VolitionRX Limited — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. VolitionRX was a development-stage company pursuing diagnostic products, with research and development activity centered in Belgium. The unaudited financial statements consolidate the company and its wholly owned subsidiaries.
Financial performance and position
- Revenue: $15,672, versus none in Q1 2011. The filing reports no gross profit or margin measure; given the development-stage business and minimal revenue, operating margins are not meaningful.
- Expenses and loss: Operating expenses were $817,412, up 144% from $335,168. Net loss was $801,740, compared with $335,168; diluted and basic loss per share was $0.09 versus $0.08.
- Cash flow: Operating activities used $564,079 and investing activities used $37,796. Financing provided $479,250; cash declined $130,080 to $217,812 during the quarter.
- Liquidity: Current assets were $604,386 and current liabilities were $576,621. Management reported a $275,568 working-capital deficit excluding noncash prepayments of $303,333, and said cash reserves were sufficient for only a limited period.
- Liabilities: Total liabilities were $1,218,600, including a $641,979 repayable grant balance and $351,333 in related-party payables. Related-party amounts were unsecured, non-interest-bearing and due on demand. The filing does not report conventional outstanding borrowings at quarter-end.
- Assets and equity: Total assets were $2,188,988 and stockholders’ equity was $970,388. Cash subscriptions of $479,250 were recorded as share subscriptions received at quarter-end; the related shares and warrants were issued after the quarter.
Material changes from Q1 2011
- Operating expenses increased $482,244. Research and development expense rose $304,586 amid increased activity; salaries and office administration rose $136,867, including director fees following listing and amortization of management options. Professional fees increased $45,764, while general and administrative expense decreased $4,973.
- Revenue increased from zero to $15,672, but remained very limited relative to expenses. The net loss increased by $466,572.
- Weighted-average shares outstanding increased to 8,645,652 from 4,146,078, a 109% increase; the filing attributes historical share changes in part to the reverse acquisition and recapitalization.
Outlook, risks and unusual items
- Going concern: The company reported cumulative losses since inception of $4,304,323 and substantial doubt about its ability to continue as a going concern. Continued operations depend on additional capital, grants and eventual profitable operations; management cautioned that inadequate funding could force cessation of operations.
- Financing after quarter-end: A private placement closed May 11, 2012. It raised $1,019,375 before expenses from cash subscriptions for 528,510 shares at $1.75 per share, with warrants attached, and converted $184,777 of service-related debt into shares and warrants. The company reported $702,418 of additional working capital net of expenses subsequent to March 31. Equity financing may dilute existing shareholders; further financing was not assured.
- Operating plans and risks: Management intended to use available funds for R&D and anticipated further grant funding through May 31, 2012, which was not assured. Funding delays could delay RUO product development, clinical validation and regulatory approval efforts for IVD products; prolonged funding shortfalls could require discontinuing operations.
- Grant contingency: Under the Walloon Region agreement, at least $419,921 may be repayable if the project is deemed unsuccessful; if successful, repayment includes that minimum plus a 6% royalty on relevant sales. The maximum repayment is twice the funding received.
- Controls: Management concluded disclosure controls were ineffective at March 31, 2012, citing the absence of an audit committee financial expert and inadequate controls to ensure required disclosures were addressed in the financial statements. No significant subsequent changes in internal control were reported.
- The company reported no material legal proceedings and no significant off-balance-sheet arrangements.
Key facts for investors to verify
- Cash runway and use of the placement proceeds, including the company’s reported $702,418 in post-quarter net working capital.
- Timing, availability and terms of further grants or financing, and potential dilution from future equity or warrants.
- Repayment obligations and royalty exposure under the Walloon Region grant, and the conditions for determining project success or failure.
- Progress and funding needs for R&D, clinical validation and regulatory pathways, including any delays to RUO or IVD plans.
- Remediation of the disclosed control weaknesses and the status of board financial expertise.
- Share-count changes: 8,645,652 shares issued and outstanding at March 31 versus 9,333,753 reported as of May 14, 2012.