NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation
Background
Champions Oncology, Inc. (the “Company”), is engaged in the development and sale of advanced technology solutions and products to personalize 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 and 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 years ended
April 30, 2018
and
2017
, there were no material revenues earned by these subsidiaries.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). As of April 30, 2018, the Company determined that it operates in
one
reportable business segment. The Company evaluated its POS and TOS business operations and determined that the POS operations no longer qualify as a separate reportable segment primarily due to its revenue representing only
7%
of total revenue.
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 and cash equivalents, 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, 2018
and
2017
, the Company had a net loss of approximately
$1.5 million
and
$6.9 million
, respectively. As of
April 30, 2018
, the Company had an accumulated deficit of approximately
$70.8 million
, negative working capital of
$2.4 million
and cash and cash equivalents of
$856,000
. We believe that our cash and cash equivalents on hand, together with continued improved cash flows from operations, are adequate to fund operations through at least August 2019. 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.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.
The Company’s foreign subsidiaries functional currency is the U.S. dollar. Transaction gains and losses are recognized in earnings. The Company is subject to foreign exchange rate fluctuations in connection with the Company’s international operations.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassification of Prior Year Presentation
CHAMPIONS ONCOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Certain prior year amounts related to revenue and cost of sales for our POS and TOS business operations have been reclassified for consistency with the current year presentation, reflecting one reportable segment. These reclassifications had no effect on the reported results of operations.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of three months or less at the time of purchase, to be cash equivalents. At various times, the Company has amounts on deposit at financial institutions in excess of federally insured limits.
Fair Value
The carrying value of cash and cash equivalents, accounts receivable, prepaid expenses, deposits and other receivables, accounts payable, and accrued liabilities approximate their fair value based on the liquidity or the short-term maturities of these instruments. The fair value hierarchy promulgated by GAAP consists of three levels:
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•
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Level one
— Quoted market prices in active markets for identical assets or liabilities;
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•
|
Level two
— Inputs other than level one inputs that are either directly or indirectly observable; and
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•
|
Level three
— Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
|
Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The Company has no assets that are measured at fair value on a recurring basis and there were no assets or liabilities measured at fair value on a non-recurring basis during the year ended
April 30, 2018
.
Accounts Receivable
Accounts receivable represent amounts due under agreements with pharmaceutical and biotechnology companies for TOS and amounts due under agreements with patients for POS. At each reporting period, the Company evaluates open accounts receivable for collectability and records an allowance for potentially uncollectible accounts. For
April 30, 2018
and
2017
, the allowance for these accounts was
$13,000
and
$56,000
, respectively. Accounts receivable is also comprised of certain unbilled accounts receivable for services completed under TOS that have not been billed as of the balance sheet date. As of
April 30, 2018
and
2017
, the Company had unbilled receivables of
$2.1 million
and
$1.6 million
, respectively.
Restricted Cash
As of
April 30, 2018
and
2017
, the Company has restricted cash of
$150,000
and
$150,000
, respectively, which is classified as a non-current asset on the consolidated balance sheets. This restricted cash serves primarily as collateral for corporate credit cards to provide financial assurance that the Company will fulfill its obligations. The cash is held in custody by the issuing bank, is restricted as to withdrawal or use, and is currently invested in an interest-bearing Certificate of Deposit (“CD”). As of November 2017, the Company has switched vendors and is no longer obligated to restrict this cash. The CD matures in the second quarter of fiscal 2019 at which time the Company will not renew and will no longer account for this as restricted cash.
CHAMPIONS ONCOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Property and Equipment
Property and equipment is recorded at cost and primarily consists of laboratory equipment, furniture and fixtures, and computer hardware and software. Assets in progress include equipment not yet placed in service for the new laboratory facility. 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 (in thousands):
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|
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|
|
|
|
|
|
April 30,
|
|
2018
|
|
2017
|
Furniture and fixtures
|
$
|
73
|
|
|
$
|
74
|
|
Computer equipment and software
|
973
|
|
|
872
|
|
Laboratory equipment
|
2,490
|
|
|
918
|
|
Assets in progress
|
15
|
|
|
472
|
|
Leasehold improvements
|
—
|
|
|
2
|
|
|
|
|
|
Total property and equipment
|
3,551
|
|
|
2,338
|
|
Less: Accumulated depreciation and amortization
|
(1,468
|
)
|
|
(1,122
|
)
|
|
|
|
|
Property and equipment, net
|
$
|
2,083
|
|
|
$
|
1,216
|
|
Depreciation and amortization expense was
$360,000
and
$168,000
for the years ended
April 30, 2018
and
2017
, respectively. The company disposed of fixed assets which reduced total property and equipment and accumulated depreciation by
$16,000
and
$(13,000)
, respectively, leaving a gain on disposal of fixed asset of
$3,000
. Additionally, included in “Laboratory equipment” as of
April 30, 2018
and
2017
is a capital lease asset of
$130,000
and
$124,000
, respectively. Depreciation and amortization expense relating the capital lease was
$26,753
and
$24,045
for the years ended
April 30, 2018
and
2017
, respectively.
