SINTX TECHNOLOGIES, INC. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements for the year endedDecember 31, 2020 and the notes thereto, along with Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed separately with theU.S. Securities and Exchange Commission . This discussion and analysis contains forward-looking statements based upon current beliefs, plans, expectations, intentions and projections that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under the "Risk Factors" section of our Annual Report on Form 10-K for the year endedDecember 31, 2020 , and any updates to those risk factors filed from time to time in our Quarterly Reports on Form 10-Q and in other filings with theSecurities and Exchange Commission we may make from time-to-time. Overview
SINTX Technologies 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 is focused on building revenue generating opportunities in three business industries, 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. Since inception, we have been focused on development of medical grade silicon nitride for use in applications such as spinal fusion, hip and knee replacement and dental implants. The Company's products are biocompatible, bioactive, antipathogenic, and have shown superb bone affinity. Because of its inherent resistance to bacterial adhesion, it is an ideal material for use in interbody implants. Bacterial infection of any biomaterial implants is always a concern. Our silicon nitride is inherently resistant to bacterial colonization and biofilm formation, making it antibacterial. It is the belief of the Company that its grade of industrial silicon nitride also has the desired mechanical, thermal, and electrical properties for use as a technical ceramic material. It is a high-performance technical ceramic with high strength, toughness, and hardness, and is extremely resistant to thermal shock and impact. It is also an electrically insulating ceramic material. Typically, it is used in applications where high load-bearing capacity, thermal stability, and wear resistance are required. Armor solutions utilizing ceramics are commonly used to protect vehicles, personnel, aircraft, and marine vessels due to their lightweight and high hardness. We have entered the ceramic armor market through the purchase of assets fromB4C, LLC and a technology partnership withPrecision Ceramics USA . We will develop and manufacture high-performance ceramics for personnel, aircraft, and vehicle armor including a 100% Boron Carbide material for ultimate lightweight performance in ballistic applications, and a composite material made of Boron Carbide and Silicon Carbide, licensed fromPrecision Ceramics USA , for multi-hit performance against ballistic threats.
Today, there is a global need to improve protection against pathogens in
everyday life.
The Company presently manufactures advanced ceramic powders and components in
manufacturing facilities based in
Components of our Results of Operations
We manage our business within one reportable segment, which is consistent with how our management reviews our business, makes investment and resource allocation decisions and assesses operating performance.
17 Product Revenue We derive our product revenue primarily from the manufacture and sale of spinal fusion products used in the treatment of spine disorders to CTL, with whom we entered into a 10-year exclusive sales agreement inOctober 2018 . We are currently pursuing other sales opportunities for silicon nitride products outside the spinal fusion application and have shipped new orders for these products. We generally recognize revenue from sales where control transfers at a point in time as the title and risk of loss passes to the customer, which is at the time the product is shipped. In general, our customer does not have rights of return or exchange. We believe our product revenue will increase as CTL increases sales of silicon nitride spinal fusion products, as we secure other opportunities to manufacture third party products with silicon nitride, and as we continue to introduce
new products into the market. Cost of Revenue
The expenses that are included in cost of revenue include all in-house manufacturing costs for the products we manufacture.
Gross Profit Our gross profit measures our product revenue relative to our cost of revenue. We expect our gross profit percentage to decrease as we expand the penetration of our silicon nitride technology platform through OEM and private label partnerships, which offer additional avenues for the adoption of silicon nitride. Prior to the sale of our retail spine implant business, our revenues and gross profits were based on our retail sales. With the focus on OEM and private label partnerships, the margins are lower, thus causing the decrease in our gross profit percentage.
Research and Development Expenses
Our research and development costs are expensed as incurred. Research and development costs consist of engineering, product development, clinical trials, test-part manufacturing, testing, developing and validating the manufacturing process, manufacturing, facility and regulatory-related costs. Research and development expenses also include employee compensation, employee and non-employee stock-based compensation, supplies and materials, consultant services, and travel and facilities expenses related to research and development activities.
