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, 2021

 

OR

 

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

 

Commission File Number 001-33624

 

 

 

SINTX Technologies, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

DELAWARE   84-1375299
(State or other jurisdiction   (IRS Employer
of incorporation or organization)   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)

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbols   Name of each exchange on which registered
Common Stock   SINT   The NASDAQ Capital Market

 

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 every Interactive Data File required to be submitted 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, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer [  ] Accelerated filer [  ]
       
Non-accelerated filer [  ] Smaller reporting company [X]
       
    Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

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

 

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

 

24,684,574 shares of common stock, $0.01 par value, were outstanding at May 10, 2021.

 

 

 

 
 

 

SINTX Technologies, Inc.

Table of Contents

 

Part I. Financial Information  
Item 1. Financial Statements  
Condensed Consolidated Balance Sheets (unaudited) 3
Condensed Consolidated Statements of Operations (unaudited) 4
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) 5
Condensed Consolidated Statements of Cash Flows (unaudited) 6
Notes to Condensed Consolidated Financial Statements (unaudited) 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
Item 4. Controls and Procedures 23
Part II. Other Information  
Item 1. Legal Proceedings 24
Item 1A. Risk Factors 24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Mine Safety Disclosures 24
Item 5. Other Information 24
Item 6. Exhibits 25
Signatures 26

 

2
 

 

SINTX Technologies, Inc.

Condensed Consolidated Balance Sheets - Unaudited

(in thousands, except share and per share data)

 

   March 31,
2021
   December 31,
2020
 
         
Assets          
Current assets:          
Cash and cash equivalents  $23,471   $25,351 
Account and other receivables, net of allowance   67    41 
Prepaid expenses and other current assets   798    243 
Inventories   108    99 
Note receivable   1,316    1,856 
Total current assets   25,760    27,590 
           
Inventories   407    388 
Property and equipment, net   629    471 
Intangible assets, net   35    36 
Operating lease right of use asset   1,819    1,926 
Other long-term assets   35    36 
Total assets  $28,685   $30,447 
           
Liabilities and Stockholders’ Equity          
Current liabilities:          
Accounts payable  $397   $194 
Accrued liabilities   1,086    909 
Current portion of long-term debt   1    109 
Derivative liabilities   1,285    1,238 
Current portion of operating lease liability   413    403 
Other current liabilities   23    26 
Total current liabilities   3,205    2,879 
           
Operating lease liability, net of current portion   1,369    1,477 
Long term debt, net of current portion   513    287 
Total liabilities   5,087    4,643 
           
Commitments and Contingencies          
           
Stockholders’ Equity:          
Convertible preferred stock Series B, $0.01 par value, 130,000,000 total shares authorized inclusive of all series of preferred; 26  shares issued and outstanding as of March 31, 2021 and December 31, 2020.   -    - 
Convertible preferred stock Series C, $0.01 par value, 130,000,000 total shares authorized inclusive of all series of preferred; 51  shares issued and outstanding as of March 31, 2021 and December 31, 2020.   -    - 
Common stock, $0.01 par value, 250,000,000 shares authorized; 24,684,574  and 24,552,409 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively.   247    245 
Additional paid-in capital   267,091    266,666 
Accumulated deficit   (243,740)   (241,107)
Total stockholders’ equity   23,598    25,804 
Total liabilities and stockholders’ equity  $28,685   $30,447 

 

The condensed consolidated balance sheet as of December 31, 2020, has been prepared using information from the audited consolidated balance sheet as of that date.

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3
 

 

SINTX Technologies, Inc.

Condensed Consolidated Statements of Operations - Unaudited

(in thousands, except share data)

 

  

Three Months Ended

March 31,

 
   2021   2020 
Product revenue  $101   $207 
Costs of revenue   61    166 
Gross profit   40    41 
Operating expenses:          
Research and development   1,595    994 
General and administrative   1,000    764 
Sales and marketing   286    137 
Total operating expenses   2,881    1,895 
Loss from operations   (2,841)   (1,854)
Other income (expenses):          
Interest expense   -    (1)
Interest income   47    104 
Change in fair value of derivative liabilities   (242)   4,166 
Offering costs associated with warrant derivatives   -    (1,246)
Forgiveness of PPP loan   391    - 
Other income (net)   12   - 
Total other income, net   208    3,023 
Net income (loss) before income taxes   (2,633)   1,169 
Provision for income taxes   -    - 
Net income (loss)   (2,633)   1,169 
Deemed dividend related to the beneficial conversion feature and accretion of a discount on preferred stock   -    (9,284)
Net loss attributable to common stockholders  $(2,633)  $(8,115)
           
Net loss per share  – basic and diluted          
Basic – net income (loss)  $(0.11)  $0.19 
Basic - deemed dividend and accretion of a discount on conversion of preferred stock   -    (1.54)
Basic – attributable to common stockholders  $(0.11)  $(1.35)
           
Diluted – loss  $(0.11)  $(0.37)
Diluted - deemed dividend and accretion of a discount on conversion of preferred stock   -    (1.16)
Diluted – attributable to common stockholders  $(0.11)  $(1.53)
Weighted average common shares outstanding:          
Basic   24,668,106    6,020,889 
Diluted   24,668,106    8,035,392 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4
 

 

SINTX Technologies, Inc.

Condensed Consolidated Statements of Stockholders’ Equity - Unaudited

(in thousands, except share and per share data)

 

    Preferred B Stock     Preferred C Stock     Common Stock     Paid-In     Accumulated     Total  
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Equity  
Balance  as of December 31, 2019     249     $  -        -     $  -       2,434,009     $ 24     $ 239,256     $ (234,078 )   $ 5,202  
Extinguishment of derivative liability upon exercise of warrant     -       -       -       -       3,128,895       32       1,525       -       1,557  
Issuance of common stock from the exercise of warrants for cash     -       -       -       -       100       -       -       -       -  
Preferred stock issued for cash     -       -       9,440       -       -       -       3,112       -       3,112  
Common stock issued on conversion of preferred stock     -       -       (9,208 )     -       6,215,742       62       (62 )     -       -  
Issuance of agent warrants     -       -       -       -       -       -       168       -       168  
Beneficial conversion feature on issuance of convertible preferred stock     -       -       -       -       -       -       3,111       -       3,111  
Deemed dividend related to the issuance of preferred stock     -       -       -       -       -       -       (3,111 )     -       (3,111 )
Accretion of convertible preferred stock discount     -       -       -       -       -       -       6,173       -       6,173  
Deemed dividend related to the conversion of preferred stock     -       -       -       -       -       -       (6,173 )     -       (6,173 )
Net income     -       -       -       -       -       -       -       1,169       1,169  
Balance as of March 31, 2020     249     $ -       232     $ -       11,778,746      $ 118      $ 243,999      $ (232,909 )   $ 11,208  

 

   Preferred B Stock   Preferred C Stock   Common Stock   Paid-In   Accumulated   Total 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
Balance as of December 31, 2020   26   $-    51   $-    24,552,409   $245   $266,666   $(241,107)  $25,804 
Stock based compensation   -    -    -    -    -    -    36    -    36 
Extinguishment of derivative liability upon exercise of warrant   -    -    -    -    -    -    195    -    195 
Issuance of common stock upon exercise of warrants for cash   -    -    -    -    130,275    2    194    -    196 
Issuance of common stock from the cashless exercise of warrants   -    -    -    -    1,890    -    -    -    - 
Net loss   -    -    -    -    -    -    -    (2,633)   (2,633)
Balance as of March 31, 2021   26   $-    51   $-    24,684,574   $247   $267,091   $(243,740)  $23,598 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5
 

 

SINTX Technologies, Inc.

