10-Q 1 form10-q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 001-33624

 

 

 

SINTX Technologies, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

delaware   84-1375299
(State or other jurisdiction   (IRS Employer
of incorporation or organization)   Identification No.)

 

1885 West 2100 South, Salt Lake City, UT   84119
(Address of principal executive offices)   (Zip Code)

 

(801) 839-3500

(Registrant’s telephone number, including area code)

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbols   Name of each exchange on which registered
Common Stock   SINT   The NASDAQ Capital Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files); Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer Accelerated filer
       
Non-accelerated filer Smaller reporting company
       
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

4,259,758 shares of common stock, $0.01 par value, were outstanding at November 8, 2023.

 

 

 

 

 
 

 

SINTX Technologies, Inc.

Table of Contents

 

Part I. Financial Information  
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets (unaudited) 3
Condensed Consolidated Statements of Operations (unaudited) 4
Condensed Consolidated Statements of Stockholders’ Equity (unaudited) 5
Condensed Consolidated Statements of Cash Flows (unaudited) 6
Notes to Condensed Consolidated Financial Statements (unaudited) 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
Item 4. Controls and Procedures 24
Part II. Other Information  
Item 1. Legal Proceedings 25
Item 1A. Risk Factors 25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Mine Safety Disclosures 25
Item 5. Other Information 25
Item 6. Exhibits 26
Signatures 27

 

2
 

 

PART I FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

SINTX Technologies, Inc.

Condensed Consolidated Balance Sheets - Unaudited

(in thousands, except share and per share data)

 

  

September 30,

2023

  

December 31,

2022

 
         
Assets          
Current assets:          
Cash and cash equivalents  $6,219   $6,245 
Account and other receivables, net of allowance   259    328 
Prepaid expenses and other current assets   544    344 
Inventories   848    284 
Other current assets   42    8 
Total current assets   7,912    7,209 
           
Inventories, net   217    453 
Property and equipment, net   5,502    5,691 
Intangible assets, net   22    26 
Operating lease right of use asset   1,776    2,309 
Other long-term assets   83    85 
Total assets  $15,512   $15,773 
           
Liabilities and Stockholders’ Equity          
Current liabilities:          
Accounts payable  $481   $434 
Accrued liabilities   1,748    1,618 
Current portion of long-term debt   72    160 
Derivative liabilities   677    5,126 
Current portion of operating lease liability   797    738 
Other current liabilities   3    2 
Total current liabilities   3,778    8,078 
           
Operating lease liability, net of current portion   1,045    1,621 
Long term debt, net of current portion   -    368 
Other long-term liabilities   -    2 
Total liabilities   4,823    10,069 
           
Commitments and contingencies   -     -  
           
Stockholders’ equity:          
Convertible preferred stock Series B, $0.01 par value, 130,000,000 total shares authorized inclusive of all series of preferred; 26 shares issued and outstanding as of September 30, 2023 and December 31, 2022.   -    - 
Convertible preferred stock Series C, $0.01 par value, 130,000,000 total shares authorized inclusive of all series of preferred; 50 shares issued and outstanding as of September 30, 2023 and December 31, 2022.   -    - 
Convertible preferred stock Series D, $0.01 par value, 130,000,000 total shares authorized inclusive of all series of preferred; 180 and 206 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively.   -    - 
Convertible preferred stock Series E, $0.01 par value, 130,000,000 total shares authorized inclusive of all series of preferred; zero and 1 share issued and outstanding as of September 30, 2023 and December 31, 2022, respectively.   -    - 
Common stock, $0.01 par value, 250,000,000 shares authorized; 4,208,150 and 542,145 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively.   42    5 
Additional paid-in capital   279,040    268,154 
Accumulated deficit   (268,393)   (262,455)
Total stockholders’ equity   10,689    5,704 
Total liabilities and stockholders’ equity  $15,512   $15,773 

 

The condensed consolidated balance sheet as of December 31, 2022, has been prepared using information from the audited consolidated balance sheet as of that date.