Capital Lease
In November 2014, the Company entered into a lease for laboratory equipment. The lease was determined to be a capital lease that has costs of approximately
$149,000
, at inception, through November 2019. The current monthly capital lease payment is approximately
$3,000
.
The following is a schedule by years of future minimum lease payments under this capital lease together with the present value of the net minimum lease payments as of
April 30, 2018
(table in thousands):
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For the Years Ended April 30,
|
2019
|
|
$
|
28
|
|
|
2020
|
|
16
|
|
Total minimum lease payments
|
|
|
44
|
|
Less: amount representing interest
|
|
|
(2
|
)
|
Present value of minimum payments
|
|
|
42
|
|
Less: current portion
|
|
|
(26
|
)
|
|
|
|
$
|
16
|
|
The present value of minimum future obligations shown above is calculated based on interest rate of
5%
. The short-term and long-term components of the capital lease obligation are included in accrued liabilities and other non-current liabilities, respectively at
April 30, 2018
and
2017
.
Impairment of Long-Lived Assets
Impairment losses are to be recognized when the carrying amount of a long-lived asset is not recoverable or exceeds its fair value. The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that a carrying value may not be recoverable. The Company uses estimates of future cash flows over the remaining useful life of a long- lived asset or asset group to determine the recoverability of the asset. These estimates only include the net cash flows directly associated with, and that are expected to arise as a direct result of, the use and eventual disposition of the asset or asset group. The
CHAMPIONS ONCOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company has not recognized any impairment losses for the Company’s long-lived assets for the years ending
April 30, 2018
and
2017
.
Other long term assets
Other long term assets represents amount relating to lease deposits for our Hackensack, New Jersey and Rockville, Maryland locations.
Goodwill
Goodwill represents the excess of the cost over the fair market value of the net assets acquired including identifiable assets. Goodwill is tested annually, or more frequently if circumstances indicate potential impairment, by comparing its fair value to its carrying amount. The determination of whether or not goodwill is impaired involves significant judgment. Although the Company believes its goodwill is not impaired, changes in strategy or market conditions could significantly impact the judgments and may require future adjustments to the carrying value of goodwill. The Company uses a two-step process to test for goodwill impairment. The first step is to screen for potential impairment, while the second step measures the amount of the impairment, if any. The first step of the goodwill impairment test compares the fair value of each reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired. If the carrying value of the reporting unit’s net assets, including goodwill, exceeds the fair value of the reporting unit, then the Company determines the implied fair value of goodwill. If the carrying value of goodwill exceeds its implied fair value, then an impairment of goodwill has occurred and an impairment loss would be recognized for the difference between the carrying amount and the implied fair value of goodwill as a component of operating income. The implied fair value of goodwill is calculated by subtracting the fair value of tangible and intangible assets associated with the reporting unit from the fair value of the unit. The Company tests for goodwill impairment at the reporting unit segment level.
The Company has not recognized any impairment losses for the Company’s goodwill for the years ended
April 30, 2018
and
2017
.
Deferred Revenue
Deferred revenue represents payments received in advance for products to be delivered. When products are delivered, deferred revenue is then recognized as earned.
Other Non-Current Liabilities
Other non-current liabilities represents amounts relating to deferred rent for our Rockville, Maryland laboratory facility, non-current portion of capital lease for laboratory equipment and uncertain tax positions relating to one of our foreign entities.
Revenue Recognition
The Company derives revenue from its TOS and POS businesses. Translational oncology solutions offer a preclinical TumorGraft 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. Personalized oncology solutions assist physicians by providing information to help guide the development of personalized treatment plans for their patients using our core offerings, including testing oncology drugs and drug combinations on personalized TumorGrafts, and through other products. The Company recognizes revenue when the following four basic criteria are met: (i) a contract has been entered into with its customers; (ii) delivery has occurred or services rendered to its customers; (iii) the fee is fixed and determinable as noted in the contract; and (iv) collectability is reasonably assured. The Company utilizes a proportional performance revenue recognition model for its TOS business, under which it recognizes revenue as performance occurs, based on the relative outputs of the performance that have occurred up to that point in time under the respective agreement, typically the delivery of reports to its customers documenting the results of testing protocols.
When a TOS or POS arrangement involves multiple elements, the items included in the arrangement (deliverables) are evaluated to determine whether they represent separate units of accounting. The Company performs this evaluation at the inception of an arrangement and as each item in the arrangement is delivered. Generally, the Company accounts for a deliverable (or a group of deliverables) separately if: (i) the delivered item(s) has standalone value to the customer, and (ii) if the Company has given the customer a general right of return relative to the delivered item(s) and the delivery or performance of the undelivered item(s) or service(s) is probable and substantially in the Company’s control. All revenue from contracts determined not to have separate
CHAMPIONS ONCOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
units of accounting is recognized based on consideration of the most substantive delivery factor of all the elements in the contract or if there is no predominant deliverable upon delivery of the final element of the arrangement.
