10-Q - CSBR - Equibles

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended January 31, 2020

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission file number 001-11504

CHAMPIONS ONCOLOGY, INC.

(Exact name of registrant as defined in its charter)

Delaware	52-1401755
(State or other jurisdiction of<br><br>incorporation or organization)	(I.R.S. Employer<br><br>Identification No.)
One University Plaza, Suite 307	07601
Hackensack, New Jersey	(Zip Code)
(Address of principal executive offices)

(201) 808-8400

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share	CSBR	Nasdaq Capital Market

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

None.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

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

Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer þ	Smaller reporting company þ
			Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

The number of Common Shares of the Registrant outstanding as of March 6, 2020 was 11,887,649.

DOCUMENTS INCORPORATED BY REFERENCE - None

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2020

	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements.
	Condensed Consolidated Balance Sheets as of January 31, 2020 (unaudited) and April 30, 2019	4
	Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended January 31, 2020 and 2019	5
	Unaudited Condensed Consolidated Statement of Changes in Stockholders' Equity for the Three and Nine Months Ended January 31, 2020 and 2019	6
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended January 31, 2020 and 2019	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	24

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

CHAMPIONS ONCOLOGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)		January 31, <br>2020			April 30, <br>2019
	(unaudited)
ASSETS
Current assets:
Cash	$	3,282		$	3,237
Accounts receivable, net	4,493			4,377
Prepaid expenses and other current assets	355			308
Total current assets	8,130			7,922
Operating lease right-of-use assets, net	2,902			—
Property and equipment, net	3,246			2,546
Other long-term assets	128			128
Goodwill	669			669
Total assets	$	15,075		$	11,265
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,215		$	2,807
Accrued liabilities	978			1,180
Current portion of finance lease	177			16
Current portion of operating lease liabilities	490			—
Deferred revenue	4,586			4,022
Total current liabilities	8,446			8,025
Deferred rent	—			851
Non-current operating lease liabilities	3,301			—
Other non-current liabilities	151			151
Total liabilities	$	11,898		$	9,027
Stockholders’ equity:
Common stock, $.001 par value; 200,000,000 shares authorized; 11,823,274 and 11,619,538 shares issued and outstanding as of January 31, 2020 and April 30, 2019, respectively	12			12
Additional paid-in capital	73,790			72,924
Accumulated deficit	(70,625		)	(70,698		)
Total stockholders’ equity	3,177			2,238
Total liabilities and stockholders’ equity	$	15,075		$	11,265

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CHAMPIONS ONCOLOGY, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands, Except Per Share Amounts)

	Three Months Ended<br>January 31,						Nine Months Ended<br>January 31,
	2020			2019			2020		2019
Oncology services revenue	$	9,012		$	6,430		$	23,375	$	19,348
Costs and operating expenses:
Cost of oncology services	4,325			3,429			11,958		9,963
Research and development	1,391			1,269			4,035		3,550
Sales and marketing	1,307			879			3,155		2,138
General and administrative	1,556			1,223			4,118		3,311
Total costs and operating expenses	8,579			6,800			23,266		18,962
Income (loss) from operations	433			(370		)	109		386
Other income (expense):
Other income (expense)	(14		)	1			1		(5		)
Income (loss) before provision for income taxes	419			(369		)	110		381
Provision for income taxes	12			—			38		—
Net income (loss)	$	407		$	(369	)	$	72	$	381
Net income (loss) per common share outstanding
basic	$	0.03		$	(0.03	)	$	0.01	$	0.03
and diluted	$	0.03		$	(0.03	)	$	0.01	$	0.03
Weighted average common shares outstanding
basic	11,752,619			11,508,180			11,653,115		11,257,314
and diluted	13,673,672			11,508,180			13,440,861		13,909,063

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CHAMPIONS ONCOLOGY, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in Thousands)

	Common Stock		Treasury Stock					Additional<br><br>Paid-in<br><br>Capital				Accumulated<br><br>Deficit			Total<br><br>Stockholders'<br><br>Equity
	Shares	Amount	Shares		Amount
Balance May 1, 2019	11,619,538	12	—		$	—		$	72,924			$	(70,698	)	$	2,238
Stock-based compensation	—	—	—		—			131				$	—		$	131
Net loss	—	—	—		—			—				(641		)	(641		)
Balance July 31, 2019	11,619,538	12	—		$	—		$	73,055			$	(71,339	)	$	1,728
Stock-based compensation	—	—	—		—			77				$	—		$	77
Issuance of common stock on exercise of stock options	625	—	—		—			2				$	—		$	2
Net income	—	—	—		—			—				307			307
Balance October 31, 2019	11,620,163	12	—		—			73,134				(71,032		)	2,114
Stock-based compensation	—	—	—		—			229				—			229
Issuance of common stock on exercise of stock options	203,111	—	—		—			427			—	—			427
Net income	—	—	—		—			—				407			407
Balance January 31, 2020	11,823,274	12	—		—			73,790				(70,625		)	3,177
	Common Stock		Treasury Stock					Additional<br><br>Paid-in<br><br>Capital				Accumulated<br><br>Deficit			Total<br><br>Stockholders'<br><br>Equity
	Shares	Amount	Shares		Amount
Balance May 1, 2018	11,003,228	11	269,685		$	(1,252	)	$	72,070			$	(70,826	)	$	3
Stock-based compensation	—	—	—		—			75				—			75
Issuance of common stock for services	4,762	—	—		—			—				—			—
Issuance of common stock on exercise of stock options	20,000	—	—		—			42				—			42
Net income	—	—	—		—			—				483			483
Balance July 31, 2018	11,027,990	11	269,685		$	(1,252	)	$	72,187			$	(70,343	)	$	603
Stock-based compensation	—	—	—		—			88				—			88
Issuance of common stock on exercise of stock options and warrants	446,815	—	(269,685	)	1,252			(218		)		—			1,034
Net income	—	—	—		—			—				267			267
Balance October 31, 2018	11,474,805	11	—		—			72,057				(70,076		)	1,992
Stock-based compensation	—	—	—		—			335				—			335
Issuance of common stock on exercise of stock options and warrants	137,895	1	—		—			364				—			365
Net loss	—	—	—		—			—				(369		)	(369		)
Balance January 31, 2019	11,612,700	12	—		—			72,756				(70,445		)	2,323

