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Item 7. Management’s Discussion and Analysis

2021-03-22 compared with 2020-02-20 · 45 added, 32 removed, 107 unchanged (42% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Company Overview

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto, which are included in Part II, Item 8 of this Report.

We have identified the specific processes and resources required to achieve the near and medium-term objectives of our business plan, including personnel, facilities, equipment, research and testing materials including antibodies and clinical samples, and the protection of intellectual property.

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If we are unable to obtain adequate capital, we could be forced to cease operations.

Developments—COVID-19 Pandemic

On March 11, 2020, the World Health Organization designated the outbreak of a novel strain of coronavirus known as COVID-19 as a global pandemic.

Governments and businesses around the world have taken unprecedented actions to mitigate the spread of COVID-19, including but not limited to implementing shelter-in-place orders and significant restrictions on travel, as well as restrictions and guidelines that prohibit many employees from going to work.

Uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets.

During the year ended December 31, 2020, we implemented contingency planning to protect the health and well-being of our employees, with the majority of our employees now working remotely where possible.

We have implemented travel restrictions as well as protocols limiting visitor access to our facilities, and we are following social distancing practices.

We did not observe significant impacts on our business or results of operations for the year ended December 31, 2020, due to the COVID-19 pandemic or the mitigation actions taken to slow its spread.

To the extent the pandemic worsens, we cannot predict the effects it may have on our business, in particular with respect to demand for our services, our strategy, and our prospects, or the impact on our financial results.

Liquidity and Capital Resources

We have financed our operations since inception primarily through private placements and public offerings of our common stock.

As of December 31, 2019, we had cash and cash equivalents of $16,966,168.

As of December 31, 2020, we had cash and cash equivalents of approximately $19.4 million.

Net cash used in operating activities was $16.5 million and $12.7 million for the years ended December 31, 2020 and December 31, 2019, respectively.

The decrease in cash used in operating activities during 2019 was primarily due to reduced research and development activities together with lower charges for stock-based compensation offset by increased personnel expenses.

The increase in cash used in operating activities during 2020 was primarily due to increased research and development activities together with increased personnel expenses.

Net cash used in investing activities was $1.6 million and $0.5 million for the years ended December 31, 2020 and December 31, 2019, respectively.

The increase in cash used in investing activities during 2019 was primarily a result of increased purchases of laboratory equipment for our research and development facility in Belgium.

The increase in cash used in investing activities during 2020 was primarily a result of increased purchases of laboratory equipment for our manufacturing facility in Belgium.

Net cash provided by financing activities was $20.6 million and $16.9 million for the years ended December 31, 2020 and December 31, 2019, respectively.

The decrease in cash provided by financing activities during 2019 was due to less capital raised from debt and equity financing as well as reduced debt payments during such period.

During 2019, the Company received $16.6 million in net proceeds from the issuance of common stock plus debt funding of $0.9 million, offset by debt payments of $0.4 million.

The increase in cash provided by financing activities during 2020 was primarily due to more capital raised from equity financing.

The following table summarizes our approximate contractual payments due by year as of December 31, 2020.

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Financing lease liabilities

Operating lease liabilities

Operating lease liabilities and short-term lease

Grants repayable

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We intend to use our cash reserves to predominantly fund further research and development activities.

We do not currently have any substantial source of revenues and expect to rely on additional future financing, through the sale of equity or debt securities, or the sale of licensing rights, to provide sufficient funding to execute our strategic plan.

We do not have any substantial source of revenues and expect to rely on additional future financing, through the sale of equity or debt securities, or the sale of licensing rights, to provide sufficient funding to execute our strategic plan.

There is no assurance that we will be successful in raising further funds.

In the event that additional financing is delayed, we will prioritize the maintenance of our research and development personnel and facilities, primarily in Belgium, and the maintenance of our patent rights.

In the event additional financing is delayed, we will prioritize the maintenance of our research and development personnel and facilities, primarily in Belgium, and the maintenance of our patent rights.

In such instance, the completion of clinical validation studies and regulatory approval processes for the purpose of bringing products to the IVD market would be delayed.

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We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive activities.

For these reasons, our auditors stated in their report on our audited financial statements for the fiscal year ended December 31, 2019 an explanatory paragraph regarding factors that raise substantial doubt that we will be able to continue as a going concern.

For these reasons, our auditors included in their report on our audited financial statements for the fiscal year ended December 31, 2020 an explanatory paragraph regarding factors that raise substantial doubt that we will be able to continue as a going concern.

Results of Operations

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Total Operating Expenses

Gain on disposal of fixed assets

Interest income

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Total Other Income (Expenses)

Net Loss per Share – Basic and Diluted

Weighted Average Shares Outstanding - Basic and Diluted

Our operations are still predominantly in the research and development stage and we had minimal revenues of $17,096 and $Nil during the years ended December 31, 2019 and December 31, 2018, respectively.

Our operations are still predominantly in the research and development stage and we had minimal revenues of $13,433 and $17,096 during the years ended December 31, 2020 and December 31, 2019, respectively.

Operating Expenses

Total operating expenses decreased to $16.1 million from $17.9 million for the years ended December 31, 2019 and December 31, 2018, respectively, as a result of the factors described below.

Total operating expenses increased to $21.3 million from $16.1 million for the years ended December 31, 2020 and December 31, 2019, respectively, as a result of the factors described below.

