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
subsidiary SINTX Armor, Inc. (“SINTX Armor”), 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, armor 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, which has enabled the
business 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 silicon nitride powders and components in its FDA registered, ISO
13485:2016 certified, and ASD9100D certified manufacturing facility. The Company’s products are primarily sold in the United States.
The
Company is focused on building revenue generating opportunities in four business industries, namely, antipathogenic, armor, industrial,
and biomedical 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 also 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 utilizing our expertise in the use of ceramic materials in other applications as well. 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 plates
from boron carbide and a composite material of silicon carbide and boron carbide for military, law enforcement and civilian uses (see
Note 14). The protective armor plate operations will be housed in SINTX Armor.
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 science and production 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. In May 2020, the Company
dissolved a wholly owned subsidiary ST Sub, Inc. At the time of dissolution, the subsidiary had no assets, liabilities, equity, or operations.
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 nine months ended September 30, 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.
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, 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 nine months ended September 30, 2021 and 2020, the Company incurred a net loss of $7.2 million and $5.3 million, respectively,
and used cash in operations of $7.7 million and $7.1 million, respectively. The Company had an accumulated deficit of $248.3 million and $241.1 million as of September 30, 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 advanced ceramic materials 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 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.
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 9).
During
the year ended December 31, 2019, the Company entered into an at-the-market (2019 ATM) equity distribution agreement with Maxim Group
LLC (“Maxim”) 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 2019 ATM, raising
approximately $0.8
million before deducting fees to the placement
agent and other offering expenses of approximately $0.034
million. As of September 30, 2021, no funding
capacity is available under the 2019 ATM. (see Note 9).
On
February 25, 2021, the Company entered into an at-the-market 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 September 30, 2021, there have been no
sales of shares of common stock under the 2021 Distribution Agreement.
Management
has concluded existing capital resources will be sufficient to fund operations for at least the next 12 months, or through November 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 temporarily restricted access to the 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.
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.
2.
Basic and Diluted Net Loss per Common Share
Basic
net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding
for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss
by the weighted-average number of common share equivalents outstanding for the period that are determined to be dilutive. Common stock
equivalents are primarily comprised of preferred stock, warrants and options for the purchase of common stock. The Company had potentially
dilutive securities, totaling approximately 1.8 million and 1.6 million as of September 30, 2021 and 2020, respectively.
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:
Schedule of Basic and Diluted Loss Per Share
|
|
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
|
)
|
Below
are basic and diluted loss per share data for the three months ended September 30, 2020, which are in thousands except for share
and per share data:
|
|
Basic Calculation
|
|
|
Effect of
Dilutive
Warrant
Securities
|
|
|
Diluted Calculation
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,438
|
)
|
|
$
|
-
|
|
|
$
|
(2,438
|
)
|
Deemed dividend and accretion of a discount
|
|
|
(74
|
)
|
|
|
-
|
|
|
|
(74
|
)
|
Net loss attributable to common stockholders
|
|
$
|
(2,512
|
)
|
|
$
|
-
|
|
|
$
|
(2,512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in per common share calculations:
|
|
|
22,774,263
|
|
|
|
-
|
|
|
|
22,774,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2020, which are in thousands except for share and per
share data:
|
|
Basic Calculation
|
|
|
Effect of
Dilutive
Warrant
Securities
|
|
|
Diluted Calculation
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,297
|
)
|
|
$
|
(2,073
|
)
|
|
$
|
(7,370
|
)
|
Deemed dividend and accretion of a discount
|
|
|
(9,565
|
)
|
|
|
-
|
|
|
|
(9,565
|
)
|
Net loss attributable to common stockholders
|
|
$
|
(14,862
|
)
|
|
$
|
(2,073
|
)
|
|
$
|
(16,935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in per common share calculations:
|
|
|
13,671,866
|
|
|
|
1,422,410
|
|
|
|
15,094,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.39
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.49
|
)
|
Deemed dividend and accretion of a discount
|
|
|
(0.70
|
)
|
|
|
0.07
|
|
|
|
(0.63
|
)
|
Net loss attributable to common stockholders
|
|
$
|
(1.09
|
)
|
|
$
|
0.03
|
|
|
$
|
(1.12
|
)
|
3.