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CHAMPIONS ONCOLOGY, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

	Nine Months Ended<br>January 31,
	2020			2019
Operating activities:
Net income	$	72		$	381
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation	437			498
Issuance of common stock for services	—			8
Depreciation and amortization expense	579			433
Gain on disposal of equipment	(52		)	—
Operating lease right-of use assets	299			—
Provision for doubtful accounts	218			53
Deferred rent	—			279
Changes in operating assets and liabilities:
Accounts receivable	(334		)	(55		)
Prepaid expenses and other current assets	(47		)	(11		)
Other long term assets	—			(21		)
Accounts payable	(913		)	(46		)
Accrued liabilities	(202		)	72
Operating lease liabilities	(261		)	—
Deferred revenue	564			19
Net cash provided by operating activities	360			1,610
Investing activities:
Purchase of property and equipment	(693		)	(693		)
Net cash used in investing activities	(693		)	(693		)
Financing activities:
Proceeds from exercise of options and warrants	429			1,440
Finance lease payments	(51		)	(53		)
Net cash provided by financing activities	378			1,387
Increase in cash	45			2,304
Cash at beginning of period	3,237			1,006
Cash at end of period	$	3,282		$	3,310
Non-cash investing activities:
Purchase equipment under finance lease	$	212		$	235
Credit received on purchase of equipment	$	160		$	—
Unpaid portion of property and equipment purchase	$	321		$	—

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

CHAMPIONS ONCOLOGY, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization, Use of Estimates and Basis of Presentation

Champions Oncology, Inc. (the “Company”) is engaged in an end-to-end range of research and development technology solutions and services to improve the development and use of oncology drugs. The Company’s TumorGraft Technology Platform is a novel approach to personalizing cancer care based upon the implantation of human tumors in immune-deficient mice. The Company uses this technology, in conjunction with related services, to offer solutions for two consumer groups: Translational Oncology Solutions (“TOS”) and Personalized Oncology Solutions (“POS”). The Company’s TOS business offers 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. POS assists physicians in developing personalized treatment options for their cancer patients through tumor specific data obtained from drug panels and related personalized oncology services.

The Company has two operating subsidiaries: Champions Oncology (Israel), Limited and Champions Biotechnology U.K., Limited. For the three and nine months ended January 31, 2020 and 2019, there were no revenues earned by these subsidiaries.

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.

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC. All significant intercompany transactions and accounts have been eliminated. Certain information related to the Company’s organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, or GAAP, has been condensed or omitted. The accounting policies followed in the preparation of these unaudited condensed consolidated financial statements are consistent with those followed in the Company’s annual consolidated financial statements for the year ended April 30, 2019, as filed on Form 10-K, except effective May 1, 2019, the Company accounts for its leases under Accounting Standards Codification (“ASC”) Topic 842, Leases. In the opinion of management, these unaudited condensed consolidated financial statements contain all material adjustments necessary to fairly state our financial position, results of operations and cash flows for the periods presented and the presentations and disclosures herein are adequate when read in conjunction with the Company’s Annual Report on Form 10-K for the year ended April 30, 2019. The results of operations for the interim periods are not necessarily indicative of the results of operations for a full fiscal year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Actual results could differ from those estimates.

Note 2. Significant Accounting Policies

Cash and Cash Equivalents

The Company considers only those investments which are highly liquid, readily convertible to cash, and with original maturities of three months or less to be cash equivalents. As of January 31, 2020 and April 30, 2019 the Company had no cash equivalents.

Liquidity

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, working capital management, proceeds from certain private placements and public offerings of our securities, and sales of products and services. For the nine months ended January 31, 2020, the Company had net income of approximately $72,000 and cash flow from operations of $360,000. As of January 31, 2020, the Company had an accumulated deficit of approximately $70.6 million, a working capital deficit of $0.3 million and cash of $3.3 million. We believe that our cash on hand, together with expected net positive cash flows from operations for fiscal year 2020, are adequate to fund operations through at least 12 months from the filing of this 10-Q. However, should our revenue expectations not materialize, we believe we have cost reduction strategies that could be implemented without disrupting the business or restructuring the Company. 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.

Leases

Effective May 1, 2019, the Company accounts for its leases under ASC Topic 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. As the Company's leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term. The Company continues to account for leases in the prior period financial statements in accordance with ASC Topic 840.

Earnings Per Share

Basic net income or loss per share is computed by dividing the net income or loss for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing the net income or loss for the period by the weighted-average number of shares of common stock plus dilutive potential common stock considered outstanding during the period. Such dilutive shares consist of incremental shares that would be issued upon exercise of the Company’s common stock purchase warrants and stock options.

