Sintx Technologies, Inc. — Q2 2017 Form 10-Q Summary
Filing identity: The supplied filing is for Amedica Corporation, not Sintx Technologies, Inc. Investors should confirm the issuer and filing attribution. The unaudited reporting period ended June 30, 2017; comparisons are with the three and six months ended June 30, 2016. Amounts below are in millions unless stated otherwise.
Business context and financial results
Amedica described itself as a materials and medical-device company developing, manufacturing, and selling silicon nitride ceramics, principally for spinal implants, alongside non-silicon-nitride spinal products. It reported one operating segment.
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Product revenue | $3.208 | $4.023 | $5.837 | $8.196 |
| Gross profit | $2.486 | $3.006 | $4.454 | $6.286 |
| Gross margin | 77% | 75% | 77% | 77% |
| Operating expenses | $4.210 | $5.507 | $7.980 | $11.271 |
| Operating loss | $(1.724) | $(2.501) | $(3.526) | $(4.985) |
| Net loss | $(2.106) | $(5.064) | $(4.256) | $(8.452) |
| Net loss per share, basic and diluted | $(0.06) | $(0.40) | $(0.12) | $(0.71) |
For the six months ended June 30, 2017, operating cash used was $3.430, investing cash used was $0.508, and financing provided $0.483. Cash decreased $3.455 to $3.460. At June 30, cash was $3.460, current assets $7.197, current liabilities $7.560, total assets $22.650, total liabilities $8.607, and stockholders’ equity $14.043. The balance sheet reported $3.967 of current debt carrying value; Hercules principal outstanding was $4.097. The loan bore 12.7% interest and was due January 1, 2018.
Material changes versus comparable periods
- Revenue fell 20% in Q2 and 29% in the first half. Management attributed the decrease mainly to surgeon losses and the effects of its late-2016 restructuring. First-half silicon nitride revenue declined 30% to $2.876; non-silicon-nitride revenue declined 28% to $2.961.
- Domestic first-half revenue declined 28%; international revenue declined 72%, which management attributed largely to a Brazilian distributor’s prior-year inventory build versus maintaining inventory in 2017.
- First-half gross margin remained 77%; Q2 margin increased from 75% to 77%, which management attributed primarily to the higher margin of the Taurus pedicle screw system.
- First-half operating expenses declined 29%, reflecting cost reductions, including lower personnel, commissions, and other sales and marketing expenses. Lower interest expense also contributed to the improvement in net loss.
- First-half operating cash use increased to $3.430 from $2.379, despite the lower net loss; management cited working-capital movements, including higher receivables and lower accounts payable and accrued liabilities.
- The company issued 8.9 million common shares and warrants in a 2017 offering, receiving approximately $3.8 million net proceeds. Common shares outstanding were 36,264,881 at June 30, 2017, versus 27,364,881 at December 31, 2016.
Outlook, risks, contingencies, and unusual items
- Going concern and financing: Management expected continued operating losses and operating cash use, and said profitability, positive operating cash flow, and additional financing were uncertain. Continued operations depended on sales growth, cost reductions, debt-covenant compliance, and/or new financing. The company warned that failure to obtain funds in time could lead to covenant noncompliance and possible acceleration of the Hercules loan; additional equity could dilute shareholders.
- Liquidity covenant: The minimum cash requirement was $2.5 million at June 30, 2017, versus cash of approximately $3.5 million. Management believed compliance could be maintained at least through October 2017, but likely required additional cash thereafter.
- Subsequent related-party loan: On July 28, 2017, the company entered into a $2.5 million loan from an entity controlled by its CEO and Board Chairman. It carried 10% interest, was secured by substantially all company assets (junior to Hercules liens), and was due July 28, 2018. The company also issued a five-year warrant for up to 660,000 shares at $0.42 per share. Management said the loan would assist cash needs through November 2017.
- Operations and development: Management cited plans to focus sales on silicon nitride lateral lumbar implants and the Taurus pedicle screw system, hire experienced sales staff, and publish additional scientific and clinical data. It was preparing a 510(k) submission for a composite spinal fusion device and responding to FDA questions. The filing gives no quantified revenue or earnings guidance.
- Inventory: Of $6.643 million in inventory, $5.234 million was classified as long-term based on management’s estimate of what would sell after June 30, 2018. Consigned inventory was approximately $2.6 million, down from $5.6 million at year-end 2016.
- Controls and reporting: Management concluded disclosure controls were ineffective at June 30, 2017 because of material weaknesses involving complex accounting review, staffing and expertise, control activities, and monitoring. Prior deficiencies contributed to a restatement of Q3 2016 results and an impairment charge; remediation was still being developed.
- Other: The company reported no material pending or threatened legal proceeding, no off-balance-sheet arrangements, and no income-tax provision for the periods shown.
Important facts for investors to verify
- Confirm that this Amedica Corporation filing is the intended filing for Sintx Technologies, Inc.
- Review the company’s ability to fund operations and comply with Hercules covenants, including the timing and terms of subsequent financing.
- Assess the related-party loan, its collateral priority, repayment obligations, and warrant dilution.
- Verify the causes and sustainability of revenue trends, including surgeon losses, international sales, and adoption of Taurus and silicon nitride products.
- Review inventory valuation and expected sell-through, as most inventory was classified as long-term.
- Track remediation of material weaknesses and any further restatements, impairment assessments, or control disclosures.