NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Organization and Summary of Significant Accounting Policies
Organization
The
condensed consolidated financial statements include the accounts of SINTX Technologies, Inc. (“SINTX”) and its wholly-owned
subsidiaries, SINTX Armor, Inc. (“SINTX Armor”) and SINTX TA&T, Inc. (TA&T), which are collectively referred to as
“we” or “the Company”. SINTX was incorporated in the state of Delaware on December 10, 1996 (and was previously
known as Amedica Corporation). The Company is an OEM advanced ceramics materials company focused on providing solutions in a variety
of medical, industrial, and antipathogenic applications. SINTX is a 25-year-old company that has grown over time from focusing on the
research and development of silicon nitride for use in human interbody implants to becoming an advanced ceramics company engaged in many
different fields, and this has enabled the Company to focus on core competencies. The core strength of the Company is the manufacturing,
research, and development of advanced ceramics for external partners. The Company presently manufactures ceramic powders and components
in its Salt Lake City and Maryland facilities. The SINTX Salt Lake City facility is FDA and ANVISA registered, ISO 13485:2016 certified,
and ASD9100D certified. The Company’s products are primarily sold in the United States.
The
Company is focused on building revenue generating opportunities in three business industries - antipathogenic, industrial (including
armor), and biomedical – thereby connecting with current and new customers, partners and manufacturers to help realize the goal
of leveraging expertise in high-tech ceramics to create new, innovative opportunities across these sectors. We expect our continued investment
in research and development to provide additional revenue opportunities.
The
Company’s initial focus was the development and commercialization of products made from silicon nitride for use in spinal fusion
and hip and knee replacement applications. SINTX believes it is the first and only manufacturer to use silicon nitride in medical applications
primarily focused on spine fusion therapies. Since then, we have developed other applications for our silicon nitride technology as well
as utilized our expertise in the use of ceramic materials in other applications. In July 2021, the Company acquired the equipment and
obtained certain proprietary know-how rights with which it intends to develop, manufacture, and commercialize protective armor from boron
carbide and a composite material of silicon carbide and boron carbide for military, law enforcement and civilian uses. The protective
armor operations are housed in SINTX Armor. In June 2022, the Company acquired Technology Assessment and Transfer, Inc. (TA&T), a
nearly 40-year-old business with a mission to transition advanced materials and process technologies from a laboratory environment to
commercial products and services (see Note 2).
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, as well as access to future silicon nitride spine technologies developed by the Company. The Company’s
name, Amedica, was also transferred to CTL Medical, which is now CTL Amedica. The Company serves as CTL’s exclusive OEM provider
of silicon nitride products. Manufacturing, R&D, and all intellectual property related to the core, non-spine, biomaterial technology
including silicon nitride remains with the Company.
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. The Company also changed its trading symbol on the NASDAQ Capital Market to “SINT”.
The
Company’s new corporate brand reflects both the Company’s core competence in the research, development and manufacturing
of silicon nitride ceramics and other ceramics, as well as encouraging prospects for the future, as an OEM supplier of spine implants
to CTL Amedica, and multiple opportunities outside of spine.
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.
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, 2021, filed with the SEC on March 25, 2022.
The results of operations for the nine months ended September 30, 2022, are not necessarily indicative of the results to be expected
for the year ending December 31, 2022. 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, 2021.
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 September 30, 2022, 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 nine months ended September 30, 2022, and 2021, the Company incurred a net loss of $8.1
million and $7.2
million, respectively, and used cash in operating activities of $8.2
million and $7.7
million, respectively. The Company had an accumulated deficit of $258.5
million and $250.4
million as of September 30, 2022, and December 31, 2021, 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 operating activities. 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. We believe
the publication of such data would help sales efforts as the Company approaches new prospects. The Company continues to make 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 also acquired equipment and certain proprietary know-how for the purpose of developing, manufacturing and
commercializing armored plates made from boron carbide and a composite of boron carbide and silicon carbide for military, law enforcement
and other civilian uses. We also expect the acquisition of TA&T will further broaden the Company’s sources of revenue.
