VOLITIONRX LTD quarterly report, Q3 FY2013

Business context and reporting period

VolitionRX Limited is a development-stage company focused on developing diagnostic products. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2013; financial statements consolidate the company and its wholly owned subsidiaries. The company reported no recurring operating revenue.

Financial performance and position

MetricPeriod / value
RevenueQ3 2013: $0, versus $27,589 in Q3 2012. Nine months 2013: $0, versus $54,968 in 2012.
Operating expenses and net lossQ3: expenses and net loss of $925,567, up 3% and 6%, respectively, year over year. Nine months: expenses of $2,880,855, up 8%; net loss of $2,880,855, up 11%.
Loss per shareQ3: $0.08, versus $0.09 loss. Nine months: $0.27, versus $0.28 loss.
Cash flowNine-month operating cash use was $2,374,939; investing cash use was $713; financing provided $2,475,333. Cash increased $97,054 to $473,475.
Assets and liquidityAt September 30, total assets were $2,251,877. Current assets were $816,737 and current liabilities $585,407. MD&A reports working capital surplus of $32,997 after excluding $198,333 of related-party prepaids; the balance-sheet current-asset less current-liability calculation is $231,330.
Liabilities and equityTotal liabilities were $1,860,638, including a $1,275,231 repayable grant; no related-party note payable remained. Stockholders’ equity was $391,239.

Margins are not meaningful because the company had no current-period revenue.

Material changes versus prior comparable periods

  • Revenue declined to zero from $27,589 for the quarter and $54,968 for the nine-month period.
  • Quarterly R&D expense fell $109,267, largely due to lower materials purchases and patent-filing costs, while professional fees rose $85,198, mainly for investor and public relations.
  • Nine-month R&D expense increased $54,093 with greater activity, staff and collaboration costs; professional fees increased $111,341, mainly for investor and public relations. Overall losses increased.
  • Cash rose from $376,421 at December 31, 2012, but equity fell to $391,239 from $833,795 as the accumulated deficit grew. Common shares outstanding increased to 11,194,302 from 10,191,562.

Outlook, risks, contingencies and unusual items

  • Management stated cash reserves were adequate only for a limited period and that the company had no substantial revenue source. It expects to rely on further grants and debt or equity financing; success and timing are uncertain. The filing identifies near-term financing as its most significant risk and warns that a funding shortfall could delay research, clinical validation and regulatory work, or force operations to cease.
  • The company disclosed substantial doubt about its ability to continue as a going concern. Management plans to control costs and seek grants and financing; the financial statements contain no adjustments for a possible inability to continue.
  • Subsequent to quarter-end, the company received $250,000 in subscriptions for shares and warrants and had agreements for a further $500,000 on similar terms; the latter subscriptions had not yet been issued as of the filing.
  • Walloon Region grant funding is repayable under the agreement: at least $425,077 if the project is deemed a failure; if successful, that minimum plus a 6% royalty on relevant sales. Total repayment is capped at twice the funding received.
  • Disclosure controls were deemed ineffective at September 30, 2013, due to the lack of a board audit committee financial expert and controls not designed to ensure all required disclosures were initially addressed. Management reported no significant subsequent changes in internal control over financial reporting.
  • No material legal proceedings or significant off-balance-sheet arrangements were reported. Forward-looking statements are subject to risks and are not assurances of results.

Important facts for investors to verify

  1. Current cash and actual runway, including whether the additional $500,000 subscriptions closed and whether further financing is available.
  2. Terms and potential dilution from equity issuances, warrants and options; the filing reports 11,194,302 common shares outstanding at October 31, 2013.
  3. Repayment and royalty exposure under the Walloon Region grant, including how the project’s success or failure will be determined.
  4. Progress, funding needs and timelines for research, RUO product development, clinical validation and IVD regulatory approvals.
  5. Remediation of the disclosed material weaknesses in disclosure controls and governance.