Filing summary
Entity mismatch: The supplied filing is Venaxis, Inc.’s Form 10-Q, not a filing for Riot Platforms, Inc. It covers the quarter ended September 30, 2015, and was signed November 10, 2015. Venaxis was developing the APPY 1 appendicitis test and also had an animal-health licensing agreement.
Financial performance and position
| Metric | Three months ended September 30, 2015 | Nine months ended September 30, 2015 | Comparable 2014 period |
|---|---|---|---|
| Product sales | $57,089 | $92,894 | $36,296 and $88,024, respectively |
| License-fee revenue | $24,175 | $72,524 | $24,175 and $71,524, respectively |
| Gross profit | $42,556 | $66,258 | $23,905 and $43,726, respectively |
| Operating expenses | $1.66 million | $5.94 million | $2.59 million and $8.16 million, respectively |
| Net loss | $1.58 million | $5.80 million | $2.53 million and $8.07 million, respectively |
| Net loss per share | $0.05 | $0.19 | $0.08 and $0.29, respectively |
Nine-month product gross margin was approximately 71%, compared with approximately 50% in 2014; low sales volumes make cost of sales sensitive to product mix and overhead. Nine-month operating cash use was $5.22 million, versus $7.25 million in 2014. Investing activities provided $5.24 million, largely from net sales of short-term investments; financing activities used $0.33 million for debt repayments. Cash and cash equivalents declined to $3.23 million from $3.54 million at year-end 2014.
At September 30, 2015, cash and short-term investments totaled approximately $18.93 million, working capital was $18.28 million, and total assets were $23.08 million. Total debt and other obligations were $2.26 million, including $0.38 million current. Total liabilities were $4.18 million; accumulated deficit was $102.63 million.
Changes, outlook, and risks
- Nine-month operating expenses declined year over year: SG&A fell 16% to $4.25 million and R&D fell 46% to $1.69 million. Management attributed reductions to scaled-back U.S. commercialization after the FDA’s January 2015 “not substantially equivalent” determination for APPY 1, completion of earlier clinical work, and reduced APPY 2 spending. Legal and strategic-evaluation costs partly offset SG&A savings.
- Sales remained limited and came from APPY 1 distributors in the European Union, mainly for initial stocking and market studies. The company reported recurring operating losses and negative operating cash flow and expected near-term losses to continue. Management believed available working capital would fund estimated needs into 2016, while pursuing additional financing; there was no assurance financing would be available on acceptable terms.
- Management’s plans included evaluating U.S. regulatory and international commercial options for APPY 1, assessing APPY 2 development, pursuing financing and partnerships, and controlling costs. The filing provides no specific revenue or earnings guidance.
- Subsequent to quarter-end, Venaxis agreed to sell its headquarters for $4.053 million, with closing expected in December 2015. It expected about $1.7 million net cash after expenses and mortgage payoff, and planned to lease back approximately 55% of the building for about $22,000 monthly base rent plus expenses.
- A contract-related lawsuit was pending, with trial scheduled for the second quarter of 2016; the company said it was defending the claims. A securities class action alleging misleading APPY 1 statements was voluntarily dismissed without prejudice in August 2015. Management reported no other legal proceeding expected to materially affect the company.
- The company cited potential financing needs, failure to obtain FDA clearance or generate sufficient APPY 1 revenue, possible impairment of related patents, customer concentration, and investment and liquidity risks. Three European customers accounted for all nine-month sales. The filing reported no material changes to the prior annual report’s risk factors.
Investor facts to verify
- Confirm the issuer: this document identifies Venaxis, Inc., not Riot Platforms, Inc.
- Check APPY 1’s FDA regulatory status and whether the company’s commercialization and revenue plans have changed.
- Verify cash runway, financing progress, and the actual net proceeds and lease costs from the headquarters sale.
- Review developments in the pending contract litigation and the terms or status of any animal-health license milestones.
- Assess customer concentration and potential dilution from approximately 6.2 million outstanding options and warrants noted for 2015.