NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
Organization and Summary of Significant Accounting Policies
Organization
SINTX Technologies, Inc. (previously known
as Amedica Corporation) was incorporated in the state of Delaware on December 10, 1996. SINTX Technologies, Inc. is a materials
company focused on developing, manufacturing and selling silicon nitride ceramics that are used in medical implants and in a variety
of industrial devices. At present, SINTX Technologies, Inc. commercializes silicon nitride in the spine implant market and believes
that its silicon nitride manufacturing expertise positions it favorably to introduce new and innovative products in the medical
and non-medical fields. SINTX Technologies, Inc. also believes that it is the first and only company to commercialize silicon
nitride medical implants. SINTX Technologies, Inc. acquired ST Sub, Inc. (previously known as “US Spine, Inc.”)
(“ST Sub”), a Delaware spinal products corporation with operations in Florida, on September 20, 2010. SINTX Technologies,
Inc. and ST Sub are collectively referred to as “SINTX” or “the Company” in these condensed consolidated
financial statements. The Company’s products are sold primarily in the United States.
Basis
of Presentation
These
unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the United
States Securities and Exchange Commission (“SEC”) and include all assets and liabilities of SINTX Technologies,
Inc. and its wholly-owned subsidiary, ST Sub. All material intercompany transactions and balances have been eliminated
in consolidation. SEC rules and regulations allow the omission of certain information and note disclosures normally included in
financial statements prepared in accordance with accounting principles generally accepted in the United States, so long as the
statements are not misleading. In the opinion of management, these financial statements and accompanying notes contain all adjustments
(consisting of normal recurring adjustments) necessary to present fairly the financial position and results of operations for
the periods presented herein. These condensed consolidated financial statements should be read in conjunction with the consolidated
audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2017, filed with the SEC on March 29, 2018. The results of operations for the nine months ended September 30, 2018
are not necessarily indicative of the results to be expected for the year ending December 31, 2018. The Company’s significant
accounting policies are set forth in Note 1 to the consolidated financial statements in its Annual Report on Form 10-K for the
year ended December 31, 2017.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S.
GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue
and expenses during the periods then ended. Actual results could differ from those estimates. The most significant estimates relate
to inventory, stock-based compensation, long-lived and intangible assets and the liability for preferred stock and common stock
warrants.
Liquidity
and Capital Resources
The
condensed consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern,
which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include
any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications
of liabilities that may result from uncertainty related to its ability to continue as a going concern within one year from the
date of issuance of these condensed consolidated financial statements.
For
the nine months ended September 30, 2018 and 2017, the Company incurred net losses of $9.0 million and $4.3 million, respectively,
and used cash in operations of $8.0 million and $4.4 million, respectively. The Company had an accumulated deficit of $229.6 million
and $220.6 million as of September 30, 2018 and December 31, 2017, respectively. To date, the Company’s operations have
been principally financed by proceeds received from the issuance of preferred and common stock, convertible debt and bank debt
and, to a lesser extent, cash generated from product sales. It is anticipated that the Company will continue to generate operating
losses and use cash in operating activities. The Company’s continuation as a going concern is dependent upon its ability
to increase sales, develop new products, implement cost saving measures and/or raise additional funds through the capital
markets. Whether and when the Company can attain profitability and positive cash flows from operating activities or obtain additional
financing is uncertain. These uncertainties create substantial doubt about our ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
In
2016, the Company implemented certain cost saving measures, including workforce and office space reductions, and will continue
to evaluate additional cost savings alternatives during 2018. These additional cost savings measures may include additional workforce
and research and development reductions, as well as cuts to certain other operating expenses. In addition to these cost-saving
measures, the Company is actively generating additional scientific and clinical data to have it published in leading industry
publications. The unique features of the Company’s silicon nitride material are not well known, and the Company believes
that the publication of such data would help sales efforts as the Company approaches new prospects. On October 1, 2018, the
Company sold the retail spine business (see Note 11). This sale will provide cash flows totaling $2.5million over the next eighteen
months and $3.5 million for the following eighteen months. The buyer also assumed the Company’s $2.5 million related party
note payable.
The
Company has common stock that is publicly traded and has been able to successfully raise capital when needed since the date of
the Company’s initial public offering. The Company has engaged in discussions with investment and banking firms to examine
financing alternatives, including options to encourage the exercise of outstanding warrants. In March 2018, the Company closed
on gross proceeds of $1.4 million, before payment of placement agent fees and costs on a warrant reprice and exercise transaction
(see Note 8). Additionally, on May 14, 2018, we closed on a public offering of units, consisting of convertible preferred stock
and warrants, for gross proceeds of $15.0 million, which excludes underwriting discounts and commissions and offering expenses
payable by the Company.
