NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Organization and Summary of Significant Accounting Policies
Organization
Amedica
Corporation was incorporated in the state of Delaware on December 10, 1996. Amedica Corporation is a materials company focused
on developing, manufacturing and selling silicon nitride ceramics that are used in medical implants and in a variety of industrial
devices. At present, Amedica Corporation commercializes silicon nitride in the spine implant market and believes that its silicon
nitride manufacturing expertise positions it favorably to introduce new and innovative devices in the medical and non-medical
fields. Amedica Corporation also believes that it is the first and only company to commercialize silicon nitride medical implants.
Amedica Corporation acquired US Spine, Inc. (“US Spine”), a Delaware spinal products corporation with operations in
Florida, on September 20, 2010. Amedica Corporation and US Spine are collectively referred to as “Amedica” or “the
Company” in these condensed consolidated financial statements. 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”) and include all assets and liabilities of the Company and its wholly-owned
subsidiary, US Spine. All material intercompany transactions and balances have been eliminated in consolidation. SEC 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, 2017,
filed with the SEC on March 29, 2018. The results of operations for the three months ended March 31, 2018 are not necessarily
indicative of the results to be expected for the year ending December 31, 2018. 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, 2017.
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 as of the date of the financial statements and the reported amounts of revenue
and expenses during the periods then ended. Actual results could differ from those estimates. The most 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
The
condensed consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern,
which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include
any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications
of liabilities that may result from uncertainty related to its ability to continue as a going concern within one year from the
date of issuance of these condensed consolidated financial statements.
For
the three months ended March 31, 2018 and 2017, the Company incurred net losses of $3.4 million and $0.5 million, respectively,
and used cash in operations of $2.0 million and $1.8 million, respectively. The Company had an accumulated deficit of $224.0 million
and $220.6 million as of March 31, 2018 and December 31, 2017, respectively. To date, the Company’s operations have been
principally financed by proceeds received 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 operating activities. The Company’s continuation as a going concern is dependent upon its ability
to increase sales, implement cost saving measures, maintain compliance with debt covenants and/or raise additional funds through
the capital markets. Whether and when the Company can attain profitability and positive cash flows from operating activities or
obtain additional financing is uncertain.
In
2016, the Company implemented certain cost saving measures, including workforce and office space reductions, and will continue
to evaluate additional cost savings alternatives during 2018. These additional cost savings measures may include additional workforce
and research and development reductions, as well as cuts to certain other operating expenses. In addition to these cost-saving
measures, an experienced and highly successful leader for the Sales and Marketing team was recruited and hired. This individual
has subsequently hired additional experienced personnel in Sales and Marketing. The Company is actively generating additional
scientific and clinical data to have it published in leading industry publications. The unique features of the Company’s
silicon nitride material are not well known, and the Company believes that the publication of such data would help sales efforts
as the Company approaches new prospects. The Company is also making additional changes to the sales strategy, including a focus
on revenue growth of silicon nitride lateral lumbar implants, the recently developed pedicle screw system known as Taurus, a variation
of the Taurus system known as Taurus MIS and a newly developed interbody device known as C+CSC with Lumen.
The
Company has common stock that is publicly traded and has been able to successfully raise capital when needed since the date of
the Company’s initial public offering. The Company has engaged in discussions with investment and banking firms to examine
financing alternatives, including options to encourage the exercise of outstanding warrants and other lending alternatives. To
this effect, in March 2018, the Company closed on gross proceeds of $1.4 million, before payment of placement agent fees
and costs on a warrant reprice and exercise transaction. See discussion regarding Warrant Reprice March 2018 in Note 8 below.
Additionally, on May 14, 2018, we closed on a public offering of units, consisting of convertible preferred stock and warrants,
for gross proceeds of $15,000,000, which excludes underwriting discounts and commissions and offering expenses payable by the
Company. For further discussion regarding the recently closed public offering see Note 11. Subsequent Events.
Reverse
Stock Split
On
November 10, 2017, the Company effected a 1 for 12 reverse stock split of the Company’s common stock. The par value and
the authorized shares of the common and convertible preferred stock were not adjusted as a result of the reverse stock split.
All common stock share and per-share amounts for all periods presented in these condensed consolidated financial statements have
been adjusted retroactively to reflect the reverse stock split.
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, 2017.
