NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Organization and Summary of Significant Accounting Policies
Organization
SINTX
Technologies, Inc. (“SINTX” or “the Company”) was incorporated in the state of Delaware on December 10,
1996. SINTX is an OEM ceramics company that develops and commercializes silicon nitride for medical and non-medical applications.
The core strength of SINTX is the manufacturing, research, and development of silicon nitride ceramics for external partners.
The Company presently manufactures silicon nitride material and components in its FDA registered and ISO 13485:2016 certified
facility. The Company believes it is the first and only manufacturer to use silicon nitride in medical applications. The Company’s
products are primarily sold in the United States.
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 condensed 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. In May 2020,
the Company dissolved its wholly owned subsidiary ST Sub, Inc. At the time of dissolution the subsidiary had no assets, liabilities,
equity, or operations. The financial statements after May 8, 2020, are not consolidated.
SEC
rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements
prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) so long as the statements
are not misleading. In the opinion of management, these financial statements and accompanying notes contain all adjustments (consisting
of normal recurring adjustments) necessary to present fairly the financial position and results of operations for the periods
presented herein. These condensed 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, 2019, filed with
the SEC on March 26, 2020. The results of operations for the nine months ended September 30, 2020, are not necessarily indicative
of the results to be expected for the year ending December 31, 2020. 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, 2019.
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 financial statements and the reported amounts of revenue and expenses during the period. Actual results
could differ from those estimates. As of September 30, 2020, the most significant estimates relate to inventory, long-lived and
intangible assets, the liability for preferred stock and common stock warrants, and the derivative liabilities.
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, 2020 and 2019, the Company incurred a net loss of $5.3 million and $3.8 million, respectively,
and used cash in operations of $7.1 million and $4.9 million, respectively. The Company had an accumulated deficit of $239
million and $234 million as of September 30, 2020 and December 31, 2019, respectively. To date, the Company’s operations
have been principally financed from proceeds from the issuance of preferred and common stock and, to a lesser extent, cash generated
from product sales. It is anticipated that the Company will continue to generate operating losses and use cash in operations.
The Company’s continuation as a going concern is dependent upon its ability to increase sales, and/or raise additional funds
through the capital markets. Whether and when the Company can attain profitability and positive cash flows from operations or
obtain additional financing is uncertain.
The
Company is actively generating additional scientific and clinical data to have it published in leading industry publications.
The unique features of our silicon nitride material are not well known, and we believe the publication of such data would help
sales efforts as the Company approaches new prospects. The Company is also making additional changes to the sales strategy, including
a focus on revenue growth by expanding the use of silicon nitride in other areas outside of spinal fusion applications.
The
Company has common stock that is publicly traded and has been able to successfully raise capital when needed since the date of
the Company’s initial public offering in February 2014. On February 6, 2020, the Company closed on a rights offering to
its stockholders of units, consisting of convertible preferred stock and warrants, for gross proceeds of $9.4 million, which excludes
underwriting discounts and commissions and offering expenses payable by the Company of approximately $1.2 million. Additionally,
during the period of June 2020 through August 2020, the Company closed four registered direct offerings of shares of its common
stock, priced at-the-market under Nasdaq rules, resulting in the issuance of a total of 11,015,000 shares of its common
stock for gross proceeds of approximately $20.9 million, before considering issuance costs of approximately $1.6 million
(see Note 8).
During
the year ended December 31, 2019, the Company entered into an at-the-market (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
527,896 shares during the year ended December 31, 2019, raising approximately $1.7 million before deducting fees to the placement
agent and other offering expenses of approximately $0.2 million. During the nine month period ending September 30, 2020,
the Company sold 354,500 shares of common stock, raising approximately $0.8 million deducting fees to the placement agent and
other offering expenses of approximately $0.034 million. As of September 30, 2020, no funding capacity is available under the
ATM. (see Note 8).
On
October 1, 2018, the Company sold the retail spine business to CTL Medical. The sale included a $6 million noninterest bearing
note receivable payable over a 36-month term. The 36-month term of the note receivable requires 18 payments of $138,889 followed
by 18 payments of $194,444, with maturing of the note receivable to occur October 1, 2021. The Company expects cash flows of approximately
$2.5 million for the remaining thirteen months.
