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Item 7. Management’s Discussion and Analysis

2023-03-15 compared with 2022-03-30 · 40 added, 37 removed, 130 unchanged (37% of the section changed)

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Company Overview

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.

Volition is a multi-national epigenetics company powered by Nu.Q ® , its proprietary nucleosome quantification platform.

Through its subsidiaries, Volition is developing simple, easy to use, cost-effective blood tests to help diagnose and monitor a range of life-altering diseases, including some cancers and diseases associated with NETosis, such as sepsis and COVID-19.

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

The tests are based on the science of Nucleosomics™, which is the practice of identifying and measuring nucleosomes in the bloodstream or other bodily fluids, since changes in these parameters are an indication that disease is present.

We have five key pillars of focus, all of which use the same proprietary Nu.Q ® platform to commercialize in different areas.

Nu.Q ® Vet - cost-effective, easy-to-use cancer screening blood test for dogs and other animals.

Nu.Q ® NETs - monitoring the immune system to save lives.

Nu.Q ® Cancer - detecting cancer early to save lives.

Nu.Q ® Capture - capturing and concentrating samples for more accurate diagnosis.

Nu.Q ® Discover - a complete solution to profiling nucleosomes.

Our research, product development and manufacturing activities are centered in Belgium, with innovation and U.S.

operations in California, and additional offices in Nevada, London, and Singapore, where 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

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.

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.

Due to the continued evolution of the COVID-19 pandemic since March 2020, we cannot precisely determine or quantify the impacts the pandemic will have on our business, financial conditions or results of operations.

For example, although we have worked with clinical trial sites impacted by the pandemic to ensure study continuity, we have experienced and may in the future experience disruptions that could impact our clinical trials, including delays in enrolling patients in clinical trials or in sample collection, and diversion of healthcare resources from the conduct of our clinical trials.

The extent of the impact of the COVID-19 pandemic on our business remains uncertain and subject to change.

If there is a subsequent outbreak of COVID-19 in the future, we may experience significant delays in our clinical development timelines, which would adversely affect our business, financial condition, and results of operations.

Liquidity and Capital Resources

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Net cash used in operating activities was $15.3 million and $20.9 million for the years ended December 31, 2022 and December 31, 2021, respectively.

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.

The decrease in cash used in operating activities during 2022 when compared to 2021 was primarily due to a $10.0 million payment received pursuant to our master license and product supply agreement with Heska, partly offset by higher payroll costs, and higher amounts paid to suppliers during the period.

Net cash used in investing activities was $1.6 million and $1.0 million for the years ended December 31, 2022 and December 31, 2021, respectively.

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.

The increase in cash used in investing activities during 2022 was primarily due to an increase in purchases of laboratory equipment as compared to 2021.

Net cash provided by financing activities after associated costs was $6.9 million and $22.9 million for the years ended December 31, 2022 and December 31, 2021, 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 decrease in net cash provided by financing activities for the 2022, when compared to 2021 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, and an aggregate of $4.6 million in cash received from the issuance of shares of common stock under our “at-the-market” facilities during 2021.

This compares with $6.4 million in net cash received from the issuance of approximately 3.5 million shares of common stock in a registered public offering in August 2022 (before deducting offering expenses of $0.2 million paid by the Company), a $1.1 million loan received in August 2022 from Namur Invest Capital Risk ("Namur Invest"), a $0.5 million loan received in December 2022 from Namur Invest, and an aggregate of $0.8 million in cash received from the issuance of shares of common stock under our “at-the-market” facilities during 2022 (before deducting offering expenses of $0.2 million).

For additional information on our “at the market facilities,” 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, 2022.

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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 included in their report on our audited financial statements for the fiscal year ended December 31, 2021, 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 year ended December 31, 2022, 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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The following table sets forth our results of operations for the years ended on December 31, 2022, and December 31, 2021, respectively (expressed in United Stated Dollars, except outstanding share numbers and percentages).

Percentage Increase

Total Revenues

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Total Operating Expenses

(Loss)/Gain on disposal of fixed assets

Loss on disposal of fixed assets

Interest income

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(26,989,781 )

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.

Our operations are still transitioning from a research and development stage to a commercialization stage.

Revenue for the year ended December 31, 2022 was $306,392 compared with $90,035 for the year ended December 31, 2021.

The main source of revenues during the year ended December 31, 2022, was product sales of the Nu.Q® Vet Cancer Test and services revenue from our Nu.Q ® Discover offering.

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

Operating Expenses

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Research and development expenses increased to $14.6 million from $13.0 million for the years ended December 31, 2022 and December 31, 2021, respectively.

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.

The increase in overall research and development expenditures during 2022 was primarily related to higher personnel expenses offset by a reduction in stock-based compensation expenses.

FTE personnel numbers within this division increased by six to sixty-three during 2022 compared to the prior year period.

Personnel expenses

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General and Administrative Expenses

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 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.

General and administrative expenses decreased to $10.9 million from $11.7 million for the years ended December 31, 2022 and December 31, 2021, respectively.

The decrease in overall general and administrative expenditures during 2022 was primarily due to lower stock-based compensation in relation to modification of options, offset by higher personnel expenses.

The FTE personnel number within this division increased by nine to twenty-two in 2022 compared to the prior year period.

Personnel expenses

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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.

The FTE personnel number within this division increased by six to nineteen in 2022 compared to the prior year period.

Personnel expenses

Stock-based compensation

Direct marketing and professional fees

Other Sales & Marketing expenses

Depreciation and amortization

Total sales and marketing expenses

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, 2022, other income decreased to approximately $1.2 million compared to other income of approximately $1.3 million for the year ended December 31, 2021.

This decrease in other income was primarily due to reduced grant income received of approximately $1.2 million during 2022 compared to $1.5 million in 2021.

For the year ended December 31, 2022, the Company’s net loss was $30.6 million, an increase of approximately $3.6 million, in comparison to a net loss of $27.0 million for the year ended December 31, 2021.

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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 and Co.

under the 2021 Equity Distribution Agreement (see Note 7, Common Stock – Equity Distribution Agreements, of the Notes to consolidated financial statements).

These sales may include the sale of equity securities from time to time through our “at the market facility” with Jefferies LLC under an equity distribution agreement dated May 20, 2022 (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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Impairment of Long-Lived Assets

In accordance with ASC 360, “Property Plant and Equipment” , the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable.

In accordance with ASC 360, “Prop erty Plant and Equipment” , the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable.

Circumstances which could trigger a review include, but are not limited to:

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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