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3
 

 

SINTX Technologies, Inc.

Condensed Consolidated Statements of Operations - Unaudited

(in thousands, except share data)

 

   2023   2022   2023   2022 
  

Three Months Ended

September 30,

  

Nine months Ended

September 30,

 
   2023   2022   2023   2022 
Product revenue  $168   $173   $643   $354 
Grant and contract revenue   510    253    1,082    442 
Total revenue   678    426    1,725    796 
Costs of revenue   117    89    339    235 
Gross profit   561    337    1,386    561 
Operating expenses:                    
Research and development   2,525    1,523    6,889    4,651 
General and administrative   990    1,069    3,313    2,918 
Sales and marketing   259    291    877    1,023 
Grant and contract expenses   401    247    942    423 
Total operating expenses   4,175    3,130    12,021    9,015 
Loss from operations   (3,614)   (2,793)   (10,635)   (8,454)
Other income (expenses):                    
Interest expense   -    (4)   (2)   (12)
Interest income   33    5    117    8 
Gain (loss) on disposal of assets   17    -    17    (1)
Change in fair value of derivative liabilities   374    60    5,344    208 
Offering costs of derivative liabilities   -    -    (786)   - 
Other income, net   -    8    7    170 
Total other income (expense), net   424    69    4,697    373 
Net loss before income taxes   (3,190)   (2,724)   (5,938)   (8,081)
Provision for income taxes   -    -    -    - 
Net loss   (3,190)   (2,724)   (5,938)   (8,081)
Deemed dividend related to convertible preferred stock   -    -    (26)   - 
Net loss attributable to common stockholders  $(3,190)  $(2,724)  $(5,964)  $(8,081)
                     
Net loss per share – basic and diluted                    
Basic – net loss  $(0.76)  $(11.02)  $(1.68)  $(32.69)
Basic – deemed dividend on conversion of preferred stock   -    -    (0.01)   - 
Basic – attributable to common stockholders  $(0.76)  $(11.02)  $(1.69)  $(32.69)
                     
Diluted – net loss  $(0.81)  $(11.10)  $(3.03)  $(33.04)
Diluted - deemed dividend on conversion of preferred stock   -    -    (0.01)   - 
Diluted – attributable to common stockholders   (0.81)   (11.10)   (3.04)   (33.04)
                     
Weighted average common shares outstanding:                    
Basic   4,208,069    247,248    3,524,174    247,179 
Diluted   4,399,269    250,870    3,528,301    250,841 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4
 

 

SINTX Technologies, Inc.

Condensed Consolidated Statements of Stockholders’ Equity - Unaudited

(in thousands, except share and per share data)

 

   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
   Preferred Stock   Common Stock   Paid-In   Accumulated   Total 
   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
Balance as of December 31, 2021   77        -    247,105    2    267,609    (250,416)   17,195 
Stock based compensation   -    -    30    -    102    -    102 
Net loss   -    -    -    -    -    (2,845)   (2,845)
Balance as of March 31, 2022   77    -    247,135    2    267,711    (253,261)   14,452 
Stock based compensation   -    -    60    -    88    -    88 
Acquisition of subsidiary   -    -    -    -    22    -    22 
Net loss   -    -    -    -    -    (2,512)   (2,512)
Balance as of June 30, 2022   77    -    247,195    2    267,821    (255,773)   12,050 
Stock based compensation   -    -    90    -    90    -    90 
Common stock issued on conversion of preferred stock   (1)   -    7    -    -    -    - 
Net loss   -    -    -    -    -    (2,724)   (2,724)
Balance as of September 30, 2022   76   $-    247,292   $2   $267,911   $(258,497)  $9,416 

 