	Three Months Ended<br>January 31,					Nine Months Ended January 31,
	2020		2019			2020		2019
Basic and diluted net (loss) income per share computation (dollars in thousands):
Net income (loss) attributable to common stockholders	$	407	$	(369	)	$	72	$	381
Weighted Average common shares – basic	11,752,619		11,508,180			11,653,115		11,257,314
Basic net income (loss) per share	$	0.03	$	(0.03	)	$	0.01	$	0.03
Diluted income (loss) per share computation:
Net income (loss) attributable to common stockholders	$	407	$	(369	)	$	72	$	381
Income (loss) available to common stockholders	$	407	$	(369	)	$	72	$	381
Weighted Average common shares	11,752,619		11,508,180			11,653,115		11,257,314
Incremental shares from assumed exercise of warrants and stock options	1,921,053		—			1,787,746		2,651,749
Adjusted weighted average share – diluted	13,673,672		11,508,180			13,440,861		13,909,063
Diluted net income (loss) per share	$	0.03	$	(0.03	)	$	0.01	$	0.03

The following table reflects the total potential share-based instruments outstanding at January 31, 2020 and 2019 that could have an effect on the future computation of dilution per common share, had their effect not been anti-dilutive:

	January 31,
	2020	2019
Stock options	2,366,598	2,490,168
Warrants	1,669,773	1,671,440
Total common stock equivalents	4,036,371	4,161,608

Income Taxes

Deferred income taxes have been provided to show the effect of temporary differences between the recognition of expenses for financial and income tax reporting purposes and between the tax basis of assets and liabilities, and their reported amounts in the consolidated financial statements. In assessing the realizability of deferred tax assets, the Company assesses the likelihood that deferred tax assets will be recovered through tax planning strategies or from future taxable income, and to the extent that recovery is not likely or there is insufficient operating history, a valuation allowance is established. Our ability to utilize net operating losses (“NOL”) carryforwards to offset our future taxable income would be limited if we have undergone or were to undergo an “ownership change” within the meaning of Section 382 of the Internal Revenue Code (the “IRC”). The Company performed a Section 382 study and concluded that there are adequate NOL's available to offset any net income generated during the fiscal year ending April 30, 2020. The Company adjusts the valuation allowance in the period management determines it is more likely than not that deferred tax assets will or will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. As of January 31, 2020 and April 30, 2019, the Company provided a valuation allowance for all net deferred tax assets, as recovery is not more likely than not based on an insufficient history of earnings.

Tax positions are positions taken in a previously filed tax return or positions expected to be taken in a future tax return that are reflected in measuring current or deferred income tax assets and liabilities reported in the consolidated financial statements. Tax positions include, but are not limited to, the following:

•	An allocation or shift of income between taxing jurisdictions;
•	The characterization of income or a decision to exclude reportable taxable income in a tax return; or
---	---
•	A decision to classify a transaction, entity or other position in a tax return as tax exempt.
---	---

The Company reflects tax benefits only if it is more likely than not that the Company will be able to sustain the tax position, based on its technical merits. If a tax benefit meets this criterion, it is measured and recognized based on the largest amount of benefit that is cumulatively greater than 50% likely to be realized. The Company recorded $151,000 of liabilities related to uncertain tax positions relative to one of its foreign operations as of January 31, 2020 and April 30, 2019.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties on the Company’s balance sheets at January 31, 2020 and April 30, 2019, and has not recognized interest and/or penalties in the statement of operations for either period. We do not anticipate any significant unrecognized tax benefits will be recorded during the next 12 months.

The provision for the income taxes for the three months ended January 31, 2020 and 2019 was $12,000 and $0. The provision for income taxes for the nine months ended January 31, 2020 and 2019 was $38,000 and $0, respectively.

Revenue Recognition

All revenue is generated from contracts with customers. The Company's arrangements are service type contracts that mainly have a duration of less than a year. The Company recognizes revenue when control of these services is transferred to the customer in an amount, referred to as the transaction price, that reflects the consideration to which the Company is expected to be entitled in exchange for those services. The Company determines revenue recognition utilizing the following five steps: (1) identification of the contract with a customer, (2) identification of the performance obligations in the contract (promised goods or services that are distinct), (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations, and (5) recognition of revenue when, or as, the Company transfers control of the product or service for each performance obligation. The Company records revenues net of any tax assessments by governmental authorities, such as value added taxes, that are imposed on and concurrent with specific revenue generating transactions.

Pharmacology Study, POS Services and Other Services

The Company generally enters into contracts with customers to provide oncology services with payments based on fixed-fee arrangements. At contract inception, the Company assesses the services promised in the contracts with customers to identify the performance obligations in the arrangement. The Company's fixed-fee arrangements for oncology services are considered a single performance obligation because the Company provides a highly-integrated service.

The Company recognizes revenue over time using a progress-based input method since there is no single output measure that would fairly depict the transfer of control over the life of the performance obligation. Revenue is recognized for the single performance obligation over time due to the Company's right to payment for work performed to date and the performance does not create an asset with an alternative use. The Company recognizes revenue as portions of the overall performance obligation are completed as this best depicts the progress of the performance obligation.

Variable Consideration

In some cases, contracts provide for variable consideration that is contingent upon the occurrence of uncertain future events, such as the success of the initial performance obligation. Variable consideration is estimated at the expected value or at the most likely amount depending on the type of consideration. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimate of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of its anticipated performance and all information (historical, current and forecasted) that is reasonably available to the Company.

Trade Receivables, Unbilled Services and Deferred Revenue

In general, billings and payments are established by contractual provisions including predetermined payment schedules, which may or may not correspond to the timing of the transfer of control of the Company's services under the contract. In general, the Company's intention in its invoicing (payment terms) is to maintain cash neutrality over the life of the contract. Upfront payments, when they occur, are intended to cover certain expenses the Company incurs at the beginning of the contract. Neither the Company nor its customers view such upfront payments and contracted payment schedules as a means of financing. Unbilled services primarily arise from the timing of payment terms and when an input method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer.

