NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Organization and Summary of Significant Accounting Policies
Organization
SINTX
Technologies, Inc. (“SINTX” or “the Company”) (previously known as Amedica Corporation) was incorporated
in the state of Delaware on December 10, 1996. SINTX is an OEM ceramics company that develops and commercializes silicon nitride
for medical and non-medical applications. The Company believes it is the first and only manufacturer to use silicon nitride in
medical applications. The Company acquired US Spine, Inc. (“US Spine”), a Delaware spinal products corporation with
operations in Florida, on September 20, 2010. The Company’s products are primarily sold in the United States.
As
further explained in Note 12, 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 is now the exclusive owner
of SINTX’s portfolio of metal and silicon nitride spine products, which are presently sold under the brand names of Taurus,
Preference, and Valeo, with access to future silicon nitride spine technologies. Manufacturing, R&D, and all intellectual
property related to the core, non-spine, biomaterial technology of silicon nitride remains with the Company. The Company will
serve 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 Company also changed the name of its wholly owned subsidiary US Spine, Inc. to “ST Sub, Inc.”
The
previous name, Amedica, has 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. The Company will
focus on developing silicon nitride in terms of product design, and future biomaterial formulations, for a variety of OEM customers.
Reverse
Stock Split
On
July 26, 2019 the Company effected a 1 for 30 reverse stock split of the Company’s common stock. The par value and the authorized
shares of the common and convertible preferred stock were not adjusted as a result of the reverse stock split. All common stock
shares, equivalents, and per-share amounts for all periods presented in these consolidated financial statements have been adjusted
retroactively to reflect the reverse stock split.
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 and its wholly
owned subsidiary, ST Sub, Inc. All material intercompany transactions and balances have been eliminated in consolidation. SEC
rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States, 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, 2018,
filed with the SEC on March 11, 2019. The results of operations for the nine months ended September 30, 2019, are not necessarily
indicative of the results to be expected for the year ending December 31, 2019. 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, 2018.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States (“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 as of the date of the financial statements and the reported amounts of revenue
and expenses during the periods then ended. Actual results could differ from those estimates. The most significant estimates relate
to inventory, long-lived and intangible assets and the liability for preferred stock and 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 do 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, 2019 and 2018, the Company incurred net losses from continuing operations of approximately
$3.8 million and $8.6 million, respectively, and used cash in continuing operations of approximately $4.3 million and $7.7 million,
respectively. The Company had an accumulated deficit of approximately $233 million and $229 million as of September 30, 2019 and
December 31, 2018, respectively. To date, the Company’s operations have been principally financed by proceeds received from
the issuance of preferred and common stock, convertible debt and bank debt 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 operating activities
or obtain additional financing is uncertain.
The
Company is actively generating additional scientific and clinical data confirming the beneficial attributes of silicon nitride
and intends to publish the results in leading industry publications. The unique features of the Company’s silicon
nitride material are not well known, and the Company believes that 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. In March 2018, the Company closed on gross proceeds of $1.4
million, before payment of placement agent fees and costs on a warrant reprice and exercise transaction. Additionally, on May
14, 2018, the Company closed on a public offering of units, consisting of convertible preferred stock and warrants, for gross
proceeds of $15 million, which excludes underwriting discounts and commissions and offering expenses payable by the Company. On
June 4, 2019, the Company entered into an Equity Distribution Agreement, (the “Distribution Agreement”), with Maxim
Group LLC (“Maxim”), pursuant to which the Company may sell from time to time, shares of its common stock,
having an aggregate offering price of up to $1.6 million through Maxim, as agent (the “ATM Offering”). On September
12, 2019, the Company entered into an amendment to the Distribution Agreement with Maxim, which increased the maximum aggregate
offering price of the shares of the Company’s common stock from $1.6 million to $2.5 million. Subject to the terms and conditions
of the Distribution Agreement, Maxim will use its commercially reasonable efforts to sell the shares from time to time, based
on the Company’s instructions. The Company has no obligation to sell any of the shares and may at any time suspend offers
under the Distribution Agreement. The Offering will terminate upon the earlier of (i) the sale of Shares having an aggregate offering
price of $2.5 million, (ii) the termination of the Distribution Agreement by either Maxim or the Company upon the provision
of fifteen (15) days written notice, or (iii) September 12, 2020. The Company agrees to pay Maxim a transaction fee at
a fixed rate of 4.25% of the gross sales price of shares sold under the 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. During the nine months ended September 30, 2019 the Company raised approximately $1.3 million, net of fees, through
the issuance of 457,878 shares of common stock under the Distribution Agreement with Maxim. The Company is eligible to raise an
additional $1.2 million under this offering. In addition, during the nine months ended September 30, 2019, the Company converted
3,825 shares of preferred stock into 1,143,784 shares of common stock. The Company is engaged in discussions with investment and
banking firms to examine financing alternatives, including options for a public offering of the Company’s preferred or common
stock. On October 1, 2018, the Company sold the retail spine business. This sale will continue to provide cash flows from November
2019 totaling $1.0 million over the next seven months and $3.5 million for the following 18 months. The buyer also assumed
the Company’s $2.5 million related party note payable.
