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Item 7. Management’s Discussion and Analysis

2025-07-23 compared with 2024-07-19 · 88 added, 100 removed, 87 unchanged (68% of the section changed)

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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.

Utilizing our TumorGraft Technology Platform (the "Platform"), a comprehensive bank of unique, well characterized Patient Derived Xenograft ("PDX") models, we provide select services to pharmaceutical and biotechnology companies seeking personalized approaches to drug development.

By performing studies to predict the efficacy of oncology drugs, our Platform facilitates drug discovery with lower costs and increased speed of drug development as well as increased adoption of existing drugs.

We also sell Lumin Bioinformatics ("Lumin"), an oncology data-driven software program which contains comprehensive information derived from our research services and clinical studies.

We offer access to certain PDX model data via licensing agreements.

As our Platform has been expanded over time with the collection of models and the enhancement of their characterization, we have developed a robust multi-omic dataset with substantial potential for both drug discovery and development.

This dataset serves as a vital resource for both our pharmaceutical and biotechnology customer who gain access to model-specific data and further their research via licensed access.

We also offer 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.

It is the combination of the Datacenter and the analytics that create a 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.

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

There were no impairment charges recorded for fiscal 2024.

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.

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Revenue 2024 % of

Oncology services revenue $ 50,155 100.0 % $ 53,870 100.0 % (6.9) %

Oncology revenue $ 56,944 100.0 % $ 50,155 100.0 % 13.5 %

Costs and operating expenses:

Cost of oncology services 29,401 58.6 29,532 54.8 (0.4)

Cost of oncology revenue 28,389 49.9 29,401 58.6 (3.4)

Research and development 6,825 12.0 9,544 19.0 (28.5)

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Loss on disposal of equipment 293 0.5 435 0.9 (32.6)

Asset Impairment — — 807 1.5 (100.0)

Total costs and operating expenses 52,391 92.0 57,511 114.7 (8.9)

Loss from operations (7,356) (14.7) (5,256) (9.8) 40.0

Oncology Services Revenue

Oncology services revenue, which is primarily derived from research services, was $50.2 million and $53.9 million, for the years ended April 30, 2024 and 2023, respectively, a decrease of $3.7 million, or 6.9%.

The decrease in revenue was primarily due to a combination of factors including an increase in study cancellations during fiscal year 2023 and a slowdown of bookings expansion.

These two factors reduced our net bookings and available convertible revenue in the current year.

Cost of Oncology Services

Cost of oncology services were $29.4 million and $29.5 million for the years ended April 30, 2024 and 2023, respectively, a slight decrease of $0.1 million or 0.4%.

Gross margin was 41% for the twelve months ended April 30, 2024 compared to 45% for the twelve months ended April 30, 2023.

The decrease in gross margin was the result of relatively unchanged variable costs on a revenue decline.

Variable costs were a higher percentage of revenue due to increases in mice and supply expenses.

These increases were caused by operational inefficiencies creating the need for additional mice and lab supplies.

Income (loss) from operations 4,553 8.0 (7,356) (14.7) (161.9)

Oncology Revenue

Oncology revenue, which is primarily derived from research services, was $56.9 million and $50.2 million, for the years ended April 30, 2025 and 2024, respectively, an increase of $6.8 million, or 13.5%.

Our revenues are comprised of the following:

For the Years Ended April 30,

(in 000s) 2025 2024

Pharmacology services $ 48,585 $ 47,035

TOS data license revenue 4,676 —

Other TOS revenue 3,683 3,102

Personalized oncology services — 18

Total oncology revenue $ 56,944 $ 50,155

Pharmacology Services

• The increase for the year ending April 30, 2025 was the result of a stronger bookings to revenue conversion rate.

Bookings, which represent the total value of signed statements of work, convert to revenue over time as the Company fulfills its contractual performance obligations.

Operational improvements implemented throughout the year have enhanced execution efficiency, contributing to the improvement in the conversion percentage.

TOS Data License Revenue

• Revenue for the year ending April 30, 2025 resulted from the sale of data licenses.

No such revenues occurred for the year ending April 30, 2024.

Other TOS Revenue

• Other TOS Revenue includes additional clinical services provided to the Company's pharmaceutical and biotechnology customers, specifically flow cytometry and SaaS provided via Lumin.

• Our flow cytometry services revenue increased approximately $787,000 for the year ending April 30, 2025 due to stronger bookings to revenue conversion rates.

• This increase in Other TOS Revenue was offset by a decrease in our SaaS revenues for the year ending April 30, 2025 as compared with 2024 of $205,000.

This decrease resulted from both a decline in new and renewal subscriptions.

Cost of Oncology Revenue

Cost of oncology revenue was $28.4 million and $29.4 million for the years ended April 30, 2025 and 2024, respectively, a decrease of $1.0 million or 3.4%.

Cost of oncology revenue is comprised primarily of expenses for mice, laboratory supplies, compensation, and outsourced lab services.