Deferred revenue consists of unearned payments received in excess of revenue recognized. As the contracted services are subsequently performed and the associated revenue is recognized, the deferred revenue balance is reduced by the amount of the revenue recognized during the period. Deferred revenue is classified as a current liability on the condensed consolidated balance sheet as the Company expects to recognize the associated revenue in less than one year.

Accounting Pronouncements Being Evaluated

In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-15, which amends ASC 350-40, Intangibles—Goodwill and Other—Internal-Use Software, to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement ("CCA") that is a service contract. This update aligns the accounting for costs incurred to implement a CCA that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The update is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this update is permitted, including adoption in any interim period. We are currently assessing the impact of this update on our consolidated financial statements.

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 ("CECL"). 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 standard is effective for fiscal years beginning after December 15, 2019 for public entities. Early adoption is permitted. We are currently assessing the impact of this update on our consolidated financial statements.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, "Leases", (Topic 842), which required the Company to recognize lease assets and lease liabilities (related to leases previously classified as operating under previous U.S. GAAP) on its consolidated balance sheet for all leases in excess of one year in duration. The ASU was effective for the Company on May 1, 2019. The Company elected to adopt ASU 2016-02 using the modified retrospective method and, therefore, have not recast comparative periods presented in its unaudited consolidated financial statements. As permitted under ASU 2016-02, the Company elected to account for the non-lease components together with the lease components as a single lease component. The Company recorded an operating lease right-of-use ("ROU") asset of $3.2 million, net of deferred rent of $900,000 and an operating lease liability of $4.1 million as of May 1, 2019. See Note 8 of this Form 10-Q for additional information and required disclosures. Under Topic 842, the Company determined if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments of $4.1 million over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As the Company's leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting". This ASU expands the scope of Topic 718, Compensation—Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Under the new guidance, the existing employee guidance will apply to nonemployee share based transactions (as long as the transaction is not effectively a form of financing), with the exception of specific guidance related to the attribution of compensation cost. The cost of nonemployee awards will continue to be recorded as if the grantor had paid cash for the goods or services. The new accounting guidance was effective for the Company on May 1, 2019. The Company has adopted this new rule beginning with its financial reporting for the quarter ended January 31, 2019. The adoption had no material impact on our consolidated financial statements.

Note 3. Accounts Receivable, Unbilled Services and Deferred Revenue

Accounts receivable and unbilled services were as follows (in thousands):

	January 31, 2020			April 30, 2019
Accounts receivable	$	3,073		$	1,982
Unbilled services	1,650			2,417
Total accounts receivable and unbilled services	4,723			4,399
Less allowance for doubtful accounts	(230		)	(22		)
Total accounts receivable, net	$	4,493		$	4,377

Deferred revenue was as follows (in thousands):

	January 31, 2020		April 30, 2019
Deferred revenue	$	4,586	$	4,022

Deferred revenue is shown as a current liability on the Company's condensed consolidated balance sheet.

Note 4. Revenue from Contracts with Customers

Oncology Services Revenue

The Company adopted ASC 606, Revenue Recognition - Revenue from Customers ("ASC 606") on May 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. The reported results for both the three months ended January 31, 2020 and 2019 reflect the application of ASC 606. In accordance with ASC 606, revenue is now recognized when, or as, a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these services.

A performance obligation is a promise (or a combination of promises) in a contract to transfer distinct goods or services to a customer and is the unit of accounting under ASC 606 for the purposes of revenue recognition. A contract's transaction price is allocated to each separate performance obligation based upon the standalone selling price and is recognized as revenue, when, or as, the performance obligation is satisfied. The majority of the Company's contracts have a single performance obligation because the promise to transfer individual services is not separately identifiable from other promises in the contracts, and therefore, is not distinct.

The majority of the Company's revenue arrangements are service contracts that are complete within a year or less. 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. Most of the Company's contracts can be terminated by the customer without cause. In the event of termination, the Company's contracts provide that the customer pay the Company for services rendered through the termination date. 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 increases 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. The Company evaluates each amendment which meets the criteria of a contract modification under ASC 606. Each modification is further evaluated to determine whether the contract modification should be accounted for as a separate contract or as a continuation of the original agreement. The Company accounts for amendments as a separate contract if they meet the criteria under ASC 606-10-25-12.

Other TOS revenue represents services provided to the pharmaceutical and biotechnology companies. The Company does not consider these services part of their core product offerings.

The following tables represents disaggregated revenue for the three and nine months ended January 31, 2020 and 2019:

	Three Months Ended<br>January 31,				Nine Months Ended January 31,
	2020		2019		2020		2019
Pharmacology services	$	8,843	$	5,988	$	22,732	$	18,037
Personalized oncology services	169		416		581		1,024
Other	—		26		62		287
Total oncology services revenue	$	9,012	$	6,430	$	23,375	$	19,348

Contract Balances

Contract assets include unbilled amounts typically resulting from revenue recognized in excess of the amounts billed to the customer for which the right to payment is subject to factors other than the passage of time. These amounts may not exceed their net realizable value. Contract assets are classified as current. Contract liabilities consist of customer payments received in advance of performance and billings in excess of revenue recognized, net of revenue recognized from the balance at the beginning of the period. Contract assets and liabilities are presented on the balance sheet on a net contract-by-contract basis at the end of each reporting period. There were no material contract assets or liabilities recorded on the condensed consolidated balance sheets as of January 31, 2020 and April 30, 2019.