Management
has concluded that together with its existing capital resources and payments on the note receivable from the sale of the Spine
business will be sufficient to fund operations for at least the next 12 months, or through November 2021. In the financial statements
for the year ended December 31, 2019, the Company concluded substantial doubt existed for the Company to continue as a going concern.
Beginning with the period ended March 31, 2020, the Company’s position changed as a result of the capital raises outlined
in Note 8.
Risks
Related to COVID-19 Pandemic
The
recent outbreak of COVID-19 originated in Wuhan, China, in December 2019 and has since spread to multiple countries, including
the United States and several European countries. On March 11, 2020, the World Health Organization declared the outbreak a 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. 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 Income (Loss) per Common Share
Basic
net income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of common shares outstanding
for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net
loss by the weighted-average number of common share equivalents outstanding for the period that are determined to be dilutive.
Common stock equivalents are primarily comprised of preferred stock and warrants for the purchase of common stock. For the three
months ended September 30, 2020, there is no difference in the number of shares and net loss used to calculate basic and diluted
shares outstanding because their effect would have been anti-dilutive. The Company had potentially dilutive securities, totaling
approximately 1.6 million and 0.5 million as of September 30, 2020 and 2019, respectively.
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
|
|
$
|
(2,437
|
)
|
|
$
|
-
|
|
|
$
|
(2,437
|
)
|
Deemed dividend and accretion of a discount
|
|
|
(74
|
)
|
|
|
-
|
|
|
|
(74
|
)
|
Net loss attributable to common stockholders
|
|
$
|
(2,511
|
)
|
|
$
|
-
|
|
|
$
|
(2,511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
(5,296
|
)
|
|
$
|
(2,073
|
)
|
|
$
|
(7,369
|
)
|
Deemed dividend and accretion of a discount
|
|
|
(9,565
|
)
|
|
|
-
|
|
|
|
(9,565
|
)
|
Net loss attributable to common stockholders
|
|
$
|
(14,861
|
)
|
|
$
|
(2,073
|
)
|
|
$
|
(16,934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in per common share calculations:
|
|
|
13,671,866
|
|
|
|
1,422,410
|
|
|
|
15,094,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (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 income (loss) attributable to common stockholders
|
|
$
|
(1.09
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(1.12
|
)
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(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
|
)
|
3.
Inventories
Inventories
consisted of the following (in thousands):
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Raw materials
|
|
$
|
461
|
|
|
$
|
533
|
|
WIP
|
|
|
72
|
|
|
|
106
|
|
Finished Goods
|
|
|
2
|
|
|
|
-
|
|
|
|
$
|
535
|
|
|
$
|
639
|
|
As
of September 30, 2020, inventories totaling approximately $0.1 million and $0.5 million were classified as current and long-term,
respectively. Inventories classified as current represent the carrying value of inventories as of September 30, 2020, that management
estimates will be sold by September 30, 2021.
4.
Intangible Assets
Intangible
assets consisted of the following (in thousands):
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Trademarks
|
|
$
|
50
|
|
|
$
|
50
|
|
Less: accumulated amortization
|
|
|
(13
|
)
|
|
|
(9
|
)
|
|
|
$
|
37
|
|
|
$
|
41
|
|
Amortization
expense for the nine months ended September 30, 2020, was approximately $4.0 thousand. Amortization expense for the nine
months ended September 30, 2019, was approximately $4.0 thousand.