Reverse
Stock Split
On
November 10, 2017, the Company effected a 1 for 12 reverse stock split of the Company’s common stock. The par value and
the authorized shares of the common and convertible preferred stock were not adjusted as a result of the reverse stock split.
All common stock share and per-share amounts for all periods presented in these condensed consolidated financial statements have
been adjusted retroactively to reflect the reverse stock split.
Significant
Accounting Policies
There
have been no significant changes to the Company’s significant accounting policies as described in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2017.
New
Accounting Pronouncements Not Yet Adopted
In August 2016, the Financial Accounting
Standards Board (“FASB”) updated accounting guidance on the following eight specific cash flow classification
issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments
with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent
consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from
the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received
from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows
and application of the predominance principle. Under existing U.S. GAAP, there is no specific guidance on the eight cash flow
classification issues aforementioned. These updates are effective for the Company for its annual period beginning January 1, 2019,
and interim periods therein, with early adoption permitted. The guidance in this standard is not expected to have a material impact
on the financial statements of the Company.
In
February 2016, the FASB updated the accounting guidance related to leases as part of a joint project with the International Accounting
Standards Board (“IASB”) to increase transparency and comparability among organizations by recognizing lease assets
and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under the new guidance,
a lessee will be required to recognize assets and liabilities for capital and operating leases with lease terms of more than 12
months. Additionally, this update will require disclosures to help investors and other financial statement users better understand
the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. The
standard is effective for the Company for its annual period beginning January 1, 2020, and interim periods therein, with early
adoption permitted. The Company is currently evaluating the potential impact this new standard may have on its financial statements
but believes the most significant change will relate to building leases.
In
May 2014, in addition to several amendments issued during 2016, the FASB updated the accounting guidance related to revenue from
contracts with customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle
is that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects
the consideration to which an entity expects to be entitled for those goods or services. The standard defines a five-step process
to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process
than are required under existing U.S. GAAP. The standard is effective for the Company for its annual period beginning January
1, 2019, and interim periods therein, and shall be applied either retrospectively to each period presented or as a cumulative-effect
adjustment as of the date of adoption. The guidance in this standard is not expected to have a material impact on the financial
statements of the Company.
The
Company has reviewed all other recently issued, but not yet adopted, accounting standards, in order to determine their effects,
if any, on its results of operations, financial position or cash flows. Based on that review, the Company believes that no other
pronouncements will have a significant effect on its financial statements.
New
Accounting Pronouncements Adopted During the Nine Months Ended September 30, 2018
The Company early adopted ASU 2017-04
Intangibles—Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment
. The amendments in this guidance eliminate the requirement to calculate the implied fair value
of goodwill used to measure goodwill impairment charge (Step 2). As a result, an impairment charge will equal the amount by which
a reporting unit’s carrying amount exceeds its fair value, not to exceed the amount of goodwill allocated to the reporting
unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative
impairment test is necessary. The amendment should be applied on a prospective basis. The Company recorded goodwill impairment
during the quarter ended September 30, 2018, as the Company’s carrying value exceeded market capitalization.
In
March 2016, the FASB updated the accounting guidance related to stock compensation. This update simplifies the accounting for
employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding
requirements, as the well as classification in the statement of cash flows. The standard was effective for the Company
for its annual period beginning January 1, 2018. The guidance in this standard did not have a material impact on the financial
statements of the Company.
The
Company early adopted
ASU 2017-11 - Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives
and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement
of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception.
This update changed the classification analysis of certain equity-linked
financial instruments (or embedded features) with down round features. When determining whether certain financial instruments
should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when
assessing whether the instrument is indexed to an entity’s own stock. As a result, a freestanding equity-linked financial
instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result
of the existence of a down round feature. The adoption of this update did not change the accounting conclusions related to any
instruments issued prior to the adoption of this update as of January 1, 2018.
2.
Basic and Diluted Net Loss per Common Share
Basic
net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the
period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss
by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method.
Dilutive common stock equivalents are primarily comprised of warrants for the purchase of common stock, Series B Convertible Preferred
stock and stock options. For all periods presented, there is no difference in the number of shares used to calculate basic and
diluted shares outstanding because their effect would have been anti-dilutive due to the Company reporting a net loss. The Company
had potentially dilutive securities, shares of common stock, totaling approximately 22.9 million and 1.5 million as of September
30, 2018 and 2017, respectively.
3.