Inventories
Inventories
consisted of the following (in thousands):
Schedule of Inventories
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Raw materials
|
|
$
|
419
|
|
|
$
|
388
|
|
Intermediate Goods
|
|
|
114
|
|
|
|
-
|
|
WIP
|
|
|
116
|
|
|
|
97
|
|
Finished goods
|
|
|
41
|
|
|
|
2
|
|
Total Inventories
|
|
$
|
690
|
|
|
$
|
487
|
|
As
of September 30, 2021, inventories totaling approximately $0.4
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, 2021, that management
estimates will be sold or used by September 30, 2022.
4. Property and Equipment
The following is a summary of the components of
property and equipment (in thousands):
Schedule of Property and Equipment
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Manufacturing and lab equipment
|
|
$
|
4,008
|
|
|
$
|
558
|
|
Leasehold improvements
|
|
|
936
|
|
|
|
941
|
|
Software and computer equipment
|
|
|
696
|
|
|
|
684
|
|
Furniture and equipment
|
|
|
82
|
|
|
|
82
|
|
|
|
|
5,722
|
|
|
|
2,265
|
|
Less: accumulated depreciation
|
|
|
(1,908
|
)
|
|
|
(1,794
|
)
|
|
|
$
|
3,814
|
|
|
$
|
471
|
|
Depreciation expense for the nine months ended
September 30, 2021, was approximately $0.1 million. Depreciation expense for the year ended December 31, 2020, was approximately
$0.1 million.
Of the $4.0 million in manufacturing and lab equipment
listed as of September 30, 2021, $2.7 million is related to the purchase of equipment for SINTX Armor. The equipment was being transported
to the SINTX Armor facility in Salt Lake City and was not in service as of September 30, 2021 (see Note 14).
5.
Intangible Assets
Intangible
assets consisted of the following (in thousands):
Schedule of Intangible Assets
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Trademarks
|
|
$
|
50
|
|
|
$
|
50
|
|
Less: accumulated amortization
|
|
|
(17
|
)
|
|
|
(14
|
)
|
Intangible assets, net
|
|
$
|
33
|
|
|
$
|
36
|
|
Amortization
expense for the nine months ended September 30, 2021, was approximately $3.0 thousand. Amortization expense for the nine months
ended September 30, 2020, was approximately $4.0 thousand.
6.
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, 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 September 30, 2021 and December 31, 2020 (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, 2021
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Derivative liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
818
|
|
|
$
|
818
|
|
|
|
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 nine
months ended September 30, 2021 and 2020 (in thousands).
Schedule of Fair Value Measurement Hierarchy of Derivative Liability
|
|
Common Stock
Warrants
|
|
Balance as of December 31, 2019
|
|
$
|
(220
|
)
|
Issuance of derivatives
|
|
|
(6,328
|
)
|
Change in fair value
|
|
|
1,750
|
|
Exercise of warrants
|
|
|
3,197
|
|
Other, net
|
|
|
1
|
|
Balance as of September 30, 2020
|
|
$
|
(1,600
|
)
|
|
|
|
|
|
Balance as of December 31, 2020
|
|
$
|
(1,238
|
)
|
Change in fair value
|
|
|
225
|
|
Exercise of warrants
|
|
|
195
|
|
Balance as of September 30, 2021
|
|
$
|
(818
|
)
|
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, 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 September 30, 2021 and December 31, 2020 were as follows:
Schedule of Assumptions Used in Estimating Fair Value
|
|
September
30,
2021
|
|
|
December
31,
2020
|
|
Weighted-average
risk-free interest rate
|
|
|
0.04%-0.53
|
%
|
|
|
0.09%-0.27
|
%
|
Weighted-average
expected life (in years)
|
|
|
0.31-3.36
|
|
|
|
0.63-4.10
|
|
Expected
dividend yield
|
|
|
-
|
%
|
|
|
-
|
%
|
Weighted-average
expected volatility
|
|
|
62.0%-145.0
|
%
|
|
|
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.
7.
Accrued Liabilities
Accrued
liabilities consisted of the following (in thousands):
Schedule of Accrued Liabilities
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Payroll and related expense
|
|
$
|
906
|
|
|
$
|
600
|
|
Other
|
|
|
699
|
|
|
|
309
|
|
Total accrued liabilities
|
|
$
|
1,605
|
|
|
$
|
909
|
|
8.
