Agoracom: Small Cap Investment - Resverlogix Corp. - RVX/Zenith Financial Statement Disparity

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chicagoest

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RVX/Zenith Financial Statement Disparity - Royalty Preferred Shares

posted on Jan 22, 2016 05:19PM

As a CPA, I find the following disparity between RVX and Zenith to be an inconsistency in financial statement presentation.

Zenith Interim Financial Statements 10/31/15 - Note 7 - Royalty Preferred Shares

Excerpts from Notes to the Financial Statements #7:

As at October 31, 2015, the Company holds 75,202,620 royalty preferred shares of

Resverlogix

The royalty preferred shares have not been recognized because book value accounting has been applied to the assets that have been acquired through the distribution in connection with the Arrangement and they were not previously recognized in Resverlogix’s financial statements. The Company will recognize a royalty receivable when royalties are reasonably determinable and the economic benefits are probable to flow to the Company.

Resverlogix Interim Financial Statement 10/31/15 - Note 7 - Royalty Preferred Shares

Excerpts from Notes to Financial Statements #7

As at October 31, 2015 the Company had 75,202,620 royalty preferred shares outstanding, all of which were held by Zenith Epigenetics Corp.

For fair value measurement purposes, the royalty preferred shares liability has been categorized within level 3 of the fair valuemeasurement hierarchy. The fair value of the royalty preferred shares is based on management’s judgments, estimates and

assumptions which include significant unobservable inputs including the timing and amounts of discounted risk adjusted futurenet cash flows derived from the Apo-A-I applications rights.

The estimate incorporates the following assumptions: a cumulative probability rate of generating forecasted future cash flows of 35% as at October 31, 2015 (April 30, 2015 – 35%) reflecting in each case, among other factors,the Company’s

clinical results and communication with regulatory bodies; a discount rate of 24.3% as

at October 31, 2015 (April 30, 2015 – 24.2%); commencement of revenue beginning

between 2021 and 2023, based on clinical development paths across various

jurisdictions, as at October 31, 2015 (April 30, 2015 – between 2021 and 2023);

RVX-208 market share percentages; and forecasted product pricing.

Financial statement disparity?

RVX has recorded a liability for Royalty Preferred Shares on its 10/31/15 financial statements amounting to $30,300,000 (see non-current liabilties - Royalty Preferred Shares)

Zenith has not recorded a receivable for the same amount

I don't get it - there should be consistency in financiasl reporting between the two companies - if RVX books a liability to Zenith, there should be a corresponding receivable on Zenith. We're talking about 30.3 million USD - a material amount ~ 25% of RVX current market cap