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 consolidated financial statements
do not include any adjustments that might result from the outcome of these uncertainties.
Significant
Accounting Policies
Except
as explained below, no material changes were made to the Company’s significant accounting policies as described in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2018.
Accounting
Pronouncements Adopted During the Nine Months Ended September 30, 2019
In
August 2016, the FASB updated accounting guidance on the following eight specific cash flow classification issues: (1) debt prepayment
or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates
that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made
after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned
life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees;
(7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance
principle. Under prior U.S. GAAP, there was no specific guidance on the eight cash flow classification issues aforementioned.
The Company adopted the new guidance effective January 1, 2019. The guidance in this standard did not have a material impact on
the financial statements of the Company upon adoption.
In
February 2016, the FASB updated the accounting guidance related to leases as part of a joint project with the International Accounting
Standards Board (“IASB”) to increase transparency and comparability among organizations by recognizing lease assets
and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The Company adopted the
new guidance effective January 1, 2019 (see Note 13), using the modified retrospective approach. Adoption of the new guidance
resulted in the Company being required to record an additional operating lease right-of-use asset totaling approximately $0.7
million and liability totaling approximately $0.9 million (with $0.7 million incremental to adoption of the new guidance)
on the date of adoption. Subsequent to the initial adoption of the new standard the Company amended the lease (see Note 13). The
standard did not materially impact the consolidated net loss and had no impact on cash flows.
In
May 2014, in addition to several amendments issued during 2016, the FASB updated the accounting guidance related to revenue from
contracts with customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The Company adopted
the new guidance effective January 1, 2019. The core principle of the new guidance is that a company should recognize revenue
when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects
to be entitled for those goods or services. The standard defines a five-step process to achieve this core principle and, in doing
so, more judgment and estimates are often required within the revenue recognition process than were required under prior U.S.
GAAP. The Company has one primary customer (see Note 12) and related contract that has one performance obligation to which revenue
is allocated. Revenue under this contract is recognized when the product is shipped to the customer. The Company generally bills
its customer upon shipment of the product and invoices are generally due within 30 days. The Company does provide certain rights
of return, which historically have not been significant. The Company does not anticipate incurring significant incremental costs
to obtain contracts with future customers. The guidance in this standard did not have a material impact on the financial statements
of the Company upon adoption.
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.
Reclassification
Certain
reclassifications were made to the nine months ended September 30, 2018, Statement of Operations to conform to the presentation
for the nine months ended September 30, 2019, Statement of Operations. Research and development expenses in 2018 increased by
$0.4, million offset by a decrease in general and administrative expenses by the same amount. The reclassification did not affect
the 2018 net loss.
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 for the purchase of common stock and stock options. The
Company had potentially dilutive securities, totaling approximately 0.5 million and 0.8 million as of September 30, 2019 and 2018,
respectively.