   Preferred Stock   Common Stock   Paid-In   Accumulated   Total 
   Shares   Amount   Shares   Amount   Capital   Deficit   Equity 
Balance as of December 31, 2022   283   $    -    542,145   $5   $268,154   $(262,455)  $5,704 
Stock based compensation   -    -    15    -    86    -    86 
Common stock issued for cash, net of cash fees   -    -    1,980,000    20    4,437    -    4,457 
Prefunded warrants issued for cash, net of cash fees   -    -    -    -    383    -    383 
Extinguishment of derivative liability upon exercise of warrant   -    -    -    -    5,502    -    5,502 
Issuance of common stock from the exercise of prefunded warrants for cash   -    -    170,000    2    (2)   -    - 
Issuance of common stock from the cashless exercise of warrants   -    -    1,337,600    13    (13)   -    - 
Redemption of preferred stock   (1)   -    -    -    (2)   -    (2)
Issuance of agent warrants   -    -    -    -    108    -    108 
Round up shares issued in reverse split   -    -    20,475    -    -    -    - 
Net loss   -    -    -    -    -    (293)   (293)
Balance as of March 31, 2023   282    -    4,050,235    40    278,653    (262,748)   15,945 
                                    
Stock based compensation   -    -    68    -    71    -    71 
Extinguishment of derivative liability upon exercise of warrant   -    -    -    -    251    -    251 
Issuance of common stock from the cashless exercise of warrants   -    -    156,000    2    (2)   -    - 
Issuance of common stock from the conversion of preferred stock   (26)   -    1,723    -    -    -    - 
Deemed dividend related to the conversion of preferred stock   -    -    -    -    (26)   -    (26)
Deemed dividend related to the conversion of preferred stock   -    -    -    -    26    -    26 
Net loss   -    -    -    -    -    (2,455)   (2,455)
Balance as of June 30, 2023   256    -    4,208,026    42    278,973    (265,203)   13,812 
Stock based compensation   -    -    124    -    67    -    67 
Net loss   -    -    -    -    -    (3,190)   (3,190)
                                    
Balance as of September 30, 2023   256   $-    4,208,150   $42   $279,040   $(268,393)  $10,689 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5
 

 

SINTX Technologies, Inc.

Condensed Consolidated Statements of Cash Flows - Unaudited

(in thousands)

 

   2023   2022 
   Nine months Ended September 30, 
   2023   2022 
Cash Flow From Operating Activities          
Net loss  $(5,938)  $(8,081)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation expense   645    237 
Amortization of right of use asset   560    441 
Amortization of intangible assets   4    4 
Stock based compensation   224    280 
Change in fair value of derivative liabilities   (5,237)   (208)
Gain on disposal of property and equipment   (17)   1 
Bad debt expense   53    (2)
Changes in operating assets and liabilities:          
Trade accounts receivable   15    66 
Prepaid expenses and other current assets   (231)   (346)
Inventories   (328)   (151)
Accounts payable and accrued liabilities   176    25 
Other liabilities   (370)   (32)
Payments on operating lease liability   (543)   (414)
Net cash used in operating activities   (10,987)   (8,180)
Cash Flows From Investing Activities          
Purchase of property and equipment   (456)   (1,109)
Proceeds from the sale of property and equipment   17    1 
Cash acquired in acquisition (see Note 2)   -    303 
Net cash used in investing activities   (439)   (805)
Cash Flows From Financing Activities          
Proceeds from issuance of warrant derivative liabilities   6,650    - 
Proceeds from issuance of common stock and prefunded warrants, net of cash fees of $600   4,840    - 
Redemption of preferred stock Series E   (2)   - 
Payments on debt   (88)   (509)
Net cash provided by (used in) financing activities   11,400    (509)
Net increase (decrease) in cash and cash equivalents   (26)   (9,494)
Cash and cash equivalents at beginning of period   6,245    14,273 
Cash and cash equivalents at end of period  $6,219   $4,779 
           