Note 5. Property and Equipment

Property and equipment is recorded at cost and primarily consists of laboratory equipment, furniture and fixtures, and computer equipment and software. Depreciation and amortization is calculated on a straight-line basis over the estimated useful lives of the various assets ranging from three to seven years. Property and equipment consisted of the following (table in thousands):

	January 31, <br>2020			April 30, <br>2019
Furniture and fixtures	$	181		$	142
Computer equipment and software	1,194			1,104
Laboratory equipment	4,397			3,358
Assets in progress	—			16
Total property and equipment	5,772			4,620
Less: Accumulated depreciation	(2,526		)	(2,074		)
Property and equipment, net	$	3,246		$	2,546

Depreciation and amortization expense, excluding expense recorded under the finance lease, was $184,000 and $127,000 for the three months ended January 31, 2020 and 2019, respectively, and $491,000 and $353,000 for the nine months ended January 31, 2020 and 2019.

As of January 31, 2020 and April 30, 2019, property, plant and equipment included gross assets held under finance leases of $343,000 and $366,000, respectively. Related depreciation expense was $35,000 and $37,000 for the three months ended January 31, 2020 and 2019, and $88,000 and $80,000 for the nine months ended January 31, 2020 and 2019. During the nine months ended January 31, 2020, specifically during the quarter ended October 31, 2019, the Company traded in and disposed of a $235,000 leased asset that was previously included in the laboratory equipment category. At the time of disposal, the accumulated depreciation related to that asset was written off in the amount of $127,000 (see also paragraph below). As of January 31, 2020, the remaining leased asset included in the laboratory equipment category was fully depreciated resulting in a net balance of nil.

Finance Lease

In November 2014, the Company entered into a finance lease for laboratory equipment. The lease had costs of approximately $149,000, at inception, through November 2019. The final lease payment under this finance lease of $2,000 was paid during the three months ended January 31, 2020.

In July 2018, the Company entered into a second finance lease for laboratory equipment. The lease had total costs of approximately $266,000, inclusive of interest and taxes, with a monthly payment of approximately $11,000. Although the lease was originally due to mature in July 2020, the Company decided to pay the outstanding balance on February 1, 2019. As a result, the entire outstanding balance was nil as of October 31, 2019. During the quarter ended October 31, 2019, the Company traded in this asset and received a $160,000 reduction in the purchase price of two newly acquired assets. The net book value of the asset traded in at the time of trade in was $108,000, which resulted in the gain on the disposal of the asset of $52,000, which is included in the other income (expense) line in the Company's consolidated statement of operations for the nine months ended January 31, 2020. The net book value of the asset was nil at October 31, 2019.

In December 2019, the Company entered into a finance lease for laboratory equipment. The lease has costs of approximately $231,000, at inception, through November 2020. This lease expires December 2020. The current monthly finance lease payment is approximately $19,000. The future minimum lease payments remaining under this finance lease are $193,000. The present value of minimum future obligations is calculated based on interest rate of 4.75%. Depreciation and amortization expense related to this finance lease was $35,400 for the three and nine months ended January 31, 2020.

Note 6. Share-Based Payments

The Company has in place a 2010 Equity Incentive Plan and a 2008 Equity Incentive Plan. In general, these plans provide for stock-based compensation in the form of (i) Non-statutory Stock Options; (ii) Restricted Stock Awards; and (iii) Stock Appreciation Rights to the Company’s employees, directors and non-employees. The plans also provide for limits on the aggregate number of shares that may be granted, the term of grants and the strike price of option awards.

Stock-based compensation in the amount of $229,000 and $335,000 was recognized for the three months ended January 31, 2019 and 2019, respectively. Stock-based compensation in the amount of $437,000 and $498,000 was recognized for the nine months ended January 31, 2020 and 2019, respectively. Included in 2019 stock-based compensation expense for the nine months January 31, 2019 under general and administrative line item is $7,500 for the issuance of common stock as compensation for services performed. Stock-based compensation expense was recognized as follows (table in thousands):

	Three Months Ended<br>January 31,				Nine Months Ended<br>January 31,
	2020		2019		2020		2019
General and administrative	$	110	$	251	$	281	$	326
Sales and marketing	95		53		144		100
Research and development	4		4		9		13
Cost of oncology services	20		27		3		59
Total stock-based compensation expense	$	229	$	335	$	437	$	498

Stock Option Grants

Black-Scholes assumptions used to calculate the fair value of options granted during the three and nine months ended January 31, 2020 and 2019 were as follows:

	Three Months Ended<br>January 31,		Nine Months Ended<br>January 31,
	2020	2019	2020	2019
Expected term in years	3-6	3-6	3-6	3-6
Risk-free interest rates	1.57%-1.80%	2.57%-3.00%	1.57%-1.80%	2.57%-3.00%
Volatility	69.14%-70.99%	64.55%-84.91%	69.14%-71.11%	64.55%-84.91%
Dividend yield	—%	—%	—%	—%

The weighted average fair value of stock options granted during the three months ended January 31, 2020 and 2019 was $2.56 and $5.76, respectively, and $3.09 and $6.03 for the nine months ended January 31, 2020 and 2019, respectively.

