Riot Platforms, Inc. quarterly report, Q3 FY2014

Business context and reporting period

The supplied filing is Venaxis, Inc.’s Form 10-Q for the quarter ended September 30, 2014, filed November 10, 2014. It does not identify Riot Platforms, Inc.; the company and filing metadata therefore do not match.

Venaxis was developing and commercializing APPY 1, an acute appendicitis diagnostic test, and developing a next-generation product, APPY 2. APPY 1 had received CE marking in the EU; the company submitted a 510(k) clearance application to the FDA in March 2014 after completing its pivotal clinical trial.

Financial results and liquidity

Metric	Three months ended September 30, 2014	Nine months ended September 30, 2014
Product sales	$36,296	$88,024
License-fee revenue	$24,175	$71,524
Operating loss	$2.545 million	$8.049 million
Net loss	$2.533 million	$8.073 million
Net loss per share	$0.08	$0.29

At September 30, cash and cash equivalents were $4.371 million and short-term investments were $22.344 million, totaling $26.716 million in cash and liquid investments. Working capital was $25.464 million; total assets were $31.051 million and stockholders’ equity was $25.943 million. Total notes and other obligations were $2.443 million, including $407,219 current. The mortgage has a five-year balloon maturity under its commercial-bank portion.

Nine-month operating cash use was $7.255 million, versus $6.930 million in 2013. Investing cash use was $13.810 million, mainly reflecting purchases of short-term investments; financing provided $19.777 million, largely from equity issuance and warrant exercises. Cash declined $1.287 million to $4.371 million. Gross profit on product sales was $43,726 for the nine-month period; the filing does not provide a clear consolidated gross margin measure.

Material changes versus prior comparable periods

• Nine-month product sales increased to $88,024 from $56,068; sales were from APPY 1 in the EU. Two distribution agreements covering Spain and the Benelux region were signed in early 2014.
• Nine-month operating expenses declined 11% to $8.164 million. R&D fell 38% to $3.122 million, primarily because pivotal-trial and related clinical/regulatory work wound down; APPY 2 development accounted for approximately $1.072 million.
• SG&A increased 23% to $5.042 million, reflecting higher commercialization, marketing, and compensation expenses.
• Nine-month net loss narrowed to $8.073 million from $9.019 million, while operating cash use increased from $6.930 million to $7.255 million.
• An April 2014 public offering generated approximately $20 million gross proceeds; fees and expenses were approximately $1.543 million. Warrant exercises and option exercises also raised funds. Shares outstanding rose to 30,990,029 from 21,454,380 at year-end 2013.

Outlook, risks, contingencies, and unusual items

• Management expected continuing near-term operating losses, potentially significant, and believed available working capital would fund estimated needs into 2015, possibly beyond. The company was monitoring expenses and exploring additional financing; it gave no assurance that financing would be available on acceptable terms.
• Management warned that failure to obtain FDA clearance could require a change in development scope or strategic focus, or cessation of operations. Failure to obtain clearance or generate sufficient APPY 1 revenue could also lead to impairment of capitalized patent costs.
• The filing reports recurring losses and negative operating cash flow and states that the financial statements do not include adjustments that might result if the company were unable to continue as a going concern.
• The Ceva animal-health license provides for potential future milestones of up to $1.1 million, plus up to an additional $2 million for additional products, and low-double-digit royalties if applicable milestones and sales occur. These amounts are contingent, not guaranteed revenue.
• The Tenth Circuit affirmed dismissal of the Wolfe securities class action on October 17, 2014, after quarter-end. Management reported no other legal proceeding expected to have a material adverse effect.
• No income-tax benefit was recorded on losses. The company reported no material change in risk factors from its 2013 Form 10-K.

Important facts for investors to verify

• Confirm the filing’s issuer: this source is for Venaxis, Inc., not Riot Platforms, Inc.
• Check the subsequent FDA decision and commercialization progress for APPY 1; this filing states only that a 510(k) application was submitted.
• Assess the cash runway against ongoing operating cash burn, contingent financing needs, and management’s stated estimate of funding into 2015.
• Review dilution from the 2014 offering, warrant exercises, and outstanding options and warrants.
• Verify future debt maturities, including the commercial mortgage balloon, and whether Ceva milestones or royalties have been achieved or received.