VolitionRx Limited — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. The unaudited filing describes a development-stage company focused on diagnostic research, including colorectal cancer testing; revenue remained minimal.
Key financial results
| Metric | Q3 2014 | Q3 2013 | 9M 2014 | 9M 2013 |
|---|---|---|---|---|
| Revenue | $14,785 | $0 | $14,785 | $0 |
| Operating expenses | $1,778,167 | $925,567 | $4,066,778 | $2,880,855 |
| Operating loss | $1,763,382 | $925,567 | $4,051,993 | $2,880,855 |
| Net loss | $5,893,944 | $925,567 | $7,271,567 | $2,880,855 |
| Basic and diluted loss per share | $0.44 | $0.08 | $0.56 | $0.27 |
| Net cash used in operations | — | — | $3,148,158 | $2,374,939 |
No meaningful operating margin is disclosed given negligible revenue and ongoing development spending.
Financial position and liquidity
- At September 30, cash was $2,419,667, versus $888,704 at December 31, 2013. Total current assets were $2,670,924; current liabilities were $7,580,554, including a $6,446,068 derivative liability. Reported working capital deficit was $4,909,630; excluding that derivative liability, management reported an operating working capital surplus of $1,536,438.
- Total assets were $3,849,454 and total liabilities $7,947,666. Stockholders’ equity was a deficit of $4,098,212, compared with positive equity of $680,674 at year-end 2013.
- The filing reports no conventional notes payable outstanding at quarter-end. Liabilities include a $367,112 repayable grant balance; the company also has deferred grant income and ordinary payables.
- Cash increased by $1,530,963 in the first nine months, supported principally by $4,893,529 in share proceeds and grant receipts. Investing cash use was $297,607, primarily for property and equipment.
Changes and unusual items
- Operating expenses rose 92.1% in Q3 and 41.2% year to date, primarily reflecting greater research and development activity, staffing and share-based compensation. Year-to-date R&D expense increased $975,370.
- A $4,130,562 Q3 loss from remeasurement of warrants classified as a derivative liability drove much of the quarterly net loss. The year-to-date remeasurement loss was $3,363,561; it is a noncash accounting charge. The liability was $6,446,068 at quarter-end.
- The company raised capital through share issuances, including a February placement of $3 million with warrants and additional equity sales in June and September. Shares outstanding were 14,308,960 at September 30 and 14,450,717 as of November 6, 2014; further equity financing may dilute existing holders.
- Management said the October 31, 2014 amendment shortened the ratchet-provision period on 1,121,225 warrants to October 31, 2014. It stated that, had the provision been changed to an effective date before September 30, the quarter-end derivative liability would have been $1,725,226 rather than $6,446,068. The amendment occurred after the reporting date.
Outlook, risks and commitments
- There is no quantified revenue, earnings or cash-flow guidance. Management plans to use available cash for R&D and expects to seek additional financing, including equity, and grant funding; it cautions that financing is not assured.
- The filing states that substantial doubt exists about the company’s ability to continue as a going concern. It had incurred cumulative losses of $18,661,015 and relied on further financing; inadequate capital could force it to cease operations. Delayed financing could delay clinical validation and regulatory approval work.
- Notable research commitments include $1,745,920 under a two-year Hvidovre Hospital study agreement and $494,715 for the Bonn University agreement extension. The Walloon Region grant agreement includes scheduled repayment and a 6% royalty on defined product or service revenue, subject to an aggregate cap.
- Management reported disclosure controls were ineffective at September 30 because the board lacked an audit committee financial expert. An audit committee was formed and its charter adopted November 5, 2014, with a qualified financial expert appointed.
- The company reported no material legal proceedings and no significant off-balance-sheet arrangements. Forward-looking statements are subject to financing, research, validation, regulatory and other risks.
Important facts for investors to verify
- Cash runway, monthly cash use, and the amount and timing of financing needed to fund operations and planned studies.
- The valuation assumptions, accounting treatment and post-quarter amendment effects for the warrant derivative liability.
- Study milestones, clinical validation results and regulatory pathway and timing for any diagnostic products.
- Funding, payment schedules and potential revenue-royalty obligations under the Walloon, Bonn and Hvidovre agreements.
- Potential dilution from outstanding warrants, options and future equity issuance, and progress in remediating the reported control weakness.