Condensed Consolidated Statements of Cash Flows - Unaudited

(in thousands)

 

  

Three Months Ended

March 31,

 
   2021   2020 
Cash Flow From Operating Activities          
Net income (loss)  $(2,633)  $1,169 
Adjustments to reconcile net income (loss) to net cash used in operating activities:          
Depreciation expense   33    16 
Amortization of right of use asset   107    104 
Amortization of intangible assets   1    1 
Non-cash interest income   (43)   (91)
Stock based compensation   36    - 
Change in fair value of derivative liabilities   242    (4,166)
Offering Costs   -    325 
Forgiveness of PPP loan   (391)   - 
Gain on disposal of property and equipment   (14)   - 
Changes in operating assets and liabilities:          
Trade accounts receivable   (26)   30 
Prepaid expenses and other current assets   (555)   (320)
Inventories   (28)   (73)
Accounts payable and accrued liabilities   380    (320)
Other liabilities   (3)   - 
Payments on operating lease liability   (98)   (73)
Net cash used in operating activities   

(2,992

)   (3,398)
Cash Flows From Investing Activities          
Purchase of property and equipment   

(191

)   (21)
Proceeds from notes receivable, net of imputed interest   583    417 
Proceeds from sale of property and equipment   14    - 
Net cash provided by investing activities   406    396 
Cash Flows From Financing Activities          
Proceeds from issuance of preferred stock   -    3,112 
Proceeds from issuance of warrant derivative liabilities   -    6,328 
Proceeds from issuance of common stock in connection with exercise of warrants   196    - 
Proceeds from issuance of debt   510    - 
Payments on debt   -    (1)
Net cash provided by financing activities   706    9,439 
Net increase (decrease) in cash and cash equivalents   (1,880)   6,437 
Cash and cash equivalents at beginning of period   25,351    1,787 
Cash and cash equivalents at end of period  $23,471   $8,224 
           
Noncash Investing and Financing Activities          

Extinguishment of derivative liabilities through exercise of warrants

  $195   $1,556 
Change in par value due to conversion of preferred stock to common stock   -    92 
Supplemental Cash Flow Information          
Cash paid for interest  $-   $1 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6
 

 

SINTX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Organization and Summary of Significant Accounting Policies

 

Organization

 

SINTX Technologies, Inc. (“SINTX” or “the Company”) was incorporated in the state of Delaware on December 10, 1996 (and was previously known as Amedica Corporation). SINTX is an OEM ceramics company that develops and commercializes silicon nitride for medical and non-medical applications. The core strength of SINTX is the manufacturing, research, and development of silicon nitride ceramics for external partners. The Company presently manufactures silicon nitride spinal implant in its ISO 13485 certified manufacturing facility for CTL Amedica, the exclusive retail channel for silicon nitride spinal implants. The Company believes it is the first and only manufacturer to use silicon nitride in medical applications. The Company’s products are primarily sold in the United States.

 

On October 1, 2018, the Company completed the sale of its retail spine business to CTL Medical, a Dallas, Texas-based privately held medical device manufacturer. As a result of the sale, CTL Medical became the exclusive owner of the Company’s portfolio of metal and silicon nitride spine products, and has access to future silicon nitride spine technologies developed by the Company. Manufacturing, R&D, and all intellectual property related to the core, non-spine, biomaterial technology of silicon nitride remains with the Company. The Company serves as CTL’s exclusive OEM provider of silicon nitride products.

 

On October 30, 2018, the Company amended its Certificate of Incorporation with the State of Delaware to change its corporate name to SINTX Technologies, Inc. in order to better reflect its focus on silicon nitride science and technologies and pipeline of silicon nitride-based products in various biomedical applications. The Company also changed its trading symbol on the NASDAQ Capital Market to “SINT”.

 

The previous name, Amedica, was transferred to CTL Medical, which is now CTL Amedica. The Company’s new corporate brand reflects both the Company’s core competence in the science and production of silicon nitride ceramics, as well as encouraging prospects for the future, as an OEM supplier of spine implants to CTL Amedica, and several opportunities outside of spine. As SINTX Technologies Inc., the Company will focus on developing silicon nitride in terms of product design, and future biomaterial formulations, for a variety of OEM customers.

 

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. In May 2020, the Company dissolved its wholly owned subsidiary ST Sub, Inc. At the time of dissolution, the subsidiary had no assets, liabilities, equity, or operations. The financial statements after May 8, 2020, are not consolidated.

 

SEC rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) 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, 2020, filed with the SEC on March 22, 2021. The results of operations for the three months ended March 31, 2021, are not necessarily indicative of the results to be expected for the year ending December 31, 2021. 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, 2020.

 

7
 

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with 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 condensed consolidated financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. As of March 31, 2021, the most significant estimate relates to derivative liabilities relating to 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 does 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, 2021 and 2020, the Company incurred a net loss of $2.6  million and generated a net income of $1.2  million, respectively, and used cash in operations of $3.0  million and $3.4 million, respectively. The Company had an accumulated deficit of $243.7 million and $241.1 million as of March 31, 2021 and December 31, 2020, respectively. To date, the Company’s operations have been principally financed from proceeds from the issuance of preferred and common stock 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. The Company’s continuation as a going concern is dependent upon its ability to increase sales, and/or raise additional funds through the capital markets. Whether and when the Company can attain profitability and positive cash flows from operations or obtain additional financing is uncertain.

 

The Company is actively generating additional scientific and clinical data to have it published in leading industry publications. The unique features of our silicon nitride material are not well known, and we believe 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 by expanding the use of silicon nitride in other areas outside of spinal fusion applications.

