RIOT 10-Q Quarter ended June 30, 2014

Venaxis, Inc.

(Exact name of registrant as specified in its charter)

Colorado	84-1553387
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1585 South Perry Street, Castle Rock, Colorado 80104

(Address of principal executive offices) (Zip Code)

(303) 794-2000

(Registrant's telephone number, including area code)

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x

				Page
PART I - Financial Information
Item 1.	Condensed Financial Statements
	Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013			2
	Statements of Operations for the Three and Six Months Ended June 30, 2014 and 2013 (unaudited)			3
	Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 (unaudited)			4
	Notes to Condensed Financial Statements (unaudited)			5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			19
Item 4.	Controls and Procedures			19
PART II - Other Information
Item 1.	Legal Proceedings			20
Item 1A.	Risk Factors			20
Item 6.	Exhibits			21
	Signatures			22

	June 30, 2014 (Unaudited)				December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents		$	3,752,767			$	5,658,683
Short-term investments (Note 1)			25,348,142				8,642,648
Prepaid expenses and other current assets			268,681				459,396
Total current assets			29,369,590				14,760,727
Property and equipment, net (Note 2)			2,166,600				2,266,982
Other long term assets, net (Note 3)			1,674,454				1,612,160
Total assets		$	33,210,644			$	18,639,869
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	499,949			$	780,514
Accrued compensation			275,922				148,922
Accrued expenses			543,873				907,732
Notes and other obligations, current portion (Note 4)			150,118				319,771
Deferred revenue, current portion (Note 7)			96,698				92,084
Total current liabilities			1,566,560				2,249,023
Notes and other obligations, less current portion (Note 4)			2,074,328				2,150,608
Deferred revenue, less current portion (Note 7)			1,307,062				1,290,441
Total liabilities			4,947,950				5,690,072
Commitments and contingencies (Notes 7 and 8)
Stockholders' equity (Notes 5 and 6):
Common stock, no par value, 60,000,000 shares authorized;
30,990,029 and 21,454,380 shares issued and outstanding			120,183,650				99,331,585
Accumulated deficit			(91,920,956	)			(86,381,788	)
Total stockholders' equity			28,262,694				12,949,797
Total liabilities and stockholders' equity		$	33,210,644			$	18,639,869

		Three Months Ended								Six Months Ended
		2014				2013				2014				2013
Sales		$	—			$	—			$	51,728			$	—
Cost of sales			—				—				31,907				—
Gross profit			—				—				19,821				—
Other revenue - fee			24,174				21,249				47,349				39,904
Operating expenses:
Selling, general and administrative			1,674,719				1,354,330				3,569,161				2,782,285
Research and development			950,147				1,800,522				2,002,445				3,212,495
Total operating expenses			2,624,866				3,154,852				5,571,606				5,994,780
Operating loss			(2,600,692	)			(3,133,603	)			(5,504,436	)			(5,954,876	)
Other income (expense):
Interest expense			(25,768	)			(30,747	)			(62,558	)			(74,806	)
Investment (loss) income			34,941				19,731				27,826				32,241
Other income			—				—				—				50,653
Total other income (expense)			9,173				(11,016	)			(34,732	)			8,088
Net loss		$	(2,591,519	)		$	(3,144,619	)		$	(5,539,168	)		$	(5,946,788	)
Basic and diluted net loss per share (Note 1)		$	(0.08	)		$	(0.21	)		$	(0.21	)		$	(0.48	)
Basic and diluted weighted average number
of shares outstanding (Note 1)			30,782,937				14,756,578				26,236,252				12,368,745

