SINTX Technologies, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Amounts below are in millions unless otherwise stated. SINTX develops and manufactures silicon nitride ceramics for medical and non-medical applications, primarily as an OEM supplier. It sold its retail spine business in 2018 and manufactures silicon nitride spine products for CTL Medical, its sole spine-products customer.
Financial results and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Product revenue | $0.204 | $0.167 | $0.411 | $0.264 |
| Gross profit / margin | $0.041 / 20% | $0.034 / 20% | $0.082 / 20% | $0.052 / 20% |
| Operating expenses | $2.025 | $1.556 | $3.920 | $3.304 |
| Loss from operations | $(1.984) | $(1.522) | $(3.838) | $(3.252) |
| Net loss | $(4.028) | $(0.730) | $(2.859) | $(2.359) |
| Net loss attributable to common stockholders | $(4.235) | $(3.088) | $(12.350) | $(4.717) |
At June 30, cash and cash equivalents were $18.125 million, versus $1.787 million at December 31, 2019. Current assets were $20.844 million and current liabilities $3.466 million. Total assets were $24.585 million; total liabilities were $5.389 million. Balance-sheet debt was $0.421 million, alongside operating lease liabilities of $2.065 million. Stockholders’ equity was $19.196 million and accumulated deficit was $236.937 million.
For the first half, operating cash use was $4.938 million, investing activities provided $0.867 million, and financing activities provided $20.409 million, producing a $16.338 million increase in cash. Financing included a February rights offering, June common-stock offerings, warrant exercises and a PPP loan. The company reported no income tax provision.
Changes versus comparable periods
- Q2 revenue increased 22%; first-half revenue increased 56%, largely from higher orders from CTL Medical and some non-medical orders. Gross margin remained 20% in both periods.
- Operating expenses rose 30% in Q2 and 19% in the first half. Research and development spending increased, including personnel and work relating to silicon nitride’s potential antiviral properties.
- Q2 net loss widened substantially, chiefly reflecting a $2.128 million expense from the fair-value change in warrant derivative liabilities; the prior-year quarter recorded a $0.631 million gain. For the first half, derivative fair-value changes contributed $2.037 million of income, while $1.246 million of offering costs were recorded.
- First-half cash used in operations increased to $4.938 million from $3.333 million. Common shares outstanding increased from 2.434 million at year-end to 19.431 million at June 30, reflecting equity issuance, warrant exercises and preferred-stock conversions.
Outlook, risks and notable items
- Management expected operating losses and operating cash use to continue. It said existing resources and expected note-receivable collections would fund operations for at least 12 months, through August 2021; profitability, positive operating cash flow and access to future financing remained uncertain. The filing gives no formal revenue or earnings guidance.
- Management expected COVID-19 to adversely affect spine-product revenue in the second half of 2020 and potentially longer. The filing cites reduced sales to CTL Medical, delays in collaborator discussions and research activities, and risks to financing and operations.
- An independent study produced results that management described as suggesting silicon nitride could inactivate SARS-CoV-2 after exposure. This was an early-stage opportunity, not an established commercial product: the company cautioned that effectiveness, product integration, feasibility and commercialization were uncertain, and production for this purpose had not begun.
- The company reported three prototype industrial-product shipments totaling $7,000 in Q2. It is pursuing OEM and private-label opportunities beyond spinal fusion; management said these channels may carry lower margins.
- In February, the rights offering raised $9.4 million gross. June registered direct offerings issued 6.1 million common shares for approximately $9.6 million gross. After quarter-end, the company raised a further $3.0 million gross on July 16 and $8.2 million gross on August 7 through registered direct offerings. These amounts are before offering costs.
- The company expected approximately $3.1 million of remaining cash proceeds over 16 months from the CTL Medical note receivable, which matures October 1, 2021. The $0.391 million PPP loan may be forgiven subject to eligibility, use-of-proceeds requirements and lender/SBA approval; the company must apply for forgiveness.
- Warrant derivative liabilities were $1.503 million at June 30, measured using Level 3 valuation inputs. Fair-value movements can materially affect reported earnings. The filing also warns that trading volume and equity offerings may trigger a PPP-loan default.
- On July 9, 2020, Nasdaq notified SINTX that it had regained compliance with the minimum bid-price requirement. Management reported effective disclosure controls as of June 30. It reported no material pending legal proceedings and no material changes to previously disclosed risk factors other than those discussed in the filing.
Key facts investors should verify
- Whether CTL Medical orders and other product sales recover or remain affected by COVID-19, and the extent of customer concentration.
- Actual cash burn, note-receivable collections and the adequacy of liquidity relative to management’s stated funding horizon.
- Terms, net proceeds and dilution from the 2020 equity and warrant transactions, including the post-quarter offerings and potential warrant conversions or exercises.
- PPP-loan compliance, any default implications and the outcome of a forgiveness application.
- Independent validation, regulatory or product-development progress, and commercial evidence for proposed antiviral and other non-spine applications.
- The impact of Level 3 warrant valuation changes on earnings and the company’s ability to improve margins while expanding OEM sales.