Cost of Oncology Solutions
Cost of oncology solutions relates to our TOS and POS business units. TOS costs consist of direct costs related to mice purchases and maintenance costs for studies completed internally and charges from CROs for studies handled externally. Indirect costs include salaries for personnel directly engaged in providing TOS products. All costs of performing studies in-house are expensed as incurred. All TOS costs of performing studies from external sources, if any, are expensed when incurred. POS consists of costs related to implantations, drug panels, tumor boards, and gene sequencing services, as well as indirect internal costs, such as salaries for personnel directly engaged in these products. Direct costs associated with implantation revenues are primarily related to mice purchases and maintenance and shipping of tumor tissue. Direct drug panel costs are primarily incurred from mice purchases and maintenance and drug purchases. Direct tumor board costs are primarily related to physicians’ honorariums and any tumor board participation costs such as travel, lodging and meals. Direct gene sequencing costs are primarily related to costs billed from the gene sequencing service provider. All POS costs are expensed as incurred.
Research and Development
Research and development costs represent both costs incurred internally for research and development activities, including personnel costs and mice purchases and maintenance, as well as costs incurred externally to facilitate research activities, such as tumor tissue procurement and characterization expenses. All research and development costs are expensed as incurred.
Sales and Marketing
Selling and marketing expenses represent costs incurred to promote the Company’s products offered, including salaries, benefits and related costs of our sales and marketing personnel, and represent costs of advertising and other selling and marketing expenses. All sales and marketing costs, including advertising costs, are expensed as incurred.
Basic and Dilutive Loss Per Common Share
Basic net loss per share is computed by dividing the net loss for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net 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. For the twelve months ended
April 30, 2018
and
2017
, basic and dilutive loss per share were the same, as the potentially dilutive securities did not have a dilutive effect.
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Year Ended April 30,
|
|
2018
|
|
2017
|
Basic and diluted net loss per share computation (dollars in thousands except per share amounts)
|
|
|
|
|
|
Net loss attributable to common stockholders
|
$
|
(1,476
|
)
|
|
$
|
(6,884
|
)
|
Weighted Average common shares
|
10,991,105
|
|
|
10,684,395
|
|
Basic and diluted net loss per share
|
$
|
(0.13
|
)
|
|
$
|
(0.64
|
)
|
The following table reflects the total potential stock-based instruments outstanding at
April 30, 2018
and
2017
that could have an effect on the future computation of dilution per common share:
|
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|
|
|
|
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Year Ended April 30
|
|
2018
|
|
2017
|
Stock options
|
2,705,845
|
|
|
2,308,704
|
|
Warrants
|
2,004,284
|
|
|
2,004,284
|
|
|
|
|
|
Total common stock equivalents
|
4,710,129
|
|
|
4,312,988
|
|
CHAMPIONS ONCOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock-based Payments
The Company typically recognizes expense for stock-based payments based on the fair value of awards on the date of grant. The Company uses the Black-Scholes option pricing model to estimate fair value. The Black-Scholes option valuation model was developed for use in estimating the fair value of short-traded options that have no vesting restrictions and are fully transferable. The option pricing model requires the Company to estimate certain key assumptions such as expected life, volatility, risk free interest rates and dividend yield to determine the fair value of stock-based awards. These assumptions are based on historical information and management judgment. The risk-free interest rate used is based on the United States treasury security rate with a term consistent with the expected term of the award at the time of the grant. Since the Company has limited option exercise history, it has generally elected to estimate the expected life of an award based upon the Securities and Exchange Commission-approved “simplified method” noted under the provisions of Staff Accounting Bulletin No. 107 with the continued use of this method extended under the provisions of Staff Accounting Bulletin No. 110. Estimated volatility is based upon the historical volatility of the Company's common stock. The Company does not anticipate paying a dividend, and therefore, no expected dividend yield was used.
The Company expenses stock-based payments over the period that the awards are expected to vest, net of estimated forfeitures. If actual forfeitures differ from management’s estimates, compensation expense is adjusted. The Company expenses modification charges in the period of modification and, if required, over the remaining period the awards are expected to vest. The Company will report cash flows resulting from tax deductions in excess of the compensation cost recognized from those options (excess tax benefits) as financing cash flows, if they should arise.
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. The Company adjusts the valuation allowance in the period management determines it is more likely than not that net 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
April 30, 2018
and
2017
, 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:
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•
|
An allocation or shift of income between taxing jurisdictions;
|
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|
•
|
The characterization of income or a decision to exclude reportable taxable income in a tax return; or
|
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|
•
|
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 we 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 has recorded
$151,000
and
$121,000
of liabilities related to uncertain tax positions relative to one of its foreign operations as of
April 30, 2018
and
2017
, respectively.
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
April 30, 2018
and
2017
, 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.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. In addition, this guidance requires new or expanded disclosures related to the judgments made by companies when following this framework and additional quantitative disclosures
CHAMPIONS ONCOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
regarding contract balances and remaining performance obligations. On July 9, 2015, the FASB voted to defer the effective date by one year to December 15, 2017 for interim and annual reporting periods beginning after that date. Early adoption of ASU 2014-09 is permitted but not before the original effective date (annual periods beginning after December 15, 2016). When effective, ASU 2014-09 prescribes either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients; or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company will adopt this guidance on May 1, 2018.
