Axe Compute Inc. quarterly report, Q2 FY2017

Filing identity and reporting period

Important: The supplied filing is Skyline Medical Inc.’s Form 10-Q for the quarter ended June 30, 2017, not a filing identified as Axe Compute Inc. Confirm the issuer before relying on this summary.

Skyline makes the STREAMWAY system for collecting and disposing of surgical fluids, along with related filters and cleaning fluid. The financial statements are unaudited; the filing is dated August 14, 2017.

Financial performance and position

For the six months ended June 30, operating expenses were $4.11 million, including $3.35 million general and administrative, $383,001 operations, and $378,724 sales and marketing. The company reported no interest expense or income-tax provision.

At June 30, total assets were $4.53 million, including $1.16 million cash and cash equivalents and $2.69 million certificates of deposit. Current liabilities were $1.26 million; total liabilities were $1.33 million. Stockholders’ equity was $3.20 million, and the company reported no debt. Accumulated deficit was $50.90 million.

Six-month operating cash use was $2.07 million, investing cash use $2.35 million, and financing cash inflow $3.81 million, principally from the January public offering and over-allotment. Cash declined $604,241 to $1.16 million. Management separately describes $294,387 as the cash balance and the remainder as money-market funds, with about $3.6 million in cash equivalents and certificates of deposit combined; verify the precise cash classification.

Changes versus prior comparable periods

• Revenue increased 25% in Q2 and 55% in the first half. The company reported three STREAMWAY unit sales through June, including its first Canadian sale.
• First-half gross margin improved to 79.1% from 32.7%; management attributed the prior-year margin pressure partly to replacing units at no charge.
• First-half net loss narrowed by about $852,000, and operating cash use fell by about $714,000 year over year. Losses remained substantial.
• First-half sales and marketing expense rose by $168,000 as the sales team expanded; general and administrative expense fell by $604,000 and operations expense by $252,000.
• Common shares outstanding increased from 4,564,428 at December 31, 2016 to 6,189,428 at June 30, 2017, primarily reflecting the public offering. The company also reported 2.60 million outstanding options and 1.26 million warrants at June 30.

Outlook, risks, and notable developments

• Management expected continued net losses at least through year-end 2017. It reported operating cash use of approximately $345,000 per month and stated that additional financing may be required; financing might be dilutive or unavailable on acceptable terms. The filing reiterates substantial doubt about the company’s ability to continue as a going concern.
• Management was pursuing expanded sales in Canada and Europe. The product received notice in June that it met requirements for CE marking and marketing in 32 European countries; the company also had a 90-day Alliant Healthcare agreement beginning July 1. These are plans and commercial opportunities, not reported results.
• After quarter-end, Skyline reported a proposed CytoBioscience merger and advances of $300,000 in July and $200,000 in August under notes due December 31, 2017. The filing’s narrative describes a letter of intent, while its exhibit index lists a merger agreement dated August 9, 2017. Proposed consideration includes common shares and preferred shares with stated liquidation preferences; confirm the definitive terms, approvals, and transaction status.
• In July, an attorney sent demand letters alleging shareholder approval for a 2016 stock-plan amendment was invalid. The company was investigating and said it did not expect a material financial impact, but noted possible Nasdaq listing consequences. No legal proceedings were listed in the legal-proceedings item.
• Other risks include continuing losses, dependence on new financing and customer adoption, competition, regulatory requirements, intellectual-property protection, and possible Nasdaq compliance issues. Management said disclosure controls were effective at June 30, 2017.

Key facts investors should verify

• Whether this Skyline Medical filing is relevant to the requested Axe Compute Inc. issuer.
• Cash availability and classifications, monthly cash burn, and financing runway, including the effect of post-quarter advances to CytoBioscience.
• The final status, terms, approvals, and dilution or liquidation-preference implications of the CytoBioscience merger.
• The validity of stock-plan approvals and option grants, and any resulting Nasdaq action or delisting risk.
• Whether sales growth, unit placements, and international distribution plans convert into recurring revenue and sustainable margins.