We expect to incur additional research and development costs as we continue to develop new spinal fusion products, develop armored plates from ceramic, product candidates for total joint replacements, dental applications, antipathogenic products, and other products which may increase our total research and development expenses.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation for certain members of our executive team and other personnel employed in finance, compliance, administrative, information technology, customer service, executive and human resource departments. General and administrative expenses also include other expenses not part of the other cost categories mentioned above, including facility expenses and professional fees for accounting and legal services.
18 RESULTS OF OPERATIONS The following is a tabular presentation of our unaudited condensed consolidated operating results for the three and nine month periods endedSeptember 30 ,
2021
and 2020 (in thousands):
Three Months Nine Months
Ended September 30, $ % Ended September 30, $ %
2021 2020 Change Change 2021 2020 Change Change
Product revenue $ 239 $ 66 $ 173 262 % $ 441 $ 478 $ (37 ) -8 %
Cost of revenue 190 53 137 258 % 324 382 (58 ) -15 %
Gross profit 49 13 36 277 % 117 96 21 22 %
Operating expenses:
Research and development 1,603 1,432 171 12 % 4,402 3,494 908 26 %
General and administrative 933 827 106 13 % 2,791 2,418 373 15 %
Sales and marketing 338 182 156 86 % 953 450 503 112 %
Total operating expenses 2,874 2,441 433 18 % 8,146 6,362 1,784 28 % Loss from operations (2,825 ) (2,428 ) (397 ) 16 % (8,029 ) (6,266 ) (1,763 ) 28 % Other income (expense) 482 (10 ) 492 4920 % 854 969 (115 ) -12 % Net loss before taxes (2,343 ) (2,438 ) 95
-4 % (7,175 ) (5,297 ) (1,878 ) 35 % Provision for income taxes
- - - - - -
Net loss $ (2,343 ) $ (2,438 ) $ 95 -4 % $ (7,175 ) $ (5,297 ) $ (1,878 ) 35 %
Product Revenue
For the three months ended September 30, 2021 , total product revenue was $0.24
million as compared to $0.07 million in the same period 2020, an increase of
$0.17 million , or 262%. This increase was largely due to increases in orders
from CTL Amedica.
For the nine months ended September 30, 2021 , total product revenue was $0.44
million as compared to $0.48 million in the same period 2020, a decrease of
$0.04 million , or 8%. This decrease was primarily due to a decrease in orders
from CTL Amedica.
Cost of Revenue and Gross Profit
For the three months endedSeptember 30, 2021 , our cost of revenue increased$0.14 million , or 258%, as compared to the same period in 2020. This increase is primarily attributed to the increase in product revenue, and the associated increase in costs of goods sold. Gross profit increased$0.04 million or 277%. This increase in gross profit is attributed to the increase in product revenue. Gross profit margin percentage totaled 21% and 20% for the three months endedSeptember 30 for 2021 and 2020, respectively. For the nine months endedSeptember 30, 2021 , our cost of revenue decreased$0.06 million , or 15%, as compared to the same period in 2020. Gross profit increased$0.02 million or 22%. The decrease in cost of revenue was directly related to the reduction in revenue. The increase in gross profit is a result of revenue to new customers with higher profit margins when compared to the prior year. Gross profit margin percentage totaled 27% and 20% for the nine months endedSeptember 30 for 2021 and 2020, respectively. 19
Research and Development Expenses
For the three months endedSeptember 30, 2021 , research and development expenses increased$0.2 million , or 12% as compared to the same period in 2020. This increase was primarily attributable to an overall increase in R&D activity to support the Company's strategic objective of developing new technologies and related products. For the nine months endedSeptember 30, 2021 , research and development expenses increased$0.9 million , or 26%, as compared to the same period in 2020. This increase was primarily attributable to an increase in R&D wages for new personnel and outside research activities related to testing the anti-viral properties of silicon nitride to support the Company's strategic objective of developing new technologies and related products.
General and Administrative Expenses
For the three months endedSeptember 30, 2021 , general and administrative expenses increased$0.1 million , or 13% as compared to the same period in 2020. This increase is primarily due to an increase in insurance costs and fees for outside consultants.