Inventories, net
Inventories
consisted of the following (in thousands):
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Raw materials
|
|
$
|
682
|
|
|
$
|
740
|
|
WIP
|
|
|
135
|
|
|
|
52
|
|
Finished goods inventories held for sale
|
|
|
1,708
|
|
|
|
1,585
|
|
|
|
$
|
2,525
|
|
|
$
|
2,377
|
|
4.
Intangible Assets
Intangible
assets consisted of the following (in thousands):
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Trademarks
|
|
|
50
|
|
|
|
-
|
|
Intangible assets held for sale
|
|
|
9,587
|
|
|
|
9,587
|
|
|
|
|
9,637
|
|
|
|
9,587
|
|
Less: accumulated amortization
|
|
|
(7,340
|
)
|
|
|
(6,936
|
)
|
|
|
$
|
2,297
|
|
|
$
|
2,651
|
|
Amortization
expense is expected to be approximately $1 thousand for the remainder of 2018 and $5 thousand a year for 2019 through 2028.
5.
Fair Value Measurements
Financial
Instruments Measured and Recorded at Fair Value on a Recurring Basis
The
Company has issued certain warrants to purchase shares of common stock, which are considered derivative liabilities because they
have registration rights which could require a cash settlement and are re-measured to fair value at each reporting period in accordance
with accounting guidance. Fair value is based on the price that would be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date, under a three-tier fair value hierarchy
which prioritizes the inputs used in measuring fair value as follows:
|
Level
1 -
|
quoted
market prices for identical assets or liabilities in active markets.
|
|
|
|
|
Level
2 -
|
observable
prices that are based on inputs not quoted on active markets but corroborated by market data.
|
|
|
|
|
Level
3 -
|
unobservable
inputs reflecting management’s assumptions, consistent with reasonably available assumptions made by other market participants.
These valuations require significant judgment.
|
The
Company classifies assets and liabilities measured at fair value in their entirety based on the lowest level of input that is
significant to their fair value measurement. No financial assets were measured on a recurring basis as of September 30, 2018 and
December 31, 2017. The following tables set forth the financial liabilities measured at fair value on a recurring basis by level
within the fair value hierarchy as of September 30, 2018 and December 31, 2017:
|
|
Fair Value Measurements as of September 30, 2018
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Derivative liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,071
|
|
|
$
|
2,071
|
|
|
|
Fair
Value Measurements as of December 31, 2017
|
|
Description
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Derivative
liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,357
|
|
|
$
|
1,357
|
|
The
Company did not have any transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy
during the nine months ended September 30, 2018 and 2017.
|
|
Common Stock
Warrants
|
|
Balance as of December 31, 2016
|
|
$
|
(3,665
|
)
|
Issuances of warrants classified as derivatives
|
|
|
(810
|
)
|
Change in fair value
|
|
|
2,938
|
|
Balance as of September 30, 2017
|
|
$
|
(1,537
|
)
|
|
|
|
|
|
Balance as of December 31, 2017
|
|
$
|
(1,357
|
)
|
Issuances of warrants classified as derivatives
|
|
|
(7,577
|
)
|
Change in fair value
|
|
|
6,500
|
|
Exercise of warrants
|
|
|
575
|
|
Other, net
|
|
|
(212
|
)
|
Balance as of September 30, 2018
|
|
$
|
(2,071
|
)
|
Common
Stock Warrants
The
Company has issued certain warrants to purchase shares of common stock, which are considered derivative liabilities because they
have registration rights which could require a cash settlement and are re-measured to fair value at each reporting period in accordance
with accounting guidance. As of September 30, 2018, and December 31, 2017, $0.02 million and $0.5 million, respectively,
of the derivative liability was calculated using the Black-Scholes-Merton valuation model. As of September 30, 2018, and December
31, 2017, $2.0 million and $0.9 million of the derivative liability was calculated using the Monte Carlo Simulation valuation
model.