The reduction from prior year was primarily driven by lower compensation, such as overtime, and lab supply costs due to operational improvements, along with a decrease in outsourced lab services.

Research and Development

Research and development expense was $6.8 million and $9.5 million for the years ended April 30, 2025 and 2024, respectively, a decrease of $2.7 million or 28.5%.

The decrease was primarily due to cost cutting measures along with a reduction in research and development work required as our newer platforms mature.

These factors led to a decline in compensation and lab supply expenses.

The decrease was also due to a reduction in spend for our drug discovery and development programs.

The significant components of research and development expense were comprised of the following:

Years Ended April 30,

(in 000s) 2025 2024

Compensation $ 2,800 $ 3,900

Laboratory Supplies 2,000 2,000

Mice Costs 550 510

Outside Services 590 1,320

The overall decreases in research and development expense from the prior year period were primarily the result of a reduction in investment in our developmental programs including Corellia, our wholly owned subsidiary focused on target discovery.

Sales and Marketing

Sales and marketing expense was $7.1 million and $7.0 million for the years ended April 30, 2024 and 2023, respectively, remaining relatively flat with a slight increase of $0.1 million or 0.9%.

The increase was mainly due to increased conference attendance.

Sales and marketing expense was $7.5 million and $7.1 million for the years ended April 30, 2025 and 2024, respectively, an increase of $481,000 or 6.8%.

The increase was mainly due to an increase in compensation costs including the expansion of the Data License deals team.

General and Administrative

General and administrative expense was $11.1 million and $10.2 million for the years ended April 30, 2024 and 2023, respectively, an increase of $0.8 million, or 8.1%.

General and administrative expense was $9.3 million and $11.1 million for the years ended April 30, 2025 and 2024, respectively, a decrease of $1.7 million, or 15.6%.

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

The general and administrative expense increase was primarily due to compensation and recruiting expenses due to the addition to the executive team.

Additionally, non-cash stock compensation and allowances for estimated credit losses and bad debt reserves increased.

These increases were partially offset by a decrease in IT and professional fees.

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, 2024.

The general and administrative expense decrease was primarily due to a reduction in compensation expenses and professional fees.

Additional non-cash

declines resulted from stock compensation and allowances for estimated credit losses and bad debt reserves.

The overall reduction was partially offset by an increase in IT expenses.

Loss on Disposal of Equipment

Loss on disposal of equipment was $435,000 and zero for the years ended April 30, 2024 and 2023, respectively.

For the year ended April 30, 2024, the loss resulted from the disposal of equipment which could no longer be utilized and had a net book value, or carrying value on the balance sheet, as of the disposal date.

Other Income (Expense)

Other income, net, was $48,000 for the year ended April 30, 2024.

Other expense, net, was $11,000 for the year ended April 30, 2023.

Loss on disposal of equipment was $293,000 and $435,000 for the years ended April 30, 2025 and 2024, respectively, a decrease of $142,000 or 33%.

For both years ended April 30, 2025 and 2024, the losses resulted from the disposal of equipment which could no longer be utilized and had a net book value, or carrying value on the balance sheet, as of the disposal date.

Other Income, net

Other income, net, was $73,000 and $48,000 for the years ended April 30, 2025 and April 30, 2024, respectively.

For the year ended April 30, 2025, other income resulted primarily from interest income of $87,000 and foreign currency transaction net gains of approximately $11,000 partially offset by interest expense of $27,000.

For the year ended April 30, 2024, other income resulted primarily from interest income of $92,000 partially offset by foreign currency transaction net losses of approximately $16,000 and interest expense of $28,000.

For the year ended April 30, 2023, other expense, net resulted primarily from foreign currency transaction net losses.

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 financials 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 years ended April 30, 2024 and 2023, the Company had a net loss of approximately $7.3 million and a net loss of approximately $5.3 million, respectively.

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.

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, 2025 and 2024, the Company had net income of approximately $4.7 million and a net loss of approximately $7.3 million, respectively.

As of April 30, 2025, the Company had an accumulated deficit of approximately $79.9 million, negative working capital of $1.5 million and cash of $9.8 million.

For the twelve months ended April 30, 2025, the Company realized cash flow from operations of approximately $7.4 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 2026.

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.

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

Cash Flows from Operating Activities

Net cash used in operating activities was $6.1 million for the year ended April 30, 2024.

Net cash provided by operating activities was $7.4 million for the year ended April 30, 2025.

The decrease in cash from operations was primarily due to the net loss realized in fiscal 2024.

Net cash used in operating activities was $6.1 million for the year ended April 30, 2024.

The increase in cash from operations was primarily due to the net income realized in fiscal 2025 and an increase in deferred revenue partially offset by changes in our working capital accounts in the ordinary course of business.

Cash Flows from Investing Activities

Net cash used in investing activities was $836,000 and $2.9 million for the years ended April 30, 2024 and 2023, respectively.

Net cash used in investing activities was $389,000 and $836,000 for the years ended April 30, 2025 and 2024, respectively.

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

Cash Flows from Financing Activities

Net cash used in financing activities was $527,000 for the year ended April 30, 2024.