New
Accounting Pronouncements
Not Yet Adopted
In
January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04
Intangibles—Goodwill and
Other (Topic 350): Simplifying the Test for Goodwill Impairment
. The amendments in this guidance eliminate the requirement
to calculate the implied fair value of goodwill used to measure goodwill impairment charge (Step 2). As a result, an impairment
charge will equal the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the amount
of goodwill allocated to the reporting unit. An entity still has the option to perform the qualitative assessment for a reporting
unit to determine if the quantitative impairment test is necessary. The amendment should be applied on a prospective basis. The
guidance is effective for goodwill impairment tests in fiscal years beginning after December 15, 2021. Early adoption is permitted
for goodwill impairment tests performed after January 1, 2017. The impact of this guidance for the Company will depend on the
outcomes of future goodwill impairment tests.
In
August 2016, the FASB updated accounting guidance on the following eight specific cash flow classification issues: (1) debt prepayment
or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates
that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made
after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned
life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees;
(7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance
principle. Under existing U.S. GAAP, there is no specific guidance on the eight cash flow classification issues aforementioned.
These updates are effective for the Company for its annual period beginning January 1, 2019, and interim periods therein, with
early adoption permitted. The guidance in this standard is not expected to have a material impact on the financial statements
of the Company.
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 update 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. The
standard is effective for the Company for its annual period beginning January 1, 2020, and interim periods therein, with early
adoption permitted. The Company is currently evaluating the potential impact this new standard may have on its financial statements
but believes the most significant change will relate to building leases.
In
May 2014, in addition to several amendments issued during 2016, 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 the Company for its annual period beginning January
1, 2019, 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 in the preliminary stages of evaluating the impact that the new standard
will have on its financial statements.
The
Company has reviewed all other recently issued, but not yet adopted, accounting standards, in order to determine their effects,
if any, on its results of operations, financial position or cash flows. Based on that review, the Company believes that no other
pronouncements will have a significant effect on its financial statements.
New
Accounting Pronouncements Adopted During the Quarter Ended March 31, 2018
In
March 2016, the 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 the well as classification in the statement of cash flows. The standard is effective for the Company for its
annual period beginning January 1, 2018. The guidance in this standard did not have a material impact on the financial statements
of the Company.
The
Company early adopted
ASU 2017-11 - Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives
and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement
of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception.
This update changed the classification analysis of certain equity-linked
financial instruments (or embedded features) with down round features. When determining whether certain financial instruments
should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when
assessing whether the instrument is indexed to an entity’s own stock. As a result, a freestanding equity-linked financial
instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result
of the existence of a down round feature. The adoption of this update did not change the accounting conclusions related to any
instruments issued prior to the adoption of this update during the first quarter of 2018.
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 primarily comprised of warrants for the purchase of common stock and stock options. 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,
shares of common stock, totaling approximately 1.6 million and 1.5 million as of March 31, 2018 and 2017, respectively.
3.
Inventories, net
Inventories
consisted of the following (in thousands):
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Raw materials
|
|
$
|
737
|
|
|
$
|
740
|
|
WIP
|
|
|
106
|
|
|
|
52
|
|
Finished goods
|
|
|
1,518
|
|
|
|
1,585
|
|
|
|
$
|
2,361
|
|
|
$
|
2,377
|
|
Finished
goods included consigned inventory totaling approximately $0.5 million as of March 31, 2018 and December 31, 2017.
As of March 31, 2018, inventories totaling $1.2 million and $1.1 million were classified as current and long-term, respectively.
Inventories classified as current represent the carrying value of inventories as of March 31, 2018, that management estimates
will be sold by March 31, 2019.
4.
Intangible Assets
Intangible
assets consisted of the following (in thousands):
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Developed technology
|
|
$
|
4,685
|
|
|
$
|
4,685
|
|
Customer relationships
|
|
|
3,989
|
|
|
|
3,989
|
|
Other patents and patent applications
|
|
|
562
|
|
|
|
562
|
|
Trademarks
|
|
|
401
|
|
|
|
350
|
|
|
|
|
9,637
|
|
|
|
9,587
|
|
Less: accumulated amortization
|
|
|
(7,070
|
)
|
|
|
(6,936
|
)
|
|
|
$
|
2,567
|
|
|
$
|
2,651
|
|
Amortization
expense is expected to approximate $400,000 for the remainder of 2018, $536,000 per year through 2021, $369,000 in 2022
and total $140,000 thereafter, until fully amortized.
5.