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 January 3, 2022, the Company received a notice from Nasdaq Listing Qualifications department
(the “Staff”) of the Nasdaq Stock Market LLC (“Nasdaq”) stating that the bid price of the Company’s common
stock for the last 30 consecutive trading days had closed below the minimum $1.00 per share required for continued listing under Listing
Rule 5550(a)(2). The Nasdaq notification letter does not result in the immediate delisting of the Company’s common stock, and the
stock will continue to trade uninterrupted on the The Nasdaq Capital Market under the symbol “SINT”. The letter from the
Staff further indicated that if the Company did not regain compliance with Rule 5550(a)(2) by July 5, 2022, the Company may be eligible
for additional time to regain compliance. On July 6, 2022, the Company received notice from the Staff that the Company was eligible for
an additional 180 calendar day period, or until January 2, 2023, to regain compliance. Delisting of the Company’s common shares
from The Nasdaq Capital Market may adversely impact its ability to raise capital on the public markets. The Company intends to actively
monitor the closing bid price for its common stock and will consider available options to resolve the deficiency and regain compliance
with Nasdaq Listing Rule 5550(a)(2).
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 $2.0 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 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 $2.0 million, (ii) the termination by either Maxim or
the Company upon the provision of fifteen (15) days written notice, or (iii) February 25, 2023. 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 September 30, 2022, there have been no sales of shares of common stock under
the 2021 Distribution Agreement.
On
October 17, 2022, the Company closed on the sale of 4,656 Units for gross proceeds of approximately $4.7 million pursuant to the terms
of a Rights Offering to holders of the Company’s common stock, Series B and Series C preferred stock and holders of certain outstanding
common stock warrants. See Subsequent Events below for a more detailed discussion of the Rights Offering.
Although
the Company is seeking to obtain additional equity and/or debt financing, such funding is not assured and may not be available to the
Company on favorable or acceptable terms and may involve significant restrictive covenants. Any additional equity financing is also not
assured and, if available to the Company, will most likely be dilutive to its current stockholders. If the Company is not able to obtain
additional debt or equity financing on a timely basis, the impact on the Company will be material and adverse.
These
uncertainties create substantial doubt about our ability to continue as a going concern. The condensed consolidated financial statements
do not include any adjustments that might result from the outcome of these uncertainties.
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 temporarily restricted access to the Salt Lake City facility, with our administrative employees continuing their work
remotely and limited the number of staff in our manufacturing facility. We implemented protective measures such as wearing of face masks,
maintaining social distancing, and additional cleaning. Beginning in 2021, we have offered vaccination incentives. 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.
Grant
Revenue
Revenues
from grants, contracts, and awards provided by governmental agencies are recorded based upon the terms of the specific grant agreements,
which generally provide that revenue is earned when the allowable costs specified in the applicable grant agreement have been incurred.
Cash received from federal grants and awards can be subject to audit by the grantor and, if the examination results in a disallowance
of any expenditure, repayment could be required.
Grant,
contract, and award receivables relate to allowable amounts expended or otherwise incurred in connection with the terms of a grant or
award and for which reimbursement or draw upon the grant funds have not yet taken place.
Correction
of an Immaterial Error
During
the first quarter 2022, the Company identified an error related to the removal of a loan obligation and the recording of other income
for forgiveness of debt totaling approximately $0.5 million, which forgiveness was recorded on November 24, 2021. The Company has determined
that the Company should not have removed the loan obligation and recorded approximately $0.5 million of other income in the financial
statements as of December 31, 2021, and for the year then ended. The error affected the 2021 net loss attributable to common stockholders
and net loss per share—basic and diluted. The error also affected total liabilities and accumulated deficit (and total stockholders’
equity) as of December 31, 2021. The error did not affect 2021 cash flows from operating activities and total cash flow.
In
accordance with the SEC Staff Accounting Bulletin (SAB) No. 99, “Materiality,” and SAB No. 108, “Considering the Effects
of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company evaluated the materiality
of the error from qualitative and quantitative perspectives and concluded that the error was immaterial to the March 31, 2022 and December
31, 2021, financial statements. Consequently, only the December 31, 2021, consolidated balance sheet and the December 31, 2021, balance
in the statement of stockholders’ equity contained in these financial statements have been restated. The change resulted a reduction
of stockholders’ equity of $0.5 million as of December 31, 2021.