The Company’s stock options activity for the nine months ended January 31, 2020 was as follows:

	Directors<br>and<br>Employees		Non-<br><br>Employees		Total		Weighted<br><br>Average<br><br>Exercise<br><br>Price		Weighted<br><br>Average<br><br>Remaining<br><br>Contractual<br><br>Life (Years)	Aggregate<br><br>Intrinsic<br><br>Value
Outstanding, May 1, 2019	2,373,626		50,000		2,423,626		$	3.19	5.3	$	14,557,000
Granted	219,833		—		219,833		5.29
Exercised	(203,736	)	—		(203,736	)	2.10
Forfeited	(41,875	)	—		(41,875	)	7.99
Canceled	(4,583	)	—		(4,583	)	11.90
Expired	(70,001	)	(6,668	)	(76,669	)	8.04
Outstanding, January 31, 2020	2,273,264		43,332		2,316,596		3.22		5.21	$	10,594,000
Vested and expected to vest as of January 31, 2020	2,273,264		43,332		2,316,596		3.22		5.21	$	10,594,000
Exercisable as of January 31, 2020	1,896,534		17,501		1,914,035		2.72		4.53	$	9,695,000

Stock Purchase Warrants

As of January 31, 2020 and April 30, 2019, the Company had warrants outstanding for the purchase of 1,669,773 and 1,671,440, respectively, shares of its common stock, all of which were exercisable. Activity related to these warrants, which expire at various dates through March 2020, is summarized as follows:

	Number<br><br>of<br><br>Shares		Weighted<br><br>Average<br><br>Exercise<br><br>Price		Weighted<br><br>Average<br><br>Remaining<br><br>Contractual<br><br>Life (Years)	Aggregate<br><br>Intrinsic<br><br>Value
Outstanding, May 1, 2019	1,671,440		$	6.20	0.9	$	5,730,000
Granted	—		—		—	—
Exercised	—		—		—	—
Canceled	—		—		—	—
Expired	(1,667	)	4.80		—	—
Outstanding, January 31, 2020	1,669,773		$	5.66	0.1	$	3,225,000

Note 7. Related Party Transactions

Related party transactions include transactions between the Company and its shareholders, management, or affiliates. The following transactions were in the normal course of operations and were measured and recorded at the exchange amount, which is the amount of consideration established and agreed to by the parties.

Consulting Services

During the nine months ended January 31, 2020 and 2019, the Company paid an affiliate of a board member $54,000 for consulting services unrelated to his duty as a board member. During the three months ended January 31, 2020 and 2019, the Company paid this same affiliate of a board member $18,000 for consulting services unrelated to his duty as a board member. During the nine months ended January 31, 2020 and 2019, the Company paid an affiliate of another board member $39,100 and $53,500, respectively, for consulting services unrelated to their duties as a board member. During the three months

ended January 31, 2020 and 2019, the Company paid this same affiliate $9,850 and $16,300 for the same services. As of January 31, 2020, $8,300 was due to these related parties.

Note 8. Commitments and Contingencies

Operating Leases

In connection with the Company's adoption of ASC 842, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both an operating lease ROU asset and operating lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. Variable lease expenses, if any, are recorded when incurred. The Company has elected to apply the short-term lease exemption practical expedient for each class of underlying assets and excludes short-term leases having initial terms of 12 months or less. The Company recognizes rent expense on a straight-line basis over the lease term for these short-term leases. The Company has determined that no material embedded leases exist. As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments, which was 7.25%. The weighted average remaining lease term and the weighted average discount rate at the adoption date were 7.68 years and 7.25%, respectively. The Company continues to account for leases in the prior period financial statements in accordance with ASC Topic 840.

The Company currently leases certain office equipment and its office and laboratory facilities under non-cancelable operating leases. Rent expense for operating leases is recognized on a straight-line basis over the lease term from the lease commencement date through the scheduled expiration date. Rent expenses under the office and laboratory facilities totaled $717,000 and $583,000 for the nine months ended January 31, 2020 and 2019, respectively. The Company considers its facilities adequate for its current operational needs.

The Company leases the following facilities:

•	One University Plaza, Suite 307, Hackensack, New Jersey 07601, which, since November 2011, serves as the Company’s corporate headquarters. The lease expires in November 2021. The Company recognized $71,000 and $68,000 of rental costs relative to this lease for the nine months ended January 31, 2020 and 2019, respectively.
•	1330 Piccard Drive, Suite 025, Rockville, MD 20850, which consists of laboratory and office space where the Company conducts operations related to its primary service offerings. The Company executed this lease on January 11, 2017. The operating commencement date was August 11, 2017. This lease expires in August 2028. The Company recognized $454,000 of rental expense for both the nine months ended January 31, 2020 and 2019.
---	---
•	910 Clopper Road, Suites 260S and 280S, Gaithersburg, Maryland 20878, which consists of laboratory and office space where the Company conducted operations related to its primary service offerings. The Company executed this lease on April 1, 2018. The operating commencement date was May 1, 2018. The Company transitioned its activities from this location to the New Location, as defined below, and terminated this lease seven days after the commencement date of the New Location. The Company recognized nil and $41,000 of rental expense for the nine months ended January 31, 2020 and 2019, respectively.
---	---
•	1405 Research Boulevard, Suites 125, Rockville, Maryland 20850 (“New Location”), which consists of laboratory and office space where the Company conducts operations related to its primary service offerings. The Company executed this lease on November 1, 2018. The operating commencement date was January 17, 2019. This lease expires in January 2024. The Company recognized $193,000 and $21,000 of rental expense for the nine months ended January 31, 2020 and 2019, respectively.
---	---

Future minimum lease payments due each fiscal year as follows (in thousands):

2020 (remaining)	$	347
2021	1,471
2022	1,445
2023	1,404
2024	1,419
Thereafter	4,400
Total	$	10,486

The following disclosure as of April 30, 2019 continues to be stated in accordance with ASC 840. Future minimum lease payments for operating and capital leases at April 30, 2019 were as follows:

2020
2021	1,471
2022	1,445
2023	1,404
2024	1,419
Thereafter	4,400
Total	11,477

All values are in US Dollars.