Fair Value Measurements
Financial
Instruments Measured and Recorded at Fair Value on a Recurring Basis
The
Company has issued certain warrants to purchase shares of common stock, which are considered derivative liabilities because
they have registration rights which could require a cash settlement and are re-measured to fair value at each reporting
period in accordance with accounting guidance. 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 as of March 31, 2018 and December
31, 2017. The following tables set forth the financial liabilities measured at fair value on a recurring basis by level within
the fair value hierarchy as of March 31, 2018 and December 31, 2017:
|
|
Fair Value Measurements as
of March 31, 2018
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Derivative liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
758
|
|
|
$
|
758
|
|
|
|
Fair Value Measurements as of December 31, 2017
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Derivative liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,357
|
|
|
$
|
1,357
|
|
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, 2018 and 2017.
|
|
Common Stock
Warrants
|
|
|
Balance at December 31, 2016
|
|
$
|
(3,665
|
)
|
|
Issuances of derivatives
|
|
|
(810
|
)
|
|
Decrease in liability due to warrants being exercised
|
|
|
-
|
|
|
Change in fair value
|
|
|
1,780
|
|
|
Other, net
|
|
|
(1
|
)
|
|
Balance at March 31, 2017
|
|
$
|
(2,696
|
)
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
$
|
(1,357
|
)
|
|
Issuances of derivatives
|
|
|
-
|
|
|
Decrease in liability due to warrants being exercised
|
|
|
-
|
|
|
Change in fair value
|
|
|
811
|
|
|
Other, net
|
|
|
(212
|
)
|
|
Balance at March 31, 2018
|
|
$
|
(758
|
)
|
|
Common
Stock Warrants
The
Company has issued certain warrants to purchase shares of common stock, which are considered derivative liabilities because
they have registration rights which could require a cash settlement and are re-measured to fair value at each reporting
period in accordance with accounting guidance. At March 31, 2018 and December 31, 2017, $0.5 million and $0.5
million, respectively, of the derivative liability was calculated using the Black-Scholes-Merton valuation model. At March
31, 2018 and December 31, 2017, $0.3 million and $0.9 million of the derivative liability was calculated using the Monte
Carlo Simulation valuation model.
The
assumptions used in estimating the common stock warrant liability using the Black-Scholes-Merton valuation model as of March 31,
2018 and December 31, 2017 were as follows:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Weighted-average risk-free interest rate
|
|
|
2.36
|
%
|
|
|
1.89
|
%
|
Weighted-average expected life (in years)
|
|
|
1.5
|
|
|
|
1.9
|
|
Expected dividend yield
|
|
|
-
|
%
|
|
|
-
|
%
|
Weighted-average expected volatility
|
|
|
104
|
%
|
|
|
107
|
%
|
The
assumptions used in estimating the common stock warrant liability using the Monte Carlo Simulation valuation model at March 31,
2018 and December 31, 2017 were as follows:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Weighted-average risk-free interest rate
|
|
|
2.56
|
%
|
|
|
2.2
|
%
|
Weighted-average expected life (in years)
|
|
|
3.3
|
|
|
|
3.6
|
|
Expected dividend yield
|
|
|
-
|
%
|
|
|
-
|
%
|
Weighted average expected volatility
|
|
|
63
|
%
|
|
|
64
|
%
|
In
addition, if at any time after the second anniversary of the issuance of the warrant, both: (1) the 30-day volume weighted average
price of the Company’s stock exceeds $3.00; and (2) the average daily trading volume for such 30-day period exceeds
$350,000, the Company may call this warrant for $0.01 per share. Because of the call provisions, management believes the Monte
Carlo Simulation valuation model provides a better estimate of fair value for the warrants issued during July 2016 and January
2017 than the Black-Scholes-Merton valuation model.
6.
Accrued Liabilities
Accrued
liabilities consisted of the following (in thousands):
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
Payroll and related expense
|
|
$
|
457
|
|
|
$
|
477
|
|
Other
|
|
|
284
|
|
|
|
142
|
|
Commissions
|
|
|
252
|
|
|
|
311
|
|
Royalties
|
|
|
106
|
|
|
|
96
|
|
Interest payable
|
|
|
11
|
|
|
|
6
|
|
Final loan payment fees
|
|
|
-
|
|
|
|
1,650
|
|
|
|
$
|
1,110
|
|
|
$
|
2,682
|
|
7.
