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Item 7. Management’s Discussion and Analysis

2022-03-30 compared with 2021-03-22 · 53 added, 38 removed, 114 unchanged (44% of the section changed)

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

The following discussion of our financial condition and results of operations should be read together with our consolidated financial statements in Part II within this Report.

This discussion includes an analysis of our financial condition and results of operations for the years ended December 31, 2021 and 2020 and year-over-year comparisons between those periods.

Certain statements made in this section constitute “forward-looking statements,” which are subject to numerous risks and uncertainties including those described in this section.

For additional information, refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements” within this Report.

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.

Volition is a multi-national epigenetics company that applies its Nucleosomics™ platform through its subsidiaries to develop simple, easy to use, cost-effective blood tests to help diagnose and monitor a range of life-altering diseases including certain cancers and diseases associated with NETosis such as sepsis and COVID-19.

Our mission is to save lives and improve outcomes for millions of people and animals worldwide.

Early diagnosis and monitoring have the potential to not only prolong the life of patients, but also to improve their quality of life.

Our tests are based on the science of Nucleosomics™, which is the practice of identifying and measuring nucleosomes in the bloodstream or other bodily fluid - an indication that disease is present.

We are primarily focused on human diagnostics and monitoring but also have a subsidiary focused on animal diagnostics and monitoring.

We have five key pillars of focus:

Nu.Q ® , Nu.Q ® NETs, Nu.Q ® Capture, Nu.Q ® Discover and Nu.Q ® Vet, all of which use the same proprietary Nu.Q ® platform to commercialize in different areas.

Our research and development activities are centered in Belgium, with an innovation laboratory in California, and additional offices in Texas, London, and Singapore, we focus on bringing our diagnostic and disease monitoring products to market.

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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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.

Throughout 2020 and 2021, in response to the COVID-19 pandemic we implemented contingency planning to protect the health and well-being of our employees, with the majority of our employees 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.

As a result of the COVID-19 pandemic, we have experienced and may continue to experience disruptions that could impact our clinical trials, including:

delays in enrolling patients in clinical trials;

delays in sample collection;

diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as clinical trial sites and hospital staff supporting the conduct of our clinical trials.

The extent to which the COVID-19 pandemic will impact our business, financial condition, and results of operations in the future is highly uncertain and will be affected by a number of factors.

These include the duration and extent of the COVID-19 pandemic, the development of new variants of the COVID-19 virus that may be more contagious or virulent than previous versions, the scope of mandated or recommended containment and mitigation measures, the effect of government stabilization and recovery efforts, and the success of vaccine distribution programs.

Liquidity and Capital Resources

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Net cash used in operating activities was $20.9 million and $16.5 million for the years ended December 31, 2021 and December 31, 2020, respectively.

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

The increase in cash used in operating activities during 2021 when compared to 2020 was primarily due to increased payroll costs reflecting growth in staff numbers, higher legal and professional fees in relation to a registered public offering and an increase in marketing expenses.

Net cash used in investing activities was $1.0 million and $1.6 million for the years ended December 31, 2021 and December 31, 2020, respectively.

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

The decrease in cash used in investing activities during 2021 was primarily due to a reduction in purchases of laboratory equipment as compared to 2020.

Net cash provided by financing activities after associated costs was $22.9 million and $20.6 million for the years ended December 31, 2021 and December 31, 2020, respectively.

The increase in cash provided by financing activities for the 2021, when compared to 2020 was primarily due to $18.9 million in net cash received from the issuance of shares of common stock in a registered public offering in February 2021, $1.2 million in cash received from the issuance of shares of common stock pursuant to the 2018 Equity Distribution Agreement, $2.7 million in cash received from the issuance of shares of common stock pursuant to the 2020 Equity Distribution Agreement and $0.7 million in cash received from the issuance of shares of common stock pursuant to the 2021 Equity Distribution Agreement compared to $12.7 million in net cash received from the issuance of shares of common stock in a registered public offering in May 2020 and $6.5 million in cash received from the issuance of shares of common stock pursuant to the 2018 Equity Distribution Agreement.

For additional information on the “at the market offering program,” refer to Note 7, Common Stock – Equity Distribution Agreements, of the Notes to consolidated financial statements.

The following table summarizes our approximate contractual payments due by year as of December 31, 2021.