New
Accounting Pronouncements Not Yet Adopted
In
August 2020, the Financial Statement Accounting Board (the “FASB”) issued ASU 2020-06 which simplifies the accounting for
convertible instruments and its application of the derivatives scope exception for contracts in an entity’s own equity. For contracts
in an entity’s own equity, the new guidance eliminates some of the current requirements for equity classification such as the requirement
that settlement in unregistered shares is permitted. In addition, the new guidance reduces the number of accounting models that require
separating embedded conversion features from convertible instruments, including eliminating the requirement to recognize a beneficial
conversion feature if the conversion feature is in the money and does not require bifurcation as a derivative liability. As a result,
only conversion features accounted for under the substantial premium model and those that require bifurcation will be accounted for separately.
The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires
enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity. The guidance is effective
for the Company for annual periods beginning after December 15, 2023, and interim periods within that year, with early adoption permitted.
The Company plans to adopt the new standards January 1, 2023. The adoption of this standard will result in certain warrants currently
classified as fair value liabilities to be reclassified within stockholder’s equity. We are currently assessing any other impact
that adoption will have on our financial position and results of operations.
The
Company has reviewed all other recently issued, but not yet adopted, accounting standards, in order to determine their effects, if any,
on its results of operations, financial position or cash flows. Based on that review, the Company believes that no other pronouncements
will have a significant effect on its financial statements.
2.
Business Acquisition
On
June 30, 2022, the Company entered into and closed a Stock Purchase Agreement (the “Purchase Agreement”) pursuant to which
the Company acquired all of the outstanding shares of common stock of Technology Assessment and Transfer, Inc. (TA&T), a corporation
organized under the Laws of the State of Maryland. As a result, TA&T is a wholly owned subsidiary of the Company.
The
Purchase Agreement sets forth approximately $760,000, including accrued interest, in loan obligations that the Company agreed to assume
in connection with the purchase. Further, the Purchase Agreement provides for potential earnout payments to the sellers on the achievement
of certain pre-determined gross revenue targets by TA&T for calendar years 2022 and 2023. Earnouts, if any, will be expensed as incurred
, as management does not expect the earnouts to be achieved.
The
following table summarizes the purchase price allocation (in thousands):
Schedule
of Business Acquisition Purchase Price Allocation
| |
| |
| |
June 30, 2022 | |
Assets | |
| | |
Current assets | |
| | |
Cash and cash equivalents | |
$ | 303 | |
Accounts and other receivables, net of allowance | |
| 193 | |
Prepaid expenses and other receivables, net of allowance | |
| 14 | |
Total current assets | |
| 510 | |
| |
| | |
Property and equipment, net | |
| 599 | |
Operating lease right of use asset | |
| 521 | |
Other long-term assets | |
| 7 | |
Total assets | |
| 1,637 | |
| |
| | |
Liabilities and net assets acquired | |
| | |
Current liabilities | |
| | |
Accounts payable | |
| 105 | |
Accrued liabilities | |
| 241 | |
Current portion of debt | |
| 6 | |
Current portion of related party debt | |
| 242 | |
Current portion of operating lease liability | |
| 179 | |
Total current liabilities | |
| 773 | |
| |
| | |
Debt, net of current portion | |
| 393 | |
Related party debt, net of current portion | |
| 107 | |
Operating lease liability, net of current portion | |
| 342 | |
Total liabilities | |
| 1,615 | |
| |
| | |
Net assets acquired | |
$ | 22 | |
The
following proforma unaudited revenue and net loss are presented as if the acquisition had been included in the consolidated results of
the Company for the nine months ended September 30, 2022 (in thousands).
Schedule of Proforma Unaudited Revenue and Net Loss
| |
| | |
| |
Nine Months Ended September 30, 2022 | |
Revenue | |
$ | 1,385 | |
Net loss | |
$ | (8,097 | ) |
No
amounts are included in the condensed consolidated statement of operations relating to TA&T for the six months ended June 30, 2022,
as the transaction was closed the end of day June 30, 2022. TA&T’s operations are included in the Company’s condensed consolidated statement of operations beginning
July 1, 2022.
3.
Basic and Diluted Net Loss per Common Share
Basic
net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period,
without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss by the weighted-average
number of common share equivalents outstanding for the period 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 nine months ended September 30, 2022, 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 2.4 million and 1.8 million as of September
30, 2022, and 2021, respectively.
