Sintx Technologies, Inc. (then Amedica Corporation) — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; comparisons are with Q1 2013 unless noted. Financial amounts below are in U.S. dollars. The filing was issued under the name Amedica Corporation.
Business context
Amedica was a commercial-stage biomaterials and medical-device company focused on silicon-nitride technology. It sold spinal-fusion products, along with complementary non-silicon-nitride products, primarily in the United States. Management described the second-generation Valeo spinal-product rollout and development of additional products as growth priorities.
Financial performance and position
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Product revenue | $5.78 million | $5.25 million; up 10% |
| Silicon-nitride revenue | $2.49 million | $1.77 million; up 41% |
| Non-silicon-nitride revenue | $3.29 million | $3.49 million; down 6% |
| Gross profit / margin | $4.13 million / about 71% | $3.31 million / about 63% |
| Operating expenses | $8.19 million | $6.08 million; up 35% |
| Operating loss | $4.06 million | $2.77 million |
| Net loss | $4.71 million | $3.53 million |
| Cash used in operations | $2.00 million | $1.12 million |
At March 31, 2014, cash and cash equivalents were $13.26 million, with another $0.43 million in restricted cash. Total assets were $43.85 million. Inventory was $11.63 million, up from $10.08 million at year-end 2013. The company reported $16.2 million of GE facility principal outstanding; the balance-sheet carrying amount was about $16.1 million. All of the debt was classified as current because management anticipated a future liquidity-covenant failure. No amount was outstanding on the revolving line, and $86,000 was available to borrow.
Material changes and unusual items
- The February IPO raised approximately $15.4 million net of about $5.8 million in underwriting and offering costs. Preferred stock converted into common stock, substantially changing the capital structure; the filing also reflects a 1-for-25.7746 reverse stock split.
- Gross margin improved as product costs declined and manufacturing efficiencies increased; the inventory obsolescence charge fell to $415,000 from $530,000.
- Operating expenses rose, led by general and administrative expense (up 123%) and sales and marketing expense (up 24%). Stock-based compensation was $1.40 million versus $46,000 a year earlier. Management attributed the G&A increase mainly to stock compensation and higher professional costs, and the sales and marketing increase to commissions, stock compensation, and marketing.
- Reported R&D expense fell 44% to $591,000. Management said this primarily reflected an additional $1.6 million of overhead allocated to inventory during the production ramp-up, rather than a comparable reduction in underlying development activity.
- Operating cash use increased year over year, with cash absorbed by inventory growth and reductions in accounts payable and accrued liabilities. IPO proceeds drove financing cash flow positive.
Outlook, liquidity, and risks
Management expected operating losses and operating cash use to continue through 2014. It said additional funding would be needed during Q3 2014 to meet debt principal payments and maintain compliance with GE facility covenants. Approximately $5.4 million of principal was due through the rest of 2014; scheduled payments were $600,000 monthly. Management was seeking equity or debt financing, including a possible refinancing, but stated funding might not be available on acceptable terms or at all. Failure to obtain funds before covenant noncompliance could allow the lender to demand repayment of the entire remaining balance. The filing states these uncertainties raise substantial doubt about the company’s ability to continue as a going concern; the statements include no adjustment for that uncertainty.
Management expected the full U.S. launch of second-generation Valeo AL, PL, and TL products in the second half of 2014 and a beta launch of a second-generation cervical product in that period. The European CASCADE clinical trial was fully enrolled, with results expected in the second half of 2014; if successful, management planned to submit a U.S. FDA 510(k) application by mid-2015. These are forward-looking expectations, not assured outcomes. The filing provided no numerical revenue or earnings guidance.
Other considerations include substantial anticipated RSU compensation: the company estimated about $10.0 million of 2014 expense for RSUs granted in Q1, expected to be recognized from April through August. Management reported no material pending legal proceeding and no material change to the risk factors in its 2013 Form 10-K. Disclosure controls were assessed as effective at quarter-end.
Important facts for investors to verify
- Whether the company obtained sufficient financing or refinanced the GE facility, and whether it met liquidity covenants and scheduled debt payments.
- Actual cash burn, remaining liquidity, and the impact of the $1.3 million of accrued debt-amendment fees management expected to pay in May 2014.
- Whether second-generation product launches and CASCADE clinical-trial results matched management’s stated timeline and expectations.
- Whether inventory levels and the allocation of manufacturing overhead to inventory were supported by sales, production, and demand trends.
- The realized earnings and dilution effects of IPO-related equity awards, including the planned RSU expense.