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 ended December 31, 2021 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 ended
December 31, 2021, filed separately with the U.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 ended December 31, 2021, 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 the Securities and Exchange Commission we may make from
time-to-time.
Overview
We are an advanced materials company that develops and commercializes advanced
ceramics for biomedical, industrial, and antipathogenic applications. The core
strength of SINTX Technologies is the manufacturing, research, and development
of advanced ceramics for external partners.
Biomedical Applications: Since its inception, SINTX has been focused on medical
grade silicon nitride. SINTX products are biocompatible, bioactive,
antipathogenic, and have shown superb bone affinity. Spinal implants made from
SINTX silicon nitride have been successfully implanted in humans since 2008 in
the US, Europe, Brazil, and Taiwan. This established use, along with its
inherent resistance to bacterial adhesion and bone affinity - mean that it may
also be suitable in other fusion device applications such as hip, knee and
dental implants. Bacterial infection of any biomaterial implants is always a
concern. SINTX silicon nitride is inherently resistant to bacterial colonization
and biofilm formation, making it antibacterial. SINTX silicon nitride products
can be polished to a smooth and wear-resistant surface for articulating
applications, such as bearings for hip and knee replacements.
We believe that silicon nitride has a superb combination of properties that make
it suited for long-term human implantation. Other biomaterials are based on bone
grafts, metal alloys, and polymers- all of which have well-known practical
limitations and disadvantages. In contrast, silicon nitride has a legacy of
success in the most demanding and extreme industrial environments. As a human
implant material, silicon nitride offers bone ingrowth, resistance to bacterial
and viral infection, ease of diagnostic imaging, resistance to corrosion, and
superior strength and fracture resistance, among other advantages, all of which
claims are validated in our large and growing inventory of peer-reviewed,
published literature reports. We believe that our versatile silicon nitride
manufacturing expertise positions us favorably to introduce new and innovative
devices in the medical and non-medical fields.
Industrial Applications: It is the belief of SINTX that its silicon nitride has
the best combination of mechanical, thermal, and electrical properties of any
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. The Company has obtained AS9100D certification
and ITAR registration to facilitate entry into the aerospace portion of this
market.
SINTX has recently entered the ceramic armor market through the purchase of
assets from B4C, LLC and a technology partnership with Precision Ceramics USA.
SINTX intends to 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 for exceptional multi-hit
performance against ballistic threats. SINTX has signed a 10-year lease at a
building near its headquarters in Salt Lake City, UT to house development and
manufacturing activities for SINTX Armor.
Antipathogenic Applications: Today, there is a global need to improve protection
against pathogens in everyday life. SINTX believes that by incorporating its
unique composition of silicon nitride antipathogenic powder into products such
as face masks, filters, and wound care devices, it is possible to manufacture
surfaces that inactivate pathogens, thereby limiting the spread of infection and
disease. The discovery in 2020 that SINTX silicon nitride inactivates
SARS-CoV-2, the virus which causes the disease COVID-19, has opened new markets
and applications for our material and we have refocused many of our resources on
these opportunities.
SINTX presently manufactures advanced ceramic powders and components in our
manufacturing facilities based in Salt Lake City, Utah.
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.
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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 in October 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. In 2021, we made progress in diversifying our revenue by selling a
composite product of silicon nitride and PEEK as well as products for the
industrial silicon nitride market, the ceramic armor market, and for the
antipathogenic market. 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 we secure opportunities to
manufacture third party products with silicon nitride, launch and generate
revenue from our ceramic armor products, and as we continue to introduce new
products into the market.
We derive grant revenue from grants and awards provided by governmental
agencies.
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 medical devices, industrial and ceramic armor products, product
candidates for antipathogenic applications, 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.