Below
are basic and diluted loss per share data for the three months ended September 30, 2022, which are in thousands except for share and
per share data:
Schedule of Basic and Diluted Loss Per Share
| |
Basic Calculation | | |
Effect of Dilutive Warrant Securities | | |
Diluted Calculation | |
Numerator: | |
| | | |
| | | |
| | |
Net loss | |
$ | (2,724 | ) | |
$ | (60 | ) | |
$ | (2,784 | ) |
Deemed dividend and accretion of a discount | |
| - | | |
| - | | |
| - | |
Net loss attributable to common stockholders | |
$ | (2,724 | ) | |
$ | (60 | ) | |
$ | (2,784 | ) |
| |
| | | |
| | | |
| | |
Denominator: | |
| | | |
| | | |
| | |
Number of shares used in per common share calculations: | |
| 24,724,792 | | |
| 362,207 | | |
| 25,086,999 | |
| |
| | | |
| | | |
| | |
Net loss per common share: | |
| | | |
| | | |
| | |
Net 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 nine months ended September 30, 2022, which are in thousands except for share and per
share data:
| |
Basic Calculation | | |
Effect of Dilutive Warrant Securities | | |
Diluted Calculation | |
Numerator: | |
| | | |
| | | |
| | |
Net loss | |
$ | (8,081 | ) | |
$ | (208 | ) | |
$ | (8,289 | ) |
Deemed dividend and accretion of a discount | |
| - | | |
| - | | |
| - | |
Net loss attributable to common stockholders | |
$ | (8,081 | ) | |
$ | (208 | ) | |
$ | (8,289 | ) |
| |
| | | |
| | | |
| | |
Denominator: | |
| | | |
| | | |
| | |
Number of shares used in per common share calculations: | |
| 24,717,904 | | |
| 366,188 | | |
| 25,084,092 | |
| |
| | | |
| | | |
| | |
Net loss per common share: | |
| | | |
| | | |
| | |
Net loss | |
$ | (0.33 | ) | |
$ | - | | |
$ | (0.33 | ) |
Deemed dividend and accretion of a discount | |
| - | | |
| - | | |
| - | |
Net loss attributable to common stockholders | |
$ | (0.33 | ) | |
$ | - | | |
$ | (0.33 | ) |
Below
are basic and diluted loss per share data for the three months ended September 30, 2021, which are in thousands except for share and
per share data:
|
|
Basic
Calculation |
|
|
Effect
of
Dilutive
Warrant
Securities |
|
|
Diluted
Calculation |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(2,343 |
) |
|
$ |
(480 |
) |
|
$ |
(2,823 |
) |
Deemed
dividend and accretion of a discount |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
loss attributable to common stockholders |
|
$ |
(2,343 |
) |
|
$ |
(480 |
) |
|
$ |
(2,823 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares used in per common share calculations: |
|
|
24,703,156 |
|
|
|
366,187 |
|
|
|
25,069,343 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(0.09 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.11 |
) |
Deemed
dividend and accretion of a discount |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
loss attributable to common stockholders |
|
$ |
(0.09 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.11 |
) |
Below
are basic and diluted loss per share data for the nine months ended September 30, 2021, which are in thousands except for share and per
share data:
| |
Basic Calculation | | |
Effect of Dilutive Warrant Securities | | |
Diluted
Calculation | |
Numerator: | |
| | | |
| | | |
| | |
Net loss | |
$ | (7,175 | ) | |
$ | (225 | ) | |
$ | (7,400 | ) |
Deemed dividend and accretion of a discount | |
| - | | |
| - | | |
| - | |
Net loss attributable to common stockholders | |
$ | (7,175 | ) | |
$ | (225 | ) | |
$ | (7,400 | ) |
| |
| | | |
| | | |
| | |
Denominator: | |
| | | |
| | | |
| | |
Number of shares used in per common share calculations: | |
| 24,686,533 | | |
| 410,605 | | |
| 25,097,138 | |
| |
| | | |
| | | |
| | |
Net loss per common share: | |
| | | |
| | | |
| | |
Net loss | |
$ | (0.29 | ) | |
$ | - | | |
$ | (0.29 | ) |
Deemed dividend and accretion of a discount | |
| - | | |
| - | | |
| - | |
Net loss attributable to common stockholders | |
$ | (0.29 | ) | |
$ | - | | |
$ | (0.29 | ) |
4.