Below
are basic and diluted loss per share data for the three months ended September 30, 2019, which are in thousands except for share
and per share data:
|
|
Basic
Calculation
|
|
|
Effect
of
Dilutive
Warrant
Securities
|
|
|
Diluted
Calculation
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(1,446
|
)
|
|
$
|
(144
|
)
|
|
$
|
(1,590
|
)
|
Deemed
dividend and accretion of a discount
|
|
|
(345
|
)
|
|
|
-
|
|
|
|
(345
|
)
|
Net
loss attributable to common stockholders
|
|
$
|
(1,791
|
)
|
|
$
|
(144
|
)
|
|
$
|
(1,935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in per common
share calculations:
|
|
|
2,127,293
|
|
|
|
-
|
|
|
|
2,127,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing
operations
|
|
$
|
(0.68
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.75
|
)
|
Deemed
dividend and accretion of a discount
|
|
|
(0.16
|
)
|
|
|
-
|
|
|
|
(0.16
|
)
|
Net
loss attributable to common stockholders
|
|
$
|
(0.84
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.91
|
)
|
Below
are basic and diluted loss per share data for the nine months ended September 30, 2019, which are in thousands except for share
and per share data:
|
|
Basic
Calculation
|
|
|
Effect
of
Dilutive
Warrant
Securities
|
|
|
Diluted
Calculation
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(3,805
|
)
|
|
$
|
(753
|
)
|
|
$
|
(4,558
|
)
|
Deemed
dividend and accretion of a discount
|
|
|
(2,703
|
)
|
|
|
-
|
|
|
|
(2,703
|
)
|
Net
loss attributable to common stockholders
|
|
$
|
(6,508
|
)
|
|
$
|
(753
|
)
|
|
$
|
(7,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in per common
share calculations:
|
|
|
1,269,106
|
|
|
|
-
|
|
|
|
1,269,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing
operations
|
|
$
|
(3.00
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(3.59
|
)
|
Deemed
dividend and accretion of a discount
|
|
|
(2.13
|
)
|
|
|
-
|
|
|
|
(2.13
|
)
|
Net
loss attributable to common stockholders
|
|
$
|
(5.13
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
(5.72
|
)
|
Below
are basic and diluted loss per share data for the three months ended September 30, 2018, which are in thousands except for share
and per share data:
|
|
Basic
Calculation
|
|
|
Effect
of Dilutive
Warrant
Securities
|
|
|
Diluted
Calculation
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(2,967
|
)
|
|
$
|
(4,485
|
)
|
|
$
|
(7,452
|
)
|
Income from discontinued
operations
|
|
|
(280
|
)
|
|
|
-
|
|
|
|
(280
|
)
|
Deemed
dividend and accretion of a discount
|
|
|
(6,353
|
)
|
|
|
-
|
|
|
|
(6,353
|
)
|
Net
loss attributable to common stockholders
|
|
$
|
(9,600
|
)
|
|
$
|
(4,485
|
)
|
|
$
|
(14,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in per common
share calculations:
|
|
|
418,638
|
|
|
|
54
|
|
|
|
418,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing
operations
|
|
$
|
(7.09
|
)
|
|
$
|
(10.71
|
)
|
|
$
|
(17.80
|
)
|
Loss from discontinued
operations
|
|
|
(0.67
|
)
|
|
|
-
|
|
|
|
(0.67
|
)
|
Deemed
dividend and accretion of a discount
|
|
|
(15.17
|
)
|
|
|
-
|
|
|
|
(15.17
|
)
|
Net
loss attributable to common stockholders
|
|
$
|
(22.93
|
)
|
|
$
|
(10.71
|
)
|
|
$
|
(33.64
|
)
|
Below
are basic and diluted loss per share data for the nine months ended September 30, 2018, which are in thousands except for share
and per share data:
|
|
Basic
Calculation
|
|
|
Effect
of Dilutive
Warrant
Securities
|
|
|
Diluted
Calculation
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(8,634
|
)
|
|
$
|
(6,396
|
)
|
|
$
|
(15,030
|
)
|
Income from discontinued
operations
|
|
|
(324
|
)
|
|
|
-
|
|
|
|
(324
|
)
|
Deemed
dividend and accretion of a discount
|
|
|
(13,686
|
)
|
|
|
-
|
|
|
|
(13,686
|
)
|
Net
loss attributable to common stockholders
|
|
$
|
(22,644
|
)
|
|
$
|
(6,396
|
)
|
|
$
|
(29,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in per common
share calculations:
|
|
|
243,543
|
|
|
|
59,933
|
|
|
|
303,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing
operations
|
|
$
|
(35.45
|
)
|
|
$
|
(14.08
|
)
|
|
$
|
(49.53
|
)
|
Loss from discontinued
operations
|
|
|
(1.33
|
)
|
|
|
0.26
|
|
|
|
(1.07
|
)
|
Deemed
dividend and accretion of a discount
|
|
|
(56.20
|
)
|
|
|
11.10
|
|
|
|
(45.10
|
)
|
Net
loss attributable to common stockholders
|
|
$
|
(92.98
|
)
|
|
$
|
(2.72
|
)
|
|
$
|
(95.70
|
)
|
3.
