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
| Metric | Period / value |
|---|---|
| Revenue | Q3 2013: $0, versus $27,589 in Q3 2012. Nine months 2013: $0, versus $54,968 in 2012. |
| Operating expenses and net loss | Q3: 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 share | Q3: $0.08, versus $0.09 loss. Nine months: $0.27, versus $0.28 loss. |
| Cash flow | Nine-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 liquidity | At 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 equity | Total 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
- Current cash and actual runway, including whether the additional $500,000 subscriptions closed and whether further financing is available.
- Terms and potential dilution from equity issuances, warrants and options; the filing reports 11,194,302 common shares outstanding at October 31, 2013.
- Repayment and royalty exposure under the Walloon Region grant, including how the project’s success or failure will be determined.
- Progress, funding needs and timelines for research, RUO product development, clinical validation and IVD regulatory approvals.
- Remediation of the disclosed material weaknesses in disclosure controls and governance.