Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contingencies

v3.20.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2020
Commitments and Contingencies  
Note 8 - Commitments and Contingencies

a) Finance Lease Obligations

 

In 2015, the Company entered into an equipment finance lease to purchase three Tecan machines (automated liquid handling robots) for €550,454 Euros, maturing May 2020. As of March 31, 2020, the balance payable was $21,155.

 

In 2016, the Company entered into a real estate finance lease with ING Asset Finance Belgium S.A. (“ING”) to purchase a property located in Belgium for €1.12 million Euros, maturing May 2031. As of March 31, 2020, the balance payable was $619,061.

 

In 2018, the Company entered into a finance lease with BNP Paribas leasing solutions to purchase a freezer for the Belgium facility for €25,000 Euros, maturing January 2022. The leased equipment is amortized on a straight-line basis over 5 years. As of March 31, 2020, the balance payable was $17,150.

 

The following is a schedule showing the future minimum lease payments under finance leases by years and the present value of the minimum payments as of March 31, 2020.

 

2020 - remaining

 

$

71,843

 

2021

 

$

68,679

 

2022

 

$

60,677

 

2023

 

$

59,292

 

2024

 

$

59,292

 

Greater than 5 years

 

$

437,261

 

Total

 

$

757,044

 

Less: Amount representing interest

 

$

(99,678

)

Present value of minimum lease payments

 

$

657,366

 

b) Operating Lease Right-of-Use Obligations

 

As all the existing leases subject to the new lease standard were previously classified as operating leases by the Company, they were similarly classified as operating leases under the new standard. The Company has determined that the identified operating leases did not contain non-lease components and require no further allocation of the total lease cost. Additionally, the agreements in place did not contain information to determine the rate implicit in the leases, so we used our incremental borrowing rate as the discount rate. Our weighted average discount rate is 4.47% and the weighted average remaining lease term is 22 months.

 

As of March 31, 2020, operating lease right-of-use assets and liabilities arising from operating leases were $330,131 and $338,906, respectively. During the three months ended March 31, 2020, cash paid for amounts included for the measurement of lease liabilities was $62,089 and the Company recorded operating lease expense of $63,035.

 

The following is a schedule showing the future minimum lease payments under operating leases by years and the present value of the minimum payments as of March 31, 2020.

 

2020 - remaining

 

$

198,899

 

2021

 

$

96,497

 

2022

 

$

40,473

 

2023

 

$

16,569

 

2024

 

$

1,036

 

Total Operating Lease Obligations

 

$

353,474

 

Less: Amount representing interest

 

$

(14,568

)

Present Value of minimum lease payments

 

$

338,906

 

The Company’s office space leases are short term and the Company has elected under the short-term recognition exemption not to recognize them on the balance sheet. During the three months ended March 31, 2020, $5,466 was recognized in short-term lease costs associated with office space leases. The annual payments remaining for short-term office leases were as follows:

 

2020 - remaining

 

$

6,940

 

Total Operating Lease Obligations

 

$

6,940

 

c) Grants Repayable

 

In 2010, the Company entered into an agreement with the Walloon Region government in Belgium for a colorectal cancer research grant for €1.05 million Euros. Per the terms of the agreement, €314,406 Euros of the grant is to be repaid, by instalments over the period from June 30, 2014 to June 30, 2023. The Company has recorded the balance of €733,614 Euros to other income in previous years as there is no obligation to repay this amount. In the event that the Company receives revenue from products or services as defined in the agreement, it is due to pay a 6% royalty on such revenue to the Walloon Region. The maximum amount payable to the Walloon Region, in respect of the aggregate of the amount repayable of €314,406 Euros and the 6% royalty on revenue, is twice the amount of funding received. As of March 31, 2020, the grant balance repayable was $134,935.

 

In 2018, the Company entered into an agreement with the Walloon Region government in Belgium for a colorectal cancer research grant for €605,000 Euros.  Per the terms of the agreement, €181,500 Euros of the grant is to be repaid by instalments over 12 years commencing in 2020. In the event that the Company receives revenue from products or services as defined in the agreement, it is due to pay a 3.53% royalty on such revenue to the Walloon Region. The maximum amount payable to the Walloon Region, in respect of the aggregate of the amount repayable of €181,500 Euros and the 3.53% royalty on revenue, is equal to the amount of funding received. As of March 31, 2020, the grant balance repayable was $200,079.

 

As of March 31, 2020, the total grant balance repayable was $335,014 and the payments remaining were as follows:

 

2020 - remaining

 

$

51,921

 

2021

 

$

49,062

 

2022

 

$

46,409

 

2023

 

$

47,558

 

2024

 

$

20,008

 

Greater than 5 years

 

$

120,056

 

Total Grants Repayable

 

$

335,014

 

d) Long-Term Debt

 

In 2016, the Company entered into a 7-year loan agreement with Namur Invest for €440,000 Euros with a fixed interest rate of 4.85%.  As of March 31, 2020, the principal balance payable was $304,298.

 

In 2016, the Company entered into a 15-year loan agreement with ING for €270,000 Euros with a fixed interest rate of 2.62%.  As of March 31, 2020, the principal balance payable was $243,720.

 

In 2017, the Company entered into a 4-year loan agreement with Namur Invest for €350,000 Euros with a fixed interest rate of 4.00%.  As of March 31, 2020, the principal balance payable was $153,372.

 

In 2017, the Company entered into a 7-year loan agreement with SOFINEX for up to €1 million Euros with a fixed interest rate of 4.50%.  As of March 31, 2020, €1 million Euros has been drawn down under this agreement and the principal balance payable was $1,047,242.