The
assumptions used in estimating the common stock warrant liability using the Black-Scholes-Merton valuation model as of September
30, 2018 and December 31, 2017 were as follows:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Weighted-average risk-free interest rate
|
|
|
2.58
|
%
|
|
|
1.89
|
%
|
Weighted-average expected life (in years)
|
|
|
1.3
|
|
|
|
1.9
|
|
Expected dividend yield
|
|
|
-
|
%
|
|
|
-
|
%
|
Weighted-average expected volatility
|
|
|
153
|
%
|
|
|
107
|
%
|
The
assumptions used in estimating the common stock warrant liability using the Monte Carlo Simulation valuation model as of September
30, 2018 and December 31, 2017 were as follows:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Weighted-average risk-free interest rate
|
|
|
2.88
|
%
|
|
|
2.2
|
%
|
Weighted-average expected life (in years)
|
|
|
2.9
|
|
|
|
3.6
|
|
Expected dividend yield
|
|
|
-
|
%
|
|
|
-
|
%
|
Weighted average expected volatility
|
|
|
68
|
%
|
|
|
64
|
%
|
In
addition, if at any time after the second anniversary of the issuance of the warrant, both: (1) the 30-day volume weighted average
price of the Company’s stock exceeds $3.00; and (2) the average daily trading volume for such 30-day period exceeds $350,000,
the Company may call this warrant for $0.01 per share. Because of the call provisions, management believes the Monte Carlo Simulation
valuation model provides a better estimate of fair value for the warrants issued during July 2016 and January 2017 than the Black-Scholes-Merton
valuation model.
6.
Accrued Liabilities
Accrued
liabilities consisted of the following (in thousands):
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Payroll and related expense
|
|
$
|
336
|
|
|
$
|
311
|
|
Commissions
|
|
|
204
|
|
|
|
477
|
|
Royalties
|
|
|
89
|
|
|
|
96
|
|
Interest payable
|
|
|
-
|
|
|
|
6
|
|
Final loan payment fees
|
|
|
-
|
|
|
|
1,650
|
|
Other
|
|
|
58
|
|
|
|
142
|
|
|
|
$
|
687
|
|
|
$
|
2,682
|
|
7.
Debt
L2
Capital Debt
On January 31, 2018, the Company signed a
promissory note in the aggregate principal amount of up to $0.84 million (the “L2 Note”) for an aggregate purchase
price of up to $0.75 million and warrants to purchase up to an aggregate of 68,257 shares of common stock of the Company (the
“Warrants”) at an exercise price of $3.31 per share. The Warrants also contained a cashless exercise provision
that, if utilized, could have resulted in the issuance of additional shares of the Company’s common stock in excess of 68,257
shares. The maturity date was six months from date of funding. The L2 Note’s interest rate was
8% per year and a default interest rate of 18% per year. The L2 Note was able to be converted by the holder of the L2 Note
at any time following an event of default. The conversion price of the L2 Note in the event of a default was equal to the
product of (i) 0.70 multiplied by (ii) the lowest volume weighted average price, or VWAP, of the Company’s common stock
during the 20-day trading period ending in the holder of the L2 note’s sole discretion on the last complete trading day
prior to conversion, or, the conversion date.
On
May 14, 2018, the Company closed on an underwritten public offering of units, consisting of convertible preferred stock and warrants,
for gross proceeds of $15.0 million. Part of the proceeds from this offering were used to pay off the outstanding debt with L2
Capital. The total payoff amount totaled $1.1 million, with a net of $0.7 in principal and $0.4 in interest.
Hercules
and MEF I, LP/Anson Investments Debt Exchange
On
January 3, 2018, the Company entered into an Assignment Agreement (the “Assignment Agreement”) with MEF I, LP and
Anson Investments Master Fund (collectively the “Assignees” and each an “Assignee”), Hercules Technology
III, L.P. (“HT III”) and Hercules Capital, Inc. (“HC” and, together with HT III, “Hercules”),
pursuant to which Hercules assigned to the Assignees all amounts remaining due under the Loan and Security Agreement, dated June
30, 2014, as amended, between the Company and Hercules (the “Loan and Security Agreement”) and (2) the note (the “Hercules
Note”) between the Company and Hercules evidencing the amounts due under the Loan and Security Agreement. The total amount
assigned by Hercules to the Assignees in the aggregate was $2.3 million and was secured by the same collateral underlying
the Loan and Security Agreement. Subsequently, the Company entered into an exchange agreement pursuant to which the Assignees
agreed to exchange the Hercules Term Loan obligation acquired by them for two senior secured convertible promissory notes issued
by the Company, each in the principal amount of $1.1 million for an aggregate principal amount of $2.2 million, (the “Exchange
Notes”). The Exchange Notes were scheduled to mature on February 3, 2019 (the “Maturity Date”). The Exchange
Notes had interest at a rate of 15% per annum. Prior to the Maturity Date, principal and interest accrued under the Exchange
Notes was payable in cash or, if certain conditions were met, payable in shares of common stock of the Company.