19
RESULTS OF OPERATIONS
The following is a tabular presentation of our unaudited condensed consolidated
operating results for the three months ended March 31, 2022 and 2021 (in
thousands):
Three Months Ended
March 31,
2022 2021 $ Change % Change
Product revenue $ 101 $ 101 $ 0 0 %
Grant revenue 28 - 28 100 %
Total revenue 129 101 28 28 %
Costs of revenue 80 61 19 31 %
Gross profit 49 40 9 23 %
Operating expenses:
Research and development 1,653 1,595 58 4 %
General and administrative 856 1,000 (144 ) -14 %
Sales and marketing 394 286 108 38 %
Grant expenses 26 - 26 100 %
Total operating expenses 2,929 2,881 48 2 %
Loss from operations (2,880 ) (2,841 ) (39 ) 1 %
Other income, net 35 208 (173 ) -83 %
Net income (loss) before income taxes (2,845 ) (2,633 ) (212 ) 8 %
Provision for income taxes - - - N/A
Net income (loss) (2,845 ) (2,633 ) (212 ) 8 %
Revenue
For the three months ended March 31, 2022, and 2021 total product revenue was
relatively unchanged at $0.1 million. During the quarter ended March 31, 2022
the Company received grant revenue of $0.03 million. Grant revenue did not exist
during the same period of the prior year.
Cost of Revenue and Gross Profit
For the three months ended March 31, 2022, our cost of revenue did not
significantly change as compared to the same period in 2021.
Research and Development Expenses
For the three months ended March 31, 2022, research and development expenses
increased $0.1 million, or 4%, as compared to the same period in 2021. This
increase was primarily attributable to a general increase in products and
services due to price inflation.
General and Administrative Expenses
For the three months ended March 31, 2022, general and administrative expenses
decreased $0.1 million, or 14%, as compared to the same period in 2021. This
decrease is primarily due to the decrease in external consulting costs and
patent application expenses.
20
Sales and Marketing Expenses
For the three months ended March 31, 2022, sales and marketing expenses
increased $0.1 million, or 38%, as compared to the same period in 2021. 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.
Grant Expenses
For the three months ended March 31, 2022, the Company incurred grant expenses
of less than $0.1 million. The Company had no grant expenses for the same period
in 2021 due to the Company being awarded federal grant income subsequent to the
first quarter of 2021 (and incurring related grant expense during 2022 and
incurring none during 2021).
Other Income, Net
For the three months ended March 31, 2022, other income decreased $0.2 million,
or 83%, as compared to the same period in 2021. This decrease was primarily due
to other income of $0.4 million associated with the forgiveness of the 2020 PPP
Loan in the prior year, which was partially offset in the prior year by the
incurring of a change in the fair value of the derivative liabilities in the
amount of $0.2 million.
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 three months ended March 31, 2022, and 2021 , the Company incurred a net
loss of $2.8 million and $2.6 million, respectively, and used cash in operating
activities of $3.2 million and $3.0 million, respectively. The Company had an
accumulated deficit of $253.3 million and $250.4 million as of March 31, 2022,
and December 31, 2021, respectively. To date, the Company's operations have been
principally financed from proceeds from the issuance of preferred and common
stock and, to a lesser extent, cash generated from product sales. It is
anticipated that the Company will continue to generate operating losses and use
cash in 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 in February 2014.
On February 25, 2021, the Company entered into an Equity Distribution Agreement
(the "2021 Distribution Agreement") with Maxim Group LLC ("Maxim"), pursuant to
which we may sell from time to time, shares of its our common stock, $0.01 par
value per share, having an aggregate offering price of up to $2.0 million
through Maxim, as agent. No shares have been sold under the 2021 Distribution
Agreement as of March 31, 2022.
21
On October 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.
Although the Company is seeking to obtain additional equity and/or debt
financing, such funding is not assured and may not be available to the Company
on favorable or acceptable terms and may involve significant restrictive
covenants. Any additional equity financing is also not assured and, if available
to the Company, will most likely be dilutive to its current stockholders. If the
Company is not able to obtain additional debt or equity financing on a timely
basis, the impact on the Company will be material and adverse.
These uncertainties create substantial doubt about our ability to continue as a
going concern. The condensed consolidated financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
Risks Related to COVID-19 Pandemic
The COVID-19 pandemic is affecting the United States and global economies and
may affect the Company's operations and those of third parties on which the
Company relies. In response to the spread of COVID-19 and to ensure safety of
employees and continuity of business operations, we temporarily restricted
access to the 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.