Debt
L2
Capital Debt
On
January 31, 2018, the Company signed a promissory note in the aggregate principal amount of up to $840,000 (the “L2 Note”)
for an aggregate purchase price of up to $750,000 and warrants to purchase up to an aggregate of 68,257 shares of common stock
of the Company (the “Warrants”) at an exercise price of $3.31 per share. The maturity date is six months from date
of funding. The L2 Note bears interest at a rate of 8% per year and a default interest rate of 18% per year. The L2 Note may be
converted by the holder of the L2 Note at any time following an event of default. The conversion price of the L2 Note in the event
of a default is equal to the product of (i) 0.70 multiplied by (ii) the lowest volume weighted average price, or VWAP, of the
Company’s common stock during the 20-day trading period ending in the holder of the L2 note’s sole discretion on the
last complete trading day prior to conversion, or, the conversion date.
Hercules
and MEF I, LP/Anson Investments Debt Exchange
On
January 3, 2018, the Company entered into an Assignment Agreement (the “Assignment Agreement”) with MEF I, LP and
Anson Investments Master Fund (collectively the “Assignees” and each an “Assignee”), Hercules Technology
III, L.P. (“HT III”) and Hercules Capital, Inc. (“HC” and, together with HT III, “Hercules”),
pursuant to which Hercules assigned to the Assignees all amounts remaining due under the Loan and Security Agreement, dated June
30, 2014, as amended, between the Company and Hercules (the “Loan and Security Agreement”) and (2) the note (the “Hercules
Note”) between the Company and Hercules evidencing the amounts due under the Loan and Security Agreement. The total amount
assigned by Hercules to the Assignees in the aggregate was $2,264,623 and is secured by the same collateral underlying
the Loan and Security Agreement. Subsequently, the Company entered into an exchange agreement pursuant to which the Assignees
agreed to exchange the Hercules Term Loan obligation acquired by them for two senior secured convertible promissory notes issued
by the Company, each in the principal amount of $1.1 million for an aggregate principal amount of $2.2 million, (the “Exchange
Notes”). The Exchange Notes will mature on February 3, 2019 (the “Maturity Date”). The Exchange Notes bear interest
at a rate of 15% per annum. Prior to the Maturity Date, principal and interest accrued under the Exchange Notes is payable in
cash or, if certain conditions are met, payable in shares of common stock of the Company. All principal accrued under the Exchange
Notes are convertible into shares of the Company’s common stock (“Conversion Shares”) at the election of the
holders at any time at a fixed conversion price of $3.87 per share. Upon the occurrence of an event of default, the Assignees
are entitled to convert all or any part of their Exchange Notes at a conversion price (the “Alternate Conversion Price”)
equal to 70% of the lowest traded price of the Company’s common stock during the ten trading days prior to the conversion
date, provided that (i) in no event may the Alternate Conversion Price be less than $1.75 per share and (ii) the Assignees
shall not be entitled to receive more than 19.99% of the outstanding common stock. So long as these Exchange Notes remain outstanding
or the Assignees hold any Conversion Shares, the Company is prohibited from entering into any financing transaction pursuant to
which the Company sells its securities at a price lower than $1.75 per share. The Exchange Notes are secured by a first priority
security interest in substantially all assets, including intellectual property, of the Company and contains covenants restricting
payments to certain Company affiliates.
North
Stadium Term Loan – Related Party
On
July 28, 2017, the Company entered into a $2.5 million term loan (the “North Stadium Loan”) with North Stadium Investments,
LLC (“North Stadium”), a company owned and controlled by the Company’s Chief Executive Officer and Chairman
of the Board. The North Stadium Loan bears interest at 10% per annum and requires the Company to make monthly interest only payments
from September 5, 2017 through July 5, 2018. All principal and unpaid interest (if any) under the Loan are due and payable on
July 28, 2018. The North Stadium Loan is secured by substantially all of the Company’s assets but is junior to the security
interest in assets encumbered by the Hercules Term Loan now held by MEF I and Anson Investments. In connection with the North
Stadium Loan, the Company also issued North Stadium a warrant to purchase up to 55,000 shares of the Company’s common stock
at a purchase price of $5.04 per share, subject to a 5-year term. The relative estimated value of the warrants on the date of
grant approximated $0.2 million, was recorded as a debt discount and is being amortized as interest expense over the life
of the term loan.
Hercules
Term Loan
On
June 30, 2014, the Company entered into a Loan and Security Agreement with Hercules which provided the Company with a $20.0 million
term loan. The Hercules Term Loan matured on January 1, 2018. The Hercules Term Loan included a $0.2 million closing fee, which
was paid to Hercules on the closing date of the loan. The closing fee was recorded as a debt discount and was amortized to interest
expense over the life of the loan. The Hercules Term Loan also included a non-refundable final payment fee of $1.7 million. The
final payment fee was accrued and recorded to interest expense over the life of the loan. On January 3, 2018, the Hercules Term
Loan and all amounts owing thereunder were assigned to MEF I and Anson Investments. See discussion above for a more detailed description
of that transaction.
