Sintx Technologies, Inc. (formerly Amedica Corporation) — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. The filing identifies the registrant as Amedica Corporation. Unless otherwise indicated, financial amounts below are in U.S. dollars and millions.
Business context and financial performance
The company develops, manufactures and sells silicon nitride ceramics, principally for spinal implants, alongside non-silicon-nitride metal products. Q2 product revenue was $2.04 million; first-half revenue was $4.33 million.
| Metric | Q2 2018 | Q2 2017 | First half 2018 | First half 2017 |
|---|---|---|---|---|
| Product revenue | $2.04 million | $3.21 million | $4.33 million | $5.84 million |
| Gross profit / margin | $1.52 million / 74% | $2.49 million / 77% | $3.29 million / 76% | $4.45 million / 76% |
| Operating loss | $(2.03) million | $(1.72) million | $(4.18) million | $(3.53) million |
| Net loss | $(2.31) million | $(1.70) million | $(5.71) million | $(2.22) million |
| Net loss attributable to common stockholders | $(9.65) million | $(1.70) million | $(13.04) million | $(2.22) million |
| Operating cash flow | Not separately provided here | Not separately provided here | $(5.93) million | $(3.43) million |
Q2 silicon nitride revenue fell 54% to $0.65 million; non-silicon-nitride revenue fell 22% to $1.39 million. For the first half, silicon nitride revenue declined 42% to $1.68 million and non-silicon-nitride revenue declined 10% to $2.65 million. Domestic sales drove the decline.
At June 30, cash was $8.84 million, versus $0.54 million at December 31, 2017. Total current assets were $11.54 million and current liabilities $10.42 million. Total assets were $22.61 million and total liabilities $11.30 million. Debt carrying value was $2.48 million, all current, consisting of the related-party North Stadium loan. Cash increased primarily from financing, not operating performance: first-half financing cash flow was $14.39 million, while investing cash use was $0.16 million.
Material changes versus comparable periods
- Revenue fell 36% in Q2 and 26% in the first half. Management attributed the decline to lost surgeons and renegotiated hospital pricing.
- Q2 gross margin declined three percentage points to 74%, mainly due to pricing concessions; first-half gross margin remained 76%.
- First-half operating expenses decreased 6% to $7.46 million, including a 32% decrease in sales and marketing, but research and development rose 8% and general and administrative expenses rose 18%.
- First-half net loss increased to $5.71 million from $2.22 million, and operating cash use increased to $5.93 million from $3.43 million.
- Common-stockholder loss included a $7.33 million deemed dividend related to the Series B preferred stock’s beneficial conversion feature and discount accretion; this is distinct from net loss.
Financing, outlook and risks
- On May 14, the company completed a public offering of preferred-stock-and-warrant units for $15 million gross proceeds. Offering proceeds were used in part to repay L2 Capital and MEF I/Anson debt. The preferred conversion price was later adjusted to $0.6543, effective July 12, 2018; the filing describes a $0.48 floor subject to adjustment.
- Common shares outstanding were 7.51 million at June 30, up from 3.03 million at year-end; 11.87 million were outstanding on August 10. The filing reports approximately 21.2 million potentially dilutive securities at June 30. These figures highlight substantial dilution risk.
- The $2.5 million North Stadium loan is owed to an entity controlled by the CEO and Board Chair, is secured by substantially all company assets, and bears 10% interest. In July 2018, its maturity was extended from July 28 to October 28, 2018.
- Management stated the company expects continuing operating losses and cash use. It identified higher sales, cost reductions, debt-covenant compliance and/or additional financing as necessary to support operations, and explicitly said substantial doubt exists about the company’s ability to continue as a going concern.
- Management planned to pursue further cost savings, publish scientific and clinical data, and focus sales efforts on silicon nitride products and newer spinal systems. The company also reported FDA clearance in March 2018 for a modified spinal-fusion device. No quantified revenue or earnings guidance was provided.
- Derivative warrant liabilities were $6.56 million, measured using significant Level 3 inputs. First-half results included a $2.02 million gain from changes in derivative fair value, a $1.25 million loss on extinguishment of derivative liabilities, and a $0.34 million loss on extinguishment of debt.
- The filing states disclosure controls were not effective at June 30 because of material weaknesses involving complex accounting, review of technical experts, staffing and monitoring. It describes prior financial restatement and impairment-control issues and planned remediation. An earlier statement in the filing says controls were effective, creating an internal inconsistency; the detailed evaluation concludes they were not effective.
- Management said ordinary-course legal matters were not expected to have a material adverse effect. The company reported no off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether post-quarter financing, sales trends and cost actions provide sufficient runway, given the going-concern warning and continuing cash burn.
- The October 28, 2018 related-party loan repayment and any subsequent extensions, refinancing or covenant issues.
- The actual and potential share dilution from preferred-stock conversions, warrants and other securities, including changes to conversion terms and share count after June 30.
- Progress in recovering surgeon relationships and domestic revenue, and whether newer products or international distribution can offset falling sales.
- Status of internal-control remediation and the accounting and valuation assumptions underlying the substantial warrant derivative liability.