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, 2020 and
December 31, 2019. 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, 2020 and December 31, 2019 (in thousands):
|
|
Fair Value Measurements as of September 30, 2020
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Derivative liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,600
|
|
|
$
|
1,600
|
|
|
|
Fair Value Measurements as of December 31, 2019
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Derivative liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
220
|
|
|
$
|
220
|
|
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, 2020 and 2019 (in thousands).
|
|
Common Stock
Warrants
|
|
Balance as of December 31, 2018
|
|
$
|
(1,566
|
)
|
Change in fair value
|
|
|
754
|
|
Exercise of warrants
|
|
|
44
|
|
Other, net
|
|
|
(1
|
)
|
Balance as of September 30, 2019
|
|
$
|
(769
|
)
|
|
|
|
|
|
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
|
)
|
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, 2020, and December 31, 2019, 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, 2020 and December 31, 2019 were as follows:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Weighted-average risk-free interest rate
|
|
|
0.16%-0.28
|
%
|
|
|
1.62
|
%
|
Weighted-average expected life (in years)
|
|
|
2.61-4.36
|
|
|
|
3.4
|
|
Expected dividend yield
|
|
|
-
|
%
|
|
|
-
|
%
|
Weighted-average expected volatility
|
|
|
139.17%-160.7
|
%
|
|
|
64
|
%
|
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, 2020
|
|
|
December 31,2019
|
|
Payroll and related expense
|
|
$
|
646
|
|
|
$
|
589
|
|
Resterilization and repackaging costs
|
|
|
52
|
|
|
|
392
|
|
Other
|
|
|
248
|
|
|
|
285
|
|
|
|
$
|
946
|
|
|
$
|
1,266
|
|
7.
Debt
Equipment
Loan
In September 2019, the Company entered into a debt arrangement with
a finance company to purchase equipment. The debt balance was paid in full during the third quarter 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 is $0.391 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”). The PPP Loan has a two-year term, maturing on April 28, 2022.
The term may be extended to five-years if the Lender and we agree to do so. The interest rate on the PPP Loan is 1.0% per annum.
Principal and interest are payable in 18 monthly installments, beginning on November 28, 2020, until maturity with respect to
any portion of the PPP Loan which is not forgiven as described below. The Company did not provide any collateral or guarantees
for the PPP Loan, nor did the Company pay any facility charge to obtain the PPP Loan. The PPP Loan provides for customary events
of default, including, among others, those relating to failure to make payment, bankruptcy, breaches of representations and material
adverse effects. The Company is permitted to prepay or partially prepay the PPP Loan at any time with no prepayment penalties.
The PPP Loan may be partially or fully forgiven if the Company 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. Any forgiveness of the PPP Loan will be subject to approval by the SBA and the Lender and will require the Company
to apply for such treatment in the future.
8.
Equity
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 on the date of record, obtained, at no charge, non-transferable subscription
rights to purchase units (“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, which includes 6,372,000 Warrants exercisable into shares of our common stock and preferred shares that are
convertible into 6,372,350 shares of Common Stock, for gross proceeds of $9.4 million.
The
Company raised $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, 2020, Series B Convertible Preferred stockholders of the Company converted 223 shares of
Series B Convertible Preferred Stock into 165,586 shares of common stock, and Series C Convertible Preferred stockholders
of the Company converted 9,389 shares of Series C Convertible Preferred Stock into 6,337,930 shares of common stock.
Also, during the nine months ended September
30, 2020, holders of Warrants electing to use the cashless exercise option exercised 5,006,475 warrants, which resulted
in the issuance of 3,504,535 shares of common stock. During the same period of time, holders of Warrants electing to exercise
warrants for cash exercised 739,618 warrants, which resulted in the issuance of 739,618 shares of common stock,
and the receipt of $1.1 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 issuance costs of approximately $0.8 million. On June 23, 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 3,700,000 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
fees to the placement agent and other estimated offering expenses payable by the Company. Following the initial registered direct
offering, on June 26, 2020, the Company entered into another 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 fees to the placement agent and other estimated offering expenses
payable by the Company.
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 fees to the placement agent and other estimated offering expenses payable by
the Company.
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 fees to the placement agent and other estimated offering expenses payable by
the Company.
2019
ATM Stock Offerings
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 year ended December 31, 2019, the Company raised approximately $1.7 million before deducting fees to the placement agent and
other offering expenses of approximately $0.2 million, through the issuance of 527,896 shares of common stock under the Distribution
Agreement with Maxim. During the nine month period ending September 30, 2020, the Company sold 354,500 shares of common stock,
raising approximately $0.8 million before deducting issuance fees of approximately $0.034 million. As of September 30, 2020, no
funding capacity is available under the ATM.