Noncash Investing and Financing Activities          
Extinguishment of derivative liabilities through exercise of warrants  $5,753   $- 
Right of use asset for new lease liability   114    - 
Right of use asset for amended lease liability   (88)   27 
Par value of common stock upon cashless exercise of warrants   15    - 
Par value of common stock upon exercise of prefunded warrants   2    - 
Acquisition of subsidiary through assumption of debt   -    22 
Reduction of debt through increase in accrued liabilities   -    - 
Supplemental Cash Flow Information          
Cash paid for interest  $2   $32 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6
 

 

SINTX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Organization and Summary of Significant Accounting Policies

 

The condensed consolidated financial statements include the accounts of SINTX Technologies, Inc. (“SINTX”) and its wholly-owned subsidiaries, SINTX Armor, Inc. (“SINTX Armor”) and Technology Assessment and Transfer, Inc. (TA&T), which are collectively referred to as “we” or “the Company”. SINTX is an advanced ceramics company formed in December 1996 (and was previously known as Amedica Corporation) and is focused on providing solutions in a variety of biomedical, technical, and antipathogenic applications. We have grown from focusing primarily on the research, development and commercialization of medical devices manufactured with silicon nitride to becoming an advanced ceramics company engaged in diverse fields, including biomedical, technical and antipathogenic applications. This diversification enables us to focus on our core competencies, which are the manufacturing, research, and development of products comprised from advanced ceramic materials for external partners. We seek to connect with new customers, partners and manufacturers to help them realize the goal of leveraging our expertise in advanced ceramics to create new, innovative products across these sectors. The Company presently manufactures ceramic powders and components in its Salt Lake City and Maryland facilities. The SINTX Salt Lake City facility is FDA and ANVISA registered, ISO 13485:2016 certified, and ASD9100D certified. The Company’s products are primarily sold in the United States.

 

The Company is focused on building revenue generating opportunities in three business industries – biomedical, technical (including aerospace and armor), and antipathogenic – thereby connecting with current and new customers, partners and manufacturers to help realize the goal of leveraging expertise in high-tech ceramics to create new, innovative opportunities across these sectors. We expect our continued investment in research and development to provide additional revenue opportunities.

 

SINTX believes it is the first and only manufacturer to use silicon nitride in medical applications primarily focused on spine fusion therapies. Since then, we have developed other applications for our silicon nitride technology as well as utilized our expertise in the use of ceramic materials in other applications. In July 2021, the Company acquired the equipment and obtained certain proprietary know-how rights it is now using to develop, manufacture, and commercialize protective armor from boron carbide and a composite material of silicon carbide and boron carbide for military, law enforcement and civilian uses. The protective armor operations are housed in SINTX Armor. In June 2022, the Company acquired TA&T, a nearly 40-year-old business with a mission to transition advanced materials and process technologies from a laboratory environment to commercial products and services.

 

On October 1, 2018, the Company completed the sale of its retail spine business to CTL Medical, a Dallas, Texas-based privately held medical device manufacturer. As a result of the sale, CTL Medical became the exclusive owner of the Company’s portfolio of metal and silicon nitride spine products, as well as access to future silicon nitride spine technologies developed by the Company. The Company’s name, Amedica, was also transferred to CTL Medical, which is now CTL Amedica. The Company serves as CTL’s exclusive OEM provider of silicon nitride spine products. Manufacturing, R&D, and all intellectual property related to the core, non-spine, biomaterial technology including silicon nitride remains with the Company.

 

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. The Company also changed its trading symbol on the NASDAQ Capital Market to “SINT”.

 

The Company’s new corporate brand reflects both the Company’s core competence in the science and production of silicon nitride ceramics and other ceramics, as well as encouraging prospects for the future, as an OEM supplier of spine implants to CTL Amedica, and multiple opportunities outside of spine.

 

7
 

 

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 the Company.

 

SEC rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) 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, 2022, filed with the SEC on March 29, 2023. The results of operations for the nine months ended September 30, 2023, are not necessarily indicative of the results to be expected for the year ending December 31, 2023. 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, 2022.