Inventories
Inventories
consisted of the following (in thousands):
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
Raw materials
|
|
$
|
625
|
|
|
$
|
624
|
|
Intermediate goods
|
|
|
16
|
|
|
|
-
|
|
WIP
|
|
|
70
|
|
|
|
47
|
|
Finished goods
|
|
|
-
|
|
|
|
5
|
|
|
|
$
|
711
|
|
|
$
|
676
|
|
As
of September 30, 2019, inventories totaling approximately $0.1 million and $0.6 million were classified as current and
long-term, respectively. Inventories classified as current represent the carrying value of inventories as of September 30, 2019,
that management estimates will be sold by September 30, 2020.
4.
Intangible Assets
Intangible
assets consisted of the following (in thousands):
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
Trademarks
|
|
$
|
50
|
|
|
$
|
50
|
|
Less: accumulated
amortization
|
|
|
(7
|
)
|
|
|
(4
|
)
|
|
|
$
|
43
|
|
|
$
|
46
|
|
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, 2019 and
December 31, 2018. 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, 2019 and December 31, 2018:
|
|
Fair
Value Measurements as of September 30, 2019
|
|
Description
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Derivative liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
769
|
|
|
$
|
769
|
|
|
|
Fair
Value Measurements as of December 31, 2018
|
|
Description
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Derivative liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,566
|
|
|
$
|
1,566
|
|
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, 2019 and 2018.
|
|
Common
Stock
Warrants
|
|
Balance at December 31, 2017
|
|
$
|
(1,357
|
)
|
Issuances of warrants classified as
derivatives
|
|
|
(7,577
|
)
|
Change in fair value
|
|
|
6,500
|
|
Exercise of warrants
|
|
|
575
|
|
Other, net
|
|
|
(212
|
)
|
Balance at September 30, 2018
|
|
$
|
(2,071
|
)
|
|
|
|
|
|
Balance at December 31, 2018
|
|
$
|
(1,566
|
)
|
Change in fair value
|
|
|
754
|
|
Exercise of warrants
|
|
|
44
|
|
Other, net
|
|
|
(1
|
)
|
Balance at September 30, 2019
|
|
$
|
(769
|
)
|
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. At September 30, 2019 and December 31, 2018, approximately $0.8 million and $1.6 million, respectively,
of the derivative liability was calculated using the Black-Scholes-Merton valuation model. At September 30, 2019 and December
31, 2018, no significant amount of the derivative liability was calculated using the Monte Carlo Simulation valuation model.
The
assumptions used in estimating the common stock warrant liability using the Black-Scholes-Merton valuation model as of September
30, 2019 and December 31, 2018 were as follows:
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
Weighted-average risk-free
interest rate
|
|
|
1.56
|
%
|
|
|
2.51
|
%
|
Weighted-average expected life (in years)
|
|
|
3.61
|
|
|
|
0.9
|
|
Expected dividend yield
|
|
|
-
|
%
|
|
|
-
|
%
|
Weighted-average expected volatility
|
|
|
64
|
%
|
|
|
157
|
%
|
The
assumptions used in estimating the common stock warrant liability using the Monte Carlo Simulation valuation model at September
30, 2019 and December 31, 2018 were as follows:
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
Weighted-average risk-free
interest rate
|
|
|
1.59
|
%
|
|
|
2.46
|
%
|
Weighted-average expected life (in years)
|
|
|
2.16
|
|
|
|
3.1
|
|
Expected dividend yield
|
|
|
-
|
%
|
|
|
-
|
%
|
Weighted average expected volatility
|
|
|
65
|
%
|
|
|
68
|
%
|
In
addition, if any time after the second anniversary of the issuance of the warrant, both: (1) the 30-day volume weighted average
price of the Company’s stock exceeds $594.00; and (2) the average daily trading volume for such 30-day period exceeds
$126 million, the Company may call this warrant for $3.60 per share. For those warrants that have a call provision,
management believes the Monte Carlo Simulation valuation model provides a better estimate of fair value for the warrants issued
during 2018 and 2017 than the Black-Scholes-Merton valuation model.
