0001493152-16-009773.txt : 20160513 0001493152-16-009773.hdr.sgml : 20160513 20160513170236 ACCESSION NUMBER: 0001493152-16-009773 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 62 CONFORMED PERIOD OF REPORT: 20160331 FILED AS OF DATE: 20160513 DATE AS OF CHANGE: 20160513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMEDICA Corp CENTRAL INDEX KEY: 0001269026 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-33624 FILM NUMBER: 161649336 BUSINESS ADDRESS: STREET 1: 1885 WEST 2100 STREET CITY: SALT LAKE CITY STATE: UT ZIP: 84119 BUSINESS PHONE: 801-839-3516 MAIL ADDRESS: STREET 1: 1885 WEST 2100 STREET CITY: SALT LAKE CITY STATE: UT ZIP: 84119 FORMER COMPANY: FORMER CONFORMED NAME: AMEDICA CORP DATE OF NAME CHANGE: 20031104 10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2016

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 001-33624

 

 

 

Amedica Corporation

(Exact name of registrant as specified in its charter)

 

 

 

DELAWARE   84-1375299
(State or other jurisdiction of
incorporation or organization)
  (IRS Employer
Identification No.)
     
1885 West 2100 South, Salt Lake City, UT   84119
(Address of principal executive offices)   (Zip Code)

 

(801) 839-3500

(Registrant’s telephone number, including area code)

 

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files); Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer   [  ]   Accelerated filer [  ]
           
Non-accelerated filer   [  ] (Do not check if a smaller reporting company)   Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): [  ] Yes [X] No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

13,236,071 shares of common stock, $0.01 par value, were outstanding at May 13, 2016

 

 

 

   
   

 

Amedica Corporation

 

Table of Contents

 

Part I. Financial Information
   
Item 1. Financial Statements
   
Condensed Consolidated Balance Sheet (unaudited) 3
   
Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) 4
   
Condensed Consolidated Statement of Cash Flows (unaudited) 5
   
Notes to Condensed Consolidated Financial Statements (unaudited) 6
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
   
Item 4. Controls and Procedures 19
   
Part II. Other Information  
   
Item 1. Legal Proceedings 20
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
   
Item 3. Defaults Upon Senior Securities 20
   
Item 4. Mine Safety Disclosures 20
   
Item 5. Other Information 20
   
Item 6. Exhibits 21
   
Signatures 22

 

 2 
   

 

Amedica Corporation

Condensed Consolidated Balance Sheets - Unaudited

(in thousands, except share and per share data)

 

   March 31, 2016   December 31, 2015 
Assets          
Current assets:          
Cash and cash equivalents  $7,943   $11,485 
Trade accounts receivable, net of allowance of $28 and $49, respectively   1,848    2,660 
Prepaid expenses and other current assets   705    229 
Inventories, net   8,492    9,131 
Total current assets   18,988    23,505 
           
Property and equipment, net   2,333    2,472 
Intangible assets, net   3,562    3,687 
Goodwill   6,163    6,163 
Other long-term assets   35    35 
Total assets  $31,081   $35,862 
           
Liabilities and stockholders’ equity          
Current liabilities:          
Accounts payable  $982   $643 
Accrued liabilities   3,203    3,421 
Current portion of long-term debt   14,785    16,365 
Total current liabilities   18,970    20,429 
           
Deferred rent   405    432 
Other long-term liabilities   169    171 
Derivative liabilities   604    598 
           
Commitments and contingencies          
Stockholders’ equity:          
Common stock, $0.01 par value; 250,000,000 shares authorized; 11,422,636 and 10,886,248 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively   114    109 
Additional paid-in capital   210,744    210,660 
Accumulated deficit   (199,925)   (196,537)
Total stockholders’ equity   10,933    14,232 
Total liabilities and stockholders’ equity  $31,081   $35,862 

 

See accompanying notes.

 

 3 
   

 

Amedica Corporation

Condensed Consolidated Statements of Operations and Comprehensive Loss - Unaudited

(in thousands, except share and per share data)

 

   Three Months Ended March 31, 
   2016   2015 
Product revenue  $4,173   $4,743 
Costs of revenue   893    1,522 
Gross profit   3,280    3,221 
Operating expenses:          
Research and development   1,608    1,843 
General and administrative   1,562    2,027 
Sales and marketing   2,594    3,357 
Total operating expenses   5,764    7,227 
Loss from operations   (2,484)   (4,006)
Other income (expense):          
Interest expense   (900)   (1,100)
Loss on extinguishment of debt   -    (79)
Change in fair value of derivative liabilities   (11)   (177)
Loss on extinguishment of derivative liabilities   -    (16)
Other expense   7    (3)
Total other income (expense)   (904)   (1,375)
Net loss before income taxes   (3,388)   (5,381)
Provision for income taxes   -    - 
Total comprehensive loss  $(3,388)  $(5,381)
Net loss per share attributable to common stockholders:          
Basic and diluted  $(0.30)  $(3.00)
Weighted average common shares outstanding:          
Basic and diluted   11,193,250    1,795,296 

 

See accompanying notes.

 

 4 
   

 

Amedica Corporation

Condensed Consolidated Statements of Cash Flows - Unaudited

(in thousands)

 

   Three Months Ended March 31, 
   2016   2015 
Cash flow from operating activities          
Net loss  $(3,388)  $(5,381)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation expense   389    428 
Amortization of intangible assets   125    125 
Amortization of lease incentive for tenant improvements   5    5 
Non cash interest expense   405    551 
Loss on extinguishment of debt   -    79 
Stock based compensation   88    592 
Change in fair value of derivative liabilities   6    177 
Loss on extinguishment of derivative liabilities   -    16 
(Gain) loss on disposal of equipment   (4)   3 
Provision for inventory reserve   373    326 
Bad debt recovery   -    (20)
Changes in operating assets and liabilities:          
Trade accounts receivable   813    (35)
Prepaid expenses and other current assets   (476)   (330)
Inventories   263    293 
Accounts payable and accrued liabilities   (64)   200 
Net cash used in operating activities  $(1,465)  $(2,971)
Cash flows from investing activities          
Purchase of property and equipment   (259)   (277)
Proceeds from sale of property and equipment   16    3 
Net cash used in investing activities  $(243)  $(274)
Cash flows from financing activities          
Payments on long-term debt   (1,834)   - 
Purchase of treasury stock   -    (120)
Net cash used in financing activities  $(1,834)  $(120)
Net decrease in cash and cash equivalents   (3,542)   (3,365)
Cash and cash equivalents at beginning of period   11,485    18,247 
Cash and cash equivalents at end of period  $7,943   $14,882 
           
Noncash investing and financing activities          
Debt converted to common stock  $-   $202 
Common stock issued for cashless exercise of warrant derivative liabilities  $-   $739 
Supplemental cash flow information          
Cash paid for interest  $507   $548 

 

See accompanying notes.

 

 5 
   

 

AMEDICA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Organization and Summary of Significant Accounting Policies

 

Organization

 

Amedica Corporation (“Amedica” or “the Company”) was incorporated in the state of Delaware on December 10, 1996. Amedica is a commercial-stage biomaterials company focused on using its silicon nitride technology platform to develop, manufacture, and commercialize a broad range of medical devices. The Company believes it is the first and only manufacturer to use silicon nitride in medical applications. The Company acquired US Spine, Inc. (“US Spine”), a Delaware spinal products corporation with operations in Florida, on September 20, 2010. The Company’s products are sold primarily in the United States.

 

Basis of Presentation

 

These unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Such rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, so long as the statements are not misleading. In the opinion of management, these financial statements and accompanying notes contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position and results of operations for the periods presented herein. These condensed consolidated financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 23, 2016. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016. The Company’s significant accounting policies are set forth in Note 1 to the consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2015.

 

In accordance with the adoption of Accounting Standards Update (“ASU”) 2015-03, the Company’s debt issuance costs have been reclassified to be presented in the Condensed Consolidated Balance Sheets as a direct reduction from the debt liability rather than as an asset.

 

The following is a reconciliation of the effect of these reclassifications on the Company’s Condensed Consolidated Balance Sheet at December 31, 2015 (in thousands):

 

   December 31, 2015 
   As Reported   Adjustments   As Revised 
Assets:               
Prepaid expenses and other current assets  $821   $(592)  $229 
Liabilities:               
Current portion of long-term debt   16,957    (592)   16,365 

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Some of the more significant estimates relate to inventory, stock-based compensation, long-lived and intangible assets and the liability for preferred stock and common stock warrants.

 

Liquidity and Capital Resources

 

For the three months ended March 31, 2016 and 2015, the Company incurred a net loss of $3.4 million and $5.4 million, respectively, and used cash in operations of $1.5 million and $3 million, respectively. The Company had an accumulated deficit of $199.9 million and $196.5 million at March 31, 2016 and December 31, 2015, respectively. To date, the Company’s operations have been principally financed from proceeds from the issuance of preferred and common stock, convertible debt and bank debt and, to a lesser extent, cash generated from product sales. It is anticipated that the Company will continue to generate operating losses and use cash in operations through 2016.

 

 6 
   

 

As discussed further in Note 7, the Company has entered into a term loan with Hercules Technology Growth Capital, Inc. (“Hercules Technology”), as administrative and collateral agent for the lenders thereunder and as lender, and Hercules Technology III, LP, (“HT III” and, together with Hercules Technology, “Hercules”) as lender (the “Hercules Term Loan”). The Hercules Term Loan has a liquidity covenant that requires the Company to maintain a cash balance of not less than $7.0 million at March 31, 2016. At March 31, 2016, the Company’s cash balance was approximately $7.9 million. The Company anticipates that it will need to refinance the note or obtain additional funding early in the third quarter of 2016 to maintain compliance through 2016 with the liquidity covenant related to the Hercules Term Loan. However, if the Company is unable to refinance the note or access additional funds prior to becoming non-compliant with the financial and liquidity covenants related to the Hercules Term Loan, the entire remaining balance of the debt under the Hercules Term Loan could become immediately due and payable at the option of the lender. Although the Company is seeking to refinance the note or obtain additional financing, additional funding may not be available to the Company on favorable or acceptable terms, or at all. Any additional equity financing, if available to the Company, will most likely be dilutive to its current stockholders, and debt financing, if available, may involve more restrictive covenants. The Company’s ability to access capital when needed is not assured and, if not achieved on a timely basis, will materially harm its business, financial condition and results of operations. These uncertainties create substantial doubt about the Company’s ability to continue as a going concern. No adjustment has been made to our financial statements as a result of this uncertainty.

 

See Note 11. Subsequent Events for further discussion with respect to the assignment of $3.0 million of the principal balance of the Hercules Term Loan to Riverside Merchant Partners, LLC (“Riverside”) and the subsequent agreement between the Company and Riverside to exchange the $3.0 million of the Hercules Term Loan held by Riverside for subordinated convertible promissory notes in the aggregate principal amount of $3.0 million.

 

Significant Accounting Policies

 

There have been no significant changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

 

New Accounting Pronouncements

 

In March 2016 the Financial Accounting Standards Board (“FASB”) updated the accounting guidance related to stock compensation. This update simplifies the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company is still evaluating the impact that this standard will have on its consolidated financial statements.

 

In February 2016, the FASB updated the accounting guidance related to leases as part of a joint project with the International Accounting Standards Board (“IASB”) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, a lessee will be required to recognize assets and liabilities for capital and operating leases with lease terms of more than 12 months. Additionally, this ASU will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the potential impact this new standard may have on its financial statements.

 

In August 2014, the FASB updated the accounting guidance related to disclosure of uncertainties about an entity’s ability to continue as a going concern. The new standard provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. It requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern. The new standard is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted. The impact on the Company’s financial statements of adopting the new standard is currently being assessed by management.

 

In May 2014, the FASB updated the accounting guidance related to revenue from contracts with customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle is that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The standard defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, and shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the potential impact of this adoption on its consolidated financial statements.

 

 7 
   

 

2. Basic and Diluted Net Loss per Common Share

 

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method. Dilutive common stock equivalents are comprised of warrants for the purchase of common stock, convertible notes, stock options and unvested restricted stock units. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding because their effect would have been anti-dilutive due to the Company reporting a net loss. The Company had potentially dilutive securities representing approximately 800,000 and 2.9 million shares of common stock at March 31, 2016 and 2015, respectively.

 

3. Inventories

 

The components of inventory were as follows (in thousands):

 

   March 31, 2016   December 31, 2015 
Raw materials  $788   $819 
WIP   229    235 
Finished Goods   7,475    8,077 
Total inventory  $8,492   $9,131 

 

Finished goods include consigned inventory in the amounts of approximately $3.4 million and $3.8 million as of March 31, 2016 and December 31, 2015, respectively.

 

4. Intangible Assets

 

Intangible assets consisted of the following (in thousands):

 

   March 31, 2016   December 31, 2015 
Customer relationships  $3,990   $3,990 
Developed technology   4,685    4,685 
Other patents and patent applications   562    562 
Trademarks   350    350 
Total intangibles   9,587    9,587 
Less accumulated amortization   (6,025)   (5,900)
Total intangibles net of amortization  $3,562   $3,687 

 

Based on the recorded intangibles at March 31, 2016, the estimated amortization expense is expected to be $375,000 during the remainder of 2016 and approximately $501,000 per year through 2020 and $834,000 thereafter.

 

5. Fair Value Measurements

 

Financial Instruments Measured and Recorded at Fair Value on a Recurring Basis

 

The Company measures and records certain financial instruments at fair value on a recurring basis. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

 

  Level 1  - quoted market prices for identical assets or liabilities in active markets.
       