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 $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 in place before February 15, 2020.
9.
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 September 30, 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 nine months ended September 30, 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 nine months ended September 30, 2021, holders of warrants elected to exercised using both the cashless and for cash
options. The cashless exercise option exercised 2,700 warrants, which resulted in the issuance of 1,890 shares of common stock. The for
cash option 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.
10.
Stock-Based Compensation
A
summary of the Company’s outstanding stock option activity for the nine months ended September 30, 2021 and 2020 is as follows:
Summary of Stock Option Activity
|
|
|
|
|
September 30, 2021
|
|
|
|
|
|
|
Options
|
|
|
Weighted- Average Exercise Price
|
|
|
Weighted-
Average
Remaining
Contractual Life
(Years)
|
|
|
Intrinsic
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
|
|
|
|
|
|
|
September 30, 2020
|
|
|
|
|
|
|
Options
|
|
|
Weighted- Average
Exercise Price
|
|
|
Weighted-Average Remaining Contractual
Life
(Years)
|
|
|
Intrinsic Value
|
|
As of December 31, 2019
|
|
|
377
|
|
|
$
|
7,446.69
|
|
|
|
5.3
|
|
|
$
|
-
|
|
Granted
|
|
|
465,017
|
|
|
|
0.47
|
|
|
|
10.0
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
As of September 30, 2020
|
|
|
465,394
|
|
|
$
|
5.90
|
|
|
|
9.6
|
|
|
$
|
746,774
|
|
Exercisable and vested at September 30, 2020
|
|
|
377
|
|
|
$
|
7,446.69
|
|
|
|
4.6
|
|
|
$
|
-
|
|
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, 2021. During the nine months ended September 30, 2021 the Company granted stock options with
an estimated fair value of approximately $0.6
million.
Schedule of Assumption Used for Fair Value of Option
|
|
September
30, 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 nine months ended September 30, 2021, 60,000 were to non-executive members of the board of directors.
Of the 833,893 options outstanding as of September 30, 2021, 295,000 were awarded to non-executive members of the board of directors.
Unrecognized
stock-based compensation as of September 30, 2021, is as follows (in thousands):
Schedule of Unrecognized Stock-based Compensation
|
|
|
|
|
Weighted Average
|
|
|
|
Unrecognized Stock-Based
|
|
|
Remaining
of Recognition
|
|
|
|
Compensation
|
|
|
(in years)
|
|
Stock options
|
|
$
|
622
|
|
|
|
2.1
|
|
Stock grants
|
|
$
|
14
|
|
|
|
1.6
|
|
11.
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 one half 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.
12.
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.
13.
Leases
The
Company has entered into two operating leases from which it conducts its business.
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.
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.
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, 2021, the 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, 2021, totaled approximately $0.3
million. As of September 30, 2021, 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, 2021, are summarized as follows :
Schedule of Operating Lease Future Minimum Payments
Years Ending December 31,
|
|
September 30, 2021
|
|
2021
|
|
$
|
147
|
|
2022
|
|
|
641
|
|
2023
|
|
|
660
|
|
2024
|
|
|
679
|
|
2025
|
|
|
123
|
|
Thereafter
|
|
|
795
|
|
Total future minimum lease payments
|
|
|
3,045
|
|
Less amounts representing interests
|
|
|
(542
|
)
|
Present value of lease liability
|
|
|
2,503
|
|
|
|
|
|
|
Current-portion of operating lease liability
|
|
|
478
|
|
Long-term portion operating lease liability
|
|
$
|
2,025
|
|
14.
Equipment Purchase
As
explained in Note 1, on July 20, 2021, the Company acquired the equipment and obtained certain intellectual know how with which it intends
to develop, manufacture and commercialize protective armor plates from boron carbide and a composite material of silicon carbide and
boron carbide for military, law enforcement and civilian uses. The total purchase price for the assets was $2.75 million, $2.5 million
of which was paid at closing and the remaining $250,000 is to be paid upon completion of certain checkpoints.
As
of September 30, 2021, the assets have not yet been placed in service, nor has the Company recognized any depreciation expense
associated with these assets. The intention of the Company is to place these assets into service by early 2022.