Other
Financial Instruments
The
Company’s recorded values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate
their fair values based on their short-term nature. The recorded value of debt approximates the fair value as the interest rate
approximates market interest rates.
6.
Accrued Liabilities
Accrued
liabilities consisted of the following (in thousands):
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
Payroll and related expense
|
|
$
|
454
|
|
|
$
|
388
|
|
Resterilization and repackaging costs
|
|
|
365
|
|
|
|
344
|
|
Other
|
|
|
247
|
|
|
|
106
|
|
|
|
$
|
1,066
|
|
|
$
|
838
|
|
7.
Debt
L2
Capital Debt
On
January 31, 2018, the Company signed a promissory note in the aggregate principal amount of up to $0.84 million (the “L2
Note”) for an aggregate purchase price of up to $0.75 million and warrants to purchase up to an aggregate of 68,257 shares
of common stock (the “Warrants”) at an exercise price of $3.31 per share. The maturity date was six months from date
of funding. The L2 Note’s interest rate was 8% per year and a default interest rate of 18% per year.
On
May 14, 2018, the Company closed on an underwritten public offering of units, consisting of convertible preferred stock and warrants,
for gross proceeds of $15.0 million. Part of the proceeds from this offering were used to pay off the outstanding debt with L2
Capital. The total payoff was $1.1 million, with $0.7 million in principal and $0.4 million in interest.
Hercules
and MEF I, LP/Anson Investments Debt Exchange
On
January 3, 2018, the Company entered into an Assignment Agreement (the “Assignment Agreement”) with MEF I, LP and
Anson Investments Master Fund (collectively the “Assignees” and each an “Assignee”), Hercules Technology
III, L.P. (“HT III”) and Hercules Capital, Inc. (“HC” and, together with HT III, “Hercules”),
pursuant to which Hercules assigned to the Assignees all amounts remaining due under the Loan and Security Agreement, dated June
30, 2014, as amended, between the Company and Hercules (the “Loan and Security Agreement”) and (2) the note (the “Hercules
Note”) between the Company and Hercules evidencing the amounts due under the Loan and Security Agreement. The total amount
assigned by Hercules to the Assignees in the aggregate was $2.3 million and was secured by the same collateral underlying the
Loan and Security Agreement. Subsequently, the Company entered into an exchange agreement pursuant to which the Assignees agreed
to exchange the Hercules Term Loan obligation acquired by them for two senior secured convertible promissory notes issued by the
Company, each in the principal amount of $1.1 million for an aggregate principal amount of $2.2 million, (the “Exchange
Notes”). The Exchange Notes were scheduled to mature on February 3, 2019 (the “Maturity Date”). The Exchange
Notes had interest at a rate of 15% per annum. The Exchange Notes were secured by a first priority security interest in substantially
all of the Company assets, including intellectual property, and contains covenants restricting payments to certain of our affiliates.
On
May 14, 2018, the Company closed on an underwritten public offering of units, consisting of convertible preferred stock and warrants,
for gross proceeds of $15.0 million. Part of the proceeds from this offering were used to pay off the outstanding debt with MEF
I, L.P and Anson Investments. The total payoff was $1.6 million, with $1.4 million in principal and $0.2 million in interest.