 

Reverse Stock Split

 

On December 20, 2022, the Company effected a 1 for 100 reverse stock split of the Company’s common stock. The par value and the authorized shares of the common and preferred stock were not adjusted as a result of the reverse stock split. All common stock shares, equivalents, and per-share amounts for all periods presented in these consolidated financial statements have been adjusted retroactively to reflect the reverse stock split.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with 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 at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. As of September 30, 2023, the most significant estimate relates to derivative liabilities relating to 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 does 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, 2023, and 2022, the Company incurred a net loss of $5.9 million and $8.1 million, respectively, and used cash in operating activities of $11.0 million and $8.2 million, respectively. The Company had an accumulated deficit of $268.4 million and $262.5 million as of September 30, 2023, and December 31, 2022, respectively. To date, the Company’s operations have been principally financed from proceeds from the issuance of preferred and common stock 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, and/or raise additional funds through the capital markets. Whether and when the Company can attain profitability and positive cash flows from operations or obtain additional financing is uncertain.

 

The Company is actively generating additional scientific and clinical data to have it published in leading industry publications. The unique features of our advanced ceramic materials are not well known, and we believe the publication of such data would help sales efforts as the Company approaches new prospects. The Company is also making additional changes to the sales strategy, including a focus on revenue growth by expanding the use of silicon nitride in other areas outside of spinal fusion applications. The Company has also acquired equipment and certain proprietary know-how for the purpose of developing, manufacturing and commercializing armored plates made from boron carbide and a composite of boron carbide and silicon carbide for military, law enforcement and other civilian uses. The addition of TA&T also expands the Company’s opportunity for revenue growth.

 

8
 

 

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 in February 2014.

 

On February 25, 2021, the Company entered into an Equity Distribution Agreement (as amended, the “2021 Distribution Agreement”) with Maxim Group LLC (“Maxim”), pursuant to which the Company may sell from time to time, shares of the Company’s common stock having an aggregate offering price of up to $1.7 million through Maxim, as agent. Subject to the terms and conditions of the 2021 Distribution Agreement, as amended, Maxim will use its commercially reasonable efforts to sell the shares from time to time, based on our instructions. Under the 2021 Distribution Agreement, Maxim may sell the Shares by any method permitted by law deemed to be an “at-the-market” offering (the “ATM”) as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), including, without limitation, sales made directly on the Nasdaq Capital Market. We have no obligation to sell any shares under the ATM and may at any time suspend offers under the 2021 Distribution Agreement. The Offering will terminate upon the earlier of (i) the sale of shares having an aggregate offering price of $15.0 million, (ii) the termination by either Maxim or the Company upon the provision of fifteen (15) days written notice, or (iii) February 25, 2024. Under the terms of the 2021 Distribution Agreement, Maxim will be entitled to a transaction fee at a fixed rate of 2.0% of the gross sales price of Shares sold under the 2021 Distribution Agreement. The Company will also reimburse Maxim for certain expenses incurred in connection with the 2021 Distribution Agreement and agreed to provide indemnification and contribution to Maxim with respect to certain liabilities under the Securities Act and the Securities Exchange Act of 1934, as amended. As of September 30, 2023, there have been no sales of shares of common stock under the 2021 Distribution Agreement. Because the company’s public float is less than $75 million, we may not sell securities over a 12-month period in an amount greater than one-third of our public float.

 

On October 17, 2022, the Company closed on the sale of 4,656 Units for gross proceeds of approximately $4.7 million pursuant to the terms of a Rights Offering to holders of the Company’s common stock, Series B and Series C preferred stock and holders of certain outstanding common stock warrants (See Note 7).

 

On February 10, 2023, the Company closed on a public offering of 2,150,000 units with gross proceeds of approximately $12.0 million (See Note 7).

 

If the Company seeks to obtain additional equity and/or debt financing, such funding is not assured and may not be available to the Company on favorable or acceptable terms and may involve significant restrictive covenants. Any additional equity financing is also not assured and, if available to the Company, will most likely be dilutive to its current stockholders. If the Company is not able to obtain additional debt or equity financing on a timely basis, the impact on the Company will be material and adverse.