All principal accrued under the Exchange Notes was convertible into shares of the Company’s common stock (“Conversion
Shares”) at the election of the holders at any time at a fixed conversion price of $3.87 per share. Upon the occurrence
of an event of default, the Assignees were entitled to convert all or any part of their Exchange Notes at a conversion
price (the “Alternate Conversion Price”) equal to 70% of the lowest traded price of the Company’s common stock
during the ten trading days prior to the conversion date, provided that (i) in no event was the Alternate Conversion Price
less than $1.75 per share and (ii) the Assignees were not entitled to receive more than 19.99% of the outstanding common
stock. So long as these Exchange Notes remained outstanding or the Assignees held any Conversion Shares, the Company
was prohibited from entering into any financing transaction pursuant to which the Company sells its securities at a price
lower than $1.75 per share. The Exchange Notes were secured by a first priority security interest in substantially all
assets, including intellectual property, of the Company and contains covenants restricting payments to certain Company affiliates.
On
May 14, 2018, the Company closed on an underwritten public offering of units, consisting of convertible preferred stock and warrants,
for gross proceeds of $15.0 million. Part of the proceeds from this offering were used to pay off the outstanding debt with MEF
I, L.P. and Anson Investments. The total payoff was $1.6 million, with $1.4 million in principal and $0.2 million in interest.
North
Stadium Term Loan – Related Party
On July 28, 2017, the Company entered into a $2.5 million term loan (the “North Stadium Loan”)
with North Stadium Investments, LLC (“North Stadium”), a company owned and controlled by the Company’s Chief
Executive Officer and Chairman of the Board. The North Stadium Loan bears interest at 10% per annum and requires the Company to
make monthly interest only payments from September 5, 2017 through July 5, 2018. All principal and unpaid interest (if any) under
the Loan are due and payable on July 28, 2018. The North Stadium Loan is secured by substantially all of the Company’s assets.
In connection with the North Stadium Loan, the Company also issued North Stadium a warrant to purchase up to 55,000 shares of the
Company’s common stock at a purchase price of $5.04 per share, subject to a 5-year term. The relative estimated value of
the warrants on the date of grant approximated $0.2 million, was recorded as a debt discount and is being amortized as interest
expense over the life of the term loan.
In
July 2018, the Company entered into an extension to the term loan with North Stadium Investments, LLC. The extension moved the
due date of the loan from July 28, 2018 to October 28, 2018, at which time all principal and unpaid interest are due and payable.
The monthly interest only payments will continue through the payoff on October 28, 2018. On October 1, 2018, the liability for
the North Stadium Term Loan will be sold to CTL Medial as part of the sales transaction for the retail spine business.
See
Note 11 for an explanation of assumption of the North Stadium Term Loan – Related Party in association with the sale of
the Spine business subsequent to year end.
Hercules
Term Loan
On
June 30, 2014, the Company entered into a Loan and Security Agreement with Hercules which provided the Company with a $20.0 million
term loan. The Hercules Term Loan matured on January 1, 2018. The Hercules Term Loan included a $0.2 million closing fee, which
was paid to Hercules on the closing date of the loan. The closing fee was recorded as a debt discount and was amortized to interest
expense over the life of the loan. The Hercules Term Loan also included a non-refundable final payment fee of $1.7 million. The
final payment fee was accrued and recorded to interest expense over the life of the loan. On January 3, 2018, the Hercules Term
Loan and all amounts owing thereunder were assigned to MEF I and Anson Investments. See discussion above for a more detailed description
of that transaction.
See
discussion below with respect to the assignment of $3.0 million of the principal balance of the Hercules Term Loan to Riverside
Merchant Partners, LLC (“Riverside”) and the subsequent agreement between the Company and Riverside to exchange the
$3.0 million of the Hercules Term Loan held by Riverside for subordinated convertible promissory notes in the aggregate principal
amount of $3.0 million.
Hercules
and Riverside Debt Exchange
On
April 4, 2016, the Company entered into an Assignment and Second Amendment to Loan and Security Agreement (the “Assignment
Agreement”) with Riverside and Hercules, pursuant to which Hercules sold $1.0 million of the principal amount outstanding
under the Hercules Term Loan to Riverside. In addition, pursuant to the terms of the Assignment Agreement, Riverside acquired
an option to purchase an additional $2.0 million of the principal amount outstanding under the Hercules Term Loan from Hercules.
Riverside subsequently exercised its option in full and acquired the additional $2.0 million of the outstanding principal amount
of the Hercules Term Loan.
8.
Equity
July-September
2018 Preferred Stock Conversion
During
July, August and September of 2018, Series B Convertible Preferred shareholders of the Company converted 6,526 shares of Series
B Convertible Preferred Stock into 13,260,780 shares of common stock.
