Amedica Corporation (now identified in the request as SiNTX Technologies, Inc.) — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparative period is Q1 2014. The filing itself names the registrant as Amedica Corporation. Dollar amounts below are in millions unless otherwise stated.
Business context and financial performance
Amedica was a commercial-stage biomaterials company focused on silicon-nitride medical devices. It marketed spinal fusion products and was developing products for hip and knee replacement and other markets. Financial statements are unaudited.
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Product revenue | $4.743 | $5.780 | Down 18% |
| Gross profit / margin | $3.221 / 68% | $4.131 / 72% | Profit down 22%; margin down 4 points |
| Operating expenses | $7.227 | $8.187 | Down 12% |
| Operating loss | $(4.006) | $(4.056) | Loss narrowed $0.050 |
| Net loss | $(5.381) | $(4.713) | Loss widened $0.668 |
| Net loss per share, basic and diluted | $(0.20) | $(0.79) | Weighted-average shares rose to 26.9m from 6.0m |
| Cash used in operating activities | $2.971 | $2.001 | Use increased $0.970 |
Silicon-nitride product revenue increased 7% to $2.658 million, while non-silicon-nitride revenue fell 37% to $2.085 million. Management attributed the latter decline chiefly to lower metal sales from reduced activity by several key surgeons, as well as a strategic sales focus on silicon-nitride products. Gross margin declined partly because 2015 private-label sales carried lower margins. Other expense increased to $1.375 million, mainly reflecting higher interest expense following additional borrowing in 2014.
Liquidity, debt and capital structure
- Cash and cash equivalents were $14.882 million at March 31, down from $18.247 million at December 31, 2014. Current assets were $30.111 million and current liabilities $23.491 million.
- Debt had a $24.298 million principal balance and a $22.267 million net carrying value, including unamortized discounts. The $20 million Hercules term loan was classified as current; Magna convertible notes had $4.298 million principal outstanding.
- The Hercules loan carries interest at the greater of prime plus 7.7% or 10.95%, is secured by substantially all assets, and requires at least $9 million of cash. Principal payments were scheduled to begin in August 2015. The company was covenant-compliant at quarter-end but forecast needing additional funding in Q4 2015 to maintain compliance.
- Management said continuing operating losses and cash use were expected through 2015. It warned that failure to obtain funding before a covenant breach could make the Hercules debt immediately payable at the lender’s option. Management stated that these uncertainties raised substantial doubt about the company’s ability to continue as a going concern; no related adjustments were made to the financial statements.
Investing activities used $0.274 million of cash. Financing activities used $0.120 million, including cash paid for employee tax withholding on vested restricted stock. The filing reports no off-balance-sheet arrangements.
Material developments, outlook and risks
- In January 2015, the company reduced its workforce by 25 employees, approximately 28% of staff, and recorded about $0.7 million of severance-related expense. Management expected sales and marketing costs to remain flat or decline slightly and general and administrative costs to decrease.
- Management expected silicon-nitride sales to grow through sales efforts and new products, while non-silicon-nitride sales were expected to decline. It also anticipated further R&D spending on spine, joint-replacement and coated-metal products. These are expectations, not quantified revenue or earnings guidance.
- On April 2, 2015, after quarter-end, Amedica exchanged its Magna notes and warrant for new $4.3 million senior convertible notes. The revised notes had an initial $1.00 conversion price, an alternate conversion mechanism with a $0.20 floor, and potential make-whole share issuances; maturity could extend from June 2016 to June 2017 if specified conditions were met.
- After quarter-end, 8.7 million additional offering warrants were exercised cashlessly, resulting in 26.3 million shares issued; 3.6 million warrants remained. The filing reported 55.4 million common shares outstanding at May 6, 2015. These conversions and warrant provisions create substantial dilution risk. The November 2014 offering warrants could also require cash payments or additional shares under their cashless-exercise provisions.
- Other risks include inability to obtain financing on acceptable terms, potentially restrictive debt terms, further equity dilution, dependence on product adoption and distributor sales, and product-development and commercialization risks. Management reported no material change to the risk factors in its 2014 Form 10-K. It reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Investor facts to verify
- Whether the company obtained sufficient financing and remained compliant with the Hercules liquidity covenant after Q1 2015.
- Actual cash burn, cash runway, debt service and principal-payment schedule, including the basis for classifying the Hercules loan as current.
- Subsequent share count and dilution from warrant exercises, Magna conversions, alternate conversion rights and any make-whole issuances.
- Whether silicon-nitride revenue growth can offset continued declines in non-silicon-nitride sales and the effect of lower-margin private-label business on gross margin.
- Progress, funding needs and commercialization prospects for the company’s product candidates; the filing provides no quantified sales or earnings guidance.