 

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 in February 2014. On February 6, 2020, the Company closed on a rights offering to its stockholders of units, consisting of convertible preferred stock and warrants, for gross proceeds of $9.4 million, which excludes underwriting discounts and commissions and offering expenses payable by the Company of approximately $1.2 million. Additionally, during the period of June 2020 through August 2020, the Company closed four registered direct offerings of shares of its common stock, priced at-the-market under Nasdaq rules, resulting in the issuance of a total of 11,015,000 shares of its common stock for gross proceeds of approximately $20.9 million, before considering issuance costs of approximately $1.6 million (see Note 8).

 

During the year ended December 31, 2019, the Company entered into an at-the-market (2019 ATM) equity distribution agreement under which the Company could sell, from time to time, shares of common stock having an aggregate offering price of up to $2.5 million. During the year ended December 31, 2020, the Company sold 354,381 shares of common stock under the ATM, raising approximately $0.8 million before deducting fees to the placement agent and other offering expenses of approximately $0.1 million. As of March 31, 2021, no funding capacity is available under the ATM. (see Note 8). 

 

On February 25, 2021, the Company entered into an Equity Distribution Agreement (the “2021 Distribution Agreement”) with Maxim Group LLC (“Maxim”), pursuant to which the Company may sell from time to time, shares of the Company’s common stock having an aggregate offering price of up to $15.0 million through Maxim, as agent. As of March 31, 2021, there have been no sales of shares of common stock under the 2021 Distribution Agreement.

 

Subject to the terms and conditions of the 2021 Distribution Agreement, Maxim will use its commercially reasonable efforts to sell the Shares from time to time, based on our instructions. Under the 2021 Distribution Agreement, Maxim may sell the Shares by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), including, without limitation, sales made directly on the Nasdaq Capital Market. We have no obligation to sell any shares under the ATM and may at any time suspend offers under the 2021 Distribution Agreement. The Offering will terminate upon the earlier of (i) the sale of shares having an aggregate offering price of $15.0 million, (ii) the termination by either Maxim or the Company upon the provision of fifteen (15) days written notice, or (iii) February 25, 2022. Under the terms of the 2021 Distribution Agreement, Maxim will be entitled to a transaction fee at a fixed rate of 2.0% of the gross sales price of Shares sold under the 2021 Distribution Agreement. The Company will also reimburse Maxim for certain expenses incurred in connection with the 2021 Distribution Agreement and agreed to provide indemnification and contribution to Maxim with respect to certain liabilities under the Securities Act and the Securities Exchange Act of 1934, as amended. As of March 31, 2021 there have been no sales of shares of common stock under the 2021 Distribution Agreement.

 

On October 1, 2018, the Company sold the retail spine business to CTL Medical. The sale included a $6.0 million noninterest bearing note receivable payable over a 36-month term. The 36-month term of the note receivable requires 18 payments of $138,889 followed by 18 payments of $194,444, with maturing of the note receivable to occur October 1, 2021. The Company expects cash flows of approximately $1.4  million for the remaining seven months of the term of the note.

 

Management has concluded existing capital resources will be sufficient to fund operations for at least the next 12 months, or through May 2022.

 

Risks Related to COVID-19 Pandemic

 

The COVID-19 pandemic is affecting the United States and global economies and may affect the Company’s operations and those of third parties on which the Company relies. In response to the spread of COVID-19 and to ensure safety of employees and continuity of business operations, we closed our offices, with our administrative employees continuing their work remotely and limited the number of staff in our manufacturing facility. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce the Company’s ability to access capital, which could negatively impact the Company’s short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. The Company does not yet know the full extent of potential delays or impacts on its business, financing or other activities or on healthcare systems or the global economy as a whole. However, these effects could have a material impact on the Company’s liquidity, capital resources, operations and business and those of the third parties on which we rely.

 

New Accounting Pronouncements Not Yet Adopted

 

The Company has reviewed all 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.

 

8
 

 

2. Basic and Diluted Net Income (Loss) per Common Share

 

Basic net income (loss) per share is calculated by dividing the net income (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 that are determined to be dilutive. Common stock equivalents are primarily comprised of preferred stock and warrants for the purchase of common stock. For the three months ended March 31, 2021, there is no difference in the number of shares and net loss used to calculate basic and diluted shares outstanding because their effect would have been anti-dilutive. The Company had potentially dilutive securities, totaling approximately 1.8  million and 2.7  million as of March 31, 2021 and 2020, respectively.

 

Below are basic and diluted loss per share data for the three months ended March 31, 2021, which are in thousands except for share and per share data:

 

   Basic Calculation  

Effect of

Dilutive
Warrant
Securities

   Diluted Calculation 
Numerator:                         
Net income (loss)  $(2,633)  $-   $(2,633)
Deemed dividend and accretion of a discount   -    -    - 
Net loss attributable to common stockholders  $(2,633)  $-   $(2,633)
                
Denominator:               
Number of shares used in per common share calculations:   24,668,106    -    24,668,106 
                
Net loss per common share:               
Net income (loss)  $(0.11)  $-   $(0.11)
Deemed dividend and accretion of a discount   -    -    - 
Net loss attributable to common stockholders  $(0.11)  $-   $(0.11)

 

Below  are basic and diluted loss per share data for the three months ended March 31, 2020, which are in thousands except for share and per share data:

 

   Basic Calculation  

Effect of

Dilutive
Warrant
Securities

   Diluted Calculation 
Numerator:               
Net income (loss)  $1,169   $(4,166)  $(2,997)
Deemed dividend and accretion of a discount   (9,284)   -    (9,284)
Net loss attributable to common stockholders  $(8,115)  $(4,166)  $(12,281)
                
Denominator:               
Number of shares used in per common share calculations:   6,020,889    2,014,503    8,035,392 
                
Net loss per common share:               
Net income (loss)  $0.19   $(0.56)  $(0.37)
Deemed dividend and accretion of a discount   (1.54)   0.38    (1.16)
Net loss attributable to common stockholders  $(1.35)  $(0.18)  $(1.53)

 

9
 

 

3. Inventories

 

Inventories consisted of the following (in thousands):

 

   March 31,
2021
   December 31,
2020
 
Raw materials  $407   $388 
WIP   106    97 
Finished goods   2    2 
   $515   $487 

 

As of March 31, 2021, inventories totaling approximately $0.1 million and $0.4 million were classified as current and long-term, respectively. Inventories classified as current represent the carrying value of inventories as of March 31, 2021, that management estimates will be sold or used by March 31, 2022.

 

4. Intangible Assets

 

Intangible assets consisted of the following (in thousands):

 

   March 31,
2021
   December 31,
2020
 
Trademarks  $50   $50 
Less: accumulated amortization   (15)   (14)
   $35   $36 

 

Amortization expense for the three months ended March 31, 2021, was approximately $1.3  thousand. Amortization expense for the three months ended March 31, 2020, was approximately $1.3 thousand.