Legal Matters

The Company is not currently party to any legal matters to its knowledge. The Company is not aware of any other matters that would have a material impact on the Company’s financial position or results of operations.

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 most recent annual report for the year ended April 30, 2019, as filed on Form 10-K.

Forward-Looking Statements

This Quarterly Report on Form 10-Q 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 Annual Report on Form 10-K for the fiscal year ended April 30, 2019, 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 engaged in the development and sale of advanced technology solutions and products utilized in the development and use of oncology drugs. Utilizing our TumorGraft Technology Platform (the "Platform"), a comprehensive Bank of unique, well chracterized 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.

Our Platform provides a novel approach to simulating the results of human clinical trials used in developing oncology drugs. It can cost up to $100,000 per patient in oncology clinical trials and the typical cost for each phase of development per year increases from approximately $3 million in the pre-clinical setting to approximately $150 million in phase III. Simulating trials before executing them provides benefits to both pharmaceutical companies and patients. Pharmaceutical companies can lower the risk of spending resources on drugs that do not show significant anti-cancer activities and increase the chance that the clinical development path they pursue will be focused on an appropriate patient population and a successful combination with other drugs.

We plan to continue our efforts to expand our TumorGraft Technology Platform in order to expand our TOS program. Our POS program will not be the focus of our growth moving forward.

In December 2019, a novel strain of coronavirus was first identified in Wuhan, Hubei Province, China. Any outbreak of contagious diseases, or other adverse public health developments, could have a material and adverse effect on our business

operations. These could include disruptions or restrictions on our ability to travel, pursue partnerships and other business transactions, receive shipments of biologic materials, as well as be impacted by the temporary closure of the facilities of suppliers. We are actively monitoring the coronavirus outbreak and its potential impact on our supply chain and operations. While we do not expect that the virus will have a material adverse effect on our business or financial results at this time, we are unable to accurately predict the impact that the coronavirus will have due to various uncertainties, including the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and actions that may be taken by governmental authorities.

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 cash, working capital management, proceeds from certain private placements and public offerings of our securities, and sales of products and services. For the nine months ended January 31, 2020, the Company had net income of approximately $72,000 and cash flow from operations of $360,000. As of January 31, 2020, the Company had an accumulated deficit of approximately $70.6 million, a working capital deficit of $0.3 million and cash of $3.3 million. We believe that our cash on hand, together with expected positive cash flows from operations for fiscal year 2020, are adequate to fund operations through at least 12 months from the filing of this 10-Q. However, should our revenue expectations not materialize, we believe we have cost reduction strategies that could be implemented without disrupting the business or restructuring the Company. 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.

Operating Results

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

	For the Three Months Ended January 31,
	2020		% of<br><br>Revenue		2019			% of<br><br>Revenue		%<br><br>Change
Oncology services revenue	$	9,012	100.0	%	$	6,430		100.0	%	40.2	%
Costs and operating expenses:
Cost of oncology services	4,325		48.0		3,429			53.4		26.1
Research and development	1,391		15.4		1,269			19.7		9.6
Sales and marketing	1,307		14.5		879			13.7		48.7
General and administrative	1,556		17.3		1,223			19.0		27.2
Total costs and operating expenses	8,579		95.2		6,800			105.8		26.2
Income (loss) from operations	$	433	4.8	%	$	(370	)	(5.9	)%	217.0	%	For the Nine Months Ended January 31,
---	---	---	---	---	---	---	---	---	---	---
	2020		% of<br><br>Revenue		2019		% of<br><br>Revenue		%<br><br>Change
Oncology services revenue	$	23,375	100.0	%	$	19,348	100.0	%	20.8	%
Costs and operating expenses:
Cost of oncology services	11,958		51.2		9,963		51.5		20.0
Research and development	4,035		17.3		3,550		18.3		13.7
Sales and marketing	3,155		13.5		2,138		11.1		47.6
General and administrative	4,118		17.6		3,311		17.1		24.4
Total costs and operating expenses	23,266		99.5		18,962		98.0		22.7
Income (loss) from operations	$	109	0.5	%	$	386	2.0	%	(71.8	)%

Oncology Services Revenue

Oncology services revenue was $9.0 million and $6.4 million for the three months ended January 31, 2020 and 2019, respectively, an increase of $2.6 million or 40.2%. Operating revenues were $23.4 million and $19.3 million for the nine months ended January 31, 2020 and 2019, respectively, an increase of $4.0 million or 20.8%. The increase in revenue for both the three and nine month periods is due to increased sales, both in number and size of studies, and continuing to expand our customer base. Additionally, customers are seeking more complex study designs and end point analysis testing, leading to larger contracts, which contributed to revenue growth.

Cost of Oncology Services

Cost of oncology services for the three months ended January 31, 2020 and 2019 were $4.3 million and $3.4 million, respectively, an increase of $900,000 or 26.1%. For the three months ended January 31, 2020 and 2019, gross margins were 52.0% and 46.7%, respectively. The increase in cost of oncology services for the three-month period was mainly due to an increase in compensation and supply expenses. The overall expense increase is generally in line with the expected contribution based on the growth in revenue and study volume. Cost of oncology solutions for the nine months ended January 31, 2020 and 2019 were $12.0 million and $10.0 million, respectively, an increase of $2.0 million or 20.0%. For the nine months ended January 31, 2020 and 2019, gross margins were 48.8% and 48.5%, respectively. Gross margin varies based on timing differences between expense and revenue recognition and was impacted by the increase in costs on growing study volume in advance of revenue recognition. The increase in cost of oncology services for the nine-month period was mainly due to an increase in compensation and supply expenses related to the growth in revenue and study volume.