North
Stadium Term Loan – Related Party
On
July 28, 2017, the Company entered into a $2.5 million term loan (the “North Stadium Loan”) with North Stadium Investments,
LLC (“North Stadium”), a company owned and controlled by the Company’s Chief Executive Officer and Chairman
of the Board. The North Stadium Loan bore interest at 10% per annum and required the Company to make monthly interest only payments
from September 5, 2017 through July 5, 2018. All principal and unpaid interest (if any) under the North Stadium Loan was due and
payable on July 28, 2018. The North Stadium Loan was secured by substantially all of the Company’s assets but was junior
to security interest in assets encumbered by the Hercules Term Loan (see below). In connection with the North Stadium Loan the
Company also issued North Stadium a warrant to purchase up to 1,834 shares of the Company’s common stock at a purchase price
of $151.20 per share, subject to a 5-year term. The relative estimated value of the warrants on the date of grant approximated
$0.2 million, which was being amortized as interest expense over the life of the term loan.
On
October 1, 2018, CTL Medical assumed the North Stadium Term Loan debt as part of the sale of the retail spine business. As of
December 31, 2018, the Company has been released by North Stadium from any and all obligations related to this debt.
Hercules
Term Loan
On
June 30, 2014, the Company entered into a Loan and Security Agreement with Hercules which provided the Company with a $20.0 million
term loan. The Hercules Term Loan matured on January 1, 2018. The Hercules Term Loan included a $0.2 million closing fee, which
was paid to Hercules on the closing date of the loan. The closing fee was recorded as a debt discount and was being amortized
to interest expense over the life of the loan. The Hercules Term Loan also included a non-refundable final payment fee of $1.7
million. The final payment fee was being accrued and recorded to interest expense over the life of the loan.
On
January 3, 2018, the Hercules Term Loan and all amounts owing thereunder was assigned to MEF I and Anson Investments. See discussion
above under “Hercules and MEF I, LP/Anson Investments Debt Exchange” for a more detailed description of that
transaction.
Equipment
Loan
In
September of 2019 the Company entered into a debt arrangement with a finance company to purchase equipment. The debt balance at
September 30, 2019, totaled $0.02 million. The debt incurs interest at 12%, is collateralized by the equipment and is payable
in monthly payments of $0.001 million (including interest) over 36 months.
8.
Equity
Preferred
Stock Conversion
From
July through December of 2018, Series B Convertible Preferred shareholders of the Company converted 10,926 shares of Series B
Convertible Preferred Stock into 569,966 shares of common stock.
During
May 2018 and June 2018, Series B Convertible Preferred shareholders of the Company converted a total of 4,072 shares of Series
B Convertible Preferred Stock into 102,886 shares of common stock.
During
the nine months ended September 30, 2019, Series B Convertible Preferred shareholders of the Company converted 3,825 shares of
Series B Convertible Preferred Stock into 1,143,784 shares of common stock.
August
2018 Warrant Exercise
During
August 2018, pursuant to the cashless exercise provision contained in their warrant, L2 Capital exercised its warrants and was
issued 8,069 shares of common stock. The L2 Capital warrant is no longer outstanding.
July
2018 Warrant Exercise
During
May 2018, the Company closed on a public offering, consisting of both convertible preferred stock and warrants. During July 2018,
998 of the warrants were exercised and converted into 998 shares of common stock.
May
2018 Warrant Exercise (July 2016 Warrants)
During
March 2018, the Company repriced 27,733 warrants dated July 8, 2016, from $360 to $63.75 (for further description see Warrant
Reprice March 2018 below). During May 2018, an additional 4,861 of the repriced warrants were exercised resulting in gross
proceeds to the Company of $0.3 million.
August
2019 Warrant Exercise (May 2018 Warrants)
During
the nine months ended September 30, 2019, 35,874 warrants were exercised resulting in gross proceeds to the Company of approximately
$0.1 million.