 

10
 

 

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, 2021 and December 31, 2020. 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, 2021 and December 31, 2020 (in thousands):

 

   Fair  Value Measurements as of March 31, 2021 
Description  Level 1   Level 2   Level 3   Total 
Derivative liability                    
Common stock warrants  $-   $-   $1,285   $1,285 

 

    Fair Value Measurements as of December 31, 2020  
Description   Level 1     Level 2     Level 3     Total  
Derivative liability                                
Common stock warrants   $ -     $ -     $ 1,238     $ 1,238  

 

The Company did not have any transfers of assets and liabilities between any levels of the fair value measurement hierarchy during the three months ended March 31, 2021 and 2020 (in thousands).

 

   Common  Stock
Warrants
 
Balance as of December 31, 2019  $(220)
Issuance of derivatives   (6,328)
Change in fair value   4,166 
Exercise of warrants   1,556 
Balance as of March 31, 2020  $(826)
      
Balance as of December 31, 2020  $(1,238)
Change in fair value   (242)
Exercise of warrants   195 
Balance as of March 31, 2021  $(1,285)

 

11
 

 

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. As of March 31, 2021, and December 31, 2020, the derivative liability was calculated using the Monte Carlo Simulation valuation.

 

The assumptions used in estimating the common stock warrant liability as of March 31, 2021 and December 31, 2020 were as follows:

 

   March 31, 2021    December 31, 2020 
Weighted-average risk-free interest rate     0.05%-0.70%    0.09%-0.27 %
Weighted-average expected life (in years)     0.38-4.07     0.63-4.10 
Expected dividend yield    -%   -%
Weighted-average expected volatility    137.8%-178.1%    138.3%-175.6 %

 

Other Financial Instruments

 

The Company’s recorded values of cash and cash equivalents, account and other receivables, 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.

 

12
 

 

6. Accrued Liabilities

 

Accrued liabilities consisted of the following (in thousands):

 

   March 31,
2021
   December 31,
2020
 
Payroll and related expense  $690   $600 
Other   396    309 
   $1,086   $909 

 

7. Debt

 

2020 PPP Loan

 

On April 28, 2020, the Company received funding under a Paycheck Protection Program (“PPP”) loan (the “PPP Loan”) from First State Community Bank (the “Lender”). The principal amount of the PPP Loan was $0.4 million. The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (the “SBA”). Loans made under the PPP may be partially or fully forgiven if the recipient complies with the provisions of the CARES Act, including the use of PPP Loan proceeds for payroll costs, rent, utilities and other expenses, provided that such amounts are incurred during a 24-week period that commenced on April 28, 2020 and at least 60% of any forgiven amount has been used for covered payroll costs as defined by the CARES Act. On January 5, 2021, the Lender provided notice to the Company that the principal amount and accrued interest had been forgiven. The Company removed the PPP Loan obligation and recorded other income for forgiveness of debt totaling $0.4 million. The SBA has until January of 2027 to audit the Company’s compliance with the CARES Act relating to the PPP Loan.

 

2021 PPP Loan

 

On March 15, 2021, the Company received funding under the SBA Second Draw Program under the Paycheck Protection Program (“2021 PPP”) (the “2021 PPP Loan”) from First State Community Bank (the “Lender”). The principal amount of the 2021 PPP Loan is $.5  million . The 2021 PPP was established under the CARES Act and is administered by the SBA. The 2021 PPP Loan has a five-year term, maturing on March 15, 2026. The interest rate on the 2021 PPP Loan is 1.0% per annum.

 

The Company will not be obligated to make any payments of principal or interest if the Company submits a loan forgiveness application to the Bank within 10 months after the end of the Company’s covered loan forgiveness period (as defined and interpreted by the 2021 PPP Rules) and such loan forgiveness is allowed. Generally, all or a portion of the 2021 PPP Loan may be forgiven if the Company maintains its employment and compensation within certain parameters during the twenty-four (24) week period following the loan origination date and the proceeds of the 2021 PPP Loan are spent on payroll costs, rent or lease agreements dated before February 15, 2020 and utility payments arising under service agreements in place before February 15, 2020.

 

13
 

 

8. Equity

 

2021 Equity Distribution Agreement

 

On February 25, 2021, the Company entered into an Equity Distribution Agreement (the “2021 Distribution Agreement”) with Maxim Group LLC (“Maxim”), pursuant to which the Company may sell from time to time, shares of the Company’s common stock having an aggregate offering price of up to $15.0 million through Maxim, as agent.

 

Subject to the terms and conditions of the 2021 Distribution Agreement, Maxim will use its commercially reasonable efforts to sell the Shares from time to time, based on the Company’s instructions. Under the 2021 Distribution Agreement, Maxim may sell the Shares by any method permitted by law deemed to be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), including, without limitation, sales made directly on the Nasdaq Capital Market. We have no obligation to sell any shares under the 2021 Distribution Agreement and may at any time suspend offers under the 2021 Distribution Agreement. The Offering will terminate upon the earlier of (i) the sale of shares having an aggregate offering price of $15.0 million, (ii) the termination by either Maxim or the Company upon the provision of fifteen (15) days written notice, or (iii) February 25, 2022. Under the terms of the 2021 Distribution Agreement, Maxim will be entitled to a transaction fee at a fixed rate of 2.0% of the gross sales price of Shares sold under the 2021 Distribution Agreement. The Company will also reimburse Maxim for certain expenses incurred in connection with the 2021 Distribution Agreement and agreed to provide indemnification and contribution to Maxim with respect to certain liabilities under the Securities Act and the Securities Exchange Act of 1934, as amended. As of March 31, 2021 there have been no sales of shares of common stock under the 2021 Distribution Agreement.

 

2020 Rights Offering

 

During February 2020, the Company closed on a rights offering capital raise wherein the Company’s holders of common stock, Series C Preferred Stock, and certain outstanding warrants, obtained, at no charge, non-transferable subscription rights to purchase certain units from the Company (“Units”). Each Unit consisted of one share of Series C Convertible Preferred Stock (“Preferred Stock”) and 675 warrants to purchase common stock (“Warrants”). Each Unit sold for $1,000. Each share of the Preferred Stock is convertible, at the Company’s option at any time on or after the first anniversary of the expiration of the rights offering or at the option of the holder at any time, into a number of shares of our common stock equal to the quotient of the stated value of the Preferred Stock ($1,000) divided by the Conversion Price ($1.4814 per share). Each Warrant is exercisable for one share of our common stock at an exercise price of $1.50 per share from the date of issuance through its expiration five years from the date of issuance. The Warrants also contain a cashless exercise provision that allows the holder to receive 70% of the common stock otherwise available under the warrant to the holder electing the cashless exercise provision. The Company issued 9,440 Units, comprised of 6,372,000 Warrants exercisable into shares of our common stock and Preferred Stock convertible into 6,372,350 shares of Common Stock, for gross proceeds of $9.4 million before consideration of issuance costs, associated with the issuance of the Units, with $3.1 million allocated to the Preferred Stock (with no issuance costs allocated to the preferred stock) and $5.1 million, net of issuance costs of approximately $1.2 million, allocated to the Warrants. In association with the Warrants that were recorded as a derivative liability, the Company immediately expensed approximately all $1.2 million of the issuance costs.

