Sintx Technologies, Inc. (then Amedica Corporation) — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; comparisons are with the three months ended March 31, 2017. The filing identifies the registrant as Amedica Corporation.
Business context
Amedica developed, manufactured, and sold silicon nitride ceramics, primarily for spinal implants, alongside metal-based spine products. It reported one operating segment. In March 2018, it received FDA clearance to market a modified composite spinal fusion device. Management cited more than 33,000 silicon nitride devices implanted to date and pursued new products, distributor sales, and OEM/private-label partnerships.
Financial results and liquidity
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Product revenue | $2.291 | $2.629 |
| Gross profit / margin | $1.767 / 77% | $1.968 / 75% |
| Operating expenses | $3.911 | $3.770 |
| Operating loss | $(2.144) | $(1.802) |
| Net loss | $(3.399) | $(0.512) |
| Net loss per share | $(1.00) | $(0.18) |
| Cash used in operating activities | $(2.082) | $(1.833) |
| Cash and cash equivalents at quarter-end | $0.409 | $6.944 |
- Revenue declined 13%. Silicon nitride revenue fell 29% to $1.034 million; non-silicon nitride revenue increased 7% to $1.257 million. Management attributed the overall decline mainly to lost surgeons and hospital pricing renegotiations. Domestic revenue fell 16%; international revenue rose from a small base, partly due to an Australian distributor’s purchases.
- Gross profit decreased $0.201 million despite the margin increasing two percentage points. The filing attributes the margin improvement to a lower obsolete-inventory reserve and product mix.
- Operating expenses increased 4%: R&D rose 22%, general and administrative rose 33%, and sales and marketing fell 27%. The company reported higher clinical-study spending and accounting, legal, and stock-split-related tax expenses, partly offset by lower commissions and other selling costs.
- Other expense was $1.255 million, versus $1.290 million of other income in Q1 2017. Q1 2018 included a $1.252 million loss on extinguishment of derivative liabilities and a $0.340 million debt-extinguishment loss, partly offset by an $0.811 million gain from changes in derivative fair value.
- At March 31, cash was $0.409 million; current assets were $3.590 million and current liabilities were $7.948 million, a $4.358 million working-capital deficit. Total assets were $14.817 million and total liabilities were $8.832 million. Accumulated deficit was $224.028 million.
- Debt had a net carrying amount of $4.513 million, all classified as current. This included a $2.418 million related-party North Stadium loan, $1.443 million of exchange-note debt held by MEF I and Anson Investments, and $0.652 million net carrying amount for L2 Capital debt. The North Stadium loan principal was due July 28, 2018; the exchange notes matured February 3, 2019. Debt terms include substantial collateral, conversion features, and default provisions.
- Financing activities provided $2.033 million in Q1, including $1.328 million from warrant exercises and $0.705 million from debt issuance. Cash decreased $0.130 million during the quarter.
Outlook, risks, and notable events
- Going concern: Management said it expected continuing operating losses and cash use. Continued operations depended on increasing sales, cost reductions, debt-covenant compliance, and/or additional financing; the timing and availability of financing and path to profitability were uncertain.
- Subsequent financing: On May 14, 2018, the company closed a public offering of preferred-stock-and-warrant units for $15 million gross proceeds, before discounts and expenses. The preferred stock had variable conversion-price provisions and a $0.48 floor, subject to adjustment. An additional 145,834 repriced warrants were exercised in May for $0.3 million gross proceeds.
- Operating plans: Management discussed possible further cost reductions, including workforce and R&D cuts, while emphasizing sales efforts for silicon nitride products and publication of clinical and scientific data. No specific revenue or earnings guidance was provided.
- Internal controls: Management concluded disclosure controls were ineffective at March 31, 2018 because of material weaknesses in complex accounting review, risk assessment, control activities, and monitoring. The filing cites prior errors involving a complex equity transaction and asset impairment evaluation, and says remediation efforts were under consideration.
- Other risks: The company had Level 3 derivative liabilities valued using models and significant assumptions. It also disclosed dependence on regulatory approvals and market adoption, and noted ordinary-course legal claims; management did not expect known proceedings to have a material adverse effect.
Important facts for investors to verify
- Whether the May 2018 $15 million offering, after fees and conversion or warrant effects, provided adequate liquidity and affected dilution.
- Cash burn, available financing, debt maturities, covenant compliance, and the ability to refinance or repay secured obligations.
- Whether management remediated the disclosed material weaknesses and whether future filings report effective controls.
- Drivers of falling silicon nitride and domestic sales, including surgeon retention, hospital pricing, and adoption of new products.
- Assumptions and potential volatility in Level 3 warrant valuations and the resulting noncash gains or losses.