The Company has evaluated the overall impact that ASU 2014-09 will have on the Company’s consolidated financial statements, as well as the expected timing and method of adoption. The Company established an implementation team, including external advisers, and is finalizing the review of the Company’s revenue portfolio and related contracts across its various business units and geographies. Discussions regarding changes to the Company’s current accounting policies and practices remain ongoing and preliminary conclusions are subject to change.
Upon adoption, the Company will recognize revenue from contracts with customers as each performance obligation is satisfied, either at a point in time or over a period of time, based on when control transfers to customers. The adoption of this update is not expected to have a material impact on our consolidated financial statements.
The Company plans to adopt the new revenue recognition standard under the modified retrospective transition method by recognizing the cumulative effect of applying the standard as an adjustment to the Company’s Balance Sheet. The Company has been assessing the impact of the new revenue recognition standard, and the Company does not anticipate being able to provide the full impact on the Balance Sheets or Statements of Operations until they complete the review of all of their contracts during fiscal 2019. From the initial review and assessment of a sample of contracts with customers, the Company will evaluate the measurement and timing of revenue recognition for certain of its co-clinical contracts under the new standard. The Company will also provide enhanced disclosure regarding revenue recognition, including disclosures of revenue streams, performance obligations, variable consideration and the related judgments and estimates necessary to apply the new standard.
The Company plans to adopt the new revenue recognition standard under the modified retrospective transition method by recognizing the cumulative effect of applying the standard as an adjustment to the Company’s Balance Sheet. Until the Company completes testing of the new revenue recognition standard, the Company does not anticipate being able to provide the impact of the new standard on the Balance Sheet or Statements of Operations; however, from the initial review and assessment of a sample of contracts with customers, the Company does not anticipate the new accounting pronouncement to have a material impact on the Company’s financial statements, except enhanced disclosure regarding revenue recognition, including disclosures of revenue streams, performance obligations, variable consideration and the related judgments and estimates necessary to apply the new standard.
In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. The amendments in this update state that in connection with preparing financial statements for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued, when applicable). The amendments in this update are effective for the annual reporting period beginning after December 15, 2016 and for annual periods and interim periods thereafter. Early application is permitted. The Company adopted this updated in fiscal 2018 and did not have a material impact on our consolidated financial statements.
In February 2016, the FASB ASU No. 2016-02, Leases. The new standard will require most leases to be recognized on the balance sheet which will increase reported assets and liabilities. Lessor accounting remains substantially similar to current guidance. The new standard is effective for annual and interim periods in fiscal years beginning after December 15, 2018, which for us is the first quarter of fiscal 2019 and mandates a modified retrospective transition method. We are currently assessing the impact of this update on our consolidated financial statements.
In April 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting”. The new standard simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU No. 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this standard in fiscal 2018 and, as expected, it did not have a material impact on our consolidated financial statements.
CHAMPIONS ONCOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments” . The new standard attempts to reduce diversity in practice in how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU No. 2016-15 provides guidance on eight specific cash flow issues. The new guidance will be effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is permitted including adoption in an interim period. We do not intend to early adopt and the adoption of this update is not expected to have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): “Simplifying the Test for Goodwill Impairment”. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. It affects public entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. A public entity that is a U.S. Securities and Exchange Commission ("SEC") filer should adopt the amendments in this update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. For the Company, the amendments are effective January 1, 2020. The Company has early adopted this ASU in fiscal 2018. The adoption of this ASU did not have a material impact on our consolidated financial statements.
Note 3. Significant Customers
For the year ended
April 30, 2018
, two of our customers accounted for more than
10.0%
of our total revenue in the amount of
$4.2 million
and
$2.6 million
, or
20.6%
and
12.8%
. The revenue from these customers is part of the TOS business and captured in the consolidated oncology solutions revenue line item within the income statement.
For the year ended
April 30, 2017
, one of our customers accounted for more than
10.0%
of our total revenue in the amount of
$3.3 million
, or
21.3%
. The revenue from this customer is part of the TOS business and was captured in the consolidated oncology solutions revenue line item within the income statement.
As of
April 30, 2018
, two of our customers accounted for more than
10.0%
of our total accounts receivable balance in the amount of
$878,530
and
$736,071
, or
22.6%
and
19.0%
, respectively.
As of
April 30, 2017
, two of our customers accounted for more than
10.0%
of our total accounts receivable balance in the amount of
$994,095
and
$256,022
, or
43.7%
and
11.3%
, respectively.
Note 4. Commitments and Contingencies
Operating Leases
The Company currently leases its office and laboratory facilities under non-cancelable operating leases. Rent expenses totaled
$657,000
and
$398,000
for the years ended April 30, 2018 and 2017, respectively. The Company considers its facilities adequate for our current operational needs.