 

During the three months ended March 31, 2021, Series B Convertible Preferred stockholders of the Company converted no shares of Series B Convertible Preferred Stock, and Series C Convertible Preferred stockholders of the Company converted no shares of Series C Convertible Preferred Stock.

 

Also, during the three months ended March 31, 2021, holders of Warrants electing to use the cashless exercise option exercised 2,700 warrants, which resulted in the issuance of 1,890 shares of common stock. During the same period of time, holders of Warrants electing to exercise warrants for cash exercised 130,275 warrants, which resulted in the issuance of 130,275 shares of common stock, and the receipt of $0.2 million of cash.

 

2020 Registered Direct Offerings

 

During June 2020, the Company closed two registered direct offerings of shares of its common stock, priced at-the-market under Nasdaq rules, resulting in the issuance of a total of 6,100,000 shares of its common stock for gross proceeds of approximately $9.6 million, before considering offering costs of approximately $0.8 million. On June 23, 2020, the Company entered into the first Share Purchase Agreement with certain institutional purchasers, pursuant to which the Company agreed to issue and sell to the purchasers, in a registered direct offering, an aggregate of 3,700,000 shares of common stock, par value $0.01 per share. The shares were sold at a negotiated purchase price of $1.50 per share for aggregate gross proceeds to the Company of approximately $5.5 million, before deducting offering costs. Following the initial registered direct offering, on June 26, 2020, the Company entered into the second Share Purchase Agreement with certain institutional purchasers pursuant to which the Company offered to the purchasers, in a registered direct offering, an aggregate of 2,400,000 shares of common stock, par value $0.01 per share. The shares were sold at a negotiated purchase price of $1.72 per share for aggregate gross proceeds to the Company of approximately $4.1 million, before deducting offering costs.

 

During July and August 2020, the Company closed two registered direct offerings of shares of its common stock, priced at-the-market under Nasdaq rules, resulting in the issuance of a total of 4,915,000 shares of its common stock for gross proceeds of approximately $11.2 million, before considering offering costs of approximately $0.8 million. On July 16, 2020, the Company entered into a Share Purchase Agreement with certain institutional purchasers, pursuant to which the Company agreed to issue and sell to the purchasers, in a registered direct offering, an aggregate of 1,500,000 shares of common stock, par value $0.01 per share. The shares were sold at a negotiated purchase price of $2.00 per share for aggregate gross proceeds to the Company of $3.0 million, before deducting offering costs. On August 4, 2020, the Company entered into a Share Purchase Agreement with certain institutional purchasers, pursuant to which the Company agreed to issue and sell to the purchasers, in a registered direct offering, an aggregate of 3,415,000 shares of common stock, par value $0.01 per share. The shares were sold at a negotiated purchase price of $2.40 per share for aggregate gross proceeds to the Company of $8.2 million, before deducting offering costs.

 

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9. Stock-Based Compensation

 

A summary of the Company’s outstanding stock option activity for the three months ended March 31, 2021 and 2020 is as follows:

 

 

       March 31, 2021     
      

Weighted-

Average

  

Weighted-

Average

Remaining

Contractual Life

   Intrinsic 
   Options   Exercise Price   (Years)   Value 
As of December 31, 2020   465,393   $5.53    9.3    - 
Granted   368,500    1.93    10.0    - 
Exercised   -    -    -    - 
Forfeited   -    -    -    - 
Expired   -    -    -    - 
As of March 31, 2021   833,893   $3.98    9.4   $698,913 
Exercisable at March 31, 2021   376   $6,977.42    4.1   $- 
Vested and expected to vest at March 31, 2021   833,893   $3.98    9.4   $698,913 

 

       March 31, 2020     
      

Weighted-

Average

  

Weighted-

Average

Remaining

Contractual Life

   Intrinsic 
   Options   Exercise Price   (Years)   Value 
As of December 31, 2019   377   $7,446.69    5.3   $- 
Granted   -    -    -    - 
Exercised   -    -    -    - 
Forfeited   -    -    -    - 
Expired   -    -    -    - 
As of March 31, 2020   377   $7,446.69    5.1   $- 
Exercisable and vested at March 31, 2020   377   $7,446.69    5.1   $- 

 

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 the Company. The expected term was contractual life of option. 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 and non-employees during the three months ended March 31, 2021. During the three months ended March 31, 2021 the company granted stock options with an estimated fair value of approximately $0.6  million.

 

    March 31, 2021  
Weighted-average risk-free interest rate     0.73%-0.85 %
Weighted-average expected life (in years)     5.3-5.9  
Expected dividend yield     - %
Weighted-average expected volatility     138%-139 %

 

Of the 368,500 options granted during the three months ended March 31, 2021, 60,000  were to non-executive members of the board of directors. Of the 833,893 options outstanding as of March 31, 2021, 295,000  were awarded to non-executive members of the board of directors.

 

Unrecognized stock-based compensation  as of March 31, 2021, is as follows (in thousands):

 

      

Weighted

Average

 
  

Unrecognized

Stock-Based

  

Remaining of

Recognition

 
   Compensation   (in years) 
Stock options  $779    2.5 
Stock grants  $17    2.1 

 

10. Commitments and Contingencies

 

The Company has executed agreements with certain executive officers of the Company which, upon the occurrence of certain events related to a change in control, call for payments to the executives up to three times their annual salary and accelerated vesting of previously granted stock options.

 

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. Note Receivable

 

On October 1, 2018, the Company completed the sale of its spine implant business to CTL Medical. The sale included a $6.0 million noninterest bearing note receivable payable over a 36 month term and matures on October 1, 2021. The note receivable includes an imputed interest rate of 10%. As of March 31, 2021, the net carrying value of the note receivable was $1.3 million, with expected cash proceeds of $1.4 million to the Company through the maturity date.

