Amedica Corporation: More Painful Drama To Come

by Sonya Colberg, Senior Editor - 2/3/2016 9:53:03 AM

Amedica Corporation’s (AMDA) reverse stock split is the latest and perhaps the most desperate measure taken thus far. But more painful drama will follow.

On the verge of getting delisted from the NASDAQ, the biomaterial company's shares were trading at just 11 cents per share. So it pulled a desperate 1-for-15 reverse stock split on January 25, the second reverse split since the February 2014 IPO that created shares now valued ~97% lower.

The recent split technically popped the stock into NASDAQ compliance, much like another desperate stock TheStreetSweeper just warned investors about … Authentidate Holding Corp. (ADAT, $5.04/share on publication date, $2.94 now). But Amedica’s desperation is even more palatable with its higher cash burn, almost as severe accumulated losses, frequent recent promotions and misrepresentation allegations launched by a most unexpected source.  

Just last November, professional stock promoters were paid to conduct a two-day promotional blitz of Amedica stock. Paid stock promotions have always provided one of the surest, quickest tipoffs that a company is desperate … and likely doomed to take a trip to penny stock land.

Real companies with real products and real promise simply don’t need the hype….unlike Amedica.

Investors may find other viewpoints here. Meanwhile, let’s proceed with the jaw-dropping risks just aching to pummel this stock:

*Bought And Paid For Hype

In Amedica’s case, a third party paid cash through a wire transfer to hype the company for a two-day campaign.

The more desperate the company, the greater the hype and thousands upon thousands in hype-money is just the opening act. The greater danger to investors is that stock promoters can buy huge quantities of potentially worthless stock and pitch it to their subscribers. Those subscribers’ purchases rocket the stock price, triggering the promoters to dump the stock … and the stock price dives.

Investors can see details of the Amedica hype-fest below:

(Source: stockpromoters.com)

*Amedica Promoters’ Record

Still tempted to follow promoters’ advice to buy Amedica?

Let’s check their track records first.

Penny Stock Locks, responsible for the majority of the Amedica campaign, cites two recent “winners,” Golden Star Enterprises (GSPT, no revenue, $207 cash, $-119,500 operating cash flow), which was heavily promoted this weekend and Monday by another newsletter writer, and Excalibur Resources Ltd. (EXCFF, no revenue, $3,620 cash, $-142,700 operating cash flow).

The promoter discloses: “PennyStockLocks.com and its officers, partners, affiliates, employees, etc. are compensated for covering and profiling these companies in cash and/or stock and as such there will be a conflict of interest and our profiles and other dealings are not arms length transactions. The party that pays us usually has a position in the stock they will sell at anytime without notice. Their selling and our selling of shares could have a negative impact on the price of the stock, resulting in losses to you.”

Even humor can’t deflect the risk: “We will not be held liable for any investment decisions you make when that is the case. (Hey Folks, these are high risk stocks).”

If the financials and disclosures aren’t eye-popping enough, check out the stock charts of the promoter’s self-proclaimed winners:

(Source: Morningstar)

(Source: Morningstar)

And Amedica has been hyped even more recently … just a few days ago by yet another promoter, as indicated here.

*Default Notices; Lender Alleges Misrepresentation

Promotional activities are just among the more recent acts of desperation revolving around Amedica. Astonishing allegations of misrepresentation were launched against Amedica by an even more astonishing source.

One of the company's primary lenders, Magna, issued a notice of default on June 19, 2015, contending:

"it has recently been made aware that certain of the representations and warranties made by the Company in the Amendment Agreement and the Securities Purchase Agreement were not true and correct in all material respects as of the date of signing nor as of the date of closing of the issuance of the Original Notes and the Exchange Notes."

The controversy revolved around Magna's $6 million convertible note set up in July 2014, the same time it set up a $20 million debt financing with Hercules Technology Growth Capital.

Three long months into the dispute, Magna rescinded the default claim when Amedica registered a mountain of shares in mid-2014.

Though Amedica fared better with Hercules - a company with a fresh downgrade and 29% trading price drop since February 2015 - Hercules, too, handed Amedica a notice of default in June 2015 .

Ultimately, it took a Hurculean effort in the form of a September 2015 stock offering to hold off the wolves at the door ... something TheStreetSweeper wouldn't be surprised to see again very soon.

*Net Losses; Going Concern Issue

The debt drama wasn't surprising considering Amedica's financial condition evidenced by events such as its going concern issues and accumulated losses statement.

With its net losses persistent since inception, Amedica auditors doubt the company can remain in business.

The company’s required disclosure states in part:

“Our report from our independent registered public accounting firm … (states) that our recurring losses from operations and our need to obtain additional financing in order to satisfy our debt obligations and to be compliant with covenants under our debt obligations through 2015 raise substantial doubt about our ability to continue as a going concern.

“If we are unable to obtain sufficient additional funding, our business, prospects, financial condition and results of operations will be materially and adversely affected and we may be unable to continue as a going concern …  we may have to liquidate our assets … investors (may) lose all or a part of their investment.

Let's look at ... yikes! ... the company's financial risk assessment, according to NASDAQ.

(Source: Nasdaq)

*Cash Low, Burn High

On top of the accumulated losses that rest somewhere around $194 million, the company's cash has dropped to just over $11 million – a significant decline as shown in this filing snapshot:

(Source: Yahoo Finance)

The company burns through about $2.35 million cash per quarter.

*Revenue Declines

And there's little to no hope on the horizon. The company is almost certain to fall well short of the revenue produced the previous year.

Take a look at the chart:

(Source: Nasdaq)

Amedica needs $8.4 million revenue in the fourth quarter just to match 2014’s revenue.

But that appears impossible. The most quarterly revenue the company has recorded in years was just under $6 million in 2014.

*Miserable EPS

In fact, even normally upbeat analysts (and the company) expect ongoing negative earnings ... an astounding $-6.68 in 2015 and $ -2.40 in 2016.

Yet, despite the earnings per share predictions and uphill revenue battle, the company clings to hope that its spinal fusion candidate will find acceptance in a crowded market of well-heeled, fierce competitors  – including giants like Johnson & Johnson (JNJ), Stryker Corp. (SYK) and Medtronic (MDT) … despite …

*No Clinical Data Proving Safety

That’s right. The company discloses that “The safety of our products is not yet supported by long-term clinical data.”

If the product passes premarket clearance, the Food and Drug Administration could demand that the company prove safety. And if complications reveal themselves in clinical tests or once on the market, the FDA could force product recalls which could be virtually unrecoverable to a struggling company.

Indeed, most commercialization will ultimately require risky, expensive, time-consuming clinical trials likely costing millions upon millions in funding.

*Conclusion:

This hyped up, cash-strapped, debt-heavy company propped up by reverse stock splits – offering little more than a product idea - will be lucky to pull off one more desperate measure. We expect that desperation will come in the form of a capital raise … probably a stock offering with looming dilution.

This highly risky stock will likely get hammered back to penny stock territory very soon ... under $1 per share really would be a more reasonable valuation.

* Important Disclosure: The owners of TheStreetSweeper hold a short position in AMDA and stand to profit on any future declines in the stock price.

* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected].

 

 

 

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