Approximate Payments (Including Interest) Due by Years

Approximate Payments (Including Interest) Due by Year

Financing lease liabilities

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

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.

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 or distribution rights, to provide sufficient funding to execute our strategic plan.

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

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The following table sets forth our results of operations for the years ended on December 31, 2021, and December 31, 2020, respectively (expressed in United Stated Dollars, except outstanding share numbers and percentages).

Percentage Increase

Total Revenues

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Total Operating Expenses

Gain on disposal of fixed assets

(Loss)/Gain on disposal of fixed assets

Interest income

Interest expense

Other expenses

Total Other Income (Expenses)

(26,989,781 )

(20,399,294 )

Our operations are still predominantly in the research and development stage and we had minimal revenues of $90,035 and $13,433 during the years ended December 31, 2021 and December 31, 2020, respectively.

The main source of revenues during the year ended December 31, 2021 was direct sales of the Nu.Q® Vet Cancer Screening Test via the Gastrointestinal Laboratory at Texas A&M University.

Operating Expenses

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Research and development expenses increased to $15.5 million from $14.5 million for the years ended December 31, 2021 and December 31, 2020 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.

The increase in overall research and development expenditures during 2021 was primarily related to higher personnel expenses and stock-based compensation partially offset by lower research collaboration and antibody costs together with increased laboratory costs.

FTE personnel numbers within this division increased by ten to fifty seven during 2021 compared to the prior year period.

Personnel expenses

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General and administrative expenses increased to $8.8 million from $5.7 million for the years ended December 31, 2021 and December 31, 2020, 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.

The increase in overall general and administrative expenditures during 2021 was primarily due to higher personnel expenses, stock-based compensation, director and officer liability insurance and legal fees in connection with our capital raises.

The FTE personnel number within this division increased by three to thirteen in 2021 compared to the prior year period.

Personnel expenses

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Sales and marketing expenses increased to $4.1 million from $1.1 million for the years ended December 31, 2021 and December 31, 2020, 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.

The increase in overall sales and marketing expenditures was primarily due to increased personnel expenses, stock-based compensation and direct marketing expenses.

The FTE personnel number within this division increased by ten to thirteen in 2021 compared to the prior year period.

Personnel expenses

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Total sales and marketing expenses

Other Expenses

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.

Other Income (Expenses)

For the year ended December 31, 2021, other income increased to approximately $1.3 million compared to other income of approximately $0.8 million for the year ended December 31, 2020.

This increase in other income was primarily due to grant income received of approximately $1.5 million during 2021.

For the year ended December 31, 2021, the Company’s net loss was $27.0 million, an increase of approximately $6.6 million, in comparison to a net loss of $20.4 million for the year ended December 31, 2020.

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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).

and Oppenheimer and Co.

under the 2021 Equity Distribution Agreement (see Note 7, Common Stock – Equity Distribution Agreements, of the Notes to 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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If additional funds are raised through the issuance of debt securities, the terms of such securities may place restrictions on our ability to operate our business.

Critical Accounting Policies

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

Critical Accounting Policies and Estimates

Our consolidated financial statements and accompanying notes have been prepared in accordance with U.S.

generally accepted accounting principles, (“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 also regularly evaluate 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.

We base our 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.

Actual results may differ materially and adversely from our estimates.

To the extent there are material differences between the estimates and the actual results, future results of operations could be affected.

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.

We consider the following accounting policies to be critical:

We have determined that for the periods reported in this Report the following accounting policies are critical in understanding our financial condition and results of operations:

Stock-Based Compensation

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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).

Restricted stock units are valued based on the closing stock price on the date of grant, refer to Note 8 of the consolidated financial statements for further details.

Impairment of Long-Lived Assets

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Foreign Currency Translation

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.

” All assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date.

The Company has functional currencies in Euros, U.S.

Dollars and British Pounds Sterling and its reporting currency is the U.S.

Management has adopted ASC 830-20, “ Foreign Currency Matters – Foreign Currency Transactions ” All assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date.

For revenues and expenses, the weighted average exchange rate for the period is used.

Gains and losses arising on translation of foreign currency denominated transactions are included in Other Comprehensive Income.

Use of Estimates

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.

To the extent there are material differences between the estimates and the actual results, future results of operations could be affected.

Recently Issued Accounting Pronouncements

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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