		2014				2013
Cash flows from operating activities:
Net loss		$	(5,539,168	)		$	(5,946,788	)
Adjustments to reconcile net loss to
net cash used in operating activities:
Stock-based compensation for services			729,413				895,347
Depreciation and amortization			153,592				171,797
Impairment charges			—				2,951
Amortization of license fees			(47,349	)			(39,904	)
Change in:
Accounts receivable			(18,943	)			—
Prepaid expenses and other current assets			209,658				266,316
Accounts payable			(280,565	)			260,992
Accrued compensation			127,000				(406,414	)
Accrued expenses			(363,859	)			242,053
Deferred revenue			68,584				196,860
Net cash used in operating activities			(4,961,637	)			(4,356,790	)
Cash flows from investing activities:
Purchases of short-term investments			(28,420,458	)			(12,504,775	)
Sales of short-term investments			11,714,964				3,411,351
Purchases of property and equipment			(2,200	)			(22,911	)
Purchases of patents and other assets			(113,304	)			(51,992	)
Net cash used in investing activities			(16,820,998	)			(9,168,327	)
Cash flows from financing activities:
Repayment of notes payable and other obligations			(245,933	)			(685,697	)
Net proceeds from issuance of common stock			20,122,652				12,969,587
Net cash provided by financing activities			19,876,719				12,283,890
Net decrease in cash and cash equivalents			(1,905,916	)			(1,241,227	)
Cash and cash equivalents at beginning of period			5,658,683				10,977,974
Cash and cash equivalents at end of period		$	3,752,767			$	9,736,747
Supplemental disclosure of cash flow information:
Cash paid during the period for interest		$	52,928			$	81,647

-	continuing commercialization of the Company's principal product, APPY 1;
-	monitoring additional capital raising opportunities;
-	continuing to explore prospective partnering or licensing opportunities with complementary opportunities and technologies; and
-	continuing to monitor and implement cost control initiatives to conserve cash.

	Level 1— quoted prices (unadjusted) in active markets for identical assets or liabilities;
	Level 2 — observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and
	Level 3 — assets and liabilities whose significant value drivers are unobservable.

		June 30, 2014 (Unaudited)				December 31, 2013
Land and improvements		$	1,107,508			$	1,107,508
Building			2,589,231				2,589,231
Building improvements			253,526				253,526
Laboratory equipment			1,220,735				1,220,735
Office and computer equipment			328,299				326,099
			5,499,299				5,497,099
Less accumulated depreciation			3,332,699				3,230,117
		$	2,166,600			$	2,266,982

		June 30, 2014 (Unaudited)				December 31, 2013
Patents, trademarks and applications, net of accumulated amortization of $463,147 and $422,261, respectively		$	1,287,215			$	1,214,797
Goodwill			387,239				387,239
Other			—				10,124
		$	1,674,454			$	1,612,160

		June 30, 2014 (Unaudited)				December 31, 2013
Mortgage notes		$	2,224,446			$	2,296,919
Other short-term installment obligations			—				173,460
			2,224,446				2,470,379
Less current portion			150,118				319,771
		$	2,074,328			$	2,150,608

·	The grant date exercise price – the closing market price of the Company's common stock on the date of the grant;
·	Estimated option term – based on historical experience with existing option holders;
·	Estimated dividend rates – based on historical and anticipated dividends over the life of the option;
·	Term of the option – based on historical experience, grants have lives of approximately 3-5 years;
·	Risk-free interest rates – with maturities that approximate the expected life of the options granted;
·	Calculated stock price volatility – calculated over the expected life of the options granted, which is calculated based on the daily closing price of the Company's common stock over a period equal to the expected term of the option; and
·	Option exercise behaviors – based on actual and projected employee stock option exercises and forfeitures.