The Company leases the following facilities under non-cancelable operating lease agreements:
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•
|
One University Plaza, Suite 307, Hackensack, New Jersey 7601, which, since November 2011, serves as the Company’s corporate headquarters. The lease expires in
November 2021
. The Company recognized
$90,000
and
$86,000
of rental costs relative to this lease for fiscal
2018
and
2017
, respectively.
|
|
|
•
|
855 North Wolfe Street, Suite 619, Baltimore, Maryland 21205, which consists of laboratories and office space where the Company conducts operations related to its primary service offerings. This lease was terminated in
October 2017
. The Company transitioned its activities from this location to the new location in Rockville, MD. The Company recognized
$59,000
and
$105,000
of rental costs relative to this lease for fiscal
2018
and
2017
, respectively.
|
|
|
•
|
450 East 29t
h
Street, New York, New York, 10016, which was a laboratory facility. The Company recognized
$52,000
and
$207,000
of rental expense for fiscal
2018
and
2017
, respectively. This lease expired in
May 2017
and was not renewed.
|
|
|
•
|
1330 Piccard Drive, Suite 025, Rockville, MD 20850, which consists of laboratory and office space where the Company will conduct 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
and
nil
of rental expense for fiscal
2018
and
2017
, respectively.
|
|
|
•
|
910 Clopper Road,
Suites 260S and 280S, Gaithersburg, Maryland 20878, which consists of laboratory and office space where the Company will conduct operations related to its primary service offerings. The Company executed this lease on April 1, 2018. The operating commencement date is May 1, 2018. This lease expires in August 31, 2028. The Company recognized nil of rental expense for fiscal 2018 and 2017.
|
CHAMPIONS ONCOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Future minimum lease payments due each fiscal year are as follows (in thousands):
|
|
|
|
|
2019
|
$
|
437,983
|
|
2020
|
740,249
|
|
2021
|
817,864
|
|
2022
|
790,243
|
|
2023
|
745,872
|
|
Thereafter
|
$
|
3,798,433
|
|
Total
|
$
|
7,330,644
|
|
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.
Registration Payment Arrangements
The Company has entered into an Amended and Restated Registration Rights Agreement in connection with the March 2015 Private Placement. This Amended and Restated Registration Rights Agreement contains provisions that may call for the Company to pay penalties in certain circumstances. This registration payment arrangement primarily relates to the Company’s ability to file a registration statement within a particular time period, have a registration statement declared effective within a particular time period and to maintain the effectiveness of the registration statement for a particular time period. The Company has not accrued any liquidated damages associated with the Amended and Restated Registration Right Agreement as the Company has filed the required registration statement and anticipates continued compliance with the agreement.
Royalties
The Company contracts with third-party vendors to license tumor samples for development into PDX models and use in our TOS business. These types of arrangements have an upfront fee ranging from nil to
$7,000
per tumor sample depending on the successful growth of the tumor model and ability to develop them into a sellable product. The upfront costs are expensed as incurred. In addition, under certain agreements, for a limited period of time, the Company is subject to royalty payments if the licensed tumor models are used for sale in our TOS business, ranging from
2%
to
5%
of the contract price after recouping certain initiation costs. As of April 30, 2018, no royalties have been paid or incurred.
Note 5. Stock-based Payments
Stock-based compensation in the amount of
$1.0 million
and
$2.6 million
was recognized for years ended
April 30, 2018
and
2017
, respectively. Included in stock-based compensation expense for the twelve months ended
April 30, 2018
and
2017
under "general and administrative" line item is an option modification charge of
$56,529
and
$612,534
, respectively, and
$15,000
related to the issuance of common stock as compensation for services performed. Stock-based compensation costs were recorded as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2018
|
|
2017
|
General and administrative
|
$
|
689
|
|
|
$
|
2,193
|
|
Sales and marketing
|
112
|
|
|
201
|
|
Research and development
|
166
|
|
|
216
|
|
TOS cost of sales
|
65
|
|
|
50
|
|
POS cost of sales
|
2
|
|
|
2
|
|
|
|
|
|
Total stock-based compensation expense
|
$
|
1,034
|
|
|
$
|
2,662
|
|
2010 Equity Incentive Plan
CHAMPIONS ONCOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On
February 18, 2011
, shareholders owning a majority of the issued and outstanding shares of the Company executed a written consent approving the 2010 Equity Incentive Plan (“2010 Equity Plan”). The purpose of the 2010 Equity Plan is to grant (i) Non-statutory Stock Options; (ii) Restricted Stock Awards; and (iii) Stock Appreciation Rights (collectively, stock-based compensation) to its employees, directors and non-employees. Total stock awards under the 2010 Equity Plan shall not exceed
30,000,000
shares of common stock. Options and Stock Appreciation Rights expire no later than
ten years
from the date of grant and the awards vest as determined by the Board of Directors. Options and Stock Appreciation Rights have a strike price not less than
100%
of the fair market value of the common stock subject to the option or right at the date of grant.
2008 Equity Incentive Plan
The Company has previously granted (i) Non-statutory Stock Options; (ii) Restricted Stock Awards; and (iii) Stock Appreciation Rights (collectively, stock-based compensation) to its employees, directors and non-employees under a 2008 Equity Incentive Plan (the “2008 Equity Plan”). Such awards may be granted by the Company’s Board of Directors. Options granted under the 2008 Equity Plan expire no later than
ten years
from the date of grant and the awards vest as determined by the Board of Directors.
For stock-based payments to non-employee consultants under both the 2010 and 2008 Equity Incentive Plan, the fair value of the stock-based consideration issued is used to measure the transaction, as management believes this to be a more reliable measure of fair value than the services received. The fair value of the award is expensed over the period service is provided to the Company; however, it is ultimately measured at the price of the Company’s common stock or the fair value of stock options using the Black-Scholes valuation model on the date that the commitment for performance by the non-employee consultant has been reached or performance is complete, which is generally the vesting date of the award.