Research and Development

Research and development expenses for the three months ended January 31, 2020 and 2019 were $1.4 million and $1.3 million, respectively. Research and development expenses for the nine months ended January 31, 2020 and 2019 were $4.0 million and $3.6 million, respectively, an increase of $485,000 or 13.7%. The increase for both the three and nine-month periods is due to increased compensation and lab supply expense as we continued to invest in research and development to offer new PDx models, ex-vivo assays and to expand our endpoint analysis testing.

Sales and Marketing

Sales and marketing expenses for the three months ended January 31, 2020 and 2019 were $1.3 million and $0.9 million, respectively, an increase of $0.4 million, or 48.7%. Sales and marketing expenses for the nine months ended January 31, 2020 and 2019 were $3.2 million and $2.1 million, respectively, an increase of $1.0 million or 47.6%. The increase for both the three and nine-month periods is mainly due to compensation expense driven by the continued expansion of our sales force and commissions earned.

General and Administrative

General and administrative expenses for the three months ended January 31, 2020 and 2019 were $1.6 million and $1.2 million, respectively, an increase of approximately $400,000, or 27.2%. The increase for the three-month period was mainly due to an increase in compensation and depreciation expenses as well as a non-recurring bad debt write-off. General and administrative expenses for the nine months ended January 31, 2020 and 2019 were $4.1 million and $3.3 million, respectively, an increase of approximately $807,000 or 24.4%. The increase for the nine-month period was mainly due to an increase in compensation, professional fees, and depreciation expenses offset by a reduction in recruiting costs.

Inflation

Inflation does not have a meaningful impact on the results of our operations.

Cash Flows

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

Cash Flows from Operating Activities

Net cash provided by operating activities was $360,000 for the nine months ended January 31, 2020 compared to net cash provided by operating activities of $1.6 million for the nine months ended January 31, 2019, respectively. The reduction in cash provided by operating activities during the current period was primarily due to the operating loss in the first quarter ended July 31, 2019, and, a net decrease in working capital items due to timing differences in the ordinary course of business, including an increase in net accounts receivable of $334,000 and a decrease in accounts payable of approximately $913,000.

Cash Flows from Investing Activities

Net cash used in investing activities was $0.7 million and $0.7 million for the nine months ended January 31, 2020 and 2019, respectively. Cash used in investing activities was for the purchase of lab equipment required for the Company's new product and service offerings.

Cash Flows from Financing Activities

Net cash provided by financing activities was $378,000 for the nine months ended January 31, 2020 compared to the net cash provided by financing activities of $1.4 million for the nine months ended January 31, 2019, respectively. The reduction in net cash from financing activities is due to a decrease in option and warrant exercises during the current period.

Critical Accounting Estimates and Policies

The preparation of these condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States 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 (replacement of licensed tumors), valuation allowance for deferred tax assets, valuation of goodwill, and stock compensation and warrant assumptions. Actual results could differ from those estimates. The Company’s critical accounting policies are summarized in the Company’s Annual Report on Form 10-K, filed with the SEC on July 29, 2019.

Recent Accounting Pronouncements

For detailed information regarding recently issued accounting pronouncements and the expected impact on our condensed consolidated financial statements, see Note 2, "Significant Accounting Policies" in the accompanying Notes to Condensed Consolidated Financial Statements included in Item 1 of this Report on Form 10-Q.

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

Not applicable to smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

It is management’s responsibility to establish and maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, have concluded that our disclosure controls and procedures were effective as of January 31, 2020 at the reasonable assurance level in ensuring that information required to be disclosed in the reports that we file or submit under the Securities Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

As a smaller reporting company, we are not required to provide the information required by this Item; however, the discussion of our business and operations should be read together with the Risk Factors set forth in our Annual Report on Form 10K filed with the Securities and Exchange Commission on July 29, 2019. Such risks and uncertainties have the potential to affect our business, financial condition, results of operations, cash flow, strategies or prospects in a material and adverse manner.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

No.	Exhibit
31.1*	Section 302 Certification of Principal Executive Officer
31.2*	Section 302 Certification of Principal Financial Officer
32.1**	Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	101.INS*	XBRL Instance Document.
---	---
101.SCH*	XBRL Taxonomy Extension Schema Document.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.

* filed herewith

** furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CHAMPIONS ONCOLOGY, INC.
	(Registrant)
Date: March 16, 2020	By:	/s/ Ronnie Morris
		Ronnie Morris
		Chief Executive Officer
		(principal executive officer)
Date: March 16, 2020	By:	/s/ David Miller
		David Miller
		Chief Financial Officer
		(principal financial and accounting officer)

		Exhibit

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Ronnie Morris, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Champions Oncology, Inc., a Delaware corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 16, 2020	/s/ Ronnie Morris
	Ronnie Morris
	Chief Executive Officer
	(Principal Executive Officer)

		Exhibit

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, David Miller, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Champions Oncology, Inc., a Delaware corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 16, 2020	/s/ David Miller
	David Miller
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

		Exhibit

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Champions Oncology, Inc. (the “Company”) on Form 10-Q for the period ended January 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

the Report fully complies with the requirements of section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 16, 2020	/s/ Ronnie Morris
	Ronnie Morris
	Chief Executive Officer
	(Principal Executive Officer)
Date: March 16, 2020	/s/ David Miller
	David Miller
	Chief Financial Officer
	(Principal Financial and Accounting Officer)