Inventories
Inventories
consisted of the following (in thousands):
Schedule of Components of Inventory
| |
| | |
| |
| |
September 30, 2022 | | |
December 31, 2021 | |
Raw materials | |
$ | 509 | | |
$ | 411 | |
WIP | |
| 148 | | |
| 134 | |
Finished goods | |
| 92 | | |
| 52 | |
Inventory net | |
$ | 749 | | |
$ | 597 | |
As
of September 30, 2022, inventories totaling approximately $0.3 million and $0.4 million were classified as current and long-term, respectively.
As of December 31, 2021, inventories totaling approximately $0.3 million and $0.3 million were classified as current and long-term, respectively.
Inventories classified as current represent the carrying value of inventories as of September 30, 2022, that management estimates will
be sold or used by September 30, 2023.
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 September 30, 2022, and December 31, 2021.
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 September 30, 2022, and December 31, 2021 (in thousands):
Schedule
of Financial Liabilities Measured at Fair Value on Recurring Basis by Level Within Fair Value Hierarchy
| |
Fair Value Measurements as of September 30, 2022 | |
Description | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Derivative liability | |
| | | |
| | | |
| | | |
| | |
Common stock warrants | |
$ | - | | |
$ | - | | |
$ | 139 | | |
$ | 139 | |
| |
Fair Value Measurements as of December 31, 2021 | |
Description | |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Derivative liability | |
| | | |
| | | |
| | | |
| | |
Common stock warrants | |
$ | - | | |
$ | - | | |
$ | 347 | | |
$ | 347 | |
The
Company did not have any transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy during
the nine months ended September 30, 2022, and 2021. The following table presents a reconciliation of the derivative liabilities measured
at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2022, and
2021 (in thousands):
Schedule of Fair Value Measurement Hierarchy of Derivative Liability
| |
Common Stock Warrants | |
Balance as of December 31, 2020 | |
$ | (1,238 | ) |
Change in fair value | |
| 225 | |
Exercise of warrants | |
| 195 | |
Balance as of September 30, 2021 | |
$ | (818 | ) |
| |
| | |
Balance as of December 31, 2021 | |
$ | (347 | ) |
Change in fair value | |
| 208 | |
Balance as of September 30, 2022 | |
$ | (139 | ) |
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 September 30, 2022, and December 31, 2021, the derivative liability was calculated using the Monte Carlo Simulation
valuation.
The
assumptions used in estimating the common stock warrant liability as of September 30, 2022, and December 31, 2021 were as follows:
Schedule of Assumptions Used in Estimating Fair Value
| |
| September 30,
2022 | | |
| December 31,
2021 | |
Weighted-average risk-free interest rate | |
| 3.33%-4.22 | % | |
| 0.06%-0.97 | % |
Weighted-average expected life (in years) | |
| 0.32-2.36 | | |
| 0.07-3.10 | |
Expected dividend yield | |
| - | % | |
| - | % |
Weighted-average expected volatility | |
| 81.9%-121.7 | % | |
| 71.5%-126.5 | % |
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.
6.
Accrued Liabilities
Accrued
liabilities consisted of the following (in thousands):
Schedule of Accrued Liabilities
| |
September 30, 2022 | | |
December 31, 2021 | |
Payroll and related expense | |
$ | 673 | | |
$ | 724 | |
Accrued payables | |
| 321 | | |
| - | |
Other | |
| 560 | | |
| 426 | |
Accrued liabilities | |
$ | 1,554 | | |
$ | 1,150 | |
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 the Lender. The principal amount of the 2021 PPP Loan is $0.5 million. The Company received notice
on November 24, 2021, that the principal amount and accrued interest had been forgiven. The Company removed the 2021 PPP Loan obligation
and recorded other income for forgiveness of debt totaling approximately $0.5 million during the year ended December 31, 2021.
Since
receiving the 2021 PPP Loan and learning that the principal amount of the loan and accrued interest had been forgiven, the Company has
determined that due to its status as a publicly traded company with common shares trading on the Nasdaq Capital Market it was not eligible
to receive a loan under the SBA Second Draw Program under the Paycheck Protection Program. As a result, the Company repaid the loan on
June 14, 2022, together with processing fees and interest, which totaled $0.5 million, resulting in no balance outstanding at June 30,
2022 (see Note 1).
