SINTX Technologies, Inc. — Q3 2020 Form 10-Q
Business context and period: Unaudited results for the quarter and nine months ended September 30, 2020. SINTX develops and manufactures silicon nitride ceramics for medical and non-medical applications. Following its 2018 sale of its retail spine business, it primarily manufactures spine products for CTL Medical and is pursuing OEM and other applications.
Financial results and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Product revenue | $66,000 | $173,000 | $478,000 | $437,000 |
| Gross profit / margin | $13,000 / 20% | $22,000 / 13% | $96,000 / 20% | $73,000 / 17% |
| Operating expenses | $2.441 million | $1.722 million | $6.362 million | $5.026 million |
| Operating loss | $2.428 million | $1.700 million | $6.266 million | $4.953 million |
| Net loss | $2.437 million | $1.446 million | $5.296 million | $3.805 million |
| Net loss attributable to common stockholders | $2.511 million | $1.791 million | $14.861 million | $6.508 million |
| Basic loss per share attributable to common stockholders | $0.11 | $0.84 | $1.09 | $5.13 |
Amounts are in U.S. dollars; loss-per-share figures are shown as losses. The nine-month common-stockholder loss includes $9.565 million of deemed dividends and preferred-stock discount accretion, rather than solely operating losses.
- Cash and liquidity: Cash and equivalents were $27.050 million at September 30, 2020, versus $1.787 million at December 31, 2019. Current assets were $29.587 million and current liabilities $3.359 million. Total assets were $32.633 million; stockholders’ equity was $27.536 million.
- Cash flows, nine months: Operating activities used $7.055 million, compared with $4.879 million in 2019. Investing activities provided $1.377 million; financing activities provided $30.941 million. Cash increased by $25.263 million.
- Debt and obligations: Reported debt totaled $396,000 ($238,000 current and $158,000 long-term), including a $391,000 PPP loan. The equipment loan was paid off in Q3. Operating lease liabilities totaled approximately $1.973 million. Derivative liabilities were $1.600 million.
Changes versus prior comparable periods
- Q3 revenue fell 62%, which management attributed to reduced orders from CTL Medical. Nine-month revenue rose 9%, reflecting higher CTL orders and some non-medical sales.
- Operating expenses rose 42% in Q3 and 27% for the nine-month period. Research and development drove much of the increase, including new personnel, equipment, and external work testing potential antiviral properties.
- Q3 net loss increased to $2.437 million from $1.446 million; the nine-month net loss increased to $5.296 million from $3.805 million. Nine-month operating cash use also increased by $2.176 million.
- Capital raising substantially increased cash and equity but diluted shareholders: common shares outstanding were 24.551 million at quarter-end versus 2.434 million at December 31, 2019; 25.551 million were outstanding November 10, 2020.
Outlook, risks, and unusual items
- Management expected ongoing operating losses and operating cash use. It stated that existing capital and expected note-receivable payments would fund operations for at least 12 months, through November 2021; future profitability, positive operating cash flow, and additional financing remained uncertain.
- Management expected COVID-19 to adversely affect spine-product revenue for the remainder of 2020 and potentially longer. It cited reduced CTL orders, delayed collaboration discussions, and possible disruption to research, development, manufacturing, and access to capital.
- The company reported positive independent testing suggesting silicon nitride inactivated SARS-CoV-2 after exposure. This is a development opportunity, not established commercial guidance: SINTX cautioned that effectiveness, product integration, feasibility, and commercialization are not assured, and production for this purpose had not begun.
- Management is pursuing applications beyond spinal fusion, including other medical and non-medical uses, and plans to generate and publish supporting scientific and clinical data. No quantified revenue or earnings guidance was provided.
- Financing included a February rights offering with $9.4 million gross proceeds and four June–August registered direct offerings with approximately $20.9 million gross proceeds. The company had no remaining capacity under its $2.5 million ATM program at September 30.
- The $6 million noninterest-bearing note from the 2018 spine-business sale had a net carrying value of approximately $2.4 million at quarter-end; expected remaining cash proceeds were approximately $2.5 million, with maturity on October 1, 2021.
- The PPP loan may be forgiven subject to applicable requirements and lender/SBA approval; forgiveness was not assured. Warrants are measured using Level 3 valuation inputs, including high estimated volatility, creating fair-value variability.
- Management reported no known pending or threatened legal proceeding expected to have a material adverse effect, and stated disclosure controls were effective as of September 30, 2020.
Most important facts for investors to verify
- Whether CTL Medical orders recover and whether customer concentration continues to constrain revenue.
- Cash burn versus management’s stated funding runway through November 2021, including the timing and collectability of note-receivable payments.
- Progress, validation, regulatory or other requirements, and commercial prospects for antiviral and other non-spine applications; testing results alone do not establish marketable products.
- The effect of equity and warrant issuance on fully diluted share count, potential future dilution, and warrant-related derivative valuations.
- PPP loan forgiveness status and the remaining repayment obligations if any amount is not forgiven.