Net cash provided by financing activities was $170,000 for the year ended April 30, 2025.

Cash flows used in financing activities was for the repurchase of common stock per our stock buyback program and financing lease payments and was offset by stock options exercise proceeds.

Net cash used in financing activities was $527,000 for the year ended April 30, 2024.

Cash flows provided by financing activities in 2025 was primarily from proceeds from stock option exercises offset by financing lease payments.

Net cash used in financing activities for 2024 was for the repurchase of common stock per our stock buyback program and financing lease payments and was partially offset by stock option exercise proceeds.

Critical Accounting Policies

The following discussion of critical accounting policies identifies the accounting policies that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

It is not intended to be a comprehensive list of all of our significant accounting policies, which are more fully described in Note 2 to the consolidated financial statements included in this document.

In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgment in their application.

There are also areas in which the selection of an available alternative policy would not produce a materially different result.

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 ("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, 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.

Actual amounts could differ significantly from amounts previously estimated.

We prepare our Consolidated Financial Statements in accordance with U.S.

Generally Accepted Accounting Principles (“GAAP”).

Our significant accounting policies are described in Note 2 - Summary of Significant Accounting Policies to our

Consolidated Financial Statements attached hereto.

We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our Consolidated Financial Statements.

Revenue Recognition

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The Company generally receives compensation based on a predetermined invoicing schedule relating to specific milestones for that contract.

In addition, in certain instances a customer contract may include forms of variable consideration such as performance incentives or other provisions that can increase or decrease the transaction price.

This variable consideration is generally awarded upon achievement of certain performance metrics.

For the purposes of revenue recognition, variable consideration is assessed on a contract-by-contract basis and the amount to be recorded is estimated based on the assessment of the Company's anticipated performance and consideration of all information that is reasonably available.

Variable consideration is recognized as revenue if and when it is deemed probable that a significant

reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved in the future.

Amendments to contracts are common.

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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.

Recoverability of Capitalized Software Development Costs

The Company accounts for the cost of computer software obtained or developed for internal use as well as the software development and implementation costs associated with a hosting arrangement ("internal-use software") that is a service contract

in accordance and with ASC 350, Intangibles - Goodwill and Other.

We capitalize certain costs in the development of our internal-use software when the preliminary project stage is completed and the software has reached the point of technological feasibility.

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 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.

Recoverability of these capitalized costs is determined at each balance sheet date by comparing the forecasted future revenues from the related product, based on management’s best estimates using appropriate assumptions and projections at the time, to the carrying amount of the 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.

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

There were no impairment charges related to software development costs recorded during fiscal 2024.

Accounting for Income Taxes

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, 2024 and 2023, we have established a full valuation allowance for all deferred tax assets.

As of April 30, 2024 and 2023, we recognized a liability for uncertain tax positions on the balance sheet relative to foreign operations in the amount of $181,000.

We do not anticipate any significant unrecognized tax benefits will be recorded during the next 12 months.

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

The Company has not accrued any additional penalties or interest during the year ended April 30, 2024 as we believe the liability for uncertain tax positions accurately reflects penalties and/or interest as of this date.

Accounting Pronouncements Adopted

In June 2016, the FASB issued ASU No.

2016-13, "Financial Instruments - Credit Losses".

This update requires immediate recognition of management’s estimates of current expected credit losses.

Under the prior model, losses were recognized only as they were incurred.

The new model is applicable to all financial instruments that are not accounted for at fair value through net income.

The Company adopted this ASU on May 1, 2023 and the adoption did not have a material effect on its condensed consolidated financial statements and related disclosures.

Recent Accounting Pronouncements

In November 2023, the FASB issued Accounting Standards Update ("ASU") 2023-07, “Segment Reporting” (Topic 280):

Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses.

The amendments require entities to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within segment profit and loss, as well as the title and position of the CODM.

The Company has adopted this standard effective May 1, 2024, noting that it did not have a material impact on its consolidated financial statements or related disclosures.

In December 2023, the FASB issued ASU 2023-09, “Improvements to Tax Disclosures” (Topic 740).

The new guidance is intended to enhance the transparency and decision usefulness of income tax disclosures through changes to the rate reconciliation and the income taxes paid information disclosed.

The ASU is effective retrospectively for fiscal years beginning after December 15, 2025, with early adoption permitted.

The Company is in the process of completing the assessment of the impact that the adoption of this ASU will have on its financial statements, which is not expected to be material.

In November 2024 and January 2025, the FASB issued ASU 2024-03, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures" (Subtopic 220-40) "Disaggregation of Income Statement Expenses" and ASU 2025-01 "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures" (Subtopic 220-40):

Clarifying the Effective Date".

The new guidance is intended to enhance transparency and disclosures by requiring public

business entities to disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods.

The ASU is effective for the first annual reporting periods after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted.

The Company is in the process of evaluating the impact that the adoption of this ASU will have on its financial statements and related disclosures, which is not expected to be material.

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