  Level 2  - observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
       
  Level 3  - unobservable inputs reflecting management’s assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

 

 8 
   

 

The Company classifies assets and liabilities measured at fair value in their entirety based on the lowest level of input that is significant to their fair value measurement. No financial assets were measured on a recurring basis at March 31, 2016 and December 31, 2015. The following tables set forth the financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy at March 31, 2016 and December 31, 2015:

 

   Fair Value Measurements at March 31, 2016 
Description  Level 1   Level 2   Level 3   Total 
Derivative liability                    
Common stock warrants  $-   $-   $604   $604 

 

   Fair Value Measurements at December 31, 2015 
Description  Level 1   Level 2   Level 3   Total 
Derivative liability                    
Common stock warrants  $-   $-   $598   $598 

 

The Company did not have any transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy during the three months ended March 31, 2016 and 2015. The following table presents a reconciliation of the derivative liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2016 and 2015:

 

   Common Stock
Warrants
   Preferred
Stock
Warrants
   Conversion
Feature of
Notes
   Total
Derivative
Liability
 
Balance at December 31, 2014  $(11,358)  $-   $(2,612)  $(13,970)
Decrease in liability due to debt conversions   -    -    179    179 
Decrease in liability due to warrants being exercised   723    -    -    723 
Change in fair value   435    -    (612)   (177)
Balance at March 31, 2015  $(10,200)  $-   $(3,045)  $(13,245)
                     
Balance at December 31, 2015  $(598)  $-   $-   $(598)
Increase in fair value included in earnings, as other income   (6)   -    -    (6)
Balance at March 31, 2016  $(604)  $-   $-   $(604)

 

Common Stock Warrants

 

The Company has issued certain warrants to purchase shares of common stock, which are considered mark-to-market liabilities and are re-measured to fair value at each reporting period in accordance with accounting guidance.

 

The assumptions used in estimating the common stock warrant liability at March 31, 2016 and December 31, 2015 were as follows:

 

   March 31,2016   December 31, 2015 
Weighted-average risk free interest rate   1.06%    1.71% 
Weighted-average expected life (in years)   3.55    3.7 
Expected dividend yield   0%    0% 
Weighted average expected volatility   137%    119% 

 

Other Financial Instruments

 

The Company’s recorded values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values based on their short-term nature. The recorded value of notes payable approximates the fair value as the interest rate approximates market interest rates.

 

 9 
   

 

6. Accrued Liabilities

 

Accrued liabilities consisted of the following (in thousands):

 

   March 31, 2016   December 31, 2015 
Commissions  $563   $867 
Payroll and related expenses   359    683 
Royalties   478    515 
Interest payable   237    222 
Final loan payment fees   922    783 
Other   644    351 
Total accrued liabilities  $3,203   $3,421 

 

7. Debt

 

Hercules Term Loan

 

On June 30, 2014, the Company entered into a Loan and Security Agreement with Hercules which provided the Company with a $20 million term loan. The Hercules Term Loan matures on January 1, 2018. The Hercules Term Loan included a $200,000 closing fee, which was paid to Hercules on the closing date of the loan. The closing fee was recorded as a debt discount and is being amortized to interest expense over the life of the loan. The Hercules Term Loan also includes a non-refundable final payment fee of $1.7 million. The final payment fee is being accrued and recorded to interest expense over the life of the loan. The Hercules Term Loan bears interest at the rate of the greater of either (i) the prime rate plus 9.2%, and (ii) 12.5%, and was 12.7% at March 31, 2016. Interest accrues from the closing date of the loan and interest payments are due monthly. Principal payments commenced August 1, 2015 and are to be made in 30 equal installments of approximately $700,000, with the remainder due at maturity. The Company’s obligations to Hercules are secured by a first priority security interest in substantially all of its assets, including intellectual property. The Hercules Term Loan contains certain covenants related to restrictions on payments to certain Company affiliates and financial reporting requirements.

 

On September 8, 2015, the Company entered into a Consent and First Amendment to Loan and Security Agreement (the “Amendment”) with Hercules. The Amendment modified the liquidity covenant to reduce the minimum cash balance required by $500,000 for every $1.0 million paid in principal to a minimum of $2.5 million. The minimum cash and cash equivalents balance required to maintain compliance with the minimum liquidity covenant at March 31, 2016 was $7.0 million. Although the Company was in compliance with the liquidity covenant at March 31, 2016, the Company anticipates that it will be non-compliant with the liquidity covenant early in the third quarter of 2016 if additional financing is not obtained or the loan is not restructured, and has therefore classified the entire obligation as a current liability.

 

See Note 11. Subsequent Events for further discussion with respect to the assignment of $3.0 million of the principal balance of the Hercules Term Loan to Riverside Merchant Partners, LLC (“Riverside”) and the subsequent agreement between the Company and Riverside to exchange the $3.0 million of the Hercules Term Loan held by Riverside for subordinated convertible promissory notes in the aggregate principal amount of $3.0 million.

 

Magna Note

 

In August 2014, the Company entered into a Securities Purchase Agreement with Magna pursuant to which the Company sold to Magna an unsecured promissory note with an aggregate principal amount of $3.5 million (the “Magna Note”). The outstanding principal amount of the Magna Note was $763,000 at March 31, 2016. The Magna Note matures on August 11, 2016, and accrues interest at an annual rate of 6.0%.

 

 10 
   

 

Outstanding long-term debt consisted of the following (in thousands):

 

   March 31, 2016   December 31, 2015 
   Outstanding Principal   Unamortized Discount and Debt Issuance Costs   Net Carrying Amount   Outstanding Principal   Unamortized Discount and Debt Issuance Costs   Net Carrying Amount 
Hercules Term Loan   15,218    (1,186)   14,032    17,051    (1,420)   15,631 
Magna Note   763    (10)   753    763    (29)   734 
Total debt   15,981    (1,196)   14,785    17,814    (1,449)   16,365 
Less: Current portion   (15,981)   1,196    (14,785)   (17,814)   1,449    (16,365)
Long-term debt  $-   $-   $-   $-   $-   $- 

 

The following summarizes by year the future principal payments as of March 31, 2016 (in thousands):

 

Years Ending December 31,  Hercules Term
Loan
   Magna
Note
   Total 
2016  $5,787   $763   $6,550 
2017   8,643    -    8,643 
2018   788    -    788 
Total future principal payments  $15,218   $763   $15,981 

 

8. Equity

 

536,388 shares of common stock were issued upon the cashless exercise of 1,137,365 Series A warrants issued in September 2015. The remaining number of Series A warrants was 100,000 at March 31, 2016.

 

9. Stock-Based Compensation

 

Option and Equity Plans

 

In January 2016, the aggregate number of shares issuable under the 2012 Employee, Director and Consultant Equity Incentive Plan (the “2012 Plan”) was increased by 37,879 to 342,425, in accordance with the 2012 plan.

 

The total number of shares available for grant under the 2012 Plan at March 31, 2016 was 121,248.

 

Stock Options

 

A summary of the Company’s stock option activity for the three months ended March 31, 2016 was as follows:

 

   Options   Weighted-Average
Exercise Price
 
Outstanding at December 31, 2015   112,373   $41.53 
Granted   23,004   $1.69 
Expired   13,702   $24.17 
Outstanding at March 31, 2016   121,675   $35.95 
Exercisable at March 31, 2016   74,859   $60.65 
Vested and expected to vest at March 31, 2016   119,112   $36.50 

 

 11 
   

 

The Company estimates the fair value of each stock option on the grant date using the Black-Scholes-Merton valuation model, which requires several estimates including an estimate of the fair value of the underlying common stock on grant date. The expected volatility was based on an average of the historical volatility of a peer group of similar companies. The expected term was calculated utilizing the simplified method. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The following weighted average assumptions were used in the calculation to estimate the fair value of options granted to employees during the three months ended March 31, 2016 and 2015:

 

   Three Months Ended March 31, 
   2016   2015 
Weighted-average risk-free interest rate   1.86%   1.62% 
Weighted-average expected life (in years)   6.3    6.3 
Expected dividend yield   0%   0% 
Weighted-average expected volatility   65%   46% 

 

Summary of Stock-Based Compensation Expense

 

Total stock-based compensation expense included in the condensed consolidated statements of operations and comprehensive loss was allocated as follows (in thousands):

 

   Three Months Ended March 31, 
   2016   2015 
Cost of revenue  $4   $29 
Research and development   29    122 
General and administrative   40    328 
Selling and marketing   15    142 
Capitalized into inventory   2    39 
Total stock-based compensation expense  $90   $660 

 

Unrecognized stock-based compensation at March 31, 2016 was as follows (in thousands):

 

   Unrecognized Stock-Based Compensation   Weighted Average Remaining Period of Recognition (in years) 
Stock options  $435    1.7 

 

10. Commitments and Contingencies

 

On April 1, 2016, Hampshire MedTech Partners II, GP (“Hampshire GP”) filed suit against the Company in the Travis County, Texas 200th Judicial District Court relating to a Warrant to Purchase Shares of Common Stock issued to Hampshire MedTech Partners II, LP (“Hampshire LP”) on November 6, 2014 (the “Warrant”). Hampshire GP alleges that as a result of a subsequent financing the Company breached the anti-dilution provision of the Warrant by failing to increase the number of shares subject to the Warrant as well as failing to reduce the exercise price of the Warrant. Hampshire GP seeks damages in excess of $1,000,000. The Company has not yet answered Hampshire GP’s complaint and intends to vigorously defend itself in this suit.

 

From time to time, the Company is subject to other various claims and legal proceedings covering matters that arise in the ordinary course of its business activities. Management believes any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on the Company’s consolidated financial position, operating results or cash flows.

 

11. Subsequent Events

 

Hercules and Riverside Debt Assignment

 

On April 4, 2016, the Company entered into an Assignment and Second Amendment to Loan and Security Agreement (the “Assignment Agreement”) with Riverside Merchant Partners, LLC (“Riverside”), and Hercules, pursuant to which Hercules sold $1.0 million of the principal amount outstanding under the Hercules Term Loan, as amended to Riverside. In addition, pursuant to the terms of the Assignment Agreement, Riverside acquired an option to purchase an additional $2.0 million of the principal amount outstanding under the Hercules Term Loan from Hercules. On April 18, 2016, Riverside purchased an additional $1.0 million of the principal amount of the Hercules Term Loan and on April 27, 2016, Riverside purchased an additional $1.0 million of the principal amount of the Hercules Term Loan from Hercules.

 

Riverside Debt Exchange

 

On April 4, 2016, the Company entered into an exchange agreement (the “Exchange Agreement”) with Riverside, pursuant to which the Company agreed to exchange $1.0 million of the principal amount outstanding under the Hercules Term Loan held by Riverside for a subordinated convertible promissory note in the principal amount of $1.0 million (the “First Exchange Note”) and a warrant to purchase 100,000 shares of common stock of the Company at a fixed exercise price of $1.62 per share (the “First Exchange Warrant”) (the “Exchange”). In addition, pursuant to the terms and conditions of the Exchange Agreement, the Company and Riverside had the option to exchange an additional $2.0 million of the principal amount of the Hercules Term Loan for an additional subordinated convertible promissory note in the principal amount of up to $2.0 million and an additional warrant to purchase 100,000 shares of common stock (the “Second Exchange Warrant”). On April 18, 2016, the Company and Riverside exercised their option to exchange an additional $1.0 million of the principal amount of the Hercules Term Loan for an additional subordinated convertible promissory note in the principal amount of $1.0 million (the “Second Exchange Note”). Additionally, on April 27, 2016, the Company and Riverside exercised their option to exchange an additional $1.0 million of the principal amount of the Term Loan for an additional subordinated convertible promissory note in the principal amount of $1.0 million (the “Third Exchange Note”) and an additional warrant to purchase 100,000 shares of the Company’s common stock at a fixed exercise price of $1.66 per share. The First Exchange Note, the Second Exchange Note and the Third Exchange Note are collectively referred to herein as the “Exchange Notes.”

 

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All principal accrued under the Exchange Notes is convertible into shares of common stock at the election of the Holder at any time at a fixed conversion price of $1.43 per share (the “Conversion Price”). All principal outstanding under each of the Exchange Notes will be due on April 3, 2018 (the “Maturity Date”). Each of the Exchange Notes bears interest at a rate of 6% per annum, with the interest that would accrue on the initial principal amount of the Exchange Notes during the first 12 months being guaranteed and deemed earned as of the date of issuance. Prior to the Maturity Date, all interest accrued under the Exchange Notes is payable in cash or, if certain conditions are met, payable in shares of common stock at the Company’s option, at a conversion price of $1.34 per share.

 

Pursuant to the terms of the Third Exchange Note, since the volume-weighted average price of the Company’s common stock was less than the Conversion Price on May 6, 2016, the Company issued an additional 140,000 shares of common stock (the “True-Up Shares”) to Riverside.

 

As of May 13, 2016, the entire principal amount of the First and Second Exchange Notes, $200,000 of the Third Exchange Note, and the interest related to the First, Second, and Third Exchange Notes has been converted into 1,672,788 shares of common stock leaving the total principal balance outstanding under the Exchange Notes at $800,000.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements for the year ended December 31, 2015 and the notes thereto, along with Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 31, 2015, filed separately with the U.S. Securities and Exchange Commission. This discussion and analysis contains forward-looking statements based upon current beliefs, plans, expectations, intentions and projections that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2015, and any updates to those risk factors filed from time to time in our Quarterly Reports on Form 10-Q.

 

Overview

 

We are a commercial biomaterial company focused on using our silicon nitride ceramic technology platform to develop, manufacture and sell a broad range of medical devices. We currently market spinal fusion products made with our silicon nitride biomaterial technology and are developing a new generation of wear- and corrosion-resistant implant components for hip and knee arthroplasty also manufactured from our silicon nitride biomaterial. We believe our silicon nitride technology platform enables us to offer new and transformative products in the orthopedic and other medical device markets. We believe we are the first and only company to use silicon nitride in medical applications. More than 25,000 of our silicon nitride spine products have been implanted in patients.

 

Biomaterials come in an array of synthetic or natural materials available in a variety of forms that are used in virtually every medical specialty. We believe our silicon nitride biomaterial has superior characteristics compared to commonly used biomaterials in the markets we are targeting, including polyetheretherketone (“PEEK”), which is the most common biomaterial used for interbody spinal fusion products. Specifically, we believe our silicon nitride has the following key attributes: promotion of bone growth; antibacterial properties; superior biocompatibility; hardness, strength and resistance to fracture; resistance to wear; non-corrosive; and superior diagnostic imaging compatibility.

