Sintx Technologies, Inc. annual report, FY2014

Business context and reporting period

The supplied filing is Amedica Corporation’s Form 10-K for the fiscal year ended December 31, 2014, signed March 24, 2015. Although the request metadata names Sintx Technologies, the filing identifies the registrant as Amedica Corporation (NASDAQ: AMDA); investors should confirm that this is the intended filing. Amedica develops and sells spinal-fusion devices, including products made with silicon nitride, and is developing hip and knee implant components.

The company reported that non-silicon-nitride products remained a substantial part of sales, while it sought to expand silicon-nitride adoption and develop OEM and private-label partnerships. Its 2014 IPO and November secondary offering raised capital, but the company remained loss-making and dependent on further financing.

Financial performance and liquidity

Revenue grew 2%. Silicon-nitride product revenue rose 41% to $10.8 million, while non-silicon-nitride revenue fell 18% to $11.9 million. Domestic revenue was $22.7 million; international revenue was $0.1 million. The filing attributes the lower gross margin mainly to a $1.3 million inventory reserve for first-generation Valeo products as newer products launched. Excluding excess and obsolete inventory, product costs declined to 23% of revenue from 26%.

Research and development expense increased 95% to $6.7 million; general and administrative expense increased 136% to $13.6 million; and sales and marketing expense increased 14% to $18.7 million. Higher stock-based compensation, public-company costs, and investments in product development and commercialization contributed to expense growth. Stock-based compensation totaled $11.0 million, compared with $0.6 million in 2013.

At December 31, 2014, total assets were $47.6 million, including $11.7 million of inventory. Reported debt principal was $24.5 million, with a net carrying amount of $22.1 million; $19.1 million was classified as current. The company also reported $14.0 million of derivative liabilities, compared with $0.2 million a year earlier. The $20 million Hercules term loan bears interest at the greater of prime plus 7.7% or 10.95%, is secured by substantially all assets, and includes a $9 million minimum-liquidity covenant. Magna convertible notes had $4.5 million principal outstanding at year-end and a 6% stated interest rate; their variable conversion terms may increase dilution.

Changes, outlook, and material risks

• Losses and cash burn worsened: net loss increased by $24.3 million, and operating cash use rose by $4.6 million year over year. Other expense was $8.4 million, including debt-extinguishment losses, interest, offering costs, and derivative fair-value changes.
• Financing and going concern: the IPO generated $15.4 million net proceeds and the November offering generated $11.3 million. Despite year-end cash of $18.2 million, management expected to need additional funding in the fourth quarter of 2015 to maintain compliance with the Hercules liquidity covenant. The auditor’s report cited substantial doubt about the company’s ability to continue as a going concern.
• Post-year-end restructuring: in January 2015, the company eliminated 25 positions, about 28% of its workforce, and recorded approximately $585,000 in severance costs. Management expected lower sales and marketing and general and administrative costs, and a moderate decline in R&D expense.
• Commercial and regulatory plans: the company completed the U.S. launch of second-generation lumbar Valeo devices in 2014 and expected to launch second-generation cervical devices in the second half of 2015. It submitted a 510(k) application for a cervical silicon-nitride device in January 2015. Hip and knee product timing remained conditional on development, testing, and regulatory clearance; the filing described a potential 2017 hip launch if clearance were obtained.
• Principal risks: limited market acceptance of silicon-nitride products; reliance on distributors and concentrated customers; manufacturing and supplier dependence; regulatory and reimbursement uncertainty; substantial competition; potential dilution from warrants and convertible notes; and dependence on additional capital. The filing also describes prior Department of Justice subpoenas, to which the company said it responded in 2013, with no further communications reported.
• Unusual equity and accounting items: the November offering included warrants treated as liabilities. At year-end, the filing estimated that exercise of all such warrants could require a $10.5 million cash payment or issuance of approximately 15.5 million shares under the specified cashless-exercise terms. The company reported that disclosure controls and internal control over financial reporting were effective at December 31, 2014.

Important facts for investors to verify

• Confirm the issuer and filing match the intended Sintx Technologies request; this text names Amedica Corporation and ticker AMDA.
• Review subsequent financing, cash burn, and covenant compliance, including whether the anticipated fourth-quarter 2015 funding was obtained.
• Check current debt balances, lender rights, and the potential cash or share impact of warrants and variable-price convertible notes.
• Verify actual sales mix, customer concentration, and adoption of silicon-nitride products against management’s commercialization expectations.
• Confirm regulatory outcomes and launch status for the cervical spine and hip and knee products; the filing’s product claims and timelines are not assurances of approval or commercial success.