Correction of an Immaterial Error
Subsequent to March 31, 2022, the Company identified an error related to the
removal of a loan obligation and the recording of other income for forgiveness
of debt totaling approximately $0.5 million, which forgiveness was recorded on
November 24, 2021. The Company has determined that the Company should not have
removed the loan obligation and recorded approximately $0.5 million of other
income in the financial statements as of December 31, 2021, and for the year
then ended. The error affected the 2021 net loss attributable to common
stockholders and net loss per share-basic and diluted. The error also affected
total liabilities and accumulated deficit (and total stockholders' equity) as of
December 31, 2021. The error did not affect 2021 cash flows from operating
activities and total cash flow. The December 31, 2021, consolidated balance
sheet and the December 31, 2021, balance in the statement stockholders' equity
contained in these financial statements have been restated. The change resulted
a reduction of stockholders' equity of $0.5 million as of December 31, 2021.
Cash Flows
The following table summarizes, for the periods indicated, cash flows from
operating, investing and financing activities (in thousands) - unaudited:
Three Months Ended March 31,
2022 2021
Net cash used in operating activities $ (3,180 ) $ (2,992 )
Net cash provided by (used in) investing activities (230 ) 406
Net cash provided by financing activities - 706
Net decrease in cash $ (3,410 ) $ (1,880 )
22
Net Cash Used in Operating Activities
Net cash used in operating activities was $3.2 million during the three months
ended March 31, 2022, compared to $3.0 million used during the three months
ended March 31, 2021, an increase of $0.2 million. The increase in cash used for
operating activities during 2022 was primarily due to changes in the movement of
working capital items during 2022 as compared to the same period in 2021 as
follows: a $0.5 million increase in cash used in accounts payable, offset by a
$0.2 million decrease in cash used in prepaid expenses. The decrease in the net
loss for operations, and related non-cash add backs to the net loss, was $0.1
million from 2022 when compared to 2021.
Net Cash Provided by (Used in) Investing Activities
Net cash used in investing activities was $0.2 million during the three months
ended Monarch 31, 2022, compared to $0.4 million provided by investing
activities during the same period in 2021, a decrease of $0.6 million. The
decrease in cash provided in investing activities during 2022 was primarily due
to the decrease in cash received of $0.6 million from the proceeds from notes
receivable in 2021.
Net Cash Provided by Financing Activities
There was no cash provided by financing activities during the three months ended
March 31, 2022, compared to $0.7 million during the same period in 2021. The
$0.7 million decrease to net cash provided by financing activities was primarily
attributable to $0.5 million in proceeds from a PPP loan and $0.2 million in
proceeds from the exercise of warrants for cash in the prior year.
Indebtedness
2020 PPP Loan
On April 28, 2020, the Company received funding under a Paycheck Protection
Program ("PPP") loan (the "PPP Loan") from First State Community Bank (the
"Lender"). The principal amount of the PPP Loan was $0.4 million. The PPP was
established under the Coronavirus Aid, Relief, and Economic Security Act (the
"CARES Act") and is administered by the U.S. Small Business Administration (the
"SBA"). Loans made under the PPP may be partially or fully forgiven if the
recipient complies with the provisions of the CARES Act, including the use of
PPP Loan proceeds for payroll costs, rent, utilities and other expenses,
provided that such amounts are incurred during a 24-week period that commenced
on April 28, 2020 and at least 60% of any forgiven amount has been used for
covered payroll costs as defined by the CARES Act. On January 5, 2021, the
Lender provided notice to the Company that the principal amount and accrued
interest had been forgiven. The Company removed the PPP Loan obligation and
recorded other income for forgiveness of debt totaling $0.4 million. The SBA has
until January of 2027 to audit the Company's compliance with the CARES Act
relating to the PPP Loan.
2021 PPP Loan
On March 15, 2021, the Company received funding under the SBA Second Draw
Program under the Paycheck Protection Program ("2021 PPP") (the "2021 PPP Loan")
from the Lender. The principal amount of the 2021 PPP Loan is $0.5 million. The
Company received notice on November 24, 2021, that the principal amount and
accrued interest had been forgiven. The Company removed the 2021 PPP Loan
obligation and recorded other income for forgiveness of debt totaling $0.5
million.
Since receiving the 2021 PPP Loan and learning that the principal amount of the
loan and accrued interest had been forgiven, The Company has determined that the
Company should not have removed the loan obligation and recorded approximately
$0.5 million of other income in the financial statements as of December 31,
2021, and for the year then ended. As a result, the Company will repay the loan
together with processing fees and interest.
23
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 ended December 31, 2021. There have
been no material changes to those policies for the three months ended March 31,
2022. The preparation of the consolidated financial statements in accordance
with U.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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SINTX TECHNOLOGIES, INC. 
