VolitionRX Limited — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2012. The unaudited statements are for a development-stage company and consolidate VolitionRX and its subsidiaries. The company was developing diagnostic products, with research and development principally in Belgium.
Financial performance and position
| Metric | Q3 2012 | Nine months 2012 | Comparable 2011 period |
|---|---|---|---|
| Revenue | $27,589 | $54,968 | $0 |
| Operating expenses | $900,105 | $2,660,694 | $715,665 / $1,690,987 |
| Net loss | $872,516 | $2,605,726 | $715,665 / $1,690,987 |
| Basic and diluted loss per share | $0.09 | $0.28 | $0.12 / $0.34 |
| Cash used in operating activities | Not separately provided | $1,867,289 | $1,078,900 |
At September 30, cash was $315,277; total current assets were $709,460, including $353,058 of prepaid expenses; and current liabilities were $476,764. The company reported a $35,637 working-capital deficiency in MD&A. Total liabilities were $1,094,661, including a $617,897 grant repayable and $192,059 due to related parties. No conventional interest-bearing debt balance is clearly reported. No profit margin is applicable given the operating losses and minimal revenue.
For the nine months, investing cash outflow was $71,576 and financing cash inflow was $1,951,625, primarily from share issuances. Cash declined by $32,615, including a $45,375 adverse foreign-exchange effect.
Changes versus prior periods
- Q3 revenue was newly reported at $27,589; nine-month revenue was $54,968, versus none in 2011.
- Operating expenses rose 26% in Q3 and 57% for the nine months. Management attributed the increase mainly to expanded R&D activity; nine-month R&D expense increased $824,434.
- Net loss increased 22% in Q3 and 54% for the nine months. Loss per share improved, partly alongside substantially higher weighted-average share counts.
- Cash used in operations increased by $788,389 year over year for the nine-month period.
Outlook, risks and notable items
- Management stated that cash reserves were sufficient for only a limited period and that the company expected to rely on further financing. Additional grant funding through January 31, 2013 was expected but not assured. Management warned that inability to secure capital could delay product development and clinical validation, or force the company to cease operations.
- The filing identifies substantial doubt about the company’s ability to continue as a going concern, citing cumulative losses of $6,108,305 and very limited revenue. Management’s plans included cost controls, grant funding and additional debt or equity financing.
- After quarter-end, the company received $490,750 for 245,375 shares issued October 31, 2012. Shares outstanding were 9,879,187 at quarter-end and 10,124,562 as of November 14, 2012.
- The Walloon Region grant may require repayment depending on project outcome; the filing describes a minimum repayment obligation and a possible royalty on relevant sales if the project succeeds. The company also had a two-year Bonn University testing agreement with total payments of $501,345.
- Disclosure controls were determined to be ineffective as of September 30, 2012, citing a lack of an audit committee financial expert and weaknesses in controls to ensure required disclosures were addressed. Management reported no significant subsequent changes to internal control over financial reporting.
- The filing reports no material legal proceedings and no significant off-balance-sheet arrangements.
Important facts for investors to verify
- Whether further financing and anticipated grant receipts were obtained, and the resulting runway and dilution.
- The assumptions and repayment or royalty exposure under the Walloon Region grant, and payment commitments under the Bonn University agreement.
- Progress and funding needs for R&D, clinical validation, and regulatory steps toward research-use-only and in-vitro diagnostic products.
- How management planned to remediate the disclosed control weaknesses and whether disclosure controls improved.
- The composition and terms of outstanding warrants and options, and their potential dilution.