Research and Development Expenses

Research and development expenses decreased to $10.4 million from $10.9 million for the years ended December 31, 2019 and December 31, 2018, respectively.

The decrease in overall research and development expenditures during 2019 was primarily related to lower research and collaborative expenditures, lower chemical and biological costs partly offset by increased laboratory costs.

Research and development expenses increased to $14.5 million from $10.4 million for the years ended December 31, 2020 and December 31, 2019, respectively.

The increase in overall research and development expenditures during 2020 was primarily related to higher antibody, sample, laboratory, personnel expenses and employee acquisition costs relating to Volition Germany.

Personnel expenses

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General and Administrative Expenses

General and administrative expenses decreased to $4.7 million from $5.8 million for the years ended December 31, 2019 and December 31, 2018, respectively.

The decrease in overall general and administrative expenditures during 2019 were primarily due to favorable foreign exchange costs, reduced legal costs in relation to our capital raises and reduced stock-based compensation expenses.

General and administrative expenses increased to $5.7 million from $4.7 million for the years ended December 31, 2020 and December 31, 2019, respectively.

The increase in overall general and administrative expenditures during 2020 was primarily due to higher legal fees in connection with our capital raises and increased premiums for director and officer liability insurance.

Personnel expenses

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Sales and Marketing Expenses

Sales and marketing expenses decreased to $1.0 million from $1.2 million for the years ended December 31, 2019 and December 31, 2018, respectively.

The decrease in overall sales and marketing expenditures was primarily due to reduced stock-based compensation and personnel expenses.

Sales and marketing expenses increased to $1.1 million from $1.0 million for the years ended December 31, 2020 and December 31, 2019, respectively.

The increase in overall sales and marketing expenditures was primarily due to increased direct marketing and professional fees partially offset by lower personnel expenses.

Personnel expenses

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Other Expenses

Other expenses decreased to $56,131 compared to $110,924 for the years ended December 31, 2019 and December 31, 2018, respectively.

This decrease was primarily due the exercise of warrants to purchase approximately 1.7 million shares of our common stock by Cotterford Company Limited during 2019 at an amended exercise price of $2.90 per share, which resulted in a $196,957 expense, offset by interest income received from cash deposited in an overnight money market account and grant income received.

For the year ended December 31, 2019, the Company’s net loss was $16.1 million, a decrease of approximately $1.9 million, or 11%, in comparison to a net loss of $18.0 million for the year ended December 31, 2018.

For the year ended December 31, 2020, other income increased to $848,521 compared to other expenses of $56,131 for the year ended December 31, 2019.

This increase in other income was primarily due to grant income received and the gain on disposal of fixed assets from the sale of equipment during the year.

For the year ended December 31, 2020, the Company’s net loss was $20.4 million, an increase of approximately $4.3 million, in comparison to a net loss of $16.1 million for the year ended December 31, 2019.

The change was a result of the factors described above.

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We may seek to obtain additional capital through the sale of debt or equity securities if we deem it desirable or necessary.

These sales may include the sale of equity securities from time to time through our “at the market offering program” with Cantor Fitzgerald & Co.

and Oppenheimer & Co.

under the Equity Distribution Agreement dated November 10, 2020 (see Note 7 of the Notes to the consolidated financial statements).

However, we may be unable to obtain such additional capital when needed, or on terms favorable to us or our stockholders, if at all.

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Critical Accounting Policies

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles, or U.S.

Our consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles, or U.S.

GAAP, applied on a consistent basis.

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GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements.

We regularly evaluate the accounting policies that we use to prepare our consolidated financial statements.

A complete summary of these policies is included in the notes to our consolidated financial statements.

In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances.

Actual results could differ from those estimates made by management.

We consider the following accounting policies to be critical:

Stock-Based Compensation

The Company records stock-based compensation in accordance with ASC 718, “ Compensation – Stock Compensation” and ASC 505-50, “ Equity-Based Payments to Non-Employees” .

All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued and are recognized over the employees required service period, which is generally the vesting period.

The Company records stock-based compensation in accordance with ASC 718, “ Compensation – Stock Compensation”.

Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized over the employee’s requisite service period, which is generally the vesting period.

The fair value of our stock options and warrants is estimated using a Black-Scholes option valuation model.

Restricted stock units are valued based on the closing stock price on the date of grant (see Note 8 of the Notes to the consolidated financial statements).

Impairment of Long-Lived Assets

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Foreign Currency Translation

The Company has functional currencies in the Euro, the United States Dollar and British Pounds Sterling and its reporting currency is the United States Dollar.

The Company has functional currencies in Euros, United States Dollars and British Pounds Sterling and its reporting currency is the United States Dollar.

Management has adopted ASC 830-20, “ Foreign Currency Matters – Foreign Currency Transactions.

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Use of Estimates

The Company bases its estimates and assumptions on current facts, historical experiences and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.

The preparation of financial statements in conformity with U.S.

The Company also regularly evaluates estimates and assumptions related to deferred income tax asset valuation allowances, useful lives of property and equipment and intangible assets, borrowing rate used in operating lease right-of-use asset and liability valuations, impairment analysis of intangible assets and valuations of stock-based compensation.

The Company bases its estimates and assumptions on current facts, historical experiences, information from third party professionals and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.

The actual results experienced by the Company may differ materially and adversely from the Company’s estimates.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are currently a smaller reporting company and are not required to disclose this information.

We are a smaller reporting company and are not required to disclose this information.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis