VolitionRX Limited — Q1 2014 Form 10-Q
Business context and period: Development-stage company focused on research and development, including colorectal cancer testing and potential in-vitro diagnostic products. Reporting period ended March 31, 2014; financial statements are unaudited.
Financial performance and position
| Metric | Q1 2014 / March 31, 2014 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $0 | $0 in Q1 2013 |
| Operating expenses | $1.238 million | $907,797 in Q1 2013 |
| Net loss | $2.194 million; $0.18 per share | $907,797; $0.09 per share in Q1 2013 |
| Cash from operations | $(977,563) | $(556,351) in Q1 2013 |
| Cash and cash equivalents | $2.801 million | $888,704 at December 31, 2013 |
| Total assets | $3.962 million | $2.071 million at December 31, 2013 |
| Total liabilities | $5.627 million, including $4.183 million derivative liability | $1.390 million at December 31, 2013 |
| Working capital | $(2.284) million; $1.899 million excluding derivative liability | Not stated |
There were no operating revenues, so operating margins are not meaningful. Operating expenses rose 36%, led by a $277,265 increase in R&D, including higher patent-filing costs, antibody purchases, and staff costs. Professional fees increased $62,165, principally for public and investor relations. Salaries and office administrative fees declined $26,399.
Q1 financing provided $2.912 million net cash, primarily from the February equity financing; investing used $18,067. The company issued 1.5 million shares at $2.00 per share with 1.5 million five-year warrants at $2.20, raising $3.0 million gross. Warrant terms created a derivative liability and $1.100 million of derivative expense. No conventional borrowings were reported; a $432,371 Walloon Region grant repayment is payable in installments through 2023.
Changes, outlook, and risks
- Net loss increased 142% year over year, reflecting higher operating costs and the derivative expense, partly offset by $143,987 of grant income.
- Management plans to use cash for further R&D and continue seeking grant funds and financing, including equity sales. Further share issuance would dilute existing holders; financing is not assured.
- Management and the financial statements identify substantial doubt about the company’s ability to continue as a going concern. The company depends on additional financing; prolonged shortfalls could delay clinical validation and regulatory work or force it to cease operations.
- The Bonn University sample-testing agreement was extended for two years beginning June 1, 2014, with stated payments of $536,328. The Walloon grant includes a 6% royalty on qualifying product or service revenue, subject to an aggregate payment cap described in the filing.
- Disclosure controls were deemed ineffective as of March 31, 2014, because no director qualified as an audit committee financial expert. Management reported no significant subsequent changes to internal control over financial reporting.
- The company reported no material legal proceedings and no significant off-balance-sheet arrangements.
Important facts for investors to verify
- Near-term cash needs, financing availability, and the effect of any new equity issuance on existing shareholders.
- Warrant accounting and the assumptions behind the $4.183 million derivative liability and related expense.
- Timing, cost, and progress of clinical validation and regulatory steps toward commercial products, which are not quantified as guidance in this filing.
- Grant repayment and royalty terms, and the financial commitment under the Bonn University extension.
- Reconciliation of figures in the filing: the cash-flow statement reports inception-to-date net loss of $12.390 million, while the operations statement reports $13.490 million; a note also gives December 2013 cash of $888,804, versus $888,704 on the balance sheet.