For the nine months ended
Sales and Marketing Expenses
For the three months endedSeptember 30, 2021 , sales and marketing expenses increased$0.2 million , or 86%, as compared to the same period in 2020. This increase was primarily attributable to an overall increase in marketing activities to generate interest in and exposure to the Company's potential
new product lines.
For the nine months endedSeptember 30, 2021 , sales and marketing expenses increased$0.5 million , or 112%, as compared to the same period in 2020. This increase was primarily attributable to an increase in sales and marketing wages for new personnel and an increase in marketing activities to generate interest in and exposure to the Company's potential new product lines. Other Income, Net
For the three months endedSeptember 30, 2021 , other income increased$0.5 million , or 4920%, as compared to the same period in 2020. This increase was primarily due to incurring a change in the fair value of the derivative liabilities in the amount of$0.8 million offset by a$0.1 million decrease in interest income and a$0.2 million gain on the reduction of accrued sterilization in the prior year. For the nine months endedSeptember 30, 2021 , other income decreased$0.1 million , or 12%, as compared to the same period in 2020. This decrease was primarily due to incurring a change in the fair value of the derivative liabilities in the amount of$1.5 million , a reduction in interest income of$0.2 million offset by offering costs of$1.2 million associated with theFebruary 2020 rights offering and a$0.4 million in PPP loan forgiveness in
the prior year.
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. 20
For the nine months endedSeptember 30, 2021 and 2020, the Company incurred a net loss of$7.2 million and a net loss of$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 ofSeptember 30, 2021 andDecember 31, 2020 , respectively. To date, the Company's operations have been principally financed from proceeds from the issuance of preferred and common stock and, to a lesser extent, cash generated from product sales. It is anticipated that the Company will continue to generate operating losses and use cash in operations. The Company's continuation as a going concern is dependent upon its ability to increase sales, and/or raise additional funds through the capital markets. Whether and when the Company can attain profitability and positive cash flows from operations or obtain additional financing is uncertain. The Company is actively generating additional scientific and clinical data to have it published in leading industry publications. The unique features of our silicon nitride material are not well known, and we believe the publication of such data would help sales efforts as the Company approaches new prospects. The Company is also making additional changes to the sales strategy, including a focus on revenue growth by expanding the use of silicon nitride in other areas outside of spinal fusion applications. For instance, results from an independent study demonstrated the potential anti-viral properties of our silicon nitride. We believe that we may be able to apply our silicon nitride powder to personal protection products, such as face masks, gowns and gloves, resulting in inactivation of viruses that come into contact with the items. The Company has common stock that is publicly traded and has been able to successfully raise capital when needed since the date of the Company's initial public offering inFebruary 2014 . OnFebruary 6, 2020 , the Company closed on a rights offering to its stockholders of units, consisting of convertible preferred stock and warrants, for gross proceeds of$9.4 million , which excludes underwriting discounts and commissions and offering expenses payable by the Company. Additionally, during the period ofJune 2020 throughAugust 2020 , the Company closed four registered direct offerings of shares of its common stock, priced at-the-market under Nasdaq rules, resulting in the issuance of a total of 11,015,000 shares of its common stock for gross proceeds of approximately$20.9 million , which excludes underwriting discounts and commissions and offering expenses payable by the Company. During the year endedDecember 31, 2019 , the Company entered into an ATM equity distribution agreement in which the Company could sell, from time to time, shares of common stock having an aggregate offering price of up to$2.5 million . The Company sold 527,896 shares during the year endedDecember 31, 2019 , raising approximately$1.7 million before considering issuance costs. During the year endingDecember 31, 2020 , the Company sold 354,381 shares of common stock, raising approximately$0.8 million before considering issuance costs. As a result of the sales during the first half of 2020 there are no longer any funds available to the Company under the ATM. OnFebruary 25, 2021 , the Company entered into an Equity Distribution Agreement (the "2021 Distribution Agreement") withMaxim Group LLC ("Maxim"), pursuant to which we may sell from time to time, shares of our common stock,$0.01 par value per share, having an aggregate offering price of up to$15.0 million through Maxim, as agent. No shares have been sold under the 2021 Distribution Agreement as ofSeptember 30, 2021 . OnOctober 1, 2018 , the Company sold the retail spine implant business to CTL Medical. The sale included a$6 million noninterest bearing note receivable payable over a 36-month term. CTL Medical has paid this note in full, and the Company does not expect any future cashflows associated with the note.