 

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12. Leases

 

The Company leases office, warehouse and manufacturing space under a single operating lease. On June 7, 2019, the lease was amended to extend the rental period through 2024 and reduce the amount of space leased from 54,428 square feet to 29,534 square feet. The new rent was effective January 1, 2020. The amended lease has two five-year extension options. As of March 31, 2021, the operating lease right-of-use asset totaled approximately $1.8  million and the operating lease liability totaled approximately $1.8  million. Non-cash operating lease expense during the three months ended March 31, 2021, totaled approximately $0.1  million. As of March 31, 2021, the weighted-average discount rate for the Company’s operating lease was 6.5%.

 

Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense is recognized on a straight-line basis over the term of the lease. The Company accounts for lease components separately from the non-lease components. The depreciable life of the assets and leasehold improvements are limited by the expected lease term.

 

Operating lease future minimum payments together with the present values as of March 31, 2021, are summarized as follows:

 

Years Ending December 31,  March 31,
2021
 
2021  $385 
2022   528 
2023   544 
2024   560 
Thereafter   - 
Total future minimum lease payments   2,017 
Less amounts representing interests   (235)
Present value of lease liability   1,782 
     
Current-portion of operating lease liability   413 
Long-term portion operating lease liability  $1,369 

 

16
 

 

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, 2020 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, 2020, 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, 2020, and any updates to those risk factors filed from time to time in our Quarterly Reports on Form 10-Q and in other filings with the Securities and Exchange Commission we may make from time-to-time.

 

Overview

 

We are an advanced materials company that develops and commercializes silicon nitride for medical and non-medical applications. The core strength of SINTX Technologies is the manufacturing, research, and development of silicon nitride ceramics for external partners. We believe that silicon nitride has a superb combination of properties that make it ideally suited for long-term human implantation. Other biomaterials are based on bone grafts, metal alloys, and polymers, all of which have well-known practical limitations and disadvantages. In contrast, silicon nitride has a legacy of success in the most demanding and extreme industrial environments. As a human implant material, silicon nitride offers bone ingrowth, resistance to bacterial and viral infection, ease of diagnostic imaging, resistance to corrosion, and superior strength and fracture resistance, among other advantages, all of which claims are validated in our large and growing inventory of peer-reviewed, published literature reports.

 

Additionally, we received positive results from an independent study that demonstrated the potential anti-viral properties of our silicon nitride. The results suggest that silicon nitride may be useful in the reduction of the spread of COVID-19. The study results demonstrated that our unique grade of silicon nitride inactivates the SARS-CoV-2 virus within a minute after exposure and has the potential to decrease the risk of viral disease spread on surfaces. Studies have shown that coronavirus spreads between humans when an infected person coughs or sneezes. Also, the virus can remain active on a variety of commonly touched surfaces for hours to days. We believe that by incorporating our unique composition of silicon nitride into products such as face masks, and personal protective equipment, it is possible to manufacture surfaces that inactivate viral particles, thereby limiting the spread of the disease. We envision incorporating our silicon nitride into high-contact surfaces such as medical equipment, screens, countertops, and doorknobs in locations where viral persistence is a concern, such as homes, casinos, and cruise ships. We believe this anti-viral discovery will open many new opportunities for us. In composites, coatings, and mixtures, silicon nitride has maintained its antibacterial and osteogenic properties, even at small fractions. We believe that incorporating our material into a variety of commonly touched surfaces may discourage viral spread and contribute to global health by reducing the risk of disease. We believe that our versatile silicon nitride manufacturing expertise positions us favorably to introduce new and innovative devices in the medical and non-medical fields.

 

We also believe that we are the first and only company to commercialize silicon nitride medical implants. Prior to October 1, 2018, we designed, manufactured and commercialized silicon nitride products for our own behalf in the spine implant market. Over 35,000 of our spinal implants manufactured with silicon nitride have been implanted into patients, with an excellent safety record. On October 1, 2018, we sold our spine implant business to CTL Amedica and now manufacture spine implants made with silicon nitride for CTL. Prior to selling our spine implant business to CTL, we had received 510(k) regulatory clearance in the United States, a CE mark in Europe, ANVISA approval in Brazil, and ARTG and Prostheses approvals in Australia for a number of silicon nitride spine implant products designed for spinal fusion surgery. Spine implant products manufactured by us from silicon nitride are currently marketed and sold by CTL under the Valeo® brand to surgeons and hospitals in the United States and to selected markets in Europe and South America. These implants are designed for use in cervical (neck) and thoracolumbar (lower back) spine surgery. We are collaborating with CTL to establish commercial partners in other parts of the world and also working with other partners to obtain regulatory approval for silicon nitride implants in Japan.

 

The sale of our spine implant business to CTL enables us to now focus on our core competencies. These include research and development of silicon nitride and the design and manufacture of medical and nonmedical products manufactured from silicon nitride and other ceramic materials for our own account and in collaboration with other medical device manufacturers. We are targeting OEM – including CTL Medical – and private label partnerships in order to accelerate adoption of silicon nitride in future markets such as coating products with silicon nitride, hip and knee replacements, dental and maxillofacial implants, extremities, trauma, bearings, automotive and aerospace components, cutting tools, and a wide range of antipathogenic applications. Existing biomaterials, based on plastics, metals, and bone grafts have well-recognized limitations that we believe are addressed by silicon nitride.

 

We believe that silicon nitride addresses many of the biomaterial-related limitations in medical related fields such as hip and knee replacements, dental and maxillofacial implants, sports medicine, extremities, and trauma surgery. We further believe that the inherent material properties of silicon nitride, and the ability to formulate the material in a variety of compositions, combined with precise control of the surface properties of the material, opens up a number of commercial opportunities across orthopedic surgery, neurological surgery, maxillofacial surgery, other medical disciplines, as well as commodity items such as industrial fasteners, bushings, and valves to addressing more complex demands of hypersonic missile radomes, aerospace, air-conditioning systems, beverage dispensers, touch-screen glass, and agribusiness fungicides. During 2020, the Company shipped multiple small quantity orders of industrial products totaling $33 thousand.

 

We operate a 30,000 square foot manufacturing, laboratory and administrative facility at our corporate headquarters in Salt Lake City, Utah, and we believe we are the only vertically integrated silicon nitride medical device manufacturer in the world.

 

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.

 

17
 

 

Product Revenue

 

We derive our product revenue primarily from the manufacture and sale of spinal fusion products used in the treatment of spine disorders to CTL, with whom we entered into a 10-year exclusive sales agreement in October 2018. We are currently pursuing other sales opportunities for silicon nitride products outside the spinal fusion application and have shipped new orders for these products. We generally recognize revenue from sales where control transfers at a point in time as the title and risk of loss passes to the customer, which is at the time the product is shipped. In general, our customer does not have rights of return or exchange.