May
2018 Unit Offering
On
May 14, 2018, the Company closed on an underwritten public offering of units (“the Units”), consisting of convertible
preferred stock and warrants, for gross proceeds of $15.0 million, which excludes underwriting discounts and commissions and offering
expenses payable by SINTX. The offering was priced at a public offering price of $1,000 per unit. Each unit consisted of one share
of Series B Convertible Preferred Stock, with a stated value of $1,100, and warrants to purchase up to 25 shares of common stock
(the “May 2018 Warrants”). The May 2018 Warrants are initially exercisable at an exercise price of $48 per share and
expire 5 years from the date of issuance. The Series B Preferred Stock is convertible into shares of common stock by dividing
the stated value of $1,100 by: (i) for the first 40 trading days following the closing of this offering, $43.54 (the “Conversion
Price”), (ii) after 40 trading days but prior to the 81st trading day, the lesser of (a) the Conversion Price and
(b) 87.5% of the lowest volume weighted average price for our Common Stock as reported at the close of trading on the market reporting
trade prices for the Common Stock during the five trading days prior to the 41st trading day, and (iii) after 80 trading days,
the lesser of (a) the Conversion Price and (b) 87.5% of the lowest volume weighted average price for our Common Stock
as reported at the close of trading on the market reporting trade prices for the Common Stock during the five trading days prior
to the date of the notice of conversion. In the case of (ii)(b) and (iii)(b) above, the share price shall not be less than $2.94
(the “Floor Price”). Each of the Conversion Price and Floor Price is subject to adjustment in certain circumstances.
The
Company raised $15.0 million associated with the issuance of the Units, with $6.8 million, net of issuance costs of $0.6 million,
allocated to the preferred stock and $6.9 million, net of issuance costs of $0.7 million, allocated to the warrants. In association
with the warrants that were recorded as a derivative liability, the Company immediately expensed approximately $0.7 million of
issuance costs. The 15,000 preferred shares were initially convertible into 378,997 shares of common stock and had an effective
conversion rate of $43.50 per share based on the proceeds that were allocated to them. The conversion price was adjusted to $19.63,
effective July 12, 2018, and was adjusted again on September 7, 2018 to $14.40. During the nine months ended September 30, 2019
the conversion price was adjusted down on several occasions and ultimately settled at $2.84 as of September 30, 2019.
Warrant
Reprice March 2018
During
the six months ended June 30, 2018 the Company entered into a warrant amendment agreement (the “Amendment Agreement”)
with certain holders of previously issued Series E Common Stock Purchase Warrants (collectively, “Investors”). In
connection with that certain Series E Common Stock Purchase Warrant between the Company and Investors dated July 8, 2016, the
Company issued to Investors warrants to purchase up to 27,733 shares of common stock (the “Warrant Shares”) at an
exercise price of $360.00 per share, (the “Investors Warrants”). Under the terms of the Amendment Agreement, in consideration
of Investors exercising 22,279 of the Investors Warrants (the “Warrant Exercise”), the exercise price per share of
the Investors Warrants was reduced to $63.75 per share. 22,278 of the Investors Warrants were exercised resulting in gross proceeds
to the Company of $1.4 million before payment of placement agent fees and costs. In addition, and as further consideration, the
Company issued to Investors new warrants to purchase up to the number of shares of common stock equal to 100% of the number of
Warrant Shares issued pursuant to the Warrant Exercise at an exercise price per share equal to $60.00 per share.
2019
ATM Stock Offerings
During
the nine months ended September 30, 2019, the Company entered into an ATM equity distribution agreement in which the Company may
sell, from time to time, shares of common stock having an aggregate offering price of up to $2.5 million. The Company sold 457,878
shares during the nine months ended September 30, 2019, raising approximately $1.3 million net of issuance cost of $0.2 million.
The Company is eligible to raise an additional $1.2 million under this offering.
9.
Stock-Based Compensation
A
summary of the Company’s outstanding stock option activity for the nine months ended September 30, 2019 is as follows:
|
|
Options
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life
(Years)
|
|
|
Intrinsic
Value
|
|
As of December 31, 2018
|
|
|
377
|
|
|
$
|
7,653
|
|
|
|
6.0
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
As of September 30, 2019
|
|
|
377
|
|
|
$
|
7,653
|
|
|
|
5.6
|
|
|
$
|
-
|
|
Exercisable as of September 30, 2019
|
|
|
377
|
|
|
$
|
7,653
|
|
|
|
5.6
|
|
|
$
|
-
|
|
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 a peer group of similar companies. The expected term was calculated
utilizing the simplified method. 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.
