SINTX Technologies, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet amounts are as of March 31, 2021. Financial statement amounts below are in millions unless otherwise noted.
Business context
SINTX develops, manufactures, and commercializes silicon nitride ceramics for medical and non-medical applications. Its principal product revenue comes from manufacturing spinal implants for CTL Amedica, its exclusive retail channel for silicon nitride spinal implants. The company is pursuing OEM and private-label opportunities in other medical and industrial markets.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Product revenue | $0.101 | $0.207; down 51% |
| Gross profit | $0.040 | $0.041 |
| Gross margin | 39.6% | 19.8% |
| Operating expenses | $2.881 | $1.895 |
| Operating loss | $2.841 | $1.854 |
| Net income (loss) | $(2.633) | $1.169 |
| Cash used in operations | $2.992 | $3.398 |
| Cash and cash equivalents | $23.471 | $25.351 at December 31, 2020 |
Cash from investing activities was $0.406 million and financing activities provided $0.706 million, resulting in a $1.880 million net cash decrease during the quarter. Current assets were $25.760 million and current liabilities were $3.205 million at quarter-end.
Total liabilities were $5.087 million, including $0.514 million of debt (current and long-term) and $1.782 million of operating lease liabilities. The $0.5 million 2021 PPP loan bears 1% interest, matures in 2026, and may be forgiven if program conditions are met. A prior $0.4 million PPP loan was forgiven in January 2021 and recorded as other income.
The company reported a $1.285 million derivative liability for warrants, valued using Level 3 inputs. It held a $1.316 million note receivable from CTL Medical, with approximately $1.4 million of expected remaining cash proceeds through its October 2021 maturity.
Material changes and unusual items
- Revenue fell by $0.106 million, primarily because of lower orders from CTL Amedica. Gross profit was nearly unchanged; management attributed this to higher-margin new revenue sources. Gross margin increased, while management cautioned that OEM and private-label expansion may lower gross-margin percentage over time.
- Research and development expense rose 60% to $1.595 million, general and administrative expense increased 31% to $1.000 million, and sales and marketing expense increased 109% to $0.286 million. Management cited increased development activity, consulting and payroll costs, and marketing efforts.
- Q1 2020 results included a $4.166 million gain from the change in fair value of warrant derivatives and $1.246 million of warrant-offering costs. Q1 2021 included a $0.391 million gain from forgiveness of the prior PPP loan and a $0.242 million derivative fair-value loss. These items contributed to the year-over-year swing from net income to net loss.
- Common shares outstanding increased to 24,684,574 at March 31, 2021 from 24,552,409 at December 31, 2020. The company entered into a new ATM agreement for up to $15 million; no shares had been sold under it by quarter-end.
Outlook, risks, and contingencies
Management expects continued operating losses and cash use. It says funding operations through at least May 2022 is expected from existing capital resources and payments on the CTL note receivable, while also stating that profitability, positive operating cash flow, and additional financing remain uncertain. The company’s ability to continue as a going concern depends on increasing sales and/or raising capital.
Management is expanding R&D and sales efforts beyond spinal fusion, including other medical and non-medical uses. It described an independent study as indicating potential anti-viral properties of silicon nitride, including inactivation of SARS-CoV-2 within a minute under study conditions; commercial applications remain prospective. COVID-19 could disrupt operations, third parties, and access to capital, with potentially material effects on liquidity and the business.
The company reported no known pending or threatened legal proceeding expected to have a material adverse effect and no material changes to previously disclosed risk factors. The SBA may audit compliance with the forgiven PPP loan through January 2027. Management reported disclosure controls were effective as of March 31, 2021 and no material change in internal control over financial reporting during the quarter.
Investor verification points
- Whether CTL Amedica orders and revenue from new OEM or non-spine products recover and diversify the small revenue base.
- Cash burn, remaining liquidity, expected CTL note payments, and the conditions and potential dilution associated with the $15 million ATM facility.
- Eligibility for forgiveness of the 2021 PPP loan and compliance with the terms of the previously forgiven loan.
- Evidence supporting the commercial, regulatory, and clinical prospects of silicon nitride applications, including anti-viral claims.
- Changes in warrant derivative valuation and the potential impact of outstanding warrants, options, and other securities on dilution.