 

We believe our product revenue will increase as CTL increases sales of silicon nitride spinal fusion products, as we secure other opportunities to manufacture third party products with silicon nitride, and as we continue to introduce new products into the market.

 

Cost of Revenue

 

The expenses that are included in cost of revenue include all in-house manufacturing costs for the products we manufacture.

 

Gross Profit

 

Our gross profit measures our product revenue relative to our cost of revenue. We expect our gross profit percentage to decrease as we expand the penetration of our silicon nitride technology platform through OEM and private label partnerships, which offer additional avenues for the adoption of silicon nitride. Prior to the sale of our retail spine implant business, our revenues and gross profits were based on our retail sales. With the focus on OEM and private label partnerships, the margins are lower, thus causing the decrease in our gross profit percentage.

 

Research and Development Expenses

 

Our 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 and development activities.

 

We expect to incur additional research and development costs as we continue to develop new spinal fusion products, product candidates for total joint replacements, dental applications, antipathogenic products, and other products which may increase our total research and development expenses.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation for certain members of our executive team and other personnel employed in finance, compliance, administrative, information technology, customer service, executive and human resource departments. General and administrative expenses also include other expenses not part of the other cost categories mentioned above, including facility expenses and professional fees for accounting and legal services.

 

18
 

 

RESULTS OF OPERATIONS

 

The following is a tabular presentation of our unaudited condensed consolidated operating results for the three months ended March 31, 2021 and 2020 (in thousands):

 

  

Three Months Ended

March 31,

         
   2021   2020   $ Change   % Change 
Product revenue  $101   $207   $(106)   -51%
Costs of revenue   61    166    (105)   -63%
Gross profit   40    41    (1)   -2%
Operating expenses:                    
Research and development   1,595    994    601    60%
General and administrative   1,000    764    236    31%
Sales and marketing   286    137    149    109%
Total operating expenses   2,881    1,895    986    52%
Loss from operations   (2,841)   (1,854)   (987)   53%
Other income, net   208    3,023    (2,815)   -93%
Net income (loss) before income taxes   (2,633)   1,169    (3,802)   -325%
Provision for income taxes   -    -    -    N/A 
Net income (loss)   (2,633)   1,169    (3,802)   -325%

 

Product Revenue

 

For the three months ended March 31, 2021, total product revenue was $0.1 million as compared to $0.2 million in the same period 2020, a decrease of $0.1 million, or 51%. This decrease was due to decrease in orders from CTL Amedica.

 

Cost of Revenue and Gross Profit

 

For the three months ended March 31, 2021, our cost of revenue decreased $0.1 million, or 63%, as compared to the same period in 2020. This decrease is primarily attributed to decrease in product revenue, and the associated decrease in costs of goods sold. Gross profit remained essentially unchanged. The unchanged gross profit on decreased revenue and costs of revenue is attributed to new revenue sources with higher profit margins.

 

19
 

 

Research and Development Expenses

 

For the three months ended March 31, 2021, research and development expenses increased $0.6 million, or 60%, as compared to the same period in 2020. This increase was primarily attributable to an overall increase in R&D activity to support the Company’s strategic objective of developing new technologies and related products.

 

General and Administrative Expenses

 

For the three months ended March 31, 2021, general and administrative expenses increased $0.2 million, or 31%, as compared to the same period in 2020. This increase is primarily due to the increase in external consulting costs and payroll expenses.

 

Sales and Marketing Expenses

 

For the three months ended March 31, 2021, sales and marketing expenses increased $0.1 million, or 109%, as compared to the same period in 2020. This increase was primarily attributable to an overall increase in marketing activities to generate interest in and exposure to the Company’s potential new product lines.

 

Other Income, Net

 

For the three months ended March 31, 2021, other income decreased $2.8 million, or 93%, as compared to the same period in 2020. This decrease was primarily due to the incurring a change in the fair value of the derivative liabilities in the amount of $4.4 million in 2020, which was partially offset by the offering costs of $1.2 million associated with the February 2020 rights offering. Whereas in 2021, the Company had other income of $0.4 million associated with the forgiveness of the 2020 PPP Loan.

 

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 does 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.

 

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For the three months ended March 31, 2021 and 2020 , the Company incurred a net loss of $2.6  million and net income of $1.2 million, respectively, and used cash in operations of $3.0  million and $3.4 million, respectively. The Company had an accumulated deficit of $243.7  million and $233.0 million as of March 31, 2021 and 2020, respectively. To date, the Company’s operations have been principally financed from proceeds from the issuance of preferred and common stock 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. The Company’s continuation as a going concern is dependent upon its ability to increase sales, and/or raise additional funds through the capital markets. Whether and when the Company can attain profitability and positive cash flows from operations or obtain additional financing is uncertain.

 

The Company is actively generating additional scientific and clinical data to have it published in leading industry publications. The unique features of our silicon nitride material are not well known, and we believe 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 by expanding the use of silicon nitride in other areas outside of spinal fusion applications. For instance, results from an independent study demonstrated the potential anti-viral properties of our silicon nitride. We believe that we may be able to apply our silicon nitride powder to personal protection products, such as face masks, gowns and gloves, resulting in inactivation of viruses that come into contact with the items.

 

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 in February 2014. On February 6, 2020, the Company closed on a rights offering to its stockholders of units, consisting of convertible preferred stock and warrants, for gross proceeds of $9.4 million, which excludes underwriting discounts and commissions and offering expenses payable by the Company. Additionally, during the period of June 2020 through August 2020, the Company closed four registered direct offerings of shares of its common stock, priced at-the-market under Nasdaq rules, resulting in the issuance of a total of 11,015,000 shares of its common stock for gross proceeds of approximately $20.9 million, which excludes underwriting discounts and commissions and offering expenses payable by the Company.

 

During the year ended December 31, 2019, the Company entered into an ATM equity distribution agreement in which the Company could sell, from time to time, shares of common stock having an aggregate offering price of up to $2.5 million. The Company sold 527,896 shares during the year ended December 31, 2019, raising approximately $1.7 million before considering issuance costs. During the year ending December 31, 2020, the Company sold 354,381 shares of common stock, raising approximately $0.8 million before considering issuance costs. As a result of the sales during the first half of 2020 there are no longer any funds available to the Company under the ATM.

 

On February 25, 2021, the Company entered into an Equity Distribution Agreement (the “2021 Distribution Agreement”) with Maxim Group LLC (“Maxim”), pursuant to which we may sell from time to time, shares of its our common stock, $0.01 par value per share, having an aggregate offering price of up to $15.0 million through Maxim, as agent. No shares  have been sold under the 2021 Distribution Agreement as of March 31, 2021.

