectively, an increase of $810,000 or 12.2%. Cost of oncology services for the six months ended October 31, 2024 and 2023 were $14.5 million and $14.3 million, respectively, an increase of $198,000 or 1.4%. The increases in cost of sales for both periods were primarily attributable to an increase in mice and lab supply costs. Research and Development Research and development expense for the three months ended October 31, 2024 and 2023 were $1.7 million and $2.5 million, respectively, a decrease of approximately $826,000 or 32.8%. Research and development expense for the six months ended October 31, 2024 and 2023 were $3.1 million and $5.3 million, respectively, a decrease of approximately $2.2 million or 40.8%. The decreases in both the three and six month periods were primarily due to a reduction in investment in our developmental programs including target discovery. The declines were primarily from a reduction in salary expense and research agreements. Sales and Marketing Sales and marketing expenses for the three months ended October 31, 2024 and 2023 were $1.8 million, with a slight decrease of $44,000 or 2.5%. Sales and marketing expenses for the six months ended October 31, 2024 and 2023 were $3.4 million and $3.5 million, with a slight decrease of $61,000 or 1.7%. Sales and marketing expenses are primarily comprised of compensation expenses to support business development. General and Administrative General and administrative expenses for the three months ended October 31, 2024 and 2023 were $1.9 million and $2.6 million, respectively, a decrease of $711,000, or 27.3%. General and administrative expenses for the six months ended October 31, 2024 and 2023 were $4.4 million and $5.5 million, respectively, a decrease of $1,124,000, or 20.3%. General and administrative expenses are primarily comprised of compensation, insurance, professional fees, IT and depreciation and amortization expenses. The decrease for the three and six month periods ended October 31, 2024 was primarily from a decrease in compensation and employee recruitment expenses and an adjustment to our credit loss reserve. Cash Flows The following discussion relates to the major components of our cash flows: Cash Flows from Operating Activities For the six months ended October 31, 2024, net cash provided by operating activities was $28,000. The cash provided by operating activities was primarily due to income from operations offset by changes in our working capital accounts, including but not limited to, an increase in accounts receivable and a reduction in accounts payable in the ordinary course of business. For the six months ended October 31, 2023, net cash used in operating activities was $3.4 million. The cash used in operating activities was primarily due to the net operating loss during the period. Cash Flows from Investing Activities Net cash used in investing activities was $94,000 and $747,000 for the six months ended October 31, 2024 and 2023, respectively. The cash used in investing activities for the current and prior year period was for the investment in additional lab and computer equipment. Cash Flows from Financing Activities Net cash provided by financing activities was $202,000 for the six months ended October 31, 2024 . For the six months ended October 31, 2024, the cash provided was from cash received from stock options exercises slightly offset by financing lease payments. Net cash used in financing activities was $456,000 for the six months ended October 31, 2023. The cash used was due to the Company's' stock repurchase program offset by cash received from stock option exercises. Factors That May Adversely Affect our Results of Operations Our results of operations may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the effects of a resurgence or emergence of pandemic-like viruses, and geopolitical instability, such as the military conflicts in Ukraine and the Middle East. We cannot at this time fully predict the likelihood of one or more of the above events, their duration, or magnitude or the extent to which they may negatively impact our business. Critical Accounting Estimates and Policies The preparation of these condensed consolidated financial statements in conformity with GAAP requires management to apply methodologies and make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates of the Company include, among other things, accounts receivable realization, revenue recognition, and stock-based compensation assumptions. Actual results could differ from those estimates. The Company’s critical accounting policies are summarized in our 2024 Annual Report. Off-Balance Sheet Financing We have no off-balance sheet debt or similar obligations. We have no transactions or obligations with related parties that are not disclosed, consolidated into or reflected in our reported results of operations or financial position. We do not guarantee any third-party debt. Item 3. Quantitative and Qualitative Disclosures About Market Risk We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.