August
2018 Warrant Exercise
During
August 2018, pursuant to the cashless exercise provision contained in their warrant, L2 Capital exercised its warrants and
was issued 242,063 shares of common stock. The L2 Capital warrant is no longer outstanding.
July
2018 Warrant Exercise
During
May 2018, the Company closed on a public offering, consisting of both convertible preferred stock and warrants. During July 2018,
29,927 of the warrants were exercised and converted into 29,927 shares of common stock.
May-June
2018 Preferred Stock Conversion
During
both May 2018 and June 2018, Series B Convertible Preferred shareholders of the Company converted 4,072 shares of Series B Convertible
Preferred Stock into 3,086,570 shares of common stock.
May
2018 Warrant Exercise (July 2016 Warrants)
During
March 2018, the Company repriced 832,000 warrants dated July 8, 2016 from $12 to $2.125 (for further description see
Warrant
Reprice March 2018 below
). During May 2018, an additional 145,834 of the repriced warrants were exercised resulting
in gross proceeds to the Company of $0.3 million.
May
2018 Unit Offering
On
May 14, 2018, the Company closed on an underwritten public offering of units (“the Units”), consisting of convertible
preferred stock and warrants, for gross proceeds of $15.0 million, which excludes underwriting discounts and commissions and offering
expenses payable by SINTX. The offering was priced at a public offering price of $1,000 per unit. Each unit consisted of one share
of Series B Convertible Preferred Stock, with a stated value of $1,100, and warrants to purchase up to 758 shares of common stock
(the “May 2018 Warrants”). The May 2018 Warrants are initially exercisable at an exercise price of $1.60 per share
and expire 5 years from the date of issuance. The Series B Preferred Stock is convertible into shares of common stock by dividing
the stated value of $1,100 by: (i) for the first 40 trading days following the closing of this offering, $1.4512 (the “Conversion
Price”), (ii) after 40 trading days but prior to the 81st trading day, the lesser of (a) the Conversion Price and
(b) 87.5% of the lowest volume weighted average price for our Common Stock as reported at the close of trading on the market reporting
trade prices for the Common Stock during the five trading days prior to the 41st trading day, and (iii) after 80 trading days,
the lesser of (a) the Conversion Price and (b) 87.5% of the lowest volume weighted average price for our Common Stock
as reported at the close of trading on the market reporting trade prices for the Common Stock during the five trading days prior
to the date of the notice of conversion. In the case of (ii)(b) and (iii)(b) above, the share price shall not be less than $0.48
(the “Floor Price”). Each of the Conversion Price and Floor Price is subject to adjustment in certain circumstances.
The
Company raised $15.0 million associated with the issuance of the Units, with $6.8 million, net of issuance costs of $0.6 million,
allocated to the preferred stock and $6.9 million, net of issuance costs of $0.7 million, allocated to the warrants. In association
with the warrants that were recorded as a derivative liability, the Company immediately expensed approximately $0.7 million of
issuance costs. The 15,000 preferred shares were initially convertible into 11,369,900 shares of common stock and had an effective
conversion rate of $1.45 per share based on the proceeds that were allocated to them. The conversion price was adjusted to $0.6543,
effective July 12, 2018, and was adjusted again on September 7, 2018 to $0.48.
Warrant
Reprice March 2018
During
the three months ended March 31, 2018, the Company entered into a warrant amendment agreement (the “Amendment Agreement”)
with certain holders of previously issued Series E Common Stock Purchase Warrants (collectively, “Investors”). In
connection with that certain Series E Common Stock Purchase Warrant between the Company and Investors dated July 8, 2016, the
Company issued to Investors warrants to purchase up to 832,000 shares of common stock (the “Warrant Shares”) at an
exercise price of $12.00 per share, (the “Investors Warrants”). Under the terms of the Amendment Agreement, in consideration
of Investors exercising 668,335 of the Investors Warrants (the “Warrant Exercise”), the exercise price per share of
the Investor Warrants was reduced to $2.125 per share. 668,335 of the Investors Warrants were exercised resulting in gross proceeds
to the Company of $1.4 million before payment of placement agent fees and costs. In addition, and as further consideration, the
Company issued to Investors new warrants to purchase up to the number of shares of common stock equal to 100% of the number of
Warrant Shares issued pursuant to the Warrant Exercise at an exercise price per share equal to $2.00 per share.
