Sintx Technologies, Inc. — 2016 Q2 Form 10-Q
Filing identity: The supplied filing is for Amedica Corporation, for the quarter and six months ended June 30, 2016. The text does not explain the relationship to Sintx Technologies, Inc.
Business context and reporting period
Amedica develops, manufactures, and sells silicon nitride ceramics, primarily for spinal implants, alongside metal-based spinal products. It reported one operating segment. Its products had U.S. 510(k) clearance, CE marking in Europe, and ANVISA approval in Brazil. The company reported more than 25,000 silicon nitride implants placed to date. An FDA 510(k) submission for a composite spinal-fusion device remained pending after the FDA requested additional information.
Financial results and liquidity
Amounts below are in millions of dollars, except per-share data and margins. Q2 means the three months ended June 30; H1 means the six months ended June 30.
| Metric | Q2 2016 | Q2 2015 | H1 2016 | H1 2015 |
|---|---|---|---|---|
| Product revenue | $4.023 | $4.780 | $8.196 | $9.523 |
| Gross profit | $3.006 | $3.417 | $6.286 | $6.638 |
| Gross margin | 74.7% | 71.5% | 76.7% | 69.7% |
| Operating expenses | $5.507 | $6.013 | $11.271 | $13.240 |
| Operating loss | $(2.501) | $(2.596) | $(4.985) | $(6.602) |
| Net loss | $(5.064) | $(5.933) | $(8.452) | $(11.314) |
| Net loss per share | $(0.40) | $(1.64) | $(0.71) | $(4.16) |
- H1 operating cash use was $2.379 million, compared with $5.323 million a year earlier. Investing cash use was $0.327 million; financing cash use was $3.624 million, principally reflecting debt payments. Cash fell by $6.330 million to $5.155 million.
- At June 30, cash was $5.155 million and total current assets were $15.780 million, versus current liabilities of $16.129 million. The balance sheet showed total assets of $27.505 million and stockholders’ equity of $9.753 million.
- Debt principal was $12.091 million, with a net carrying amount of $11.150 million: Hercules term loan principal of $10.628 million, Riverside convertible-note principal of $0.700 million, and Magna note principal of $0.763 million. The filing classified $10.681 million of net debt as current and $0.469 million as long-term.
- The Hercules loan carried 12.7% interest and was secured by substantially all company assets, including intellectual property. Its $4.5 million minimum cash covenant applied at June 30; reported cash was only modestly above that threshold.
Changes versus the prior comparable period
- Q2 revenue decreased 16%; H1 revenue decreased 14%. Silicon nitride revenue fell 22% in Q2 and 19% in H1. Non-silicon nitride revenue declined 10% and 9%, respectively.
- Management attributed weaker revenue to lower private-label sales, weaker-than-expected commercial sales in a key geographic area, pricing pressure, and hospital vendor consolidation. International revenue increased from a small base, primarily on silicon nitride sales in Brazil and Europe.
- Gross margin improved year over year, while gross profit declined with lower sales. Management cited lower costs, the medical-device excise-tax moratorium and refund, and limited private-label revenue.
- H1 operating expenses declined 15%, with lower sales and marketing and general and administrative costs. H1 net loss narrowed by $2.862 million, but interest expense increased; lower derivative-related expense partly offset that increase.
- H1 weighted-average shares increased to 11.982 million from 2.718 million, so the improvement in loss per share also reflects a substantially larger share count.
Outlook, risks, contingencies, and subsequent events
- Management expected operating losses and operating cash use to continue through 2016. It said available resources, including the July financing, were expected to support compliance with Hercules liquidity covenants into Q2 2017; further refinancing or funding would be needed to maintain compliance beyond then.
- The filing states that uncertainty over access to capital creates substantial doubt about the company’s ability to continue as a going concern. Failure to refinance or obtain funds could trigger acceleration of Hercules debt at the lender’s option. Additional equity financing could significantly dilute shareholders; debt financing could impose more restrictive covenants.
- On July 8, 2016, after quarter-end, Amedica completed an offering and received approximately $11.3 million net. It issued 5.258 million common shares, preferred shares convertible into 7.392 million common shares, and warrants for 12.650 million common shares at a fixed $1.00 exercise price. By the filing date, 5.018 million preferred conversion shares had been issued as common shares.
- In July, the company paid $0.888 million to redeem the Magna note and $0.840 million to redeem the remaining Riverside debt.
- A lawsuit filed by Hampshire MedTech Partners II, GP alleges breach of an anti-dilution warrant provision and seeks damages exceeding $1 million. Amedica denied the material allegations and said it would vigorously defend the suit.
- Management expected sales and marketing costs to remain flat or decline slightly and general and administrative costs to remain relatively flat. It anticipated additional R&D spending on product development. These are management expectations, not guaranteed results.
- Management reported disclosure controls and procedures were effective as of June 30, 2016, and stated that no material change in internal control over financial reporting occurred during the first quarter of 2016.
Most important facts for investors to verify
- Confirm the registrant identity: the supplied 10-Q names Amedica Corporation, not Sintx Technologies, Inc.
- Review the terms, dilution potential, and cash proceeds from the July offering, including the preferred conversion shares and warrants.
- Assess whether cash generation, refinancing, or additional financing can sustain Hercules covenant compliance beyond Q2 2017, and whether debt acceleration or going-concern risks have changed.
- Track revenue trends, especially silicon nitride sales, private-label activity, and the commercial weakness and pricing pressures cited by management.
- Monitor the FDA review of the composite device and the outcome or any material developments in the Hampshire warrant litigation.