9.
Stock-Based Compensation
During
the three months ended September 30, 2020 the shareholders approved the 2020 Equity Incentive Plan. The 2020 Plan provides for
the grant of nonqualified stock options, incentive stock options, restricted stock, restricted stock units, stock appreciation
rights (SARs), and performance share awards to employees, officers, consultants, advisors, non-employee directors and independent
contractors designated by either the board of directors of the Company or if so authorized by the board of directors, the Compensation
Committee (the “Committee”) of the Board of Directors. Under the 2020 Plan, the maximum number of shares of common
stock which may be issued, subject to adjustment as described below, is 1,902,520 shares of common stock, which includes 2,520
shares that have been rolled over from our 2012 Plan, as amended.
A
summary of the Company’s outstanding stock option activity for the nine months ended September 30, 2020 is as follows:
|
|
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
|
|
|
515,017
|
|
|
|
0.47
|
|
|
|
10.0
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
As of September 30, 2020
|
|
|
515,394
|
|
|
$
|
5.90
|
|
|
|
9.6
|
|
|
$
|
746,774
|
|
Exercisable as of 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 the Company. 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. The following
weighted average assumptions were used in the calculation to estimate the fair value of options granted to employees during the
nine months ended September 30, 2020.
|
|
Nine Months Ended
|
|
|
|
September 30, 2020
|
|
Weighted-average risk-free interest rate
|
|
|
0.34
|
%
|
Weighted-average expected life (in years)
|
|
|
10.0
|
|
Expected dividend yield
|
|
|
-
|
%
|
Weighted-average expected volatility
|
|
|
129.69
|
%
|
Unrecognized
stock-based compensation as of September 30, 2020 is as follows (in thousands):
|
|
|
|
|
Weighted Average
|
|
|
|
Unrecognized Stock-Based
|
|
|
Remaining
of Recognition
|
|
|
|
Compensation
|
|
|
(in years)
|
|
Stock options
|
|
$
|
204
|
|
|
|
2.6
|
|
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 financial position, operating results or cash flows.
11.
Note Receivable
On
October 1, 2018, the Company completed the sale of its retail 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 maturing 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 31, 2018, and has a 36-month amortization. As of September 30, 2020, the net carrying value
of the note receivable was approximately $2.4 million, with expected cash proceeds of $2.5 million.
12.
Discontinued Operations
The
Company and CTL Medical entered in an asset purchase agreement on October 1, 2018, 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 and CTL Medical’s assumption of the Company’s $2.5 million related party note payable to
North Stadium. 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 $0.1 million at September 30, 2020. 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. 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 29,732 square feet.
The new rent was effective January 1, 2020. The amended lease has two five-year extension options. As of September 30, 2020, the
operating lease right-of-use asset totaled approximately $2.0 million and the operating lease liability totaled approximately
$2.0 million. Non-cash operating lease expense during the nine months ended September 30, 2020, totaled approximately $0.3
million. As of September 30, 2020, the weighted-average discount rate for the Company’s operating lease was 6.5%.
Leases
with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense is recognized on a straight-line
basis over the term of the lease. The Company accounts for lease components separately from the non-lease components. The depreciable
life of the assets and leasehold improvements are limited by the expected lease term.
Operating
lease future minimum payments together with the present values as of September 30, 2020, are summarized as follows:
Years Ending December 31,
|
|
September 30,
2020
|
|
2020
|
|
$
|
124
|
|
2021
|
|
|
513
|
|
2022
|
|
|
528
|
|
2023
|
|
|
544
|
|
2024
|
|
|
561
|
|
Thereafter
|
|
|
-
|
|
Total future minimum lease payments
|
|
|
2,270
|
|
Less amounts representing interests
|
|
|
(297
|
)
|
Present value of lease liability
|
|
|
1,973
|
|
|
|
|
|
|
Current-portion of operating lease liability
|
|
|
393
|
|
Long-term portion operating lease liability
|
|
$
|
1,580
|
|