See
discussion below 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.
Hercules
and Riverside Debt Exchange
On
April 4, 2016, the Company entered into an Assignment and Second Amendment to Loan and Security Agreement (the “Assignment
Agreement”) with Riverside and Hercules, pursuant to which Hercules sold $1.0 million of the principal amount outstanding
under the Hercules Term Loan 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.
Riverside subsequently exercised its option in full and acquired the additional $2.0 million of the outstanding principal amount
of the Hercules Term Loan.
Long-term
debt consisted of the following (in thousands):
|
|
March
31, 2018
|
|
|
December
31, 2017
|
|
|
|
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
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
605
|
|
|
$
|
-
|
|
|
$
|
605
|
|
North Stadium
|
|
|
2,500
|
|
|
|
(82
|
)
|
|
|
2,418
|
|
|
|
2,500
|
|
|
|
(144
|
)
|
|
|
2,356
|
|
MEF I, LP
|
|
|
731
|
|
|
|
-
|
|
|
|
731
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Anson Investments
|
|
|
712
|
|
|
|
-
|
|
|
|
712
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
L2 Capital
|
|
|
840
|
|
|
|
(188
|
)
|
|
|
652
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total debt
|
|
|
4,783
|
|
|
|
(270
|
)
|
|
|
4,513
|
|
|
|
3,105
|
|
|
|
(144
|
)
|
|
|
2,961
|
|
Less: Current portion
|
|
|
(4,783
|
)
|
|
|
270
|
|
|
|
(4,513
|
)
|
|
|
(3,105
|
)
|
|
|
144
|
|
|
|
(2,961
|
)
|
Long-term debt
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
8.
Equity
Warrant
Reprice March 2018
During
the three months ended March 31, 2018, the Company entered into a warrant amendment agreement (the “Amendment Agreement”)
with certain holders of previously issued Series E Common Stock Purchase Warrants (collectively, “Investors”). In
connection with that certain Series E Common Stock Purchase Warrant between the Company and Investors dated July 8, 2016, the
Company issued to Investors warrants to purchase up to 832,000 shares of common stock (the “Warrant Shares”) at an
exercise price of $12.00 per share, (the “Investors Warrants”). Under the terms of the Amendment Agreement, in consideration
of Investors exercising 668,335 of the Investors Warrants (the “Warrant Exercise”), the exercise price per share of
the Investor Warrants was reduced to $2.125 per share. 668,335 of the Investors Warrants were exercised resulting
in gross proceeds to the Company of $1.4 million before payment of placement agent fees and costs. In addition, and as
further consideration, the Company issued to Investors new warrants to purchase up to the number of shares of common stock equal
to 100% of the number of Warrant Shares issued pursuant to the Warrant Exercise at an exercise price per share equal to $2.00
per share.
January
2017 Offering
During
2017, the Company completed a secondary offering in which the Company sold 741,667 shares of common stock and warrants to purchase
363,750 shares of common stock. The Company received approximately $3.9 million in proceeds from the offering, with $3.1 million,
net of issuance costs of $0.6 million, allocated to common stock and $0.8 million allocated to the warrants. In association with
the warrants that were recorded as a derivative liability, the Company immediately expensed $0.1 million of issuance costs. The
warrants became exercisable on the closing date, expire on the five-year anniversary of the closing date, and have an initial
exercise price per share equal to $6.60 subject to adjustments for events of recapitalization, stock dividends, stock splits,
stock combinations, reclassifications, reorganizations or similar events affecting the Company’s common stock.
July
2016 Offering
In
July 2016, the Company completed a secondary offering in which the Company sold 5,258,000 Class A Units, including 1,650,000 units
sold pursuant to the exercise by the underwriters of their over-allotment option, priced at $1.00 per unit, and 7,392 Class B
Units, priced at $1,000 per unit. Each Class A Unit consisted of 1/12th share of common stock and one warrant to purchase 1/12th
share of common stock. Each Class B Unit consisted of one share of preferred stock convertible into 83 shares of common stock
and warrants to purchase 83 shares of common stock. The securities comprising the units were immediately separable and were issued
separately. In total, the Company issued 438,167 shares of common stock, 7,392 shares of preferred stock convertible into 616,000
shares of common stock and warrants to purchase 1,054,167 shares of common stock at a fixed exercise price of $12.00 per share.
