Amedica Corporation (now Sintx Technologies, Inc.) — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. The filing describes a commercial-stage biomaterials company selling spinal-fusion devices, including silicon-nitride products. Financial amounts below are in U.S. dollars; statement figures are in millions unless otherwise noted.
Key financial results
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $4.84 | $6.00 | $14.36 | $17.61 |
| Gross profit / margin | $3.20 / 66% | $4.06 / 68% | $9.83 / 68% | $12.42 / 71% |
| Operating expenses | $6.00 | $9.70 | $19.24 | $32.74 |
| Operating loss | $(2.81) | $(5.64) | $(9.41) | $(20.32) |
| Net loss | $(10.13) | $(4.93) | $(21.45) | $(22.88) |
| Operating cash flow | Not separately stated | Not separately stated | $(7.07) | $(11.43) |
Q3 basic and diluted loss per share was $0.15, versus $0.39 a year earlier. Nine-month loss per share was $0.43, versus $2.20. No income tax provision was recorded.
- Revenue declined 19% in Q3 and 18% for the nine-month period. Q3 silicon-nitride revenue fell 10% to $2.52 million; non-silicon-nitride revenue fell 27% to $2.32 million. Management attributed declines chiefly to lower metals sales, reduced activity among several key surgeons, and restructuring; silicon-nitride sales also faced surgeon losses, partly offset by new surgeons and international/private-label sales.
- Operating expenses fell 38% in Q3 and 41% year to date, reflecting restructuring, lower stock-based compensation, personnel costs, commissions, and other spending. Gross margin also declined, which management linked mainly to lower-margin private-label and international sales.
- Q3 net loss included a $7.78 million expense from changes in derivative fair value and $0.82 million of offering costs, partly offset by a $2.40 million gain on debt extinguishment. The nine-month derivative fair-value expense was $8.88 million. These items materially affected net loss.
Balance sheet, debt, and liquidity
- At September 30, cash and cash equivalents were $11.27 million, down from $18.25 million at year-end 2014. Total assets were $37.19 million; stockholders’ deficit was $1.72 million. Inventory was $9.70 million, including approximately $3.5 million of consigned finished goods.
- Debt carrying value was $19.97 million, all classified as current; outstanding principal was $20.99 million, including the Hercules term loan and a $2.15 million Magna note. Hercules debt is secured by substantially all assets, including intellectual property. The filing reports a 10.95% minimum rate, monthly interest, scheduled principal payments, and a 2018 maturity.
- The Hercules liquidity covenant required at least $8.5 million in cash at September 30; the company reported compliance on that date. Management anticipated covenant noncompliance in Q4 without further financing and classified the entire Hercules obligation as current. Noncompliance could allow the lender to accelerate the remaining debt.
- Cash used in operations was $7.07 million for the first nine months, improved from $11.43 million in 2014. The company reported a $194.07 million accumulated deficit and stated that substantial doubt existed about its ability to continue as a going concern.
Financing, outlook, and risks
- In September, the company raised $5.0 million gross through an equity-and-warrant offering. The warrants generated significant derivative liabilities and dilution risk; offering costs of $821,000 were expensed.
- After quarter-end, stockholders approved the relevant warrant share issuance, and Series B warrants automatically exercised in November, providing a further $5.0 million gross and issuing 49.86 million shares. Series C warrants could provide up to another $5.0 million by December 30, 2015; their exercise price was subject to a downward-adjustment formula. The filing also reports the Series A warrant count and exercise price were adjusted following the Series B exercise.
- Management expected continuing operating losses and cash use through 2015, said additional funding was needed to support operations and meet debt covenants, and warned financing might not be available on acceptable terms or at all. Further equity financing could significantly dilute shareholders. The Hercules rate could rise by 1.5% if the required $10 million in Series B and C warrant proceeds was not obtained.
- Management expected silicon-nitride revenue to grow with sales efforts and product introductions, non-silicon-nitride revenue to remain flat, and sales and marketing expenses to remain flat or decline slightly. These are expectations, not assured results; the filing provides no numerical revenue or earnings guidance.
- Management reported disclosure controls were effective as of September 30, 2015, with no material third-quarter change in internal control over financial reporting. It reported no material pending legal proceeding and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether Series C warrants were exercised, how much cash they generated, and the resulting share count and dilution.
- Whether the company maintained Hercules’ liquidity and other covenant requirements after quarter-end, and whether any acceleration or interest-rate increase was triggered.
- Updated cash runway, operating cash burn, and the company’s ability to obtain additional financing given the stated going-concern uncertainty.
- Whether revenue trends, particularly silicon-nitride adoption and lower-margin private-label/international sales, support management’s outlook.
- The valuation and potential dilution associated with derivative-classified warrants and other outstanding potentially dilutive securities.