Director Compensation Plan
On
December 12, 2013
, the Compensation Committee of the Board of Directors of the Company adopted changes to the Director Compensation Plan of 2010 (the “Director Plan”) effective December 1, 2013. Under the Director Plan, independent directors of the Company are entitled to an annual award of a five-year option to purchase
8,333
shares of the Company’s common stock, and the Chairman of the Board of the Company is entitled to an annual award of a
five years
option to purchase
16,667
shares of the Company’s common stock. Independent directors who serve as chairperson of a committee will also receive an annual grant of a five-year option to purchase
1,667
shares of the Company’s common stock. All options issued under the Director Plan vest quarterly at a rate of
25%
. Option grants will typically be issued after the annual shareholder meeting which will generally be held in October of each year. New directors will receive a grant upon joining the Board equal to the pro-rata annual grant for the remainder of the year. Options issued under the Director Plan are issued pursuant to the 2010 Equity Plan.
Stock Option Grants
Black-Scholes assumptions used to calculate the fair value of options granted during the years ended
April 30, 2018
and
2017
were as follows:
|
|
|
|
|
|
Year Ended April 30,
|
|
2018
|
|
2017
|
Expected term in years
|
3 - 6
|
|
3 - 6
|
Risk-free interest rates
|
1.8% - 2.6%
|
|
0.6% - 1.9%
|
Volatility
|
84% - 88%
|
|
72% - 88%
|
Dividend yield
|
—%
|
|
—%
|
The weighted average fair value of stock options granted during the years ending
April 30, 2018
and
2017
, was
$2.19
and
$1.71
, respectively. The Company’s stock options activity and related information as of and for the years ended
April 30, 2018
and
2017
is as follows:
CHAMPIONS ONCOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
Employees
|
|
Directors
and
Employees
|
|
Total
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Aggregate
Intrinsic
Value
|
Outstanding, May 1, 2017
|
50,000
|
|
|
2,258,704
|
|
|
2,308,704
|
|
|
$
|
2.86
|
|
|
6.1
|
|
$
|
1,282,000
|
|
Granted
|
—
|
|
|
455,310
|
|
|
455,310
|
|
|
3.01
|
|
|
9.6
|
|
$
|
603,000
|
|
Exercised
|
—
|
|
|
(12,500
|
)
|
|
(12,500
|
)
|
|
3.00
|
|
|
|
|
|
|
Canceled
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Forfeited
|
—
|
|
|
(7,042
|
)
|
|
(7,042
|
)
|
|
6.86
|
|
|
|
|
|
|
Expired
|
—
|
|
|
(38,627
|
)
|
|
(38,627
|
)
|
|
5.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2018
|
50,000
|
|
|
2,655,845
|
|
|
2,705,845
|
|
|
2.85
|
|
|
5.9
|
|
$
|
5,265,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest as of April 30, 2018
|
50,000
|
|
|
2,655,845
|
|
|
2,705,845
|
|
|
2.85
|
|
|
5.9
|
|
$
|
5,265,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested as of April 30, 2018
|
25,836
|
|
|
2,436,263
|
|
|
2,462,099
|
|
|
2.79
|
|
|
5.6
|
|
$
|
5,036,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
Employees
|
|
Directors
and
Employees
|
|
Total
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Aggregate
Intrinsic
Value
|
Outstanding, May 1, 2016
|
51,250
|
|
|
2,161,507
|
|
|
2,212,757
|
|
|
$
|
5.58
|
|
|
6.1
|
|
$
|
10,000
|
|
Granted
|
—
|
|
|
2,420,681
|
|
|
2,420,681
|
|
|
1.99
|
|
|
|
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Canceled
|
—
|
|
|
(1,793,779
|
)
|
|
(1,793,779
|
)
|
|
4.92
|
|
|
|
|
|
|
Forfeited
|
—
|
|
|
(421,487
|
)
|
|
(421,487
|
)
|
|
2.03
|
|
|
|
|
|
|
Expired
|
(1,250
|
)
|
|
(108,218
|
)
|
|
(109,468
|
)
|
|
7.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2017
|
50,000
|
|
|
2,258,704
|
|
|
2,308,704
|
|
|
2.86
|
|
|
6.1
|
|
$
|
1,282,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest as of April 30, 2017
|
50,000
|
|
|
2,258,704
|
|
|
2,308,704
|
|
|
|
|
|
6.1
|
|
$
|
1,282,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested as of April 30, 2017
|
33,336
|
|
|
2,028,469
|
|
|
2,061,805
|
|
|
2.93
|
|
|
5.9
|
|
$
|
1,101,000
|
|
On June 30, 2017, the Board of Directors extended the expiration terms of a previous employee's vested grants to November 2018. As a result of this modification, the Company had an additional stock option expense of
$56,529
, which was expensed under the "General and Administrative" line item on the income statement.