Business
Loan
On
July 20, 2021, TA&T, entered into a Loan Authorization and Agreement in the amount of approximately $350,000 (the “Business
Loan”). Under the Business Loan, the Company will make monthly installment payments, including principal and interest, of $1,754.
Payments are to begin 18 months from the date of the loan. The balance of principal and interest is payable 30 years from July 20, 2021.
The Business Loan bears interest at a rate of 3.75% per annum. The Business Loan is secured by a general security interest in all of
the assets of TA&T. The Business Loan contains other standard provisions that are customary of loans of this type.
Related
Party Debt
TA&T
is obligated to repay certain personal loans made by the founders of TA&T to TA&T prior to SINTX’s acquisition of
TA&T (the Personal Loans”). The total amount of the Personal Loans at September 30, 2022 was approximately $350,000. The Company agreed to repay the outstanding balance of the Personal Loans in (i) 24 equal monthly installments beginning September 1,
2022 and each month thereafter until paid in full as one prior owner’s portion of the Personal Loans totaling $157,000, and (ii) for the other owner’s portion of the Personal Loans totaling $193,000. As of September 30, 2022, the related party debt had an outstanding balance of $235,000. The outstanding balance is being paid in
monthly installments ending August 1, 2024. The related party debt is not collateralized and has no interest rate.
Wells
Fargo Line of Credit
Prior
to SINTX’s acquisition of TA&T, TA&T entered into a revolving line of credit with Wells Fargo. As of September 30, 2022,
the line of credit with Wells Fargo had an outstanding balance of $47,000.
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 $2.0 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
$2.0 million, (ii) the termination by either Maxim or the Company upon the provision of fifteen (15) days written notice, or (iii) February
25, 2023. 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 September 30, 2022 there have
been no sales of shares of common stock under the 2021 Distribution Agreement.
On
October 17, 2022, the Company closed on the sale of 4,656 Units for gross proceeds of approximately $4.7 million pursuant to the terms
of a Rights Offering to holders of the Company’s common stock, Series B and Series C preferred stock and holders of certain outstanding
common stock warrants. See Subsequent Events below for a more detailed discussion of the Rights Offering. See Note 13.
9.
Stock-Based Compensation
A
summary of the Company’s outstanding stock option activity for the three months ended September 30, 2022, and 2021 is as follows:
Schedule of Stock Option Activity
| |
| | |
September 30, 2022 | | |
| |
| |
| | |
Weighted- Average | | |
Weighted- Average Remaining Contractual Life | | |
Intrinsic | |
| |
Options | | |
Exercise Price | | |
(Years) | | |
Value | |
As of December 31, 2021 | |
| 833,892 | | |
$ | 3.91 | | |
| 8.7 | | |
| 87,553 | |
Granted | |
| 357,000 | | |
| 0.45 | | |
| 10.0 | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | | |
| - | |
Forfeited | |
| - | | |
| - | | |
| - | | |
| - | |
Expired | |
| (3 | ) | |
| 139,237.86 | | |
| - | | |
| - | |
As of September 30, 2022 | |
| 1,190,889 | | |
$ | 2.38 | | |
| 8.4 | | |
$ | - | |
Exercisable at September 30, 2022 | |
| 537,246 | | |
$ | 4.64 | | |
| 7.8 | | |
$ | - | |
Vested and expected to vest at September 30, 2022 | |
| 1,105,071 | | |
$ | 2.48 | | |
| 8.4 | | |
$ | - | |
| |
| | |
September 30, 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 September 30, 2021 | |
| 833,893 | | |
$ | 3.98 | | |
| 8.9 | | |
$ | 417,164 | |
Exercisable at September 30, 2021 | |
| 221,834 | | |
$ | 12.26 | | |
| 8.6 | | |
$ | - | |
Vested and expected to vest at September 30, 2021 | |
| 833,893 | | |
$ | 3.98 | | |
| 8.9 | | |
$ | 417,164 | |
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 nine months ended September 30, 2022. During the nine months ended September 30, 2022, the Company granted stock options with an
estimated fair value of approximately $0.2 million.
