SINTX Technologies, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018; filed March 8, 2019. The filing is an annual report, not a standalone fourth-quarter report. The company changed its name from Amedica Corporation to SINTX Technologies in October 2018.
Business context and material changes
SINTX develops and manufactures silicon-nitride biomaterials, with a focus on medical and industrial applications. On October 1, 2018, it sold its retail spine business to CTL Medical and became CTL’s exclusive OEM manufacturer of silicon-nitride spinal products under a 10-year supply agreement. CTL acquired the spine product portfolio; SINTX retained its core silicon-nitride technology, manufacturing, R&D, and related intellectual property. The buyer assumed a $2.5 million related-party loan.
The company is now focused on manufacturing for CTL and pursuing OEM or private-label opportunities beyond spine, including dental and joint-replacement products. These candidates remain subject to development, partner, and regulatory risks. The company reported one operating segment.
Financial results and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Continuing-operations product revenue | $95,000 | $0 |
| Continuing-operations gross profit | $39,000 | $0 |
| Continuing-operations operating loss | $13.116 million | $7.485 million |
| Net loss | $8.652 million | $9.329 million |
| Net cash used in operating activities | $9.348 million | $4.680 million |
| Cash and cash equivalents at year-end | $5.447 million | $539,000 |
- FY2018 continuing revenue reflects only the post-sale fourth quarter; the filing classifies the former spine retail business as discontinued operations. Discontinued operations reported $6.222 million revenue and a $324,000 loss in 2018, compared with $11.227 million revenue and a $3.568 million loss in 2017.
- Continuing-operations gross margin was approximately 41% on the $95,000 of revenue, but this small post-transaction revenue base is not indicative of the former retail business.
- Total operating expenses were $13.155 million, including a $6.163 million goodwill impairment. Other income, net, was $3.427 million, including a $7.005 million gain from changes in derivative fair value, partly offset by interest, offering, and extinguishment costs.
- Net loss attributable to common stockholders was $22.552 million, including a $13.9 million deemed dividend related to preferred stock and warrants; basic loss per share attributable to common stockholders was $2.06.
- Operating cash use increased from 2017, despite the lower reported net loss. Financing activities provided $14.401 million in 2018, including preferred-stock and warrant-related proceeds. Investing activities used $145,000.
- At year-end, total assets were $11.515 million and total liabilities were $3.116 million. Reported debt was zero; derivative liabilities were $1.566 million. Cash was supplemented by a CTL note receivable with a reported net carrying value of $4.8 million, of which $1.084 million was current and $3.669 million long-term.
- The spine-business sale was for total consideration of $8.5 million, including a $6.0 million noninterest-bearing note receivable and assumption of the $2.5 million related-party loan. SINTX recognized a $1.361 million gain. The note is payable over 36 months; the filing estimates future cash receipts of $2.5 million over the first 18 months and $3.5 million over the following 18 months.
- Current assets were $7.017 million and current liabilities were $2.380 million. The filing reported an accumulated deficit of $229.281 million.
Outlook, risks, and unusual items
- Management expects continued operating losses and cash use. It cited increasing sales, cost reductions, and additional financing as necessary, but gave no quantified revenue, earnings, or cash-flow guidance. Additional financing is not assured and could be dilutive or carry restrictive terms.
- The auditor’s report and management both state that recurring losses and negative operating cash flows raise substantial doubt about SINTX’s ability to continue as a going concern. The financial statements contain no adjustments for the outcome of this uncertainty.
- CTL accounted for 100% of continuing-operations revenue in 2018; the 10-year agreement requires no minimum purchases. Reduced or delayed CTL orders could materially affect revenue.
- The company reported ineffective disclosure controls and internal control over financial reporting, citing material weaknesses in review and monitoring controls for complex accounting matters. Management said it was adding accounting expertise and considering additional review controls.
- SINTX received a Nasdaq bid-price deficiency notice in August 2018 and, on February 13, 2019, an additional 180-day period through August 12, 2019 to regain compliance. The company said a reverse split might be required.
- Other key risks include limited market acceptance, reliance on partners and suppliers, competition from larger device companies, regulatory and clinical uncertainty for new products, reimbursement pressures, product liability, and the need to protect intellectual property. The company disclosed no material pending legal proceedings.
- The business sale included an estimated sterilization and repackaging obligation of approximately $0.5 million for certain transferred inventory. The company also fully impaired goodwill in the third quarter.
Important facts for investors to verify
- CTL’s sales, purchase volumes, payment performance, and the collectability and timing of the $6.0 million sale note.
- Available cash runway, near-term financing needs, and whether additional funding has been secured on acceptable terms.
- Progress remediating the disclosed control weaknesses and any updates to the going-concern assessment.
- Nasdaq bid-price compliance and any reverse-stock-split decision.
- Regulatory, clinical, partnership, and funding milestones for products outside spine, and the costs required to pursue them.
- The treatment and potential dilution from preferred stock, warrants, and derivative liabilities; the filing reports substantial potential common-share equivalents.