 

We currently market our Valeo™ family of silicon nitride interbody spinal fusion devices in the United States, Europe and Brazil for use in the cervical and thoracolumbar areas of the spine. We believe our Valeo devices have a number of advantages over existing products due to silicon nitride’s key characteristics, resulting in faster and more effective fusion and reduced risk of infection.

 

In addition to our silicon nitride-based spinal fusion products, we market a line of non-silicon nitride spinal surgery products which allows us to provide surgeons and hospitals with a more complete solution for spinal procedures. These additional products are complementary to our fusion products and are designed for the treatment of deformity and degenerative spinal procedures. Although our non-silicon nitride products have accounted for approximately 46% and 44% of our product revenues for the quarters ended March 31, 2016 and 2015, respectively, we believe the continued promotion and potential for adoption of our silicon nitride products and product candidates, if approved, provides us the greatest opportunity to grow our business in new and existing markets and achieve our goal to become a leading biomaterial company.

 

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In addition to the markets into which we directly sell our products, we are utilizing our silicon nitride technology platform to expand our current penetration in the spinal fusion market through original equipment manufacturer (“OEM”) and private label partnerships. We also expect to do the same in other markets such as total hip and knee joint replacements, dental, extremities, trauma, and sports medicine. We believe our biomaterial expertise, strong intellectual property, and formulaic manufacturing process will allow us to transition currently available medical device products made of inferior biomaterials and manufacture them using our proprietary silicon nitride formulation and technology platform to improve their characteristics. We believe the OEM and private label partnerships we will continue to develop will lead to an accelerated adoption of silicon nitride for medical applications and offer the Company incremental revenue at improved operating margins as compared to our existing distributor spine sales.

 

We are also incorporating our silicon nitride technology into components for use in total hip and knee replacement product candidates that we plan on developing in collaboration with a strategic partner. We believe that our silicon nitride total hip and knee product candidates will provide competitive advantages over current products made with traditional biomaterials. We also believe our silicon nitride technology platform can be used for developing products in other markets and have developed prototypes for use in the dental, sports medicine, extremities, and trauma markets. As a result of some of the key characteristics of our silicon nitride, we also believe our coating technology may be used to enhance our metal products as well as commercially available metal spinal fusion, joint replacement and other medical products.

 

We operate a 30,000 square foot manufacturing facility located at our corporate headquarters in Salt Lake City, Utah, and we are the only vertically integrated silicon nitride medical device manufacturer in the world. We market and sell our products to surgeons and hospitals in the United States and select markets in Europe and South America through an established network of more than 50 independent sales distributors who are managed by our experienced in-house sales and marketing management team.

 

Recent Developments

 

Hercules and Riverside Debt Assignment

 

In April 2016, we entered into an Assignment Agreement with Riverside, and Hercules, pursuant to which Hercules sold $3.0 million of the principal amount outstanding under the Hercules Term Loan to Riverside. For a more detailed description of the Assignment Agreement refer to Note 11 Subsequent Events in the consolidated financial statements of this Report.

 

Riverside Debt Exchange

 

In April 2016, we entered into an exchange agreement with Riverside, which resulted in the exchange of $3.0 million of the principal amount outstanding under the Hercules Term Loan held by Riverside for three subordinated convertible promissory notes each in the principal amount of $1.0 million. Pursuant to the terms and conditions of the exchange we offered a warrant to purchase 100,000 shares of the Company’s common stock at a fixed exercise price of $1.62 per share and a warrant to purchase an additional 100,000 shares of the Company’s common stock at a fixed exercise price of $1.66 per share.

 

All principal accrued under the Exchange Notes is convertible into shares of the Company’s common stock at the election of the Holder at any time at a fixed conversion price of $1.43 per share. All principal outstanding under each of the Exchange Notes will be due on March 3, 2018. Each of the Exchange Notes bears interest at a rate of 6% per annum, with the interest that would accrue on the initial principal amount of the Exchange Notes during the first 12 months being guaranteed and deemed earned as of the date of issuance. Prior to the Maturity Date, all interest accrued under the Exchange Notes is payable in cash or, if certain conditions are met, payable in shares of common stock at the Company’s option, at a conversion price of $1.34 per share.

 

Pursuant to the terms of the Third Exchange Note, since the volume-weighted average price of the Company’s common stock was less than the Conversion Price on May 6, 2016, the Company issued an additional 140,000 shares of common stock (the “True-Up Shares”) to Riverside.

 

Each of the First and Second Exchange Warrants will be exercisable commencing on the six month and one day anniversary of the date of issuance and will remain exercisable until the close of business on the five year anniversary of the date of issuance, but not thereafter. If the shares underlying the Exchange Warrants are not registered for resale with the Securities and Exchange Commission, the Exchange Warrants will be exercisable on a cashless basis.

 

As of May 13, 2016, the entire principal amount of the First and Second Exchange Notes, $0.2 million of the Third Exchange Note, and the interest related to the First, Second, and Third Exchange Notes has been converted into 1,672,788 shares of common stock leaving the total principal balance outstanding under the Exchange Notes at $0.8 million.

 

For a more detailed description of the Riverside Debt Exchange refer to Note 11 Subsequent Events in the consolidated financial statements of this Report.

 

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Components of our Results of Operations

 

We manage our business within one reportable segment, which is consistent with how our management reviews our business, makes investment and resource allocation decisions and assesses operating performance.

 

Product Revenue

 

We derive our product revenue primarily from the sale of spinal fusion devices and related products used in the treatment of spine disorders. Our product revenue is generated from sales to three types of customers: (1) surgeons and hospitals; (2) stocking distributors; and (3) private label customers. Most of our products are sold on a consignment basis through a network of independent sales distributors; however, we also sell our products to independent stocking distributors and private label customers. Product revenue is recognized when all four of the following criteria are met: (1) persuasive evidence that an arrangement exists; (2) delivery of the products has occurred; (3) the selling price of the product is fixed or determinable; and (4) collectability is reasonably assured. We generate the majority of our revenue from the sale of inventory that is consigned to independent sales distributors that sell our products to surgeons and hospitals. For these products, we recognize revenue at the time we are notified the product has been used or implanted and all other revenue recognition criteria have been met. For all other transactions, we recognize revenue when title and risk of loss transfer to the stocking distributor or private label customers, and all other revenue recognition criteria have been met. We generally recognize revenue from sales to stocking distributors and private label customers at the time the product is shipped to the distributor. Stocking distributors, who sell the products to their customers, take title to the products and assume all risks of ownership at time of shipment. Our stocking distributors are obligated to pay within specified terms regardless of when, if ever, they sell the products. Our policy is to classify shipping and handling costs billed to customers as an offset to total shipping expense in the statement of operations, primarily within sales and marketing. In general, our customers do not have any rights of return or exchange.

 

We believe our product revenue from the sale of our silicon nitride based products will increase due to our sales and marketing efforts and as we introduce new silicon nitride based products into the market and our product revenue from the sale of our non-silicon nitride products to remain flat. We expect that our product revenue will continue to be primarily attributable to sales of our products in the United States.

 

Cost of Revenue

 

The expenses that are included in cost of revenue include all direct product costs if we obtained the product from third-party manufacturers and our in-house manufacturing costs for the products we manufacture. We obtain our non-silicon nitride products, including our metal and orthobiologic products, from third-party manufacturers, while we currently manufacture our silicon-nitride products in-house.

 

Specific provisions for excess or obsolete inventory are also included in cost of revenue. In addition, we pay royalties attributable to the sale of specific products to some of our surgeon advisors that assisted us in the design, regulatory clearance or commercialization of a particular product. These payments are recorded as cost of revenue.

 

Gross Profit

 

Our gross profit measures our product revenue relative to our cost of revenue. We expect our gross profit to decrease as we expand the penetration of our silicon nitride technology platform through OEM and private label partnerships.

 

Research and Development Expenses

 

Our net research and development costs are expensed as incurred. Research and development costs consist of engineering, product development, clinical trials, test-part manufacturing, testing, developing and validating the manufacturing process, manufacturing, facility and regulatory-related costs. Research and development expenses also include employee compensation, employee and non-employee stock-based compensation, supplies and materials, consultant services, and travel and facilities expenses related to research activities. To the extent that certain research and development expenses are directly related to our manufactured products, such expenses and related overhead costs are allocated to inventory.

 

We expect to incur additional research and development costs as we continue to develop new spinal fusion products, our product candidates for total joint replacements, such as our total hip replacement product candidate, and our silicon nitride-coated metals which may increase our total research and development expenses.

 

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Sales and Marketing Expenses

 

Sales and marketing expenses consist of salaries, benefits and other related costs, including stock-based compensation, for personnel employed in sales, marketing, medical education and training. In addition, our sales and marketing expenses include commissions and bonuses, generally based on a percentage of sales, to our sales managers and independent sales distributors. We provide our products in kits or banks that consist of a range of device sizes and separate instruments sets necessary to perform the surgical procedure. We generally consign our instruments to our distributors or our hospital customers that purchase the device used in spinal fusion surgery. Our sales and marketing expenses include depreciation of the surgical instruments.

 

We expect our sales and marketing expenses will remain flat or slightly decline due to the cost saving measures implemented during the first quarter. Additionally, we expect our commissions to increase in absolute terms over time but remain approximately the same or decrease as a percentage of product revenue.

 

General and Administrative Expenses

 

General and administrative expenses primarily consist of salaries, benefits and other related costs, including stock-based compensation, for certain members of our executive team and other personnel employed in finance, legal, compliance, administrative, information technology, customer service, executive and human resource departments. General and administrative expenses include allocated facility expenses, related travel expenses and professional fees for accounting and legal services.

 

We expect our general and administrative expenses to remain relatively flat.

 

RESULTS OF OPERATIONS

 

The following is a tabular presentation of our condensed consolidated operating results for the three months ended March 31, 2016 and 2015 (in thousands):

 

   Three Months Ended March 31,         
   2016   2015   $ Change   % Change 
Product revenue  $4,173   $4,743   $(570)   (12)% 
Costs of revenue   893    1,522    (629)   (41)% 
Gross profit   3,280    3,221    59    2% 
Operating expenses:                    
Research and development   1,608    1,843    (235)   (13)% 
General and administrative   1,562    2,027    (465)   (23)% 
Sales and marketing   2,594    3,357    (763)   (23)% 
Total operating expenses   5,764    7,227    (1,463)   (20)% 
Loss from operations   (2,484)   (4,006)   1,522    38% 
Other income (expense), net   (904)   (1,375)   471    34% 
Net loss before income taxes   (3,388)   (5,381)   1,993    37% 
Provision for income taxes   -    -    -      
Net loss  $(3,388)  $(5,381)  $1,993    37% 

 

Product Revenue

 

The following table sets forth our product revenue from sales of the indicated product category for the three months ended March 31, 2016 and 2015 (in thousands):

 

   Three Months Ended March 31,         
   2016   2015   $ Change   % Change 
Silicon Nitride  $2,238   $2,658   $(420)   (16)%
Non-Silicon Nitride   1,935    2,085    (150)   (7)%
Total product revenue  $4,173   $4,743   $(570)   (12)%

 

For the three months ended March 31, 2016, total product revenue was $4.2 million as compared to $4.7 million in the same period 2015, a decrease of $0.5 million, or 12%. This decrease was due to lower private label sales during the quarter and weaker than expected commercial sales in a key geographic area during the implementation of our commercial sales expansion strategy. The decrease in revenue for the three months ended March 31, 2016 was also attributable, in part, to continued market pricing pressure and hospital vendor consolidation.

 

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The following table sets forth, for the periods indicated, our product revenue by geographic area (in thousands):

 

   Three Months Ended March 31,         
   2016   2015   $ Change   % Change 
Domestic  $4,009   $4,732   $(723)   (15)% 
International   164    11    153    1,391% 
Total product revenue  $4,173   $4,743   $(570)   (12)% 

 

International revenue increased $0.2 million during the three months ended March 31, 2016 as compared to the same periods in 2015, primarily as a result of increased sales of our silicon nitride products in Brazil and Europe.

 

Cost of Revenue and Gross Profit

 

For the three months ended March 31, 2016, our cost of revenue decreased $0.6 million, or 41%, as compared to the same period in 2015. The decrease was primarily due to the decline in sales and the moratorium on the medical device excise tax in addition to receiving a refund for the medical device excise tax. Furthermore, there was minimal private label revenue during the three months ended March 31, 2016 resulting in increased gross profit during the three months ended March 31, 2016 as compared to the same period in 2015.

 

Research and Development Expenses

 

For the three months ended March 31, 2016, research and development expenses decreased $0.2 million, or 13%, as compared to the same period in 2015. This decrease was primarily attributable to a $0.5 million decrease in personnel related expenses and a $0.1 million decrease of stock compensation expense. These improvements were offset by an increase of $0.3 million of costs that were not capitalized to inventory due to lower inventory production rates in 2016 as compared to 2015.

 

General and Administrative Expenses

 

For the three months ended March 31, 2016, general and administrative expenses decreased $0.5 million, or 23%, as compared to the same period in 2015. This decrease was primarily attributable to a $0.3 million decrease in personnel related expenses and a $0.3 million decrease in stock compensation expense. These improvements were offset, in part, by a $0.1 million increase in patent related expenses during the quarter.

 

Sales and Marketing Expenses

 

For the three months ended March 31, 2016, sales and marketing expenses decreased $0.8 million, or 23%, as compared to the same period in 2015. This decrease was primarily attributable to a $0.4 million decrease in personnel related expenses, a decrease of $0.1 million of stock compensation expense, and a decrease of $0.3 million in commissions due to lower sales.