Included in the forfeited balance in the fiscal 2017 table above are
203,043
options (which vest based on performance criteria) granted to each of the Company's Chief Executive Officer and its President as of November 5, 2013 as part of their employment
agreements. Performance-based options are expensed on an accelerated basis once the Company determines it is probable that the performance-based conditions will be met. It was determined the performance conditions will not be set and as such the
203,043
options have been forfeited. Additionally, included in the forfeited balance in the table above are
209,383
options which were granted to the previous Chief Executive Officer as part of his yearly compensation beginning in November 2016. The Chief Executive Officer has transitioned to Chairman of the Board of Directors as of January 31, 2017.
On April 24, 2017, the Board of Directors extended the expiration terms of the previous Chief Executive Officer's vested grants to its contractual life. As a result of this modification, the Company had an additional stock option expense of
$612,534
which was expensed under the "General and Administrative" line item on the income statement.
CHAMPIONS ONCOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On July 21, 2016, the Company and certain members of its senior management team agreed to exchange existing options to purchase shares of the Company's common stock with new options. The new options have a lower exercise price for fewer shares and have the same vesting schedules and the same termination expiration dates as the existing options. The Company used the Black Scholes valuation method to determine if the modification created additional stock option expense. As a result of the option exchange, an aggregate of
1,793,781
existing options with exercise prices ranging from
$4.55
to
$6.96
per share were exchanged for an aggregate of
1,568,191
new options with exercise prices of
$2.10
per share. Due to the modification the Company had an additional stock option expense of
$414,756
of which
$39,920
related to the performance awards that have been forfeited as noted above,
$373,069
of which was recognized during the current fiscal year and
$1,767
of which will be recognized over the next year as the options continue to vest.
Stock Purchase Warrants
As of
April 30, 2018
, the Company had warrants outstanding for the purchase of
2,004,284
shares of its common stock, all of which were exercisable. Activity related to these warrants, which expire at various dates through January 2019, is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Aggregate
Intrinsic
Value
|
Outstanding, May 1, 2017
|
2,004,284
|
|
|
$
|
5.57
|
|
|
2.8
|
|
|
$
|
—
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Expired
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2018
|
2,004,284
|
|
|
$
|
5.57
|
|
|
1.8
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Aggregate
Intrinsic
Value
|
Outstanding, May 1, 2016
|
2,109,840
|
|
|
$
|
5.54
|
|
|
3.6
|
|
|
$
|
—
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Expired
|
(105,556
|
)
|
|
4.80
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Outstanding, April 30, 2017
|
2,004,284
|
|
|
$
|
5.57
|
|
|
2.8
|
|
|
$
|
—
|
|
Note 6. Common Stock
On June 15, 2016, the Company closed a public offering ("The June 2016 Public Offering") of
2,000,000
registered shares of its common stock at an offering price of
$2.25
per share. In addition, the underwriter exercised a partial exercise of the over-allotment option granted to the underwriter to purchase an additional
258,749
shares of its common stock at the public offering price. All of the shares have been offered by the Company.
The net proceeds from The June 2016 Public Offering, including the partial exercise of the over-allotment option, was
$4.3 million
, after deducting the underwriting discount and offering-related expenses of
$742,000
. The Company used the net proceeds of this offering for research and development to grow the TumorGraft platform, and the balance of the net proceeds for working capital and general corporate purposes.
CHAMPIONS ONCOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of April 30, 2018, the Company issued a total of
8,569
shares of common stock valued at
$22,500
in consideration for consulting services.
As of April 30, 2017, the Company issued a total of
18,564
share of common stock valued at
$43,040
in consideration for consulting services.
Note 7. Provision for Income Taxes
The components of the provision (benefit) for income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30, 2018
|
|
Federal
|
|
State
|
|
Foreign
|
|
Total
|
Current
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
30
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
30
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30, 2017
|
|
Federal
|
|
State
|
|
Foreign
|
|
Total
|
Current
|
$
|
(14
|
)
|
|
$
|
—
|
|
|
$
|
33
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
(14
|
)
|
|
$
|
—
|
|
|
$
|
33
|
|
|
$
|
19
|
|
A reconciliation between the Company’s effective tax rate and the United States statutory tax rate for the years ended
April 30, 2018
and
2017
is as follows:
|
|
|
|
|
|
|
|
Year Ended April 30,
|
|
2018
|
|
2017
|
Federal income tax at statutory rate
|
29.7
|
%
|
|
34.0
|
%
|
US vs. foreign tax rate difference
|
0.1
|
|
|
—
|
|
State income tax, net of federal benefit
|
(0.2
|
)
|
|
3.9
|
|
Permanent differences
|
(2.0
|
)
|
|
(0.2
|
)
|
Increase in uncertain tax position
|
(2.1
|
)
|
|
1.6
|
|
Other
|
2.5
|
|
|
(0.3
|
)
|
Change in valuation allowance
|
498.0
|
|
|
(39.8
|
)
|
Changes in tax rates
|
(528.0
|
)
|
|
0.5
|
|
|
|
|
|
Income tax expense
|
(2.0
|
)%
|
|
(0.3
|
)%
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of
April 30, 2018
and
2017
consist of the following (in thousands):
CHAMPIONS ONCOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
As of April 30,
|
|
2018
|
|
2017
|
Accrued liabilities
|
$
|
71
|
|
|
$
|
103
|
|
Depreciation and amortization
|
(58
|
)
|
|
—
|
|
State taxes
|
1
|
|
|
22
|
|
Stock-based compensation expense
|
4,466
|
|
|
6,503
|
|
Capitalized research and development costs
|
43
|
|
|
195
|
|
Foreign net operating loss carry-forward
|
208
|
|
|
214
|
|
Net operating loss carry-forward
|
9,678
|
|
|
14,786
|
|
|
|
|
|
Total deferred tax assets
|
14,409
|
|
|
21,823
|
|
Less: Valuation allowance
|
(14,409
|
)
|
|
(21,779
|
)
|
|
|
|
|
Net deferred tax asset
|
$
|
—
|
|
|
$
|
44
|
|
