SINTX Technologies, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts are in U.S. dollars; financial statement figures are generally in thousands unless noted.
Business context
SINTX develops and manufactures advanced ceramics, principally silicon nitride, for medical, industrial, armor and antipathogenic applications. Its product revenue was primarily from spinal-fusion products supplied to CTL Medical. In July 2021, the company acquired equipment and know-how to pursue ceramic armor products; the equipment was not yet in service at quarter-end.
Financial performance and position
- Revenue: Q3 product revenue was $239,000, up 262% from $66,000. Nine-month revenue was $441,000, down 8% from $478,000.
- Gross profit and margin: Q3 gross profit was $49,000, with a 21% margin versus 20%. Nine-month gross profit was $117,000, with a 27% margin versus 20%.
- Operating costs and losses: Q3 operating expenses rose 18% to $2.874 million; operating loss was $2.825 million. Net loss was $2.343 million versus $2.438 million. For nine months, operating expenses increased 28% to $8.146 million and net loss widened to $7.175 million from $5.297 million.
- Cash flow: Nine-month operating cash use was $7.747 million, compared with $7.056 million. Investing activities used $1.122 million, including $3.210 million of property and equipment purchases, partly offset by note-receivable collections. Financing provided $701,000, versus $30.941 million in the prior-year period, when equity offerings generated substantial proceeds.
- Liquidity: Cash and cash equivalents were $17.183 million at September 30, down from $25.351 million at December 31, 2020. Current assets were $18.146 million and current liabilities $3.153 million. Management said existing resources should fund operations for at least 12 months, through November 2022.
- Debt and leases: Balance-sheet debt totaled approximately $509,000, including the $500,000 2021 PPP loan at 1% interest; the loan may be forgiven subject to program requirements. The prior $400,000 PPP loan was forgiven, but the SBA may audit compliance through January 2027. Operating lease liabilities totaled $2.503 million.
Material changes and unusual items
- Q3 revenue increased mainly because of higher CTL Amedica orders; nine-month revenue declined primarily because of lower CTL orders. Management attributed improved nine-month gross margin partly to new customers with higher margins.
- Research and development spending rose 26% for the first nine months, reflecting additional personnel and outside work, including testing silicon nitride’s antiviral properties. Sales and marketing spending increased 112%, largely for new personnel and promotion of potential product lines.
- The company paid $2.5 million at closing for armor-related assets, with another $250,000 payable upon specified checkpoints. It planned to place the equipment in service by early 2022. A related industrial lease runs through October 2031.
- Q3 other income included a favorable change in the fair value of warrant derivative liabilities. The $818,000 derivative liability is a Level 3 fair-value estimate and was $1.238 million at year-end 2020. Nine-month results also included $391,000 of income from forgiveness of the prior PPP loan.
Outlook, risks and contingencies
Management expects continued operating losses and cash use. Continuing as a going concern depends on increasing sales and/or raising additional capital; the timing of profitability, positive operating cash flow or further financing is uncertain. A $15 million at-the-market equity distribution agreement was available, but no shares had been sold under it by September 30, 2021. The company is pursuing additional customers and applications for silicon nitride and developing armor products; no quantified revenue or earnings guidance was provided.
Management cited COVID-19 uncertainty, including potential effects on operations and access to capital. It said there were no material changes to previously disclosed risk factors. The company reported no known pending or threatened legal proceeding expected to have a material adverse effect and no off-balance-sheet arrangements. Disclosure controls were assessed as effective at quarter-end.
Key facts for investors to verify
- Whether CTL orders and new-customer revenue can grow enough to offset ongoing operating losses and cash burn.
- Cash runway assumptions, future financing needs, and any use of the $15 million ATM facility.
- Progress, commissioning timing, costs and commercial demand for the armor business and acquired equipment.
- Eligibility and status of forgiveness for the 2021 PPP loan, and any outcome of the prior PPP loan audit.
- Valuation assumptions for warrant derivative liabilities and potential share dilution from warrants, options and equity issuance.