 

Other Income (Expense), Net

 

For the three months ended March 31, 2016, other expense decreased $0.5 million, or 34%, as compared to the same period in 2015. This decrease was primarily due to a net decrease of $0.2 million in the change in fair value of derivative liabilities due to the significant reduction in the balance of our derivative liabilities and a decrease of $0.2 million in interest expense as a result of lower debt balances. Additionally, there was a decrease of $0.1 million from a loss on extinguishment of debt during three months ended March 31, 2015.

 

Liquidity and Capital Resources

 

For the three months ended March 31, 2016 and 2015, we incurred a net loss of $3.4 million and $5.4 million, respectively, and used cash in operations of $1.5 million and $3.0 million, respectively. We have an accumulated deficit of $199.9 million as of March 31, 2016. To date, our operations have been principally financed from proceeds from the issuance of convertible preferred stock and common stock, convertible debt and bank debt and, to a lesser extent, cash generated from product sales. As of March 31, 2016, we had approximately $7.9 million in cash and cash equivalents.

 

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We will need to, from time-to-time, seek additional financing through the issuance of common stock and/or debt, to satisfy our debt obligations and financial covenants, meet our working capital requirements, make continued investment in research and development and make capital expenditures needed for us to maintain and expand our business. We anticipate we will need to obtain additional funding early in the third quarter of 2016 to maintain compliance with the financial and liquidity covenants related to the Hercules Term Loan. If the Company is unable to access additional funds prior to becoming non-compliant with the financial and liquidity covenants related to the Hercules Term Loan, the entire remaining balance of the debt under the Hercules Term Loan could become immediately due and payable at the option of Hercules Technology. We may not be able to obtain additional financing on terms favorable to us, if at all. It is also possible that we may allocate significant amounts of capital toward solutions or technologies for which market demand is lower than anticipated and, as a result, abandon such efforts. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, or if we expend capital on projects that are not successful, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, or we may even have to scale back our operations. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock

 

Going Concern

 

Our ability to access capital when needed is not assured and, if not achieved on a timely basis, will materially harm our business, financial condition and results of operations. These uncertainties create substantial doubt about our ability to continue as a going concern. Our independent registered public accounting firm included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern in their report on our annual financial statements for the fiscal year ended December 31, 2015. The financial information throughout this quarterly report have been prepared on a basis which assumes that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. This financial information and statements do not include any adjustments that may result from the outcome of this uncertainty.

 

Cash Flows

 

The following table summarizes, for the periods indicated, cash flows from operating, investing and financing activities (in thousands):

 

   Three Months Ended March 31, 
   2016   2015 
Net cash used in operating activities  $(1,465)  $(2,971)
Net cash used in investing activities   (243)   (274)
Net cash used in financing activities   (1,834)   (120)
Net cash used  $(3,542)  $(3,365)

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities decreased $1.5 million to $1.5 million during the three months ended March 31, 2016, from $3.0 million for the same period in 2015. The decrease in cash used in operating activities during 2016 was primarily due to an overall decrease of $1.1 million in operational expenditures as we continue to focus our efforts to reduce costs. Additionally, accounts receivable decreased $0.8 million, which was offset by an increase of $0.4 million in accounts payable and prepaid expenses.

 

Net Cash Used in Investing Activities

 

Net cash used in investing activities during the three months ended March 31, 2016 was consistent with the level of cash used in the same period 2015. This cash was used to replenish our inventory of instrumentation.

 

Net Cash Used in Financing Activities

 

Net cash used in financing activities was $1.8 million during the three months ended March 31, 2016, compared to $0.1 million used during the same period in 2015. This increase in net cash used by financing activities in 2016 was primarily attributable to principal payments made on our notes payable.

 

Indebtedness

 

Hercules Term Loan

 

On June 30, 2014, we entered into a Loan and Security Agreement with Hercules which provided the Company with a $20 million term loan. The Hercules Term Loan matures on January 1, 2018. The Hercules Term Loan included a $200,000 closing fee, which was paid to Hercules on the closing date of the loan. The closing fee was recorded as a debt discount and is being amortized to interest expense over the life of the loan. The Hercules Term Loan also includes a non-refundable final payment fee of $1.7 million. The final payment fee is being accrued and recorded to interest expense over the life of the loan. The Hercules Term Loan bears interest at the rate of the greater of either (i) the prime rate plus 9.2%, and (ii) 12.5%, which was 12.7% at March 31, 2016. Interest accrues from the closing date of the loan and interest payments are due monthly. Principal payments commenced August 1, 2015 and are to be made in 30 equal installments of approximately $700,000, with the remainder due at maturity. The Company’s obligations to Hercules are secured by a first priority security interest in substantially all of its assets, including intellectual property. The Hercules Term Loan contains certain covenants related to restrictions on payments to certain Company affiliates and financial reporting requirements.

 

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On September 8, 2015, we entered into a Consent and First Amendment to Loan and Security Agreement with Hercules. The Amendment modified the liquidity covenant to reduce the minimum cash balance required by $500,000 for every $1.0 million paid in principal to a minimum of $2.5 million. The minimum cash and cash equivalents balance required to maintain compliance with the minimum liquidity covenant at March 31, 2016 was $7.0 million. Although the Company was in compliance with the liquidity covenant at March 31, 2016, we anticipate that we will be non-compliant with the liquidity covenant early in the third quarter of 2016 if additional financing is not obtained or the loan is not restructured, and has therefore classified the entire obligation as a current liability.

 

As discussed previously in Recent Developments under the headings “Hercules and Riverside Debt Assignment”, Hercules sold $3.0 million in principal of its term loan to Riverside during April 2016. Following the assignment, the monthly principal payments were reduced to approximately $500,000. See additional information above in Recent Developments under the headings, “Hercules and Riverside Debt Assignment” and “Riverside Debt Exchange.”

 

Magna Note

 

The outstanding principal amount of the Magna Note was $763,000 at March 31, 2016. The Magna Note matures on August 11, 2016, and accrues interest at an annual rate of 6.0%. We have agreed to pay an additional $0.8 million to redeem in full the remaining principal balance and interest if the Company receives gross proceeds of $3.6 million from the sale of equity securities.

 

Riverside Debt Exchange

 

For a description of our indebtedness to Riverside, see information above under the heading in Recent Developments “Riverside Debt Exchange.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements, as defined in Item 303(a)(4) of Regulation S-K.

 

Critical Accounting Policies and Estimates

 

A summary of our significant accounting policies and estimates is discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015. There have been no material changes to those policies during the three months ended March 31, 2016. The preparation of the financial statements in accordance with U.S. generally accepted accounting principles requires us to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets and liabilities. Significant areas of uncertainty that require judgments, estimates and assumptions include the accounting for income taxes and other contingencies as well as valuation of derivative liabilities, asset impairment and collectability of accounts receivable. We use historical and other information that we consider to be relevant to make these judgments and estimates. However, actual results may differ from those estimates and assumptions that are used to prepare our financial statements.

 

New Accounting Pronouncements

 

See discussion under Note 1, Organization and Summary of Significant Accounting Policies, to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q, for information on new accounting pronouncements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

This Report includes the certifications of our Chief Executive Officer and Principal Accounting Officer required by Rule 13a-14 of the Securities Exchange Act of 1934 (the “Exchange Act”). See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.

 

 19 
   

 

Evaluation of Disclosure Controls and Procedures

 

Our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in rules and forms adopted by the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Principal Accounting Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

In connection with the preparation of this report, our management, under the supervision and with the participation of our Chief Executive Officer and our Principal Accounting Officer, evaluated the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Principal Financial and Accounting Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2016.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the first quarter of 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II

 

ITEM 1. LEGAL PROCEEDINGS

 

On April 1, 2016, Hampshire MedTech Partners II, GP (“Hampshire GP”) filed suit against us in the Travis County, Texas 200th Judicial District Court relating to a Warrant to Purchase Shares of Common Stock issued by us to Hampshire MedTech Partners II, LP (“Hampshire LP”) on November 6, 2014 (the “Warrant”). Hampshire GP alleges that as a result of a subsequent financing we breached the anti-dilution provision of the Warrant by failing to increase the number of shares subject to the Warrant as well as failing to reduce the exercise price of the Warrant. Hampshire GP seeks damages in excess of $1,000,000. We have not yet answered Hampshire GP’s complaint and we intend to vigorously defend ourselves in this suit.

 

We are not aware of any other pending or threatened legal proceeding against us that could have a material adverse effect on our business, operating results or financial condition. The medical device industry is characterized by frequent claims and litigation, including claims regarding patent and other intellectual property rights as well as improper hiring practices. As a result, we may be involved in various additional legal proceedings from time to time.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Unregistered Sales of Equity Securities

 

From, April 6, 2016 to May 13, 2016 the Company issued Riverside Merchant Partners, LLC (“Riverside”) a total of 1,812,788 shares of common stock in connection with the conversion of $2.4 million in convertible debt principal and interest held by Riverside. The recipient is an accredited investor and the issuance was exempt from registration under the Securities Act of 1933 in reliance on exemptions provided by Section 4(2) of the Act.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

 20 
   

 

ITEM 6. EXHIBITS

 

Exhibit
Number
  Exhibit Description   Filed
Herewith
  Incorporated
by Reference
herein from
Form or
Schedule
  Filing Date   SEC File/
Reg. Number
                     
4.1   Common Stock Purchase Warrant       Form 8-K   04/05/2016   001-33624
                     
10.1   Assignment and Second Amendment to Loan and Security Agreement, dated April 4, 2016, by and among the Company Riverside Merchant Partners, LLC, Hercules Technology III, L.P. and Hercules Capital, Inc., the financial institutions signatory thereto, Amedica Corporation, and the guarantors signatory thereto       Form 8-K   04/05/2016   001-33624
                     
10.2   Exchange Agreement dated April 4, 2016, by and among Amedica Corporation and Riverside Merchant Partners, LLC       Form 8-K   04/05/2016   001-33624
                     
10.3   Subordinated Convertible Promissory Note, dated April 4, 2016, by and among Amedica Corporation and Riverside Merchant Partners, LLC       Form 8-K   04/05/2016   001-33624
                     
31.1   Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   X            
                     
31.2   Certificate of the Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   X            
                     
101.INS   XBRL Instance Document   X            
                     
101.SCH   XBRL Taxonomy Extension Schema Document   X            
                     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document   X            
                     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document   X            
                     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document   X            
                     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document   X            

 

 21 
   

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  AMEDICA CORPORATION
   
Date: May 13, 2016 /s/ B. Sonny Bal
  B. Sonny Bal
  Chief Executive Officer
(Principal Executive Officer)
   
Date: May 13, 2016 /s/ Ty A. Lombardi
  Ty A. Lombardi
  Chief Financial Officer
(Principal Financial and Accounting Officer)

 

 22 
   

 

EX-31.1 2 ex31-1.htm

 

Exhibit 31.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

 

I, B. Sonny Bal, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Amedica Corporation;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 13, 2016 By: /s/ B. Sonny Bal
    B. Sonny Bal
    Chief Executive Officer

 

  
   

 

 

EX-31.2 3 ex31-2.htm

 

Exhibit 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

 

I, Ty A. Lombardi, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Amedica Corporation;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 13, 2016 By: /s/ Ty A. Lombardi
    Ty A. Lombardi
    Chief Financial Officer

 

  
   

 

 

 

EX-32 4 ex32.htm

 

Exhibit 32

 

CERTIFICATIONS UNDER SECTION 906

 

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Amedica Corporation., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

 

The quarterly report for the quarter ended March 31, 2016 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 13, 2016 By: /s/ B. Sonny Bal
    B. Sonny Bal
    Chief Executive Officer
     
Date: May 13, 2016 By: /s/ Ty A. Lombardi
    Ty A. Lombardi
    Chief Financial Officer

 

  
   

 

 

 

 

 

 

 