Management has concluded that its existing capital resources will be sufficient
to fund operations for at least the next 12 months, or through
Risks Related to COVID-19 Pandemic
The COVID-19 pandemic is affectingthe 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. 21 Cash Flows
The following table summarizes, for the periods indicated, cash flows from operating, investing and financing activities (in thousands) - unaudited:
Nine Months Ended September 30,
2021 2020Net cash used in operating activities$ (7,747 ) $ (7,056 ) Net cash provided by (used in) investing activities (1,122 )
1,378
Net cash provided by financing activities 701
30,941
Net cash provided (used) $ (8,168 ) $ 25,263 Net cash used in operating activities was$7.7 million during the nine months endedSeptember 30, 2021 , compared to$7.1 million used during the nine months endedSeptember 30, 2020 , an increase of$0.6 million . The increase in the net loss from operations, and related non-cash add backs to the net loss, was$0.8 million from 2021 when compared to 2020. The increase in cash used for operating activities during 2021 was primarily due to the$0.8 million mentioned above plus changes in the movement of working capital items during 2021 as compared to the same period in 2020 as follows: a$0.3 million increase in cash used for inventory,$0.1 million increase in cash used for prepaid expenses, and$0.2 million decrease in cash received from accounts receivable, offset by a$0.8 million decrease in cash used for accounts payable.
Net Cash Provided by Investing Activities
Net cash used in investing activities was$1.1 million during the nine months endedSeptember 30, 2021 compared to cash provided by investing activities of$1.4 million for the same period in 2020. The decrease of cash provided by investing activities of$2.5 million was primarily driven by the change in property and equipment of$2.9 million , offset by an increase in cash from
notes receivable of$0.4 million .
Net Cash Provided by Financing Activities
Net cash provided by financing activities was$0.7 million during the nine months endedSeptember 30, 2021 , compared to net cash provided by financing activities of$30.9 million during the same period in 2020. The$30.2 million decrease to net cash provided by financing activities was primarily attributable to 2020 proceeds from a offerings including$20.0 million less in proceeds in the issuance of common stock,$6.3 million less in proceeds from issuance of warrant derivative liabilities,$3.1 million less in proceeds from issuance of preferred stock, and$0.9 million less in proceeds from the issuance of common stock in connection with the exercise of warrants, offset by$0.1 million in additional proceeds from the issuance of debt related to PPP loans. Indebtedness 2020 PPP Loan
OnApril 28, 2020 , the Company received funding under a Paycheck Protection Program ("PPP") loan (the "PPP Loan") fromFirst 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 theU.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 onApril 28, 2020 and at least 60% of any forgiven amount has been used for covered payroll costs as defined by the CARES Act. OnJanuary 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 OnMarch 15, 2021 , the Company received funding under the SBA Second Draw Program under the Paycheck Protection Program ("2021 PPP") (the "2021 PPP Loan") fromFirst 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 onMarch 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 beforeFebruary 15, 2020 and utility payments arising under service agreements dated beforeFebruary 15, 2020 . 22
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined in Item 303(a)(4) of Regulation S-K.
Critical Accounting Policies and Estimates
A summary of our significant accounting policies and estimates is discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations and in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . There have been no material changes to those policies for the nine months endedSeptember 30, 2021 . The preparation of the condensed consolidated financial statements in accordance withU.S. generally accepted accounting principles requires us to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of assets and liabilities. Significant areas of uncertainty that require judgments, estimates and assumptions include the accounting for income taxes and other contingencies as well as valuation of derivative liabilities, asset impairment and collectability of accounts receivable. We use historical and other information that we consider to be relevant to make these judgments and estimates. However, actual results may differ from those estimates and assumptions that are used to prepare our condensed consolidated financial statements.
New Accounting Pronouncements
See discussion under Note 1, Organization and Summary of Significant Accounting Policies, to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q, for information on new accounting pronouncements.
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