 

In 2018, the Company entered into a 4-year loan agreement with Namur Innovation and Growth for €500,000 Euros with a fixed interest rate of 4.00%. As of March 31, 2020, the principal balance payable was $375,943.

 

In 2019, the Company entered into a 4-year loan agreement with Namur Innovation and Growth for €500,000 Euros with fixed interest rate of 4.80%, maturing September 2024. As of March 31, 2020, the principal balance payable was $551,180.

 

As of March 31, 2020, the total balance for long-term debt payable was $2,675,755 and the payments remaining were as follows:

 

2020 - remaining

 

$

620,894

 

2021

 

$

728,742

 

2022

 

$

611,476

 

2023

 

$

517,044

 

2024

 

$

322,027

 

Greater than 5 years

 

$

170,885

 

Total

 

$

2,971,068

 

Less: Amount representing interest

 

$

(295,313

)

Total Long-Term Debt

 

$

2,675,755

 

e) Collaborative Agreement Obligations

 

In 2015, the Company entered into a research sponsorship agreement with DKFZ in Germany for a 3-year period for €338,984 Euros.  As of March 31, 2020, $82,677 is still to be paid by the Company under this agreement.

 

In 2016, the Company entered into a research co-operation agreement with DKFZ in Germany for a 5-year period for €400,000 Euros.  As of March 31, 2020, $220,472 is still to be paid by the Company under this agreement.

 

In 2016, the Company entered into a collaborative research agreement with Munich University in Germany for a 3-year period for €360,000 Euros.  As of March 31, 2020, $108,031 is still to be paid by the Company under this agreement.

 

In 2017, the Company entered into a clinical study research agreement with the University of Michigan for a 3-year period for up to $3 million. This agreement was amended in February 2020 to redefine a new clinical study. Pursuant to the terms of the amendment, the parties acknowledged that, although not fully-completed, the requirements of the original clinical study had been satisfied, including any and all payment obligations by Volition America. Further, the Amendment provided that a new clinical study would be undertaken at no additional cost to Volition America. As of March 31, 2020, up to $138,000 is still accrued by the Company for any additional expenses for the new clinical study.

 

In 2018, the Company entered into a research collaboration agreement with the University of Taiwan for a 3-year period for a cost to the Company of up to $2.55 million payable over such period. As of March 31, 2020, $1.28 million is still to be paid by the Company under this agreement.

 

On May 1, 2019, the Company entered into a research collaboration agreement with the University of Taiwan to collect a total of 1,200 samples for a 2-year period for a cost to the Company of up to $320,000 payable over such period. As of March 31, 2020, $224,000 is still to be paid by the Company under this agreement.

  

As of March 31, 2020, the total amount to be paid for future research and collaboration commitments was approximately $2.05 million and the annual payments remaining were as follows:

 

2020 - remaining

 

$

1,059,680

 

2021

 

$

988,500

 

Total Collaborative Agreement Obligations 

 

$

2,048,180

 

f) Other Commitments

 

Volition Vet

 

On August 7, 2019, the Company entered into a consulting services agreement with Novis Animal Solutions LLC to provide chief executive officer services for Volition Vet in exchange for payment of consultancy fees and a potential equity interest of 5% in Volition Vet upon achievement of revenue milestones.

 

On October 25, 2019, the Company entered into agreement with the Texas A&M University (“TAMU”) System for provision of in kind services of personnel, animal samples and laboratories equipment for a non-controlling interest of 7.5% in Volition Vet and in a year from the agreement TAMU would receive a further 5%, giving them in total 12.5%.

 

Volition Germany

 

On January 10, 2020, the Company, through its wholly-owned subsidiary Belgian Volition, acquired an epigenetic reagent company, Octamer GmbH, based in Munich, Germany, and hired its founder for his expertise and knowledge to be passed to Company personnel. On March 9, 2020, Octamer GmbH was renamed to Volition Germany GmbH (“Volition Germany”).

 

Upon considering the definition of a business, as defined in ASC 805-10-20, which is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return, we have determined that this did not constitute a business. This is primarily due to the fact that additional inputs are needed in the form of training personnel further to produce outputs. Accordingly, the Company has treated this transaction as the hiring of a member of management and acquisition of assets.

 

The Company agreed to terms of the transaction on December 13, 2019 and closed on January 10, 2020. Pursuant to the transaction agreement, the Company purchased all outstanding shares of Octamer. In exchange, the Company agreed to issue 73,263 newly-issued restricted shares of Company common stock valued at $333,969 (based on the $4.56 per share volume weighted trading price for the five days prior to December 13, 2019), committed to pay approximately €350,000, subject to adjustments, and agreed to pay off certain Octamer expenses leading up to the agreement (representing net liabilities of $6,535). At closing, the Company issued 73,263 restricted shares of Company common stock,  paid an adjusted amount of approximately $357,000 (€321,736) and recorded a holdback liability of $55,404 (€50,000) to be paid after the holdback period of 9 months following the closing (subject to offset for breaches of representations and warranties).

 

In connection with the transaction agreement, the Company also entered into a 2-year Managing Director’s agreement with the founder of Octamer for a payment of €288,000 Euros payable in equal monthly installments over such 2-year period and a royalty agreement with the founder providing for the payment of royalties in the amount of 6% of net sales of Octamer’s nucleosomes as reagents to pharmaceutical companies for use in the development, manufacture and screening of molecules for use as therapeutic drugs for a period of 5 years post-closing.

 

The Company recorded approximately $753,000 in compensation expense as a result of cash paid, holdback liability, stock issued and assumption of expenses. As of March 31, 2020, $277,794 is still to be paid by the Company under the Managing Director’s agreement.

 

g) Legal Proceedings

 

There are no legal proceedings which the Company believes will have a material adverse effect on its financial position.