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MagnaNoteMember Assets, Current Assets [Default Label] Liabilities, Current Stockholders' Equity Attributable to Parent Liabilities and Equity Gross Profit Operating Expenses Operating Income (Loss) Interest Expense, Other Other Expenses Nonoperating Income (Expense) Income (Loss) from Continuing Operations before Equity Method Investments, Income Taxes, Noncontrolling Interest Weighted Average Number of Shares Outstanding, Basic and Diluted Gain (Loss) on Disposition of Property Plant Equipment Increase (Decrease) in Accounts Receivable Increase (Decrease) in Prepaid Expense and Other Assets Increase (Decrease) in Inventories Net Cash Provided by (Used in) Operating Activities Payments to Acquire Property, Plant, and Equipment Net Cash Provided by (Used in) Investing Activities Repayments of Long-term Debt Payments for Repurchase of Common Stock Net Cash Provided by (Used in) Financing Activities Cash and Cash Equivalents, Period Increase (Decrease) Finite-Lived Intangible Assets, Accumulated Amortization Fair Value, Measurement with Unobservable Inputs Reconciliations, Recurring Basis, Liability Value Debt Instrument, Unamortized Discount DebtInstrumentFaceAmountCurrent Debt Instrument, Unamortized Discount, Current Debt Instrument, Unamortized Discount, Noncurrent Long-term Debt, Excluding Current Maturities Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number Share-based Compensation Arrangement by Share-based Payment Award, Options, Expirations in Period Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Number Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Weighted Average Exercise Price Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate EX-101.PRE 10 amda-20160331_pre.xml XBRL PRESENTATION FILE XML 11 R1.htm IDEA: XBRL DOCUMENT v3.4.0.3
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2016
May. 13, 2016
Document And Entity Information    
Entity Registrant Name AMEDICA Corp  
Entity Central Index Key 0001269026  
Document Type 10-Q  
Document Period End Date Mar. 31, 2016  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   13,236,071
Trading Symbol AMDA  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2016  
XML 12 R2.htm IDEA: XBRL DOCUMENT v3.4.0.3
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Current assets:    
Cash and cash equivalents $ 7,943 $ 11,485
Trade accounts receivable, net of allowance of $28 and $49, respectively 1,848 2,660
Prepaid expenses and other current assets 705 229
Inventories, net 8,492 9,131
Total current assets 18,988 23,505
Property and equipment, net 2,333 2,472
Intangible assets, net 3,562 3,687
Goodwill 6,163 6,163
Other long-term assets 35 35
Total assets 31,081 35,862
Current liabilities:    
Accounts payable 982 643
Accrued liabilities 3,203 3,421
Current portion of long-term debt 14,785 16,365
Total current liabilities 18,970 20,429
Deferred rent 405 432
Other long-term liabilities 169 171
Derivative liabilities 604 598
Stockholders’ equity:    
Common stock, $0.01 par value; 250,000,000 shares authorized; 11,422,636 and 10,886,248 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively 114 109
Additional paid-in capital 210,744 210,660
Accumulated deficit (199,925) (196,537)
Total stockholders’ equity 10,933 14,232
Total liabilities and stockholders’ equity $ 31,081 $ 35,862
XML 13 R3.htm IDEA: XBRL DOCUMENT v3.4.0.3
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Statement of Financial Position [Abstract]    
Allowance of trade accounts receivable $ 28 $ 49
Common stock, per share $ 0.01 $ 0.01
Common stock, authorized, shares 250,000,000 250,000,000
Common stock, issued, shares 11,422,636 10,886,248
Common stock, outstanding, shares 11,422,636 10,886,248
XML 14 R4.htm IDEA: XBRL DOCUMENT v3.4.0.3
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Income Statement [Abstract]    
Product revenue $ 4,173 $ 4,743
Costs of revenue 893 1,522
Gross profit 3,280 3,221
Operating expenses:    
Research and development 1,608 1,843
General and administrative 1,562 2,027
Sales and marketing 2,594 3,357
Total operating expenses 5,764 7,227
Loss from operations (2,484) (4,006)
Other income (expense):    
Interest expense $ (900) (1,100)
Loss on extinguishment of debt (79)
Change in fair value of derivative liabilities $ (11) (177)
Loss on extinguishment of derivative liabilities (16)
Other expense $ 7 (3)
Total other income (expense) (904) (1,375)
Net loss before income taxes $ (3,388) $ (5,381)
Provision for income taxes
Total comprehensive loss $ (3,388) $ (5,381)
Net loss per share attributable to common stockholders:    
Basic and diluted $ (0.30) $ (3.00)
Weighted average common shares outstanding:    
Basic and diluted 11,193,250 1,795,296
XML 15 R5.htm IDEA: XBRL DOCUMENT v3.4.0.3
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Cash flow from operating activities    
Net loss $ (3,388) $ (5,381)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation expense 389 428
Amortization of intangible assets 125 125
Amortization of lease incentive for tenant improvements 5 5
Non cash interest expense $ 405 551
Loss on extinguishment of debt 79
Stock based compensation $ 88 592
Change in fair value of derivative liabilities $ 11 177
Loss on extinguishment of derivative liabilities 16
(Gain) loss on disposal of equipment $ (4) 3
Provision for inventory reserve $ 373 326
Bad debt recovery (20)
Changes in operating assets and liabilities:    
Trade accounts receivable $ 813 (35)
Prepaid expenses and other current assets (476) (330)
Inventories 263 293
Accounts payable and accrued liabilities (64) 200
Net cash used in operating activities (1,465) (2,971)
Cash flows from investing activities    
Purchase of property and equipment (259) (277)
Proceeds from sale of property and equipment 16 3
Net cash used in investing activities (243) $ (274)
Cash flows from financing activities    
Payments on long-term debt $ (1,834)
Purchase of treasury stock $ (120)
Net cash used in financing activities $ (1,834) (120)
Net decrease in cash and cash equivalents (3,542) (3,365)
Cash and cash equivalents at beginning of period 11,485 18,247
Cash and cash equivalents at end of period $ 7,943 14,882
Noncash investing and financing activities    
Debt converted to common stock 202
Common stock issued for cashless exercise of warrant derivative liabilities 739
Supplemental cash flow information    
Cash paid for interest $ 507 $ 548
XML 16 R6.htm IDEA: XBRL DOCUMENT v3.4.0.3
Organization and Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Organization and Summary of Significant Accounting Policies

1. Organization and Summary of Significant Accounting Policies

 

Organization

 

Amedica Corporation (“Amedica” or “the Company”) was incorporated in the state of Delaware on December 10, 1996. Amedica is a commercial-stage biomaterials company focused on using its silicon nitride technology platform to develop, manufacture, and commercialize a broad range of medical devices. The Company believes it is the first and only manufacturer to use silicon nitride in medical applications. The Company acquired US Spine, Inc. (“US Spine”), a Delaware spinal products corporation with operations in Florida, on September 20, 2010. The Company’s products are sold primarily in the United States.

 

Basis of Presentation

 

These unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Such rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, so long as the statements are not misleading. In the opinion of management, these financial statements and accompanying notes contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position and results of operations for the periods presented herein. These condensed consolidated financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 23, 2016. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016. The Company’s significant accounting policies are set forth in Note 1 to the consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2015.

 

In accordance with the adoption of Accounting Standards Update (“ASU”) 2015-03, the Company’s debt issuance costs have been reclassified to be presented in the Condensed Consolidated Balance Sheets as a direct reduction from the debt liability rather than as an asset.

 

The following is a reconciliation of the effect of these reclassifications on the Company’s Condensed Consolidated Balance Sheet at December 31, 2015 (in thousands):

 

    December 31, 2015  
    As Reported     Adjustments     As Revised  
Assets:                        
Prepaid expenses and other current assets   $ 821     $ (592)     $ 229  
Liabilities:                        
Current portion of long-term debt     16,957       (592)       16,365  

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Some of the more significant estimates relate to inventory, stock-based compensation, long-lived and intangible assets and the liability for preferred stock and common stock warrants.

 

Liquidity and Capital Resources

 

For the three months ended March 31, 2016 and 2015, the Company incurred a net loss of $3.4 million and $5.4 million, respectively, and used cash in operations of $1.5 million and $3 million, respectively. The Company had an accumulated deficit of $199.9 million and $196.5 million at March 31, 2016 and December 31, 2015, respectively. To date, the Company’s operations have been principally financed from proceeds from the issuance of preferred and common stock, convertible debt and bank debt and, to a lesser extent, cash generated from product sales. It is anticipated that the Company will continue to generate operating losses and use cash in operations through 2016.

 

As discussed further in Note 7, the Company has entered into a term loan with Hercules Technology Growth Capital, Inc. (“Hercules Technology”), as administrative and collateral agent for the lenders thereunder and as lender, and Hercules Technology III, LP, (“HT III” and, together with Hercules Technology, “Hercules”) as lender (the “Hercules Term Loan”). The Hercules Term Loan has a liquidity covenant that requires the Company to maintain a cash balance of not less than $7.0 million at March 31, 2016. At March 31, 2016, the Company’s cash balance was approximately $7.9 million. The Company anticipates that it will need to refinance the note or obtain additional funding early in the third quarter of 2016 to maintain compliance through 2016 with the liquidity covenant related to the Hercules Term Loan. However, if the Company is unable to refinance the note or access additional funds prior to becoming non-compliant with the financial and liquidity covenants related to the Hercules Term Loan, the entire remaining balance of the debt under the Hercules Term Loan could become immediately due and payable at the option of the lender. Although the Company is seeking to refinance the note or obtain additional financing, additional funding may not be available to the Company on favorable or acceptable terms, or at all. Any additional equity financing, if available to the Company, will most likely be dilutive to its current stockholders, and debt financing, if available, may involve more restrictive covenants. The Company’s ability to access capital when needed is not assured and, if not achieved on a timely basis, will materially harm its business, financial condition and results of operations. These uncertainties create substantial doubt about the Company’s ability to continue as a going concern. No adjustment has been made to our financial statements as a result of this uncertainty.

 

See Note 11. Subsequent Events for further discussion with respect to the assignment of $3.0 million of the principal balance of the Hercules Term Loan to Riverside Merchant Partners, LLC (“Riverside”) and the subsequent agreement between the Company and Riverside to exchange the $3.0 million of the Hercules Term Loan held by Riverside for subordinated convertible promissory notes in the aggregate principal amount of $3.0 million.

 

Significant Accounting Policies

 

There have been no significant changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

 

New Accounting Pronouncements

 

In March 2016 the Financial Accounting Standards Board (“FASB”) updated the accounting guidance related to stock compensation. This update simplifies the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company is still evaluating the impact that this standard will have on its consolidated financial statements.

 

In February 2016, the FASB updated the accounting guidance related to leases as part of a joint project with the International Accounting Standards Board (“IASB”) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, a lessee will be required to recognize assets and liabilities for capital and operating leases with lease terms of more than 12 months. Additionally, this ASU will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the potential impact this new standard may have on its financial statements.

 

In August 2014, the FASB updated the accounting guidance related to disclosure of uncertainties about an entity’s ability to continue as a going concern. The new standard provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. It requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern. The new standard is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted. The impact on the Company’s financial statements of adopting the new standard is currently being assessed by management.

 

In May 2014, the FASB updated the accounting guidance related to revenue from contracts with customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle is that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The standard defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, and shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the potential impact of this adoption on its consolidated financial statements.

XML 17 R7.htm IDEA: XBRL DOCUMENT v3.4.0.3
Basic and Diluted Net Loss Per Common Share
3 Months Ended
Mar. 31, 2016
Earnings Per Share [Abstract]  
Basic and Diluted Net Loss Per Common Share

2. Basic and Diluted Net Loss per Common Share

 

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method. Dilutive common stock equivalents are comprised of warrants for the purchase of common stock, convertible notes, stock options and unvested restricted stock units. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding because their effect would have been anti-dilutive due to the Company reporting a net loss. The Company had potentially dilutive securities representing approximately 800,000 and 2.9 million shares of common stock at March 31, 2016 and 2015, respectively.

XML 18 R8.htm IDEA: XBRL DOCUMENT v3.4.0.3
Inventories
3 Months Ended
Mar. 31, 2016
Inventory Disclosure [Abstract]  
Inventories

3. Inventories

 

The components of inventory were as follows (in thousands):

 

    March 31, 2016     December 31, 2015  
Raw materials   $ 788     $ 819  
WIP     229       235  
Finished Goods     7,475       8,077  
Total inventory   $ 8,492     $ 9,131  

 

Finished goods include consigned inventory in the amounts of approximately $3.4 million and $3.8 million as of March 31, 2016 and December 31, 2015, respectively.

XML 19 R9.htm IDEA: XBRL DOCUMENT v3.4.0.3
Intangible Assets
3 Months Ended
Mar. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets

4. Intangible Assets

 

Intangible assets consisted of the following (in thousands):

 

    March 31, 2016     December 31, 2015  
Customer relationships   $ 3,990     $ 3,990  
Developed technology     4,685       4,685  
Other patents and patent applications     562       562  
Trademarks     350       350  
Total intangibles     9,587       9,587  
Less accumulated amortization     (6,025)       (5,900)  
Total intangibles net of amortization   $ 3,562     $ 3,687  

 

Based on the recorded intangibles at March 31, 2016, the estimated amortization expense is expected to be $375,000 during the remainder of 2016 and approximately $501,000 per year through 2020 and $834,000 thereafter.

XML 20 R10.htm IDEA: XBRL DOCUMENT v3.4.0.3
Fair Value Measurements
3 Months Ended
Mar. 31, 2016
Fair Value Measurements And Marketable Securities [Abstract]  
Fair Value Measurements

5. Fair Value Measurements

 

Financial Instruments Measured and Recorded at Fair Value on a Recurring Basis

 

The Company measures and records certain financial instruments at fair value on a recurring basis. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, under a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

 

  Level 1  - quoted market prices for identical assets or liabilities in active markets.
       
  Level 2  - observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
       
  Level 3  - unobservable inputs reflecting management’s assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

 

The Company classifies assets and liabilities measured at fair value in their entirety based on the lowest level of input that is significant to their fair value measurement. No financial assets were measured on a recurring basis at March 31, 2016 and December 31, 2015. The following tables set forth the financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy at March 31, 2016 and December 31, 2015:

 

    Fair Value Measurements at March 31, 2016  
Description   Level 1     Level 2     Level 3     Total  
Derivative liability                                
Common stock warrants   $ -     $ -     $ 604     $ 604  

 

    Fair Value Measurements at December 31, 2015  
Description   Level 1     Level 2     Level 3     Total  
Derivative liability                                
Common stock warrants   $ -     $ -     $ 598     $ 598  

 

The Company did not have any transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy during the three months ended March 31, 2016 and 2015. The following table presents a reconciliation of the derivative liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2016 and 2015:

 

    Common Stock
Warrants
    Preferred
Stock
Warrants
    Conversion
Feature of
Notes
    Total
Derivative
Liability
 
Balance at December 31, 2014   $ (11,358)     $ -     $ (2,612)     $ (13,970)  
Decrease in liability due to debt conversions     -       -       179       179  
Decrease in liability due to warrants being exercised     723       -       -       723  
Change in fair value     435       -       (612)       (177)  
Balance at March 31, 2015   $ (10,200)     $ -     $ (3,045)     $ (13,245)  
                                 
Balance at December 31, 2015   $ (598)     $ -     $ -     $ (598)  
Increase in fair value included in earnings, as other income     (6)       -       -       (6)  
Balance at March 31, 2016   $ (604)     $ -     $ -     $ (604)  

 

Common Stock Warrants

 

The Company has issued certain warrants to purchase shares of common stock, which are considered mark-to-market liabilities and are re-measured to fair value at each reporting period in accordance with accounting guidance.

 

The assumptions used in estimating the common stock warrant liability at March 31, 2016 and December 31, 2015 were as follows:

 

    March 31,2016     December 31, 2015  
Weighted-average risk free interest rate     1.06%       1.71%  
Weighted-average expected life (in years)     3.55       3.7  
Expected dividend yield     0%       0%  
Weighted average expected volatility     137%       119%  

 

Other Financial Instruments

 

The Company’s recorded values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values based on their short-term nature. The recorded value of notes payable approximates the fair value as the interest rate approximates market interest rates.