January
2017 Offering
During
2017, the Company completed a secondary offering in which the Company sold 741,667 shares of common stock and warrants to purchase
363,750 shares of common stock. The Company received approximately $3.9 million in proceeds from the offering, with $3.1 million,
net of issuance costs of $0.6 million, allocated to common stock and $0.8 million allocated to the warrants. In association with
the warrants that were recorded as a derivative liability, the Company immediately expensed $0.1 million of issuance costs. The
warrants became exercisable on the closing date, expire on the five-year anniversary of the closing date, and have an initial
exercise price per share equal to $6.60 subject to adjustments for events of recapitalization, stock dividends, stock splits,
stock combinations, reclassifications, reorganizations or similar events affecting the Company’s common stock.
July
2016 Offering
In
July 2016, the Company completed a secondary offering in which the Company sold 5,258,000 Class A Units, including 1,650,000 units
sold pursuant to the exercise by the underwriters of their over-allotment option, priced at $1.00 per unit, and 7,392 Class B
Units, priced at $1,000 per unit. Each Class A Unit consisted of 1/12th share of common stock and one warrant to purchase 1/12th
share of common stock. Each Class B Unit consisted of one share of preferred stock convertible into 83 shares of common stock
and warrants to purchase 83 shares of common stock. The securities comprising the units were immediately separable and were issued
separately. In total, the Company issued 438,167 shares of common stock, 7,392 shares of preferred stock convertible into 616,000
shares of common stock and warrants to purchase 1,054,167 shares of common stock at a fixed exercise price of $12.00 per share.
The Company received proceeds of approximately $11.4 million, net of underwriting and other offering costs.
The
Company raised $4.9 million associated with the Class A Units, with $2.5 million, net of issuance costs of $0.3 million, allocated
to the common stock and $2.4 million allocated to the warrants. The Company also raised $7.0 million associated with the Class
B Units with $3.6 million, net of issuance costs of $0.4 million, allocated to preferred stock and $3.4 million allocated to the
warrants. The $5.8 million allocated to warrants were recorded as a derivative liability. In association with the warrants that
were recorded as a derivative liability, the Company immediately expensed approximately $0.5 million of issuance costs. The 7,392
preferred shares were convertible into 616,000 shares of common stock and had an effective conversion rate of $6.48 per share
based on the proceeds that were allocated to them.
Subsequent
to the secondary offering, all 7,392 shares of convertible preferred stock have been converted into 616,000 shares of common stock.
Furthermore, the Company received $0.4 million and issued 37,208 shares of common stock upon the exercise of certain warrants
issued in the secondary offering.
9.
Stock-Based Compensation
A
summary of the Company’s outstanding stock option activity for the nine months ended September 30, 2018 is as follows:
|
|
Options
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life
(Years)
|
|
|
Intrinsic
Value
|
|
As of December 31, 2017
|
|
|
11,302
|
|
|
$
|
264.26
|
|
|
|
7.3
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
As of September 30, 2018
|
|
|
11,302
|
|
|
$
|
264.26
|
|
|
|
6.5
|
|
|
$
|
-
|
|
Exercisable as of September 30, 2018
|
|
|
10,422
|
|
|
$
|
266.80
|
|
|
|
7.4
|
|
|
$
|
-
|
|
Expected to vest as of September 30, 2018
|
|
|
11,302
|
|
|
$
|
264.26
|
|
|
|
6.5
|
|
|
$
|
-
|
|
The
Company estimates the fair value of each stock option on the grant date using the Black-Scholes-Merton valuation model, which
requires several estimates including an estimate of the fair value of the underlying common stock on grant date. The expected
volatility was based on an average of the historical volatility of a peer group of similar companies. The expected term was calculated
utilizing the simplified method. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time
of grant for the expected term of the option.
Summary
of Stock-Based Compensation Expense
Total
stock-based compensation expense included in the condensed consolidated statements of operations is allocated as follows (in thousands):
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Cost of revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
10
|
|
Research and development
|
|
|
-
|
|
|
|
11
|
|
|
|
1
|
|
|
|
61
|
|
General and administrative
|
|
|
3
|
|
|
|
23
|
|
|
|
22
|
|
|
|
69
|
|
Selling and marketing
|
|
|
2
|
|
|
|
20
|
|
|
|
17
|
|
|
|
33
|
|
|
|
$
|
5
|
|
|
$
|
54
|
|
|
$
|
40
|
|
|
$
|
173
|
|
As
of September 30, 2018, there is no unrecognized
stock-based
compensation.
10.
Commitments and Contingencies
From
time to time, the Company is subject to various claims and legal proceedings covering matters that arise in the ordinary course
of its business activities. Management believes any liability that may ultimately result from the resolution of these matters
will not have a material adverse effect on the Company’s consolidated financial position, operating results or cash flows.
11.