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 business to CTL Medical. The sale included a $6 million noninterest
bearing note receivable. The 36-month term of the note receivable requires 18 payments of $138,889 followed by 18 payments of
$194,444, with maturity of the note receivable on October 1, 2021. The note receivable includes an imputed interest rate of 10%,
which totaled $915,725 as of October 1, 2018, and has a 36-month amortization. As of September 30, 2019, the net carrying value
of the note receivable was approximately $4.0 million.
12.
Discontinued Operations
As
explained in Note 1, on October 1, 2018, the Company completed the sale of its retail spine business to CTL Medical. The gain
on the sale of the retail spine business is estimated to approximate $1.4 million, which was recognized during the quarter ended
December 31, 2018.
The
Company and CTL Medical entered in an asset purchase agreement whereby CTL Medical agreed to acquire all of the Company’s
commercial spine business for total consideration of $8.5 million, which includes a $6.0 million (including interest) note receivable
(See Note 7) and CTL Medical’s assumption of the Company’s $2.5 million related party note payable to North Stadium
(see Note 11). As a result of the closing, CTL Medical is now the exclusive owner of SINTX’s portfolio of metal and silicon
nitride spine products, which are presently sold under the brand names of Taurus, Preference, and Valeo, with access to future
silicon nitride spine technologies. The Company has agreed to pay the cost, if any, to re-sterilize and re-package select silicon
nitride spinal inventories sold to CTL Medical if the sterilization date expires prior to CTL Medical selling the inventories
to a third-party customer. This agreement extends for a total of 24 months, ending on September 30, 2020. The Company estimates
the sterilization and repackaging cost to approximate $0.5 million. Manufacturing, R&D, and all intellectual property related
to the core, non-spine, biomaterial technology of silicon nitride remains with the Company in Salt Lake City. The Company will
serve as CTL’s exclusive OEM provider of silicon nitride products.
13.
Leases
The
Company leases office, warehouse and manufacturing space under a single operating lease, which lease originally expired during
2019 (see Note 1 under Accounting Pronouncements Adopted During the Nine Months Ended September 30, 2019). 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 is effective the earlier of January 1, 2020 or when the Company vacates the portion of
the property that will not be part of the new lease. The amended lease has two five-year extension options. As of September 30,
2019, the operating lease right-of-use asset totaled approximately $2.5 million and the operating lease liability totaled approximately
$2.4 million. Non-cash operating lease expense during the nine months ended September 30, 2019, totaled approximately $0.3 million.
As of September 30, 2019, the weighted-average discount rate for the Company’s operating lease totaled 6.5%. During the
three months ended September 30, 2019, the Company recorded a loss of approximately $0.12 million in association with the lease
amendment.
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 September 30, 2019, are summarized as follows:
|
|
September
30, 2019
|
|
2019
|
|
$
|
245
|
|
2020
|
|
|
494
|
|
2021
|
|
|
509
|
|
2022
|
|
|
525
|
|
2023
|
|
|
540
|
|
Thereafter
|
|
|
556
|
|
Total future
minimum lease payments
|
|
|
2,869
|
|
Less
amounts representing interests
|
|
|
(435
|
)
|
Present value
of lease liability
|
|
|
2,434
|
|
|
|
|
|
|
Current-portion
of operating lease liability
|
|
|
475
|
|
Long-term
portion operating lease liability
|
|
$
|
1,959
|
|
14.
Subsequent Events
On
November 1, 2019, the Company filed a Form S-1 Registration Statement with the United States Securities and Exchange Commission
to distribute to holders of the Company’s common stock, Series B Preferred Stock, and holders of our May 2018 Warrants,
as of the Record Date, non-transferable Subscription Rights to purchase Units at a price of $1,000 per Unit. The Subscription
Rights will not be tradable. Each Unit consists of one share of our Preferred Stock and yet to be decided number of Warrants.
The common stock to be issued upon conversion of the Preferred Stock or exercise of the Warrants, like our existing shares of
common stock, will be traded on the NASDAQ Capital Market under the symbol “SINT.”