Amedica Corporation — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2014; comparisons are with the three and nine months ended September 30, 2013. The supplied filing identifies the registrant as Amedica Corporation, not Sintx Technologies, Inc.; verify the issuer identity.
Business context
Amedica was a commercial-stage medical-device and biomaterials company focused on silicon nitride technology. It sold spinal-fusion products and was developing products for joint replacement and other markets. Sales were primarily domestic. The filing reports 13,798,619 common shares outstanding at October 31, 2014.
Financial performance
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Product revenue | $6.0m | $5.3m | $17.6m | $16.6m |
| Gross profit | $4.1m | $3.6m | $12.4m | $11.6m |
| Gross margin | 67.7% | 67.2% | 70.5% | 69.8% |
| Operating loss | $(5.6)m | $(2.0)m | $(20.3)m | $(7.5)m |
| Net loss | $(4.9)m | $(2.3)m | $(22.9)m | $(8.9)m |
| Operating cash flow | Not presented quarterly | $(11.4)m | $(5.5)m |
Silicon nitride revenue rose 57% in Q3 to $2.8m and 50% for the nine-month period to $8.0m. Non-silicon nitride revenue fell 9% in Q3 and 15% year to date. Operating expenses increased 74% in Q3 and 72% year to date, including higher research and development, sales and marketing, and public-company costs. Nine-month stock-based compensation was $10.9m. Q3 other income included a $1.9m gain from changes in the fair value of derivative liabilities; nine-month results included a $1.6m loss on extinguishment of debt.
Balance sheet, cash flow and financing
At September 30, 2014, cash and cash equivalents were $10.4m, versus $2.3m at December 31, 2013. Total assets were $42.3m; inventory was $12.6m, including $3.6m of consigned finished goods. Total debt principal was $26.0m, with a net carrying amount of $22.7m: $20.0m Hercules term-loan principal and $6.0m Magna convertible-note principal. The entire $20.0m Hercules loan was classified as current because management expected a liquidity-covenant breach without further funding; the notes’ net carrying value of $3.7m was long-term.
For the first nine months, operating activities used $11.4m, investing activities used $1.6m, and financing activities provided $21.1m, resulting in an $8.1m increase in cash. Financing included $15.4m net IPO proceeds and new debt, partly offset by repayment and extinguishment costs on prior borrowings. The Hercules loan bears interest at the greater of prime plus 7.7% or 10.95%, is secured by substantially all assets, and requires at least $9.0m of liquidity. Amedica reported compliance at quarter-end but expected a shortfall in November 2014 absent additional funding.
Outlook, risks and unusual items
- Management anticipated continued operating losses and operating cash use through 2014, and said additional funding was needed to maintain the Hercules liquidity covenant. Failure to obtain funds or amend the covenant could make the loan immediately payable at the lender’s option. The filing states that these uncertainties create substantial doubt about the company’s ability to continue as a going concern.
- Management expected higher research and development and sales and marketing costs as it developed products and expanded commercialization. No formal revenue or earnings guidance was provided.
- The European CASCADE clinical trial was fully enrolled; results were expected in Q4 2014. If successful, management planned to submit a U.S. 510(k) application by mid-2015.
- Magna notes carry 6% interest and, from October 1, 2014, could convert at the lower of $3.75 per share or 80% of the lowest VWAP over the preceding five trading days. Such conversions could dilute existing holders. By November 4, Magna had converted $847,000 of principal into 871,060 shares.
- Other notable items included a $1.5m inventory reserve provision in nine-month cash-flow adjustments and unusually high stock-based compensation. Management reported disclosure controls effective as of September 30 and described additional controls implemented during the quarter.
- The filing says no pending or threatened legal proceeding was expected to have a material adverse effect and reports no off-balance-sheet arrangements.
Key facts investors should verify
- Whether this Amedica filing is the intended filing for Sintx Technologies, Inc.
- Subsequent financing, cash runway, and compliance with the $9.0m Hercules liquidity covenant.
- Debt terms, current classification, and any lender waivers or defaults.
- Magna conversion activity, applicable conversion prices, and resulting dilution.
- CASCADE trial results and the timing and status of any FDA submission.
- Whether silicon nitride sales growth and gross-margin improvements continue, and whether expense growth and stock compensation moderate.