The Company received proceeds of approximately $11.4 million, net of underwriting and other offering costs.
The
Company raised $4.9 million associated with the Class A Units, with $2.5 million, net of issuance costs of $0.3 million, allocated
to the common stock and $2.4 million allocated to the warrants. The Company also raised $7.0 million associated with the Class
B Units with $3.6 million, net of issuance costs of $0.4 million, allocated to preferred stock and $3.4 million allocated to the
warrants. The $5.8 million allocated to warrants were recorded as a derivative liability. In association with the warrants that
were recorded as a derivative liability, the Company immediately expensed approximately $0.5 million of issuance costs. The 7,392
preferred shares were convertible into 616,000 shares of common stock and had an effective conversion rate of $6.48 per share
based on the proceeds that were allocated to them.
Subsequent
to the secondary offering, all 7,392 shares of convertible preferred stock have been converted into 616,000 shares of common stock.
Furthermore, the Company received $0.4 million and issued 37,208 shares of common stock upon the exercise of certain warrants
issued in the secondary offering.
9.
Stock-Based Compensation
A
summary of the Company’s outstanding stock option activity for the three months ended March 31, 2018 is as follows:
|
|
Options
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life
(Years)
|
|
|
Intrinsic
Value
|
|
As of December 31, 2017
|
|
|
11,302
|
|
|
$
|
264.26
|
|
|
|
7.3
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
As of March 31, 2018
|
|
|
11,302
|
|
|
$
|
264.26
|
|
|
|
7.0
|
|
|
$
|
-
|
|
Exercisable as of March 31, 2018
|
|
|
9,876
|
|
|
$
|
279.01
|
|
|
|
8.0
|
|
|
$
|
-
|
|
Expected to vest as of March 31, 2018
|
|
|
11,302
|
|
|
$
|
264.26
|
|
|
|
7.0
|
|
|
$
|
-
|
|
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.
Summary
of Stock-Based Compensation Expense
Total
stock-based compensation expense included in the condensed consolidated statements of operations is allocated as follows (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Cost of revenue
|
|
$
|
-
|
|
|
$
|
5
|
|
Research and development
|
|
|
-
|
|
|
|
26
|
|
General and administrative
|
|
|
13
|
|
|
|
23
|
|
Selling and marketing
|
|
|
11
|
|
|
|
6
|
|
Capitalized into inventory
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
24
|
|
|
$
|
60
|
|
Unrecognized
stock-based compensation as of March 31, 2018 is as follows (in thousands):
|
|
Unrecognized
Stock-Based Compensation
|
|
|
Weighted
Average
Remaining
Period
of Recognition
(in years)
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
13
|
|
|
|
.15
|
|
10.
Commitments and Contingencies
From
time to time, the Company is subject to 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
May
2018 Warrant Exercise
As
explained in Note 8, Warrant Reprice March 2018, the Company repriced 832,000 warrants. During May 2018, an additional
145,834 of the repriced warrants were exercised resulting in gross proceeds of $0.3 million.
May
2018 Unit Offering
On
May 14, 2018, the Company closed on an underwritten public offering of units, consisting of convertible preferred stock and warrants,
for gross proceeds of $15,000,000, which excludes underwriting discounts and commissions and offering expenses payable by Amedica.
The offering was priced at a public offering price of $1,000 per unit. Each unit consisted of one share of Series B Convertible
Preferred Stock, with a stated value of $1,100, and warrants to purchase up to 758 shares of common stock (the “May
2018 Warrants”). The May 2018 Warrants are initially exercisable at an exercise price of $1.60 per share and expire
5 years from the date of issuance. The Series B Preferred Stock is convertible into shares of common stock by dividing the stated
value of $1,100 by: (i) for the first 40 trading days following the closing of this offering, $1.4512 (the “Conversion Price”),
(ii) after 40 trading days but prior to the 81st trading day, the lesser of (a) the Conversion Price and (b) 87.5% of
the lowest volume weighted average price for our Common Stock as reported at the close of trading on the market reporting trade
prices for the Common Stock during the five trading days prior to the 41st trading day, and (iii) after 80 trading days, the lesser
of (a) the Conversion Price and (b) 87.5% of the lowest volume weighted average price for our Common Stock as reported
at the close of trading on the market reporting trade prices for the Common Stock during the five trading days prior to the date
of the notice of conversion. In the case of (ii)(b) and (iii)(b) above, the share price shall not be less than $0.48 (the “Floor
Price”). Each of the Conversion Price and Floor Price is subject to adjustment is certain circumstances.