Schedule
of Assumption used for Fair Value of Option
| |
September 30, 2022 | |
Weighted-average risk-free interest rate | |
| 1.70 | % |
Weighted-average expected life (in years) | |
| 5.5 | |
Expected dividend yield | |
| - | % |
Weighted-average expected volatility | |
| 131.1 | % |
Of
the 357,000 options granted during the nine months ended September 30, 2022, 60,000 were to non-executive members of the board of directors.
Of the 1,190,889 options outstanding as of September 30, 2022, 355,000 were awarded to non-executive members of the board of directors.
Unrecognized
stock-based compensation as of September 30, 2022, is as follows (in thousands):
Schedule of Unrecognized Stock-based Compensation
| |
| | |
Weighted Average | |
| |
Unrecognized Stock-Based | | |
Remaining of Recognition | |
| |
Compensation | | |
(in years) | |
Stock options | |
$ | 431 | | |
| 1.5 | |
Stock grants | |
$ | 32 | | |
| 1.7 | |
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 to mature on October 1, 2021. The note receivable included an imputed interest rate
of 10%. The note was paid in full in May 2021.
12.
Leases
The
Company has entered into multiple operating leases from which it conducts its business.
SINTX
With
respect to SINTX operations, the Company leases 29,534 square feet of office, warehouse and manufacturing space under a single operating
lease. This lease expires at the end of 2024. The lease has two five-year extension options.
SINTX
Armor
On
August 19, 2021, the Company, on behalf of SINTX Armor, entered into an Industrial Lease Agreement (the “SINTX Armor Lease”)
pursuant to which the Company has agreed to lease approximately 10,936 square feet of office and manufacturing space from which SINTX
Armor will conduct its operations. The term of the SINTX Armor Lease is 122 months through October 2031.
TA&T
In
connection with operation of its business, TA&T has entered into various leases from which it conducts its research, development
and manufacturing activities. The leases have various expiration dates ranging from the end of 2022 through April 2025.
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.
As
of September 30, 2022, the consolidated operating lease right-of-use assets totaled approximately $2.5 million, and the operating lease
liability totaled approximately $2.5 million. Non-cash operating lease expense during the nine months ended September 30, 2022 and 2021,
totaled approximately $0.4 and $0.3 million, respectively. As of September 30, 2022, the weighted-average discount rate for the Company’s
operating lease was 6.5%.
Operating
lease future minimum payments together with the present values as of September 30, 2022, are summarized as follows:
Schedule of Operating Lease Future Minimum Payments
Years Ending December 31, | |
September 30, 2022 | |
2022 | |
$ | 213 | |
2023 | |
| 870 | |
2024 | |
| 896 | |
2025 | |
| 194 | |
2026 | |
| 127 | |
Thereafter | |
| 669 | |
Total future minimum lease payments | |
| 2,969 | |
Less amounts representing interests | |
| (438 | ) |
Present value of lease liability | |
| 2,531 | |
| |
| | |
Current-portion of operating lease liability | |
| 720 | |
Long-term portion operating lease liability | |
$ | 1,811 | |
13.
Subsequent Events
Rights
Offering
On
October 17, 2022, the Company completed a rights offering (the “Rights Offering”) to holders of the Company’s Series
B Preferred Shares, Series C Preferred Shares, and warrants issued March 6, 2018, May 8, 2018, May 14, 2018, and February 6, 2020 (collectively,
the “Security Holders”) for subscriptions of 4,656 rights resulting in gross proceeds to the Company of approximately $4.7
million. Under the Rights Offering, the Company distributed to the Security Holders, at no charge, one non-transferable subscription
right for each share of common stock, share of Series B Preferred Stock, share of Series C Preferred Stock, and each participating warrant
(on an as-if-converted-to-common-stock basis) held on the record date, September 23, 2022. Each right entitled the holder to purchase
one unit, at a subscription price of $1,000 per unit, consisting of one share of Series D Convertible Preferred Stock with a face value
of $1,000 (and immediately convertible into shares of SINTX’s common stock at a conversion price equal to $0.15102 (the “Conversion
Price”)), and 2,713 common stock purchase warrants expiring five years from the date of issuance, which we refer to as the Class
A Warrants, and (iii) 2,713 common stock purchase warrants expiring three years from the date of issuance, which we refer to as the Class
B Warrants and, together with the Class A Warrants, the Warrants with each warrant exercisable for one share of common stock at an exercise
price of $0.15102 per share.