VolitionRX Limited — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. The unaudited statements cover a development-stage company developing diagnostic products, with research and patent activities in Belgium and elsewhere. Amounts are in U.S. dollars.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 / March 31, 2013 balance |
|---|---|---|
| Revenue | $0 | $15,672 in Q1 2012 |
| Operating expenses | $907,797 | $817,412 in Q1 2012 |
| Net loss | $907,797 | $801,740 in Q1 2012 |
| Net loss per share, basic and diluted | $0.09 | $0.09 in Q1 2012 |
| Cash and cash equivalents | $410,866 | $376,421 at December 31, 2012 |
| Total assets | $2,252,977 | $2,216,766 at December 31, 2012 |
| Total liabilities | $1,561,944 | $1,382,971 at December 31, 2012 |
| Stockholders’ equity | $691,033 | $833,795 at December 31, 2012 |
Research and development expense was $593,199, up from $511,045; salaries and office administration were $198,077, professional fees $64,965, and general and administrative expense $51,556. With no revenue in the quarter, a revenue margin is not meaningful.
Operating cash use was $556,351, compared with $564,079 in Q1 2012. Investing cash use was $714. Financing provided $594,679, principally from $596,000 of share proceeds; cash increased by $34,445 during the quarter.
Current liabilities were $945,921, including $895,939 of accounts payable and accrued liabilities and a $49,982 related-party note payable. The separate $616,023 grant-repayable balance is also a material liability. Management reported a $381,347 working-capital deficit excluding the $233,333 related-party prepaid expense from current assets; total current assets were $797,907.
Changes versus the prior comparable period
- Revenue fell from $15,672 to zero.
- Operating expenses increased by $90,385, while net loss increased by $106,057, or 13%, partly reflecting the absence of prior-year revenue.
- R&D costs rose by $82,154, attributed to increased staff and related costs, materials, and patent costs. Salaries and office administration decreased by $6,496, principally due to lower share-option expense.
- Weighted-average shares outstanding increased 18% to 10,210,392. The quarter included cash share issuances and shares issued for services.
Outlook, risks, and unusual items
- Going concern: The company reported cumulative losses of $8,493,433, very limited revenue, and substantial doubt about its ability to continue as a going concern. Management said cash reserves were adequate for only a limited period.
- Funding and plans: Management intends to conserve cash, seek additional grant funding, and raise capital through equity or debt. It planned to use available cash for R&D. Failure or delay in obtaining funds could delay product development, clinical validation, and regulatory work, or force the company to cease operations. Equity fundraising would dilute existing shareholders.
- Expected grant funds: Management expected approximately $500,000 from the Walloon Region for previously incurred expenditures, with claims delayed and receipt anticipated within two to three months. Receipt was not assured. The grant agreement also provides for repayment obligations and, if the project succeeds, a 6% royalty on relevant sales; the maximum repayment is twice the funding received.
- Subsequent financing: After quarter-end, the company received $291,000 in subscriptions for 145,500 shares. On May 1, it issued 208,000 shares for $416,000, including shares corresponding to the $125,000 subscription received before quarter-end.
- Contingencies and commitments: A two-year Bonn University sample-testing agreement totals $499,824. The company also disclosed related-party office, staff, and executive service arrangements. It reported no material legal proceedings or significant off-balance-sheet arrangements.
- Controls: Management concluded disclosure controls were not effective at March 31, 2013, citing the absence of a board audit committee financial expert and controls not designed to ensure all required disclosures were initially addressed in the financial statements.
- Equity-linked compensation: The company issued 200,000 consultant warrants during the quarter, with most vesting contingent on milestones, and granted 37,000 options. At quarter-end, it reported 1,370,744 warrants and 887,000 options outstanding.
Important facts for investors to verify
- Whether the anticipated Walloon Region grant proceeds were received, when received, and whether further funding is available.
- Actual cash runway, near-term obligations, and the company’s ability to finance operations without delaying development or seeking further equity.
- The basis for management’s $381,347 working-capital deficit, which excludes related-party prepaid expenses, and the collectability or future benefit of those prepayments.
- The filing’s expense comparison: the financial statements show operating expenses up $90,385, while MD&A says operating expenses increased by $106,057; the latter equals the increase in net loss. Clarification is warranted.
- The dilution implications of subsequent share issuances and outstanding warrants and options, including milestone-contingent awards.
- The terms, repayment exposure, and any sales royalty triggered under the Walloon Region grant agreement.
- Remediation of the disclosed material weaknesses in disclosure controls and the company’s ability to produce complete and accurate filings.