	Three Months Ended						Six Months Ended
	2014			2013			2014			2013
Stock options to employees and directors	$	326,235		$	410,529		$	729,074		$	894,154
Stock options to consultants for APPY 1 activities		157			597			339			1,193
Total stock-based compensation	$	326,392		$	411,126		$	729,413		$	895,347

		Three Months Ended								Six Months Ended
		2014				2013				2014				2013
Selling, general and administrative expenses		$	305,351			$	372,692			$	688,345			$	809,735
Research and development expenses			21,041				38,434				41,068				85,612
Total stock-based compensation		$	326,392			$	411,126			$	729,413			$	895,347

	2014				2013
Dividend yield			0	%			0	%
Expected price volatility			96-126	%			127-128	%
Risk free interest rate			1.52-1.70	%			0.65-0.76	%
Expected term	5 years				5 years

		Shares Underlying Options				Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (Years)				Aggregate Intrinsic Value
Outstanding at January 1, 2014			1,218,265			$	8.70
Granted			652,100				2.28
Exercised			(39,079	)			2.09
Forfeited			(36,040	)			32.29
Outstanding at June 30, 2014			1,795,246			$	6.04				8.5		$		164,154
Exercisable at June 30, 2014			1,134,621			$	8.17				8.1		$		140,863

Nonvested Shares		Nonvested Shares Underlying Options				Weighted Average Exercise Price				Weighted Average Grant Date Fair Value
Nonvested at January 1, 2014			200,446			$	2.95			$	2.48
Granted			652,100				2.28				1.91
Vested			(187,356	)			2.62				2.21
Forfeited			(4,565	)			2.12				1.77
Nonvested at June 30, 2014			660,625			$	2.38			$	1.99

		Shares Underlying Options / Warrants				Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2014			4,622,505			$	1.82
Granted			—				—
Exercised			(1,161,570	)			1.36
Forfeited			(5,000	)			30.00
Outstanding at June 30, 2014			3,455,935			$	1.93		3.8		$2,491,184

●	Milestone payments, totaling up to a potential of $1.1 million in the aggregate, based on the satisfactory conclusion of milestones as defined in the Ceva License Agreement;
●	Potential for milestone payments of up to an additional $2 million for development and receipt of regulatory clearance for additional licensed products; and
●	Royalties, at low double digit rates, based on sales of licensed products.

Category		Totals
License fees and milestone amounts received / achieved		$	1,920,000
Third party obligations recorded, including WU			(363,700	)
Deferred revenue balance			1,556,300
Revenue recognized to June 30, 2014			(152,540	)
Net deferred revenue balance at June 30, 2014		$	1,403,760

Commencement of license fees revenue recognition	Upon signing or receipt
Commencement of milestone revenue recognition	Upon milestone achievement over then remaining life
Original amortization period	197 months

-	continuing commercialization of the Company's principal product, APPY 1;
-	monitoring additional capital raising opportunities;
-	continuing to explore prospective partnering or licensing opportunities with complementary opportunities and technologies; and
-	continuing to monitor and implement cost control initiatives to conserve cash.

●	Milestone payments, totaling up to a potential of $1.1 million in the aggregate, based on the satisfactory conclusion of milestones as defined in the Ceva License Agreement;
●	Potential for milestone payments of up to an additional $2 million for development and receipt of regulatory clearance for additional licensed products; and
●	Royalties, at low double digit rates, based on sales of licensed products.

EXHIBIT		DESCRIPTION
1.1		Underwriting Agreement dated April 3, 2014 (incorporated by reference from the Company's Current Report on Form 8-K, filed on April 3, 2014).
10.1		Amendment to the Venaxis, Inc. Amended and Restated 2002 Incentive Plan, as amended, effective June 25, 2014 (incorporated by reference from the Company's Current Report on Form 8-K, filed June 25, 2014).
31.1		Rule 13a-14(a)/15d-14(a) - Certification of Chief Executive Officer. Filed herewith.
31.2		Rule 13a-14(a)/15d-14(a) - Certification of Chief Financial Officer. Filed herewith.
32		Section 1350 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith.
101		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statement of Cash Flows and (iv) the Notes to Condensed Financial Statements. (1)

(1)	Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be filed by the Company for purposes of Section 18 or any other provision of the Exchange Act of 1934, as amended.

	Venaxis, Inc. (Registrant)
	By:	/s/ Jeffrey G. McGonegal
Dated: August 11, 2014		Jeffrey G. McGonegal, Chief Financial Officer and duly authorized officer