XML 21 R11.htm IDEA: XBRL DOCUMENT v3.4.0.3
Accrued Liabilities
3 Months Ended
Mar. 31, 2016
Payables and Accruals [Abstract]  
Accrued Liabilities

6. Accrued Liabilities

 

Accrued liabilities consisted of the following (in thousands):

 

    March 31, 2016     December 31, 2015  
Commissions   $ 563     $ 867  
Payroll and related expenses     359       683  
Royalties     478       515  
Interest payable     237       222  
Final loan payment fees     922       783  
Other     644       351  
Total accrued liabilities   $ 3,203     $ 3,421  

XML 22 R12.htm IDEA: XBRL DOCUMENT v3.4.0.3
Debt
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Debt

7. Debt

 

Hercules Term Loan

 

On June 30, 2014, the Company entered into a Loan and Security Agreement with Hercules which provided the Company with a $20 million term loan. The Hercules Term Loan matures on January 1, 2018. The Hercules Term Loan included a $200,000 closing fee, which was paid to Hercules on the closing date of the loan. The closing fee was recorded as a debt discount and is being amortized to interest expense over the life of the loan. The Hercules Term Loan also includes a non-refundable final payment fee of $1.7 million. The final payment fee is being accrued and recorded to interest expense over the life of the loan. The Hercules Term Loan bears interest at the rate of the greater of either (i) the prime rate plus 9.2%, and (ii) 12.5%, and was 12.7% at March 31, 2016. Interest accrues from the closing date of the loan and interest payments are due monthly. Principal payments commenced August 1, 2015 and are to be made in 30 equal installments of approximately $700,000, with the remainder due at maturity. The Company’s obligations to Hercules are secured by a first priority security interest in substantially all of its assets, including intellectual property. The Hercules Term Loan contains certain covenants related to restrictions on payments to certain Company affiliates and financial reporting requirements.

 

On September 8, 2015, the Company entered into a Consent and First Amendment to Loan and Security Agreement (the “Amendment”) with Hercules. The Amendment modified the liquidity covenant to reduce the minimum cash balance required by $500,000 for every $1.0 million paid in principal to a minimum of $2.5 million. The minimum cash and cash equivalents balance required to maintain compliance with the minimum liquidity covenant at March 31, 2016 was $7.0 million. Although the Company was in compliance with the liquidity covenant at March 31, 2016, the Company anticipates that it will be non-compliant with the liquidity covenant early in the third quarter of 2016 if additional financing is not obtained or the loan is not restructured, and has therefore classified the entire obligation as a current liability.

 

See Note 11. Subsequent Events for further discussion with respect to the assignment of $3.0 million of the principal balance of the Hercules Term Loan to Riverside Merchant Partners, LLC (“Riverside”) and the subsequent agreement between the Company and Riverside to exchange the $3.0 million of the Hercules Term Loan held by Riverside for subordinated convertible promissory notes in the aggregate principal amount of $3.0 million.

 

Magna Note

 

In August 2014, the Company entered into a Securities Purchase Agreement with Magna pursuant to which the Company sold to Magna an unsecured promissory note with an aggregate principal amount of $3.5 million (the “Magna Note”). The outstanding principal amount of the Magna Note was $763,000 at March 31, 2016. The Magna Note matures on August 11, 2016, and accrues interest at an annual rate of 6.0%.

 

Outstanding long-term debt consisted of the following (in thousands):

 

    March 31, 2016     December 31, 2015  
    Outstanding Principal     Unamortized Discount and Debt Issuance Costs     Net Carrying Amount     Outstanding Principal     Unamortized Discount and Debt Issuance Costs     Net Carrying Amount  
Hercules Term Loan     15,218       (1,186)       14,032       17,051       (1,420)       15,631  
Magna Note     763       (10)       753       763       (29)       734  
Total debt     15,981       (1,196)       14,785       17,814       (1,449)       16,365  
Less: Current portion     (15,981)       1,196       (14,785)       (17,814)       1,449       (16,365)  
Long-term debt   $ -     $ -     $ -     $ -     $ -     $ -  

 

The following summarizes by year the future principal payments as of March 31, 2016 (in thousands):

 

Years Ending December 31,   Hercules Term
Loan
    Magna
Note
    Total  
2016   $ 5,787     $ 763     $ 6,550  
2017     8,643       -       8,643  
2018     788       -       788  
Total future principal payments   $ 15,218     $ 763     $ 15,981  

XML 23 R13.htm IDEA: XBRL DOCUMENT v3.4.0.3
Equity
3 Months Ended
Mar. 31, 2016
Equity [Abstract]  
Equity

8. Equity

 

536,388 shares of common stock were issued upon the cashless exercise of 1,137,365 Series A warrants issued in September 2015. The remaining number of Series A warrants was 100,000 at March 31, 2016.

XML 24 R14.htm IDEA: XBRL DOCUMENT v3.4.0.3
Stock-Based Compensation
3 Months Ended
Mar. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation

9. Stock-Based Compensation

 

Option and Equity Plans

 

In January 2016, the aggregate number of shares issuable under the 2012 Employee, Director and Consultant Equity Incentive Plan (the “2012 Plan”) was increased by 37,879 to 342,425, in accordance with the 2012 plan.

 

The total number of shares available for grant under the 2012 Plan at March 31, 2016 was 121,248.

 

Stock Options

 

A summary of the Company’s stock option activity for the three months ended March 31, 2016 was as follows:

 

    Options     Weighted-Average
Exercise Price
 
Outstanding at December 31, 2015     112,373     $ 41.53  
Granted     23,004     $ 1.69  
Expired     13,702     $ 24.17  
Outstanding at March 31, 2016     121,675     $ 35.95  
Exercisable at March 31, 2016     74,859     $ 60.65  
Vested and expected to vest at March 31, 2016     119,112     $ 36.50  

 

The Company estimates the fair value of each stock option on the grant date using the Black-Scholes-Merton valuation model, which requires several estimates including an estimate of the fair value of the underlying common stock on grant date. The expected volatility was based on an average of the historical volatility of a peer group of similar companies. The expected term was calculated utilizing the simplified method. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The following weighted average assumptions were used in the calculation to estimate the fair value of options granted to employees during the three months ended March 31, 2016 and 2015:

 

    Three Months Ended March 31,  
    2016     2015  
Weighted-average risk-free interest rate     1.86%       1.62%  
Weighted-average expected life (in years)     6.3       6.3  
Expected dividend yield     0%       0%  
Weighted-average expected volatility     65%       46%  

 

Summary of Stock-Based Compensation Expense

 

Total stock-based compensation expense included in the condensed consolidated statements of operations and comprehensive loss was allocated as follows (in thousands):

 

    Three Months Ended March 31,  
    2016     2015  
Cost of revenue   $ 4     $ 29  
Research and development     29       122  
General and administrative     40       328  
Selling and marketing     15       142  
Capitalized into inventory     2       39  
Total stock-based compensation expense   $ 90     $ 660  

 

Unrecognized stock-based compensation at March 31, 2016 was as follows (in thousands):

 

    Unrecognized Stock-Based Compensation     Weighted Average Remaining Period of Recognition (in years)  
Stock options   $ 435       1.7  

XML 25 R15.htm IDEA: XBRL DOCUMENT v3.4.0.3
Commitments and Contingencies
3 Months Ended
Mar. 31, 2016
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

10. Commitments and Contingencies

 

On April 1, 2016, Hampshire MedTech Partners II, GP (“Hampshire GP”) filed suit against the Company in the Travis County, Texas 200th Judicial District Court relating to a Warrant to Purchase Shares of Common Stock issued to Hampshire MedTech Partners II, LP (“Hampshire LP”) on November 6, 2014 (the “Warrant”). Hampshire GP alleges that as a result of a subsequent financing the Company breached the anti-dilution provision of the Warrant by failing to increase the number of shares subject to the Warrant as well as failing to reduce the exercise price of the Warrant. Hampshire GP seeks damages in excess of $1,000,000. The Company has not yet answered Hampshire GP’s complaint and intends to vigorously defend itself in this suit.

 

From time to time, the Company is subject to other various claims and legal proceedings covering matters that arise in the ordinary course of its business activities. Management believes any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on the Company’s consolidated financial position, operating results or cash flows.

XML 26 R16.htm IDEA: XBRL DOCUMENT v3.4.0.3
Subsequent Events
3 Months Ended
Mar. 31, 2016
Subsequent Events [Abstract]  
Subsequent Events

11. Subsequent Events

 

Hercules and Riverside Debt Assignment

 

On April 4, 2016, the Company entered into an Assignment and Second Amendment to Loan and Security Agreement (the “Assignment Agreement”) with Riverside Merchant Partners, LLC (“Riverside”), and Hercules, pursuant to which Hercules sold $1.0 million of the principal amount outstanding under the Hercules Term Loan, as amended to Riverside. In addition, pursuant to the terms of the Assignment Agreement, Riverside acquired an option to purchase an additional $2.0 million of the principal amount outstanding under the Hercules Term Loan from Hercules. On April 18, 2016, Riverside purchased an additional $1.0 million of the principal amount of the Hercules Term Loan and on April 27, 2016, Riverside purchased an additional $1.0 million of the principal amount of the Hercules Term Loan from Hercules.

 

Riverside Debt Exchange

 

On April 4, 2016, the Company entered into an exchange agreement (the “Exchange Agreement”) with Riverside, pursuant to which the Company agreed to exchange $1.0 million of the principal amount outstanding under the Hercules Term Loan held by Riverside for a subordinated convertible promissory note in the principal amount of $1.0 million (the “First Exchange Note”) and a warrant to purchase 100,000 shares of common stock of the Company at a fixed exercise price of $1.62 per share (the “First Exchange Warrant”) (the “Exchange”). In addition, pursuant to the terms and conditions of the Exchange Agreement, the Company and Riverside had the option to exchange an additional $2.0 million of the principal amount of the Hercules Term Loan for an additional subordinated convertible promissory note in the principal amount of up to $2.0 million and an additional warrant to purchase 100,000 shares of common stock (the “Second Exchange Warrant”). On April 18, 2016, the Company and Riverside exercised their option to exchange an additional $1.0 million of the principal amount of the Hercules Term Loan for an additional subordinated convertible promissory note in the principal amount of $1.0 million (the “Second Exchange Note”). Additionally, on April 27, 2016, the Company and Riverside exercised their option to exchange an additional $1.0 million of the principal amount of the Term Loan for an additional subordinated convertible promissory note in the principal amount of $1.0 million (the “Third Exchange Note”) and an additional warrant to purchase 100,000 shares of the Company’s common stock at a fixed exercise price of $1.66 per share. The First Exchange Note, the Second Exchange Note and the Third Exchange Note are collectively referred to herein as the “Exchange Notes.”

 

All principal accrued under the Exchange Notes is convertible into shares of common stock at the election of the Holder at any time at a fixed conversion price of $1.43 per share (the “Conversion Price”). All principal outstanding under each of the Exchange Notes will be due on April 3, 2018 (the “Maturity Date”). Each of the Exchange Notes bears interest at a rate of 6% per annum, with the interest that would accrue on the initial principal amount of the Exchange Notes during the first 12 months being guaranteed and deemed earned as of the date of issuance. Prior to the Maturity Date, all interest accrued under the Exchange Notes is payable in cash or, if certain conditions are met, payable in shares of common stock at the Company’s option, at a conversion price of $1.34 per share.

 

Pursuant to the terms of the Third Exchange Note, since the volume-weighted average price of the Company’s common stock was less than the Conversion Price on May 6, 2016, the Company issued an additional 140,000 shares of common stock (the “True-Up Shares”) to Riverside.

 

As of May 13, 2016, the entire principal amount of the First and Second Exchange Notes, $200,000 of the Third Exchange Note, and the interest related to the First, Second, and Third Exchange Notes has been converted into 1,672,788 shares of common stock leaving the total principal balance outstanding under the Exchange Notes at $800,000.

XML 27 R17.htm IDEA: XBRL DOCUMENT v3.4.0.3
Organization and Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Organization

Organization

 

Amedica Corporation (“Amedica” or “the Company”) was incorporated in the state of Delaware on December 10, 1996. Amedica is a commercial-stage biomaterials company focused on using its silicon nitride technology platform to develop, manufacture, and commercialize a broad range of medical devices. The Company believes it is the first and only manufacturer to use silicon nitride in medical applications. The Company acquired US Spine, Inc. (“US Spine”), a Delaware spinal products corporation with operations in Florida, on September 20, 2010. The Company’s products are sold primarily in the United States.

Basis of Presentation

Basis of Presentation

 

These unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Such rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, so long as the statements are not misleading. In the opinion of management, these financial statements and accompanying notes contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position and results of operations for the periods presented herein. These condensed consolidated financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 23, 2016. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016. The Company’s significant accounting policies are set forth in Note 1 to the consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2015.

 

In accordance with the adoption of Accounting Standards Update (“ASU”) 2015-03, the Company’s debt issuance costs have been reclassified to be presented in the Condensed Consolidated Balance Sheets as a direct reduction from the debt liability rather than as an asset.

 

The following is a reconciliation of the effect of these reclassifications on the Company’s Condensed Consolidated Balance Sheet at December 31, 2015 (in thousands):

 

    December 31, 2015  
    As Reported     Adjustments     As Revised  
Assets:                        
Prepaid expenses and other current assets   $ 821     $ (592)     $ 229  
Liabilities:                        
Current portion of long-term debt     16,957       (592)       16,365  

Use of Estimates

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Some of the more significant estimates relate to inventory, stock-based compensation, long-lived and intangible assets and the liability for preferred stock and common stock warrants.

Liquidity and Capital Resources

Liquidity and Capital Resources

 

For the three months ended March 31, 2016 and 2015, the Company incurred a net loss of $3.4 million and $5.4 million, respectively, and used cash in operations of $1.5 million and $3 million, respectively. The Company had an accumulated deficit of $199.9 million and $196.5 million at March 31, 2016 and December 31, 2015, respectively. To date, the Company’s operations have been principally financed from proceeds from the issuance of preferred and common stock, convertible debt and bank debt and, to a lesser extent, cash generated from product sales. It is anticipated that the Company will continue to generate operating losses and use cash in operations through 2016.

