Struggling medical device maker Baxano Surgical Inc. has raised about $1.4 million for working capital from a private placement.
Raleigh, North Carolina-based Baxano designs, develops and markets minimally invasive products to treat degenerative conditions of the spine that affect the lumbar region. The company's customers are mainly surgeons. The company markets AxiaLIF, VEO, iO-Flex, iO-Tome, Avance, Vector and Bi-Ostetic branded products.
Baxano has entered into a private placement to sell about $1.4 million in subordinated convertible debentures, the company said in a filing on Sept. 24 with the U.S. Securities and Exchange Commission.
The debentures accrue interested at the greater of 11 percent per year, or Libor plus 10 percent. If Baxano defaults, the interest rate will be hiked to 15 percent. The debentures are subordinated to the company's credit facility with Hercules Technology Growth Capital Inc. and existing debentures that were issued in March.
The company entered into an up to $15 million credit facility with Hercules in December 2013. The credit facility allowed Baxano to use $7.5 million at closing, then an additional $2.5 million depending on the company's achieving $6 million in gross commercial revenue in the fourth fiscal quarter, then an additional $5 million after achieving $7 million in the following quarter. Baxano didn't mean the revenue requirements to take out the remaining $7.5 million.
In March, Baxano issued $10 million in debentures.
The company has never been profitable. As of June 30, the company had an accumulated deficit of about $186 million. In July, Baxano decided in July to close its facility in San Jose and outsource manufacturing of some of its devices.
The company had a net loss of almost $15 million for the six months ended June 30, 2014, compared with a $15.6 million loss for the same period the year before.
Part of Baxano's future plan is to invests in sales and marketing infrastructure for its products. Baxano's accountant, in a March 11 SEC filing, indicated that there was substantial doubt about the company's ability to continue as a going concern, or without the threat of liquidation, because of Baxano's history of recurring losses and negative cash flows from operations.
The company's future success is depending on raising capital and not defaulting on its financing agreements.
Baxano says it faces significant competition from other medical device makers that make similar products, including Medtronic Inc. (NYSE: MDT), Johnson & Johnson (NYSE: JNJ) and Stryker Corp. (NYSE: SYK), all companies that have greater financial resources than Baxano.
Though Baxano has struggled, other medical device makers have generally been doing well. Many of the companies have been M&A targets one recent deal has come from Integra Life Sciences Holdings Corp. (Nasdaq: IART), which agreed to buy medical instrument lines from Medtronic for $60 million in September. For more on the health care sector, see 5 Technologies Drive Health Care M&A.
For the previous edition of Turnaround Tuesday, see Struggling Owner of Marley Coffee Hopes to Increase Sales.
For more struggling companies, see Mergers & Acquisitions Distressed Company Watch List.