 

On October 1, 2018, the Company sold the retail spine implant business to CTL Medical. The sale included a $6.0 million noninterest bearing note receivable payable over a 36-month term. The 36-month term of the note receivable requires 18 payments of $138,889 followed by 18 payments of $194,444, with maturing of the note receivable to occur October 1, 2021. The Company expects cash flows $1.4  million for the remaining seven months.

 

Management has concluded that together with its existing capital resources and payments on the note receivable from the sale of the spine implant business will be sufficient to fund operations for at least the next 12 months, or through May 2022.

 

Risks Related to COVID-19 Pandemic

 

The COVID-19 pandemic is affecting the United States and global economies and may affect the Company’s operations and those of third parties on which the Company relies. In response to the spread of COVID-19 and to ensure safety of employees and continuity of business operations, we closed our offices, with our administrative employees continuing their work remotely and limited the number of staff in our manufacturing facility. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce the Company’s ability to access capital, which could negatively impact the Company’s short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. The Company does not yet know the full extent of potential delays or impacts on its business, financing or other activities or on healthcare systems or the global economy as a whole. However, these effects could have a material impact on the Company’s liquidity, capital resources, operations and business and those of the third parties on which we rely.

 

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Cash Flows

 

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

 

   Three Months Ended March 31, 
   2021   2020 
Net cash used in operating activities  $(2,992)  $(3,398)
Net cash provided by investing activities   406    396 
Net cash provided by financing activities   706    9,439 
Net cash provided (used)  $(1,880)  $6,437 

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities was $3.0 million during the three months ended March 31, 2021, compared to $3.4 million used during the three months ended March 31, 2020, a decrease of $0.4 million. The decrease in cash used for operating activities during 2021 was primarily due to changes in the movement of working capital items during 2021 as compared to the same period in 2020 as follows: a $0.7 million decrease in cash used in accounts payable, offset by a $0.2 million increase in cash used in prepaid expenses, and a $0.1 million increase in cash used in accounts receivable.

 

Net Cash Provided by Investing Activities

 

Net cash provided by investing activities remained primarily unchanged at $0.4 million during the three months ended March 31, 2021, and the same period in 2020.

 

Net Cash Provided by Financing Activities

 

Net cash provided by financing activities was $0.7 million during the three months ended March 31, 2021, compared to net cash provided by financing activities of $9.4 million during the same period in 2020. The $8.7 million decrease to net cash provided by financing activities was primarily attributable to proceeds from rights offerings of $9.4 million in 2020 offset by a $0.5 million in proceeds from a PPP loan and $0.2 million in proceeds from the exercise of warrants for cash.

 

Indebtedness

 

2020 PPP Loan

 

On April 28, 2020, the Company received funding under a Paycheck Protection Program (“PPP”) loan (the “PPP Loan”) from First State Community Bank (the “Lender”). The principal amount of the PPP Loan was $0.4 million. The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (the “SBA”). Loans made under the PPP may be partially or fully forgiven if the recipient complies with the provisions of the CARES Act, including the use of PPP Loan proceeds for payroll costs, rent, utilities and other expenses, provided that such amounts are incurred during a 24-week period that commenced on April 28, 2020 and at least 60% of any forgiven amount has been used for covered payroll costs as defined by the CARES Act. On January 5, 2021, the Lender provided notice to the Company that the principal amount and accrued interest had been forgiven. The Company removed the PPP Loan obligation and recorded other income for forgiveness of debt totaling $0.4 million. The SBA has until January of 2027 to audit the Company’s compliance with the CARES Act relating to the PPP Loan.

 

2021 PPP Loan

 

On March 15, 2021, the “Company received funding under the SBA Second Draw Program under the Paycheck Protection Program (“2021 PPP”) (the “2021 PPP Loan”) from First State Community Bank (the “Lender”). The principal amount of the 2021 PPP Loan is $0.5 million. The 2021 PPP was established under the CARES Act and is administered by the SBA. The 2021 PPP Loan has a five-year term, maturing on March 15, 2026. The interest rate on the 2021 PPP Loan is 1.0% per annum.

 

The Company will not be obligated to make any payments of principal or interest if the Company submits a loan forgiveness application to the Bank within 10 months after the end of the Company’s covered loan forgiveness period (as defined and interpreted by the 2021 PPP Rules) and such loan forgiveness is allowed. Generally, all or a portion of the 2021 PPP Loan may be forgiven if the Company maintains its employment and compensation within certain parameters during the twenty-four (24) week period following the loan origination date and the proceeds of the 2021 PPP Loan are spent on payroll costs, rent or lease agreements dated before February 15, 2020 and utility payments arising under service agreements dated before February 15, 2020.

 

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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, 2020. There have been no material changes to those policies for the three months ended March 31, 2021, except as explained below in Accounting Pronouncements Adopted in 2021. The preparation of the condensed consolidated 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 condensed consolidated 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 Financial 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.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified by the Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are properly recorded, processed, summarized and reported within the time periods required by the Commission’s rules and forms.

 

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (principal executive officer and principal financial officer), of the effectiveness of the design and operation of these disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e), as of March 31, 2021. Based on this evaluation, the Chief Executive Officer concluded that our disclosure controls and procedures were effective as of March 31, 2021, the end of the period covered by this Quarterly Report on Form 10-Q.

 

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There were no changes in our internal control over financial reporting that occurred during the first quarter of 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II

 

ITEM 1. LEGAL PROCEEDINGS

 

We are not aware of any 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 1A. Risk Factors

 

Information regarding risk factors appears in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on March 22, 2021. There have been no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K.

 

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

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

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ITEM 6. EXHIBITS

 

Exhibit
Number
  Exhibit Description   Filed Herewith   Incorporated by Reference
herein from
Form or
Schedule
  Filing
Date
 

SEC File/

Reg. Number

                     
                     
10.1*   Patent License Agreement, dated February 25, 2021, between the Company and O2 Design, Inc.   X            
                     
10.2   Promissory Note, dated March 15, 2021, between SINTX Technologies, Inc. and First State Community Bank.       Form 8-K (Exhibit 10.1)   3/19/21   001-33624
                     
10.3   Equity Distribution Agreement, dated as of February 25, 2021, by and between SINTX Technologies, Inc. and Maxim Group LLC        Form 8-K (Exhibit 10.1)   2/26/21   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 Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   X            
                     
32   Certifications of the Chief Executive Officer and 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            
*   A portion of Exhibit 10.1 has been omitted as it contains information that (i) is not material and (ii) would be competitively harmful if publicly disclosed.                

 

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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.

 

  SINTX Technologies, Inc.
   
Date: May 13, 2021 /s/ B. Sonny Bal
  B. Sonny Bal
  Chief Executive Officer
(Principal Executive Officer and Principal Financial Officer)

 

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