Subsequent Events
On
October 1, 2018, the Company completed the sale of its spine business to CTL Medical, a Dallas, Texas-based privately held
medical device manufacturer. The gain on the sale of the retail spine business is estimated to approximate $1.2 million,
which will be recognized during the quarter ended December 31, 2018.
The Company and CTL Medical entered in an
asset purchase agreement whereby CTL Medical agreed to acquire all of the Company’s commercial spine business for total
consideration of $8.5 million, which includes a $6.0 million noninterest bearing note receivable and CTL Medical’s assumption
of the Company’s $2.5 million related party note payable. As a result of the closing, CTL Medical is now the exclusive owner
of Amedica’s portfolio of metal and silicon nitride spine products, which are presently sold under the brand names of Taurus,
Preference, and Valeo, with access to future silicon nitride spine technologies. The Company has agreed to pay the cost, if
any, to re-sterilize and re-package select silicon nitride spinal inventories sold to CTL Medical if the sterilization date expires
prior to CTL Medical selling the inventories to a third-party customer. The Company estimates the sterilization and repackaging
cost to approximate $0.5 million. Manufacturing, R&D, and all intellectual property related to the core, non-spine, biomaterial
technology of silicon nitride remains with the Company in Salt Lake City. The Company will serve as CTL’s exclusive OEM
provider of silicon nitride products.
On
October 30, 2018, the Company amended its Certificate of Incorporation with the State of Delaware to change its corporate
name to SINTX Technologies, Inc. in order to better reflect its focus on silicon nitride science and technologies and pipeline
of silicon nitride-based products in various biomedical applications. The Company also changed its trading symbol on the NASDAQ
Capital Market to “SINT”.
The
previous name, Amedica, has transferred to CTL Medical, which is now CTL-Amedica. The Company’s new corporate brand reflects
both the Company’s core competence in the science and production of silicon nitride ceramics, as well as encouraging prospects
for the future, as an OEM supplier of spine implants to CTL-Amedica, and several opportunities outside of spine. As SINTX Technologies
Inc., the Company will focus on developing silicon nitride in terms of product design, and future biomaterial formulations, for
a variety of OEM customers.
12.
Discontinued Operations
As
previously disclosed in Note 11, the Company completed the sale of its spine business in October 2018. Below is a summary of the
retail spine operations that were sold.
SINTX
Technologies, Inc.
(previously
known as Amedica Corporation)
Condensed
Consolidated Balance Sheets - Unaudited
(in
thousands, except share and per share data)
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets held for sale:
|
|
|
|
|
|
|
|
|
Retail spine inventory, net
|
|
$
|
1,708
|
|
|
$
|
1,602
|
|
Long-term assets held for sale:
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
959
|
|
|
|
1,162
|
|
Intangible assets, net
|
|
|
2,249
|
|
|
|
2,651
|
|
Total assets
|
|
$
|
4,916
|
|
|
$
|
5,415
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current liabilities held for sale:
|
|
|
|
|
|
|
|
|
Debt – related party
|
|
$
|
2,500
|
|
|
$
|
2,356
|
|
SINTX
Technologies, Inc.
(previously
known as Amedica Corporation)
Condensed
Consolidated Statements of Operations - Unaudited
(in
thousands, except share and per share data)
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
Product revenue
|
|
$
|
1,844
|
|
|
$
|
2,956
|
|
|
$
|
6,174
|
|
|
$
|
8,793
|
|
Costs of revenue
|
|
|
429
|
|
|
|
1,408
|
|
|
|
1,474
|
|
|
|
2,791
|
|
Gross profit
|
|
|
1,415
|
|
|
|
1,548
|
|
|
|
4,700
|
|
|
|
6,002
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
403
|
|
|
|
410
|
|
|
|
1,119
|
|
|
|
1,166
|
|
General and administrative
|
|
|
198
|
|
|
|
191
|
|
|
|
547
|
|
|
|
546
|
|
Sales and marketing
|
|
|
1,094
|
|
|
|
1,529
|
|
|
|
3,358
|
|
|
|
4,801
|
|
Total operating expenses
|
|
|
1,695
|
|
|
|
2,130
|
|
|
|
5,024
|
|
|
|
6,513
|
|
Loss from discontinued operations
|
|
$
|
(280
|
)
|
|
$
|
(582
|
)
|
|
$
|
(324
|
)
|
|
$
|
(511
|
)
|
In the future, the Company will become
an Original Equipment Manufacturer (“OEM”) of spinal silicon nitride products with only one customer for these products.
Because of this change, the Company has included all product revenue and cost of sales in this discontinued operations model.