 

These uncertainties raise substantial doubt about our ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

9
 

 

Grant and Contract Revenue

 

Revenues from grants, contracts, and awards provided by governmental agencies are recorded based upon the terms of the specific agreements, which generally provide that revenue is earned when the allowable costs specified in the applicable agreement have been incurred or a milestone has been met. Cash received from federal grants, contracts, and awards can be subject to audit by the grantor and, if the examination results in a disallowance of any expenditure, repayment could be required.

 

New Accounting Pronouncements Recently Adopted

 

In August 2020, the Financial Statement Accounting Board (the “FASB”) issued ASU 2020-06 which simplifies the accounting for convertible instruments and its application of the derivatives scope exception for contracts in an entity’s own equity. For contracts in an entity’s own equity, the new guidance eliminates some of the current requirements for equity classification such as the requirement that settlement in unregistered shares is permitted. In addition, the new guidance reduces the number of accounting models that require separating embedded conversion features from convertible instruments, including eliminating the requirement to recognize a beneficial conversion feature if the conversion feature is in the money and does not require bifurcation as a derivative liability. As a result, only conversion features accounted for under the substantial premium model and those that require bifurcation will be accounted for separately. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments and contracts in an entity’s own equity. The Company adopted the new standards January 1, 2023. The adoption of this standard allows the Company in the future and, in certain circumstances, to avoid derivative treatment of warrants and avoid beneficial conversion treatment of certain convertible preferred shares.

 

New Accounting Pronouncements Not Yet Adopted

 

The Company has reviewed all 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.

 

2. Basic and Diluted Net Income (Loss) per Common Share

 

Basic net income (loss) per share is calculated by dividing the net income (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 that are determined to be dilutive. Common stock equivalents are primarily comprised of preferred stock and warrants for the purchase of common stock. The Company had potentially dilutive securities, totaling approximately 1.3 million and 2.4 million as of September 30, 2023, and 2022, respectively.

 

10
 

 

Below are basic and diluted loss per share data for the three months ended September 30, 2023, which are in thousands except for share and per share data:

 

       Effect of     
       Dilutive     
   Basic   Warrant   Diluted 
   Calculation   Securities   Calculation 
Numerator:               
Net loss  $(3,190)  $(356)  $(3,546)
Deemed dividend and accretion of a discount   -    -    - 
Net loss attributable to common stockholders  $(3,190)  $(356)  $(3,546)
                
Denominator:               
Number of shares used in per common share calculations:   4,208,069    191,200    4,399,269 
                
Net loss per common share:               
Net loss  $(0.76)  $(1.86)  $(0.81)
Deemed dividend and accretion of a discount   -    -    - 
Net loss attributable to common stockholders  $(0.76)  $(1.86)  $(0.81)

 

Below are basic and diluted loss per share data for the nine months ended September 30, 2023, which are in thousands except for share and per share data:

 

       Effect of     
       Dilutive     
   Basic   Warrant   Diluted 
   Calculation   Securities   Calculation 
Numerator:               
Net loss  $(5,938)  $(4,751)  $(10,689)
Deemed dividend and accretion of a discount   (26)   -    (26)
Net loss attributable to common stockholders  $(5,964)  $(4,751)  $(10,715)
                
Denominator:               
Number of shares used in per common share calculations:   3,524,174    4,127    3,528,301 
                
Net loss per common share:               
Net loss  $(1.68)  $(1,151.20)  $(3.03)
Deemed dividend and accretion of a discount   (0.01)   -    (0.01)
Net loss attributable to common stockholders  $(1.69)  $(1,151.20)  $(3.04)

 

Below are basic and diluted loss per share data for the three months ended September 30, 2022, which are in thousands except for share and per share data:

 

   Basic
Calculation
  

Effect of

Dilutive
Warrant
Securities

   Diluted
Calculation
 
Numerator:               
Net loss  $(2,724)  $(60)  $(2,784)
Deemed dividend and accretion of a discount   -    -    - 
Net loss attributable to common stockholders  $(2,724)  $(60)  $(2,784)
                