 

As discussed further in Note 7, the Company has entered into a term loan with Hercules Technology Growth Capital, Inc. (“Hercules Technology”), as administrative and collateral agent for the lenders thereunder and as lender, and Hercules Technology III, LP, (“HT III” and, together with Hercules Technology, “Hercules”) as lender (the “Hercules Term Loan”). The Hercules Term Loan has a liquidity covenant that requires the Company to maintain a cash balance of not less than $7.0 million at March 31, 2016. At March 31, 2016, the Company’s cash balance was approximately $7.9 million. The Company anticipates that it will need to refinance the note or obtain additional funding early in the third quarter of 2016 to maintain compliance through 2016 with the liquidity covenant related to the Hercules Term Loan. However, if the Company is unable to refinance the note or access additional funds prior to becoming non-compliant with the financial and liquidity covenants related to the Hercules Term Loan, the entire remaining balance of the debt under the Hercules Term Loan could become immediately due and payable at the option of the lender. Although the Company is seeking to refinance the note or obtain additional financing, additional funding may not be available to the Company on favorable or acceptable terms, or at all. Any additional equity financing, if available to the Company, will most likely be dilutive to its current stockholders, and debt financing, if available, may involve more restrictive covenants. The Company’s ability to access capital when needed is not assured and, if not achieved on a timely basis, will materially harm its business, financial condition and results of operations. These uncertainties create substantial doubt about the Company’s ability to continue as a going concern. No adjustment has been made to our financial statements as a result of this uncertainty.

 

See Note 11. Subsequent Events for further discussion with respect to the assignment of $3.0 million of the principal balance of the Hercules Term Loan to Riverside Merchant Partners, LLC (“Riverside”) and the subsequent agreement between the Company and Riverside to exchange the $3.0 million of the Hercules Term Loan held by Riverside for subordinated convertible promissory notes in the aggregate principal amount of $3.0 million.

New Accounting Pronouncements

New Accounting Pronouncements

 

In March 2016 the Financial Accounting Standards Board (“FASB”) updated the accounting guidance related to stock compensation. This update simplifies the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company is still evaluating the impact that this standard will have on its consolidated financial statements.

 

In February 2016, the FASB updated the accounting guidance related to leases as part of a joint project with the International Accounting Standards Board (“IASB”) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance, a lessee will be required to recognize assets and liabilities for capital and operating leases with lease terms of more than 12 months. Additionally, this ASU will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the potential impact this new standard may have on its financial statements.

 

In August 2014, the FASB updated the accounting guidance related to disclosure of uncertainties about an entity’s ability to continue as a going concern. The new standard provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. It requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern. The new standard is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted. The impact on the Company’s financial statements of adopting the new standard is currently being assessed by management.

 

In May 2014, the FASB updated the accounting guidance related to revenue from contracts with customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle is that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The standard defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, and shall be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is evaluating the potential impact of this adoption on its consolidated financial statements.

XML 28 R18.htm IDEA: XBRL DOCUMENT v3.4.0.3
Organization and Summary of Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2016
Accounting Policies [Abstract]  
Schedule of Reconciliation of Effect of Reclassifications on Condensed Consolidated Balance Sheet

The following is a reconciliation of the effect of these reclassifications on the Company’s Condensed Consolidated Balance Sheet at December 31, 2015 (in thousands):

 

    December 31, 2015  
    As Reported     Adjustments     As Revised  
Assets:                        
Prepaid expenses and other current assets   $ 821     $ (592)     $ 229  
Liabilities:                        
Current portion of long-term debt     16,957       (592)       16,365  

XML 29 R19.htm IDEA: XBRL DOCUMENT v3.4.0.3
Inventories (Tables)
3 Months Ended
Mar. 31, 2016
Inventory Disclosure [Abstract]  
Components of Inventory

The components of inventory were as follows (in thousands):

 

    March 31, 2016     December 31, 2015  
Raw materials   $ 788     $ 819  
WIP     229       235  
Finished Goods     7,475       8,077  
Total inventory   $ 8,492     $ 9,131  

XML 30 R20.htm IDEA: XBRL DOCUMENT v3.4.0.3
Intangible Assets (Tables)
3 Months Ended
Mar. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Intangible Assets

Intangible assets consisted of the following (in thousands):

 

    March 31, 2016     December 31, 2015  
Customer relationships   $ 3,990     $ 3,990  
Developed technology     4,685       4,685  
Other patents and patent applications     562       562  
Trademarks     350       350  
Total intangibles     9,587       9,587  
Less accumulated amortization     (6,025)       (5,900)  
Total intangibles net of amortization   $ 3,562     $ 3,687  

XML 31 R21.htm IDEA: XBRL DOCUMENT v3.4.0.3
Fair Value Measurements (Tables)
3 Months Ended
Mar. 31, 2016
Fair Value Disclosures [Abstract]  
Schedule of Financial Liabilities Measured at Fair Value on Recurring Basis by Level within Fair Value Hierarchy

The following tables set forth the financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy at March 31, 2016 and December 31, 2015:

 

    Fair Value Measurements at March 31, 2016  
Description   Level 1     Level 2     Level 3     Total  
Derivative liability                                
Common stock warrants   $ -     $ -     $ 604     $ 604  

 

    Fair Value Measurements at December 31, 2015  
Description   Level 1     Level 2     Level 3     Total  
Derivative liability                                
Common stock warrants   $ -     $ -     $ 598     $ 598  

Schedule of Reconciliation of Derivative Liability Measured on Recurring Basis Using Unobservable Inputs (Level 3)

The following table presents a reconciliation of the derivative liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2016 and 2015:

 

    Common Stock
Warrants
    Preferred
Stock
Warrants
    Conversion
Feature of
Notes
    Total
Derivative
Liability
 
Balance at December 31, 2014   $ (11,358)     $ -     $ (2,612)     $ (13,970)  
Decrease in liability due to debt conversions     -       -       179       179  
Decrease in liability due to warrants being exercised     723       -       -       723  
Change in fair value     435       -       (612)       (177)  
Balance at March 31, 2015   $ (10,200)     $ -     $ (3,045)     $ (13,245)  
                                 
Balance at December 31, 2015   $ (598)     $ -     $ -     $ (598)  
Increase in fair value included in earnings, as other income     (6)       -       -       (6)  
Balance at March 31, 2016   $ (604)     $ -     $ -     $ (604)  

Schedule of Assumptions used in Estimating Common Stock Warrant Liability

The assumptions used in estimating the common stock warrant liability at March 31, 2016 and December 31, 2015 were as follows:

 

    March 31,2016     December 31, 2015  
Weighted-average risk free interest rate     1.06%       1.71%  
Weighted-average expected life (in years)     3.55       3.7  
Expected dividend yield     0%       0%  
Weighted average expected volatility     137%       119%  

XML 32 R22.htm IDEA: XBRL DOCUMENT v3.4.0.3
Accrued Liabilities (Tables)
3 Months Ended
Mar. 31, 2016
Payables and Accruals [Abstract]  
Schedule of Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

    March 31, 2016     December 31, 2015  
Commissions   $ 563     $ 867  
Payroll and related expenses     359       683  
Royalties     478       515  
Interest payable     237       222  
Final loan payment fees     922       783  
Other     644       351  
Total accrued liabilities   $ 3,203     $ 3,421  

XML 33 R23.htm IDEA: XBRL DOCUMENT v3.4.0.3
Debt (Tables)
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Schedule of Outstanding Long-Term Debt

Outstanding long-term debt consisted of the following (in thousands):

 

    March 31, 2016     December 31, 2015  
    Outstanding Principal     Unamortized Discount and Debt Issuance Costs     Net Carrying Amount     Outstanding Principal     Unamortized Discount and Debt Issuance Costs     Net Carrying Amount  
Hercules Term Loan     15,218       (1,186)       14,032       17,051       (1,420)       15,631  
Magna Note     763       (10)       753       763       (29)       734  
Total debt     15,981       (1,196)       14,785       17,814       (1,449)       16,365  
Less: Current portion     (15,981)       1,196       (14,785)       (17,814)       1,449       (16,365)  
Long-term debt   $ -     $ -     $ -     $ -     $ -     $ -  

Schedule of Future Principal Payments on Debt

The following summarizes by year the future principal payments as of March 31, 2016 (in thousands):

 

Years Ending December 31,   Hercules Term
Loan
    Magna
Note
    Total  
2016   $ 5,787     $ 763     $ 6,550  
2017     8,643       -       8,643  
2018     788       -       788  
Total future principal payments   $ 15,218     $ 763     $ 15,981  

XML 34 R24.htm IDEA: XBRL DOCUMENT v3.4.0.3
Stock-Based Compensation (Tables)
3 Months Ended
Mar. 31, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Summary of Stock Option Activity

A summary of the Company’s stock option activity for the three months ended March 31, 2016 was as follows:

 

    Options     Weighted-Average
Exercise Price
 
Outstanding at December 31, 2015     112,373     $ 41.53  
Granted     23,004     $ 1.69  
Expired     13,702     $ 24.17  
Outstanding at March 31, 2016     121,675     $ 35.95  
Exercisable at March 31, 2016     74,859     $ 60.65  
Vested and expected to vest at March 31, 2016     119,112     $ 36.50  

Schedule of Black-Scholes-Merton Option Pricing Model

The following weighted average assumptions were used in the calculation to estimate the fair value of options granted to employees during the three months ended March 31, 2016 and 2015:

 

    Three Months Ended March 31,  
    2016     2015  
Weighted-average risk-free interest rate     1.86%       1.62%  
Weighted-average expected life (in years)     6.3       6.3  
Expected dividend yield     0%       0%  
Weighted-average expected volatility     65%       46%  

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs

Total stock-based compensation expense included in the condensed consolidated statements of operations and comprehensive loss was allocated as follows (in thousands):

 

    Three Months Ended March 31,  
    2016     2015  
Cost of revenue   $ 4     $ 29  
Research and development     29       122  
General and administrative     40       328  
Selling and marketing     15       142  
Capitalized into inventory     2       39  
Total stock-based compensation expense   $ 90     $ 660  

Schedule of Unrecognized Compensation Cost, Nonvested Awards

Unrecognized stock-based compensation at March 31, 2016 was as follows (in thousands):

 

    Unrecognized Stock-Based Compensation     Weighted Average Remaining Period of Recognition (in years)  
Stock options   $ 435       1.7  

