Riot Blockchain, Inc. (formerly Bioptix, Inc.) — Form 10-Q summary
Reporting period: Quarter ended September 30, 2017; filed November 13, 2017. The company changed its name to Riot Blockchain, Inc. on October 19, 2017. The filing describes a strategic shift toward blockchain and digital-currency investments while winding down its diagnostics subsidiary.
Financial highlights
| Metric | Q3 2017 | Nine months 2017 | Comparable 2016 |
|---|---|---|---|
| Revenue | $24,175 | $72,524 | Same amounts in each comparable period |
| Operating expenses | $614,676 | $2,757,219 | $1,533,104 and $3,831,736, respectively |
| Operating loss from continuing operations | $590,501 | $2,684,695 | $1,508,929 and $3,759,212, respectively |
| Net loss | $5,302,073 | $10,967,620 | $1,711,085 and $1,987,449, respectively |
| Net loss per share | $0.98 | $2.18 | $0.43 and $0.51, respectively |
| Cash used in operating activities | Not provided for the quarter | $3,163,871 | $3,841,067 for nine months |
Revenue consisted of amortization of animal-health license fees; it was unchanged from 2016 and very small relative to expenses. Gross margin is not a meaningful disclosed measure for this revenue stream. Q3 interest expense was $4.77 million; nine-month interest expense was $4.80 million, primarily from amortization of the convertible debt discount. The nine-month loss also included a $2.75 million impairment charge in discontinued operations related to BDI.
At September 30, cash and cash equivalents were $13.14 million, working capital was $12.56 million, total assets were $17.35 million, liabilities were $1.88 million, and stockholders’ equity was $15.47 million. The company reported no material long-term borrowings; the $4.75 million convertible notes and accrued interest converted into Series A preferred stock in September. Current notes and other obligations were $215,712. Nine-month cash flows included $4.50 million provided by investing activities and $6.28 million provided by financing activities.
Changes versus the prior comparable periods
- Q3 net loss increased to $5.30 million from $1.71 million, mainly reflecting the $4.77 million noncash-heavy interest charge associated with the convertible financing.
- Nine-month net loss increased to $10.97 million from $1.99 million. Continuing-operations loss rose to $7.40 million from $1.75 million; the 2016 period included a $1.93 million gain on property and equipment sales, while 2017 included substantial convertible-debt interest expense.
- Nine-month SG&A fell 19% to $2.69 million and R&D fell 87% to $63,008, reflecting lower staffing and the wind-down of prior product development and commercialization activities.
- Cash used in operations improved to $3.16 million from $3.84 million for the nine-month periods. Cash and cash equivalents increased from $5.53 million at year-end 2016 to $13.14 million, with financing and investment liquidations contributing to the increase.
Strategy, outlook, risks, and notable events
- The company acquired a 10.9% interest in Coinsquare for $3.0 million in September 2017, with warrants that could increase its interest to approximately 14.7%. It said it planned to pursue opportunistic investments and controlling positions in blockchain and digital-currency businesses.
- BDI was classified as discontinued operations following the decision to exit the business. The company expected to sell assets or license intellectual property; additional exit costs could arise. BDI recorded a $2.75 million impairment during the nine months.
- Management expected near-term losses to continue and potentially be significant. It stated that available working capital was expected to cover estimated cash needs for at least a year and a day from the filing date, while noting possible future financing might be needed and was not assured.
- After quarter-end, the company paid an approximately $9.56 million cash dividend on October 18. It also acquired approximately 52% of TESS for $320,000 cash and 75,000 restricted shares, and completed the Kairos transaction in November in exchange for 1,750,001 Series B preferred shares plus a royalty equal to 40% of gross profits until $1 million had been paid.
- After quarter-end, warrant exercises generated $1.86 million cash; other warrants were exercised cashlessly. The March offering registration statement was not yet effective as of the filing, and the related agreement could require payments if effectiveness conditions were not met.
- Highlighted risks include cryptocurrency price volatility, evolving regulation, exchange fraud or security failures, cyberattacks and loss of digital-asset access, uncertain adoption, competition, and the company’s evolving business model. The filing states the company did not then operate a mining facility.
- The company reported no legal proceedings expected by management to have a material adverse effect. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Investor verification points
- Reconcile the post-quarter $9.56 million dividend with cash, liquidity needs, and management’s stated runway; September 30 cash is a pre-dividend balance.
- Review the terms, valuation, funding needs, and potential dilution from Coinsquare, TESS, and Kairos, including preferred-stock conversion rights and Kairos’s profit-sharing royalty.
- Assess how much of reported losses and interest expense was noncash, and the potential dilution from preferred stock, warrants, and other equity awards.
- Monitor BDI asset disposition, remaining obligations, and any additional shutdown costs; also assess the continuing dependence on a small license-revenue stream.
- Evaluate the registration-statement obligations and the company’s exposure to cryptocurrency market, regulatory, cybersecurity, and exchange-operational risks.