Denominator:               
Number of shares used in per common share calculations:   247,248    3,622    250,870 
                
Net loss per common share:               
Net loss  $(11.02)  $(16.57)  $(11.10)
Deemed dividend and accretion of a discount   -    -    - 
Net loss attributable to common stockholders  $(11.02)  $(16.57)  $(11.10)

 

11
 

 

Below are basic and diluted loss per share data for the nine months ended September 30, 2022, which are in thousands except for share and per share data:

 

   Basic
Calculation
  

Effect of

Dilutive
Warrant
Securities

   Diluted
Calculation
 
Numerator:               
Net loss  $(8,081)  $(208)  $(8,289)
Deemed dividend and accretion of a discount   -    -    - 
Net loss attributable to common stockholders  $(8,081)  $(208)  $(8,289)
                
Denominator:               
Number of shares used in per common share calculations:   247,179    3,662    250,841 
                
Net loss per common share:               
Net loss  $(32.69)  $(58.80)  $(33.04)
Deemed dividend and accretion of a discount   -    -    - 
Net loss attributable to common stockholders  $(32.69)  $(56.80)  $(33.04)

 

3. Inventories

 

Inventories consisted of the following (in thousands):

 

   September 30,
2023
   December 31,
2022
 
Raw materials  $575   $552 
WIP   418    94 
Finished goods   72    91 
Inventory net  $1,065   $737 

 

As of September 30, 2023, inventories totaling approximately $0.8 million and $0.2 million were classified as current and long-term, respectively. Inventories classified as current represent the carrying value of inventories as of September 30, 2023, that management estimates will be sold or used by September 30, 2024.

 

4. 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, 2023, and December 31, 2022. 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, 2023, and December 31, 2022 (in thousands):

 

   Fair Value Measurements as of September 30, 2023 
Description  Level 1   Level 2   Level 3   Total 
Derivative liability                    
Common stock warrants  $-   $-   $677   $677 

 

   Fair Value Measurements as of December 31, 2022 
Description  Level 1   Level 2   Level 3   Total 
Derivative liability                    
Common stock warrants  $-   $-   $5,126   $5,126 

 

12
 

 

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, 2023, and 2022. The following table presents a reconciliation of the derivative liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2023, and 2022 (in thousands):

 

   Common 
   Stock 
   Warrants 
Balance as of December 31, 2021  $(347)
Issuance of derivatives   - 
Exercise of warrants   - 
Change in fair value   208 
Other   - 
Balance as of September 30, 2022  $(139)
      
Balance as of December 31, 2022  $(5,126)
Issuance of derivatives   (6,650)
Exercise of warrants   5,753 
Change in fair value   5,344 
Other   2 
Balance as of September 30, 2023  $(677)

 

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, 2023, and December 31, 2022, the derivative liability was calculated using the Monte Carlo Simulation valuation.

 

The assumptions used in estimating the common stock warrant liability using the Monte Carlo simulation valuation model as of September 30, 2023, and December 31, 2022 were as follows:

 

   September 30,
2023
   December 31,
2022
 
Weighted-average risk-free interest rate   4.70 %-5.55 %   3.99%-4.42 %
Weighted-average expected life (in years)   1.36-4.37    0.07-4.80 
Expected dividend yield   -%   -%
Weighted-average expected volatility   102.79%-126.05 %   103.6%-243.0 %

 

Other Financial Instruments

 

The Company’s recorded values of cash and cash equivalents, account and other receivables, accounts payable and accrued liabilities approximate their fair values based on their short-term nature. The recorded value of notes payable approximates the fair value as the interest rate approximates market interest rates.

 

5. Accrued Liabilities

 

Accrued liabilities consisted of the following (in thousands):

 

   September 30,
2023
   December 31,
2022
 
Payroll and related expense  $832   $524 
Accrued payables   388