XML 35 R25.htm IDEA: XBRL DOCUMENT v3.4.0.3
Organization and Summary of Significant Accounting Policies (Details Narrative) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2015
Dec. 31, 2014
Net loss $ 3,388 $ 5,381    
Net cash used in operating activities 1,465 2,971    
Accumulated deficit $ 199,925   $ 196,537  
Debt instrument, payment terms As discussed further in Note 7, the Company has entered into a term loan with Hercules Technology Growth Capital, Inc. (“Hercules Technology”), as administrative and collateral agent for the lenders thereunder and as lender, and Hercules Technology III, LP, (“HT III” and, together with Hercules Technology, “Hercules”) as lender (the “Hercules Term Loan”). The Hercules Term Loan has a liquidity covenant that requires the Company to maintain a cash balance of not less than $7.0 million at March 31, 2016.      
Cash and cash equivalents $ 7,943 $ 14,882 11,485 $ 18,247
Debt principal amount 15,981   17,814  
Hercules Term Loan [Member]        
Debt principal amount 15,218   $ 17,051  
Hercules Term Loan [Member] | Minimum [Member]        
Cash and cash equivalents 7,000      
Riverside Merchant Partners, LLC [Member]        
Debt principal amount 3,000      
Subordinated convertible promissory notes $ 3,000      
XML 36 R26.htm IDEA: XBRL DOCUMENT v3.4.0.3
Organization and Summary of Significant Accounting Policies - Schedule of Reconciliation of Effect of Reclassifications on Condensed Consolidated Balance Sheet (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Prepaid expenses and other current assets $ 705 $ 229
Current portion of long-term debt $ 14,785 16,365
Previously Reported [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Prepaid expenses and other current assets   821
Current portion of long-term debt   16,957
Adjustment [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]    
Prepaid expenses and other current assets   (592)
Current portion of long-term debt   $ (592)
XML 37 R27.htm IDEA: XBRL DOCUMENT v3.4.0.3
Basic and Diluted Net Loss Per Common Share (Details Narrative) - shares
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Common Stock [Member]    
Potentially dilutive securities 800,000 2,900,000
XML 38 R28.htm IDEA: XBRL DOCUMENT v3.4.0.3
Inventories (Details Narrative) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Inventories Details Narrative    
Finished goods include consigned inventory $ 3,400 $ 3,800
XML 39 R29.htm IDEA: XBRL DOCUMENT v3.4.0.3
Inventories - Components of Inventory (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Inventory Disclosure [Abstract]    
Raw materials $ 788 $ 819
WIP 229 235
Finished Goods 7,475 8,077
Total inventory $ 8,492 $ 9,131
XML 40 R30.htm IDEA: XBRL DOCUMENT v3.4.0.3
Intangible Assets (Details Narrative)
$ in Thousands
Mar. 31, 2016
USD ($)
Intangible Assets Details Narrative  
Estimated amortization expense, remainder of 2016 $ 375
Estimated amortization expense, 2017 501
Estimated amortization expense, 2018 501
Estimated amortization expense, 2019 501
Estimated amortization expense, 2020 501
Estimated amortization expense, thereafter $ 834
XML 41 R31.htm IDEA: XBRL DOCUMENT v3.4.0.3
Intangible Assets - Schedule of Intangible Assets (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]    
Total intangibles $ 9,587 $ 9,587
Less accumulated amortization (6,025) (5,900)
Total intangibles net of amortization 3,562 3,687
Trademarks [Member]    
Finite-Lived Intangible Assets [Line Items]    
Total intangibles 350 350
Customer Relationships [Member]    
Finite-Lived Intangible Assets [Line Items]    
Total intangibles 3,990 3,990
Developed Technology [Member]    
Finite-Lived Intangible Assets [Line Items]    
Total intangibles 4,685 4,685
Other Patents And Patent Applications [Member]    
Finite-Lived Intangible Assets [Line Items]    
Total intangibles $ 562 $ 562
XML 42 R32.htm IDEA: XBRL DOCUMENT v3.4.0.3
Fair Value Measurements (Details Narrative) - USD ($)
Mar. 31, 2016
Dec. 31, 2015
Fair Value Disclosures [Abstract]    
Financial assets measured on recurring basis
XML 43 R33.htm IDEA: XBRL DOCUMENT v3.4.0.3
Fair Value Measurements - Schedule of Financial Liabilities Measured at Fair Value on Recurring Basis by Level within Fair Value Hierarchy (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative liabilities $ 604 $ 598
Fair Value, Measurements, Recurring [Member] | Common Stock Warrants [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative liabilities $ 604 $ 598
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Common Stock Warrants [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative liabilities
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Common Stock Warrants [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative liabilities
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member] | Common Stock Warrants [Member]    
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
Derivative liabilities $ 604 $ 598
XML 44 R34.htm IDEA: XBRL DOCUMENT v3.4.0.3
Fair Value Measurements - Schedule of Reconciliation of Derivative Liability Measured on Recurring Basis Using Unobservable Inputs (Level 3) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]    
Change in fair value $ 11 $ 177
Derivative Financial Instruments, Liabilities [Member]    
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]    
Beginning balance (598) (13,970)
Decrease in liability due to debt conversions   179
Decrease in liability due to warrants being exercised   723
Change in fair value   (177)
Increase in fair value included in earnings, as other income (6)  
Ending balance (604) (13,245)
Derivative Financial Instruments, Liabilities [Member] | Common Stock Warrants [Member]    
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]    
Beginning balance (598) $ (11,358)
Decrease in liability due to debt conversions  
Decrease in liability due to warrants being exercised   $ 723
Change in fair value   435
Increase in fair value included in earnings, as other income (6)  
Ending balance $ (604) $ (10,200)
Derivative Financial Instruments, Liabilities [Member] | Preferred Stock Warrants[Member]    
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]    
Beginning balance
Decrease in liability due to debt conversions  
Decrease in liability due to warrants being exercised  
Change in fair value  
Increase in fair value included in earnings, as other income  
Ending balance
Derivative Financial Instruments, Liabilities [Member] | Conversion Feature Of Notes [Member]    
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]    
Beginning balance $ (2,612)
Decrease in liability due to debt conversions   $ 179
Decrease in liability due to warrants being exercised  
Change in fair value   $ (612)
Increase in fair value included in earnings, as other income  
Ending balance $ (3,045)
XML 45 R35.htm IDEA: XBRL DOCUMENT v3.4.0.3
Fair Value Measurements - Schedule of Assumptions used in Estimating Common Stock Warrant Liability (Details)
3 Months Ended 12 Months Ended
Mar. 31, 2016
Dec. 31, 2015
Fair Value Disclosures [Abstract]    
Weighted-average risk free interest rate 1.06% 1.71%
Weighted-average expected life (in years) 3 years 6 months 18 days 3 years 8 months 12 days
Expected dividend yield 0.00% 0.00%
Weighted average expected volatility 137.00% 119.00%
XML 46 R36.htm IDEA: XBRL DOCUMENT v3.4.0.3
Accrued Liabilities - Schedule of Accrued Liabilities (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Accrued Liabilities, Current [Abstract]    
Commissions $ 563 $ 867
Payroll and related expenses 359 683
Royalties 478 515
Interest payable 237 222
Final loan payment fees 922 783
Other 644 351
Total accrued liabilities $ 3,203 $ 3,421
XML 47 R37.htm IDEA: XBRL DOCUMENT v3.4.0.3
Debt (Details Narrative) - USD ($)
$ in Thousands
3 Months Ended
Sep. 08, 2015
Jun. 30, 2014
Mar. 31, 2016
Dec. 31, 2015
Aug. 31, 2014
Debt principal amount     $ 15,981 $ 17,814  
Hercules Term Loan [Member]          
Debt principal amount     $ 15,218 17,051  
Term loan fee amount   $ 200      
Final payment fee for debt   $ 1,700      
Percentage of loan bear interest rate     12.70%    
Term loan, payment terms     Principal payments commenced August 1, 2015 and are to be made in 30 equal installments of approximately $700,000, with the remainder due at maturity.    
Debt instrument, periodic payment, principal     $ 700    
Hercules Term Loan [Member] | Prime Rate [Member]          
Percentage of loan bear interest rate   9.20% 12.50%    
Riverside Merchant Partners, LLC [Member]          
Debt principal amount     $ 3,000    
Subordinated convertible promissory notes     3,000    
Magna Note [Member]          
Debt principal amount     763 $ 763  
Magna Note [Member] | Securities Purchase Agreement [Member]          
Debt principal amount     $ 763   $ 3,500
Debt maturity date     Aug. 11, 2016    
Percentage of loan bear interest rate     6.00%    
First Amendment to Loan and Security Agreement [Member] | Hercules Term Loan [Member]          
Debt principal amount $ 1,000   $ 7,000    
Debt instrument, covenant description The Amendment modified the liquidity covenant to reduce the minimum cash balance required by $500,000 for every $1.0 million paid in principal to a minimum of $2.5 million. The minimum cash and cash equivalents balance required to maintain compliance with the minimum liquidity covenant at March 31, 2016 was $7.0 million.        
Debt principal balance $ 2,500        
First Amendment to Loan and Security Agreement [Member] | Hercules Term Loan [Member] | Minimum [Member]          
Debt principal amount $ 500        
Hercules Technology Capital, Inc. [Member] | Loan and Security Agreement [Member]          
Debt principal amount   $ 20,000      
Debt maturity date   Jan. 01, 2018      
Hercules Term Loan [Member] | Riverside Merchant Partners, LLC [Member]          
Debt principal amount     $ 3,000    
XML 48 R38.htm IDEA: XBRL DOCUMENT v3.4.0.3
Debt - Schedule of Outstanding Long-Term Debt (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Debt Instrument [Line Items]    
Total debt, outstanding principal $ 15,981 $ 17,814
Total debt, unamortized discount (1,196) (1,449)
Total debt, net carrying amount 14,785 16,365
Current portion, outstanding principal (15,981) (17,814)
Current portion, unamortized discount (1,196) 1,449
Current portion, net carrying amount $ (14,785) $ (16,365)
Long-term debt, outstanding principal
Long-term debt, unamortized discount
Long-term debt
Hercules Term Loan [Member]    
Debt Instrument [Line Items]    
Total debt, outstanding principal $ 15,218 $ 17,051
Total debt, unamortized discount (1,186) (1,420)
Total debt, net carrying amount 14,032 15,631
Magna Note [Member]    
Debt Instrument [Line Items]    
Total debt, outstanding principal 763 763
Total debt, unamortized discount (10) (29)
Total debt, net carrying amount $ 753 $ 734
XML 49 R39.htm IDEA: XBRL DOCUMENT v3.4.0.3
Debt - Schedule of Future Principal Payments on Debt (Details) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Line of Credit Facility [Line Items]    
Total future principal payments $ 14,785 $ 16,365
Convertible Notes Payable [Member]    
Line of Credit Facility [Line Items]    
2016 6,550  
2017 8,643  
2018 788  
Total future principal payments 15,981  
Hercules Term Loan [Member]    
Line of Credit Facility [Line Items]    
Total future principal payments 14,032 15,631
Hercules Term Loan [Member] | Convertible Notes Payable [Member]    
Line of Credit Facility [Line Items]    
2016 5,787  
2017 8,643  
2018 788  
Total future principal payments 15,218  
Magna Note [Member]    
Line of Credit Facility [Line Items]    
Total future principal payments 753 $ 734
Magna Note [Member] | Convertible Notes Payable [Member]    
Line of Credit Facility [Line Items]    
2016 $ 763  
2017  
2018  
Total future principal payments $ 763  
XML 50 R40.htm IDEA: XBRL DOCUMENT v3.4.0.3
Equity (Details Narrative) - Series A Warrants [Member] - shares
1 Months Ended
Sep. 30, 2015
Mar. 31, 2016
Common stock shares, issued 536,388  
Number of shares issued upon cashless exercise warrants 1,137,365  
Outstanding warrants exercisable   100,000
XML 51 R41.htm IDEA: XBRL DOCUMENT v3.4.0.3
Stock-Based Compensation (Details Narrative) - 2012 Plan [Member] - shares
1 Months Ended
Jan. 31, 2016
Mar. 31, 2016
Shares issuable with respect to awards granted 37,879  
Shares issuable with respect to awards maximum shares 342,425  
Number of shares available for grant   121,248
XML 52 R42.htm IDEA: XBRL DOCUMENT v3.4.0.3
Stock-Based Compensation - Summary of Stock Option Activity (Details)
3 Months Ended
Mar. 31, 2016
$ / shares
shares
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Options, Outstanding at beginning of period | shares 112,373
Options, Granted | shares 23,004
Options, Expired | shares 13,702
Options, Outstanding at end of period | shares 121,675
Options, Exercisable at end of period | shares 74,859
Options, Vested and expected to vest at end of period | shares 119,112
Weighted Average Exercise Price, Outstanding at beginning of period | $ / shares $ 41.53
Weighted Average Exercise Price, Granted | $ / shares 1.69
Weighted Average Exercise Price, Expired | $ / shares 24.17
Weighted Average Exercise Price, Outstanding at end of period | $ / shares 35.95
Weighted Average Exercise Price, Exercisable at end of period | $ / shares 60.65
Weighted Average Exercise Price, Vested and expected to vest at end of period | $ / shares $ 36.50
XML 53 R43.htm IDEA: XBRL DOCUMENT v3.4.0.3
Stock-Based Compensation - Schedule of Black-Scholes-Merton Option Pricing Model (Details) - Employee Stock Option [Member]
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]    
Weighted-average risk-free interest rate 1.86% 1.62%
Weighted-average expected life (in years) 6 years 3 months 18 days 6 years 3 months 18 days
Expected dividend yield 0.00% 0.00%
Weighted-average expected volatility 65.00% 46.00%
XML 54 R44.htm IDEA: XBRL DOCUMENT v3.4.0.3
Stock-Based Compensation - Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]    
Total stock-based compensation expense $ 90 $ 660
Cost Of Revenue [Member]    
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]    
Total stock-based compensation expense 4 29
Research and Development [Member]    
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]    
Total stock-based compensation expense 29 122
General and Administrative [Member]    
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]    
Total stock-based compensation expense 40 328
Selling and Marketing [Member]    
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]    
Total stock-based compensation expense 15 142
Capitalized Into Inventory [Member]    
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]    
Total stock-based compensation expense $ 2 $ 39
XML 55 R45.htm IDEA: XBRL DOCUMENT v3.4.0.3
Stock-Based Compensation - Schedule of Unrecognized Compensation Cost, Nonvested Awards (Details) - Employee Stock Option [Member]
$ in Thousands
3 Months Ended
Mar. 31, 2016
USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Unrecognized stock-based compensation $ 435
Weighted average remaining period of recognition (in years) 1 year 8 months 12 days
XML 56 R46.htm IDEA: XBRL DOCUMENT v3.4.0.3
Commitments and Contingencies (Details Narrative)
$ in Thousands
Nov. 06, 2014
USD ($)
Commitments And Contingencies Details Narrative  
Seeks damages amount $ 1,000
XML 57 R47.htm IDEA: XBRL DOCUMENT v3.4.0.3
Subsequent Events (Details Narrative) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
May. 13, 2016
May. 06, 2016
Apr. 27, 2016
Apr. 18, 2016
Apr. 04, 2016
Mar. 31, 2016
Mar. 31, 2015
Dec. 31, 2015
Subsequent Event [Line Items]                
Debt principal amount           $ 15,981   $ 17,814
Option to purchase of principal amount outstanding           $ 202  
Subsequent Event [Member] | Assignment Agreement [Member] | Riverside Merchant Partners, LLC [Member]                
Subsequent Event [Line Items]                
Debt principal amount         $ 1,000      
Option to purchase of principal amount outstanding         $ 2,000      
Debt periodic principal amount     $ 1,000 $ 1,000        
Subsequent Event [Member] | Exchange Agreement [Member]                
Subsequent Event [Line Items]                
Debt conversion price per share         $ 1.34      
Debt fixed conversion price per share         $ 1.43      
Debt maturity date         Apr. 03, 2018      
Percentage of debt bear interest rate         6.00%      
Debt payment terms         12 months      
Subsequent Event [Member] | Exchange Agreement [Member] | Riverside Merchant Partners, LLC [Member]                
Subsequent Event [Line Items]                
Debt principal amount       1,000 $ 1,000      
Option to purchase of principal amount outstanding     1,000   2,000      
Subordinated convertible promissory notes     $ 1,000 $ 1,000 $ 1,000      
Warrants to purchase of shares of common stock     100,000   100,000      
Debt conversion price per share     $ 1.66   $ 1.62      
Subsequent Event [Member] | Exchange Agreement [Member] | Riverside Merchant Partners, LLC [Member] | Hercules Term Loan [Member]                
Subsequent Event [Line Items]                
Subordinated convertible promissory notes         $ 2,000      
Warrants to purchase of shares of common stock         100,000      
Subsequent Event [Member] | Third Exchange Note [Member] | Riverside Merchant Partners, LLC [Member]                
Subsequent Event [Line Items]                
Debt principal amount $ 800              
Debt conversion into common stock shares   140,000            
Subsequent Event [Member] | First Exchange Note [Member] | Riverside Merchant Partners, LLC [Member]                
Subsequent Event [Line Items]                
Option to purchase of principal amount outstanding $ 200              
Debt conversion into common stock shares 1,672,788              
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