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and significant changes to the U.S. tax code including, but not limited to, a change in the federal rate from 34% to 21%, as well as the requirement to pay a one-time transition tax (“deemed repatriation tax”) on all undistributed earnings of foreign subsidiaries. As a result of the enactment of the legislation, the Company recorded a one-time reduction to its deferred tax assets of approximately
$7.6 million
, which was offset by a similar reduction in the valuation allowance. In accordance with Staff Accounting Bulletin 118 (“SAB 118”), income tax effects of the Tax Act may be refined upon obtaining, preparing, or analyzing additional information during the measurement period and such changes could be material. During the measurement period, provisional amounts may be adjusted for the effects, if any, of interpretative guidance issued after December 31, 2017, by U.S. regulatory and standard-setting bodies. While we are able to make reasonable estimates of the impact of the reduction in corporate rate and the deemed repatriation transition tax, the final impact of the Tax Act may differ from these estimates, due to, among other things, changes in our interpretations and assumptions, additional guidance that may be issued by the I.R.S., and actions we may take. We are continuing to gather additional information to determine the final impact.
Management has evaluated the available evidence about future tax planning strategies, taxable income and other possible sources of realization of deferred tax assets and has established a full valuation allowance against its net deferred tax assets as of
April 30, 2018
and
2017
. For the years ended
April 30, 2018
and
2017
, the Company recorded a valuation allowance of
$14.4 million
and
$21.8 million
, respectively.
As of
April 30, 2018
and
2017
, the Company’s estimated U.S. net operating loss carry-forwards were approximately
$41 million
and
$41 million
, respectively, which will begin expiring in
2025
for federal and
2031
for state purposes. As of
April 30, 2018
and
2017
, the Company’s foreign net operating loss carry-forward was approximately
$890,000
and
$890,000
, respectively, which have an unlimited carryforward period. A valuation allowance has been recorded against all of these losses due to continued overall losses.
The Company may be subject to the net operating loss provisions of Section 382 of the Internal Revenue Code. Due to the company's funding transaction, the company may have triggered a net operating loss limitation under Internal Revenue Code §382. The company has not calculated if an ownership change has occurred. The effect of an ownership change would be the imposition of an annual limitation on the use of NOL carryforwards attributable to periods before the change. The amount of the annual limitation depends upon the value of the Company immediately before the change, changes to the Company’s capital during a specified period, and the federal published interest rate.
The Company files income tax returns in various jurisdictions with varying statues of limitations. As of
April 30, 2018
, the earliest tax year still subject to examination for state purposes is fiscal 2015. The Company’s tax years for periods ending April 30, 2002 and forward are subject to examination by the United States and certain states due to the carry-forward of unutilized net operating losses.
The following table indicates the changes to the Company’s uncertain tax positions for the period and years ended
April 30, 2018
and
2017
in thousands:
CHAMPIONS ONCOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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Year Ended April 30,
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2018
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2017
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Balance, beginning of the year
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$
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121
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$
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165
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Addition based on tax positions related to prior years
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—
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—
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Payment made on tax positions related to prior years
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—
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(84
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)
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Addition based on tax positions related to current year
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30
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40
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Balance, end of year
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$
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151
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$
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121
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As of
April 30, 2018
the above amount of
$151,000
was included in other long-term liabilities.
Note 8. 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 at the exchange amount, which is the amount of consideration established and agreed to by the parties.
Consulting Services
For both years ended
April 30, 2018
and
2017
, the Company paid a member of its Board of Directors
$72,000
for consulting services unrelated to his duties as board member. During the years ended
April 30, 2018
and
2017
, the Company paid a board member
$94,933
and
$48,214
, respectively, and in year ended April 30
2017
, granted
45,000
options that vest annually over a three year period and have a fair value of
$94,192
for consulting services unrelated to his duties as a board member. All of the amounts paid to these related parties have been recognized in expense in the period the services were performed.
Note 9. Lines of Credit
On October 30, 2017, the Company entered into a line of credit agreement with a national bank which provides that the Company may borrow up to
$1.5 million
. Borrowings under the line bear interest payable monthly at the Wall Street Journal Prime Rate plus
1.5%
to
2.0%
and are secured by all assets of the Company. The balances payable under this arrangement are due on demand. As of
April 30, 2018
, there were no outstanding borrowings. The revolving line maturity date is
October 29, 2018
.