UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 20172021

OR

Commission File Number 001-33624

Amedica CorporationSINTX Technologies, Inc.

(Exact name of registrant as specified in its charter)

(801) 839-3500

(Registrant’s telephone number, including area code)

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

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 [X] No [  ] No [X]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 [X] No [  ]

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

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 [  ] YesNo [X] No

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

36,264,881

24,684,574 shares of common stock, $0.01 par value, were outstanding at October 31, 2017May 10, 2021.

Amedica CorporationSINTX Technologies, Inc.

Table of Contents

Amedica CorporationSINTX Technologies, Inc.

Condensed Consolidated Balance Sheets - Unaudited

(in thousands, except share and per share data)

The condensed consolidated balance sheet as of December 31, 2016,2020, 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.

SINTX Technologies, Inc.

Condensed Consolidated Statements of Operations - Unaudited

(in thousands, except share data)

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

Amedica CorporationSINTX Technologies, Inc.

Condensed Consolidated Statements of OperationsStockholders’ Equity - Unaudited

(in thousands, except share and per share data)

The condensed consolidated balance sheet as of December 31, 2016, 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.

Amedica CorporationSINTX Technologies, Inc.

Condensed Consolidated Statements of Cash Flows - Unaudited

(in thousands)

The condensed consolidated balance sheet as of December 31, 2016, 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.

AMEDICA CORPORATIONSINTX TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Organization

Amedica CorporationSINTX Technologies, Inc. (“SINTX” or “the Company”) was incorporated in the state of Delaware on December 10, 1996.1996 (and was previously known as Amedica CorporationCorporation). SINTX is a materialsan OEM ceramics company focused on developing,that develops and commercializes silicon nitride for medical and non-medical applications. The core strength of SINTX is the manufacturing, research, and sellingdevelopment of silicon nitride ceramics that are used in medical implants and in a variety of industrial devices. At present, Amedica Corporation commercializesfor external partners. The Company presently manufactures silicon nitride spinal implant in its ISO 13485 certified manufacturing facility for CTL Amedica, the spine implant market and believes that itsexclusive retail channel for silicon nitride manufacturing expertise positions it favorably to introduce new and innovative devices in the medical and non-medical fields. Amedica Corporation alsospinal implants. The Company believes that it is the first and only companymanufacturer to commercializeuse silicon nitride in medical implants. Amedica Corporation acquired US Spine, Inc. (“US Spine”), a Delaware spinal products corporation with operations in Florida, on September 20, 2010. Amedica Corporation and US Spine are collectively referred to as “Amedica” or “the Company” in these condensed consolidated financial statements.applications. The Company’s products are primarily sold primarily in the United States.

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, and has access to future silicon nitride spine technologies developed by the Company. Manufacturing, R&D, and all intellectual property related to the core, non-spine, biomaterial technology of silicon nitride remains with the Company. The Company serves 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, was 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.

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. In May 2020, the Company anddissolved its wholly-ownedwholly owned subsidiary US Spine. All material intercompany transactions and balances have been eliminated in consolidation. ST Sub, Inc. At the time of dissolution, the subsidiary had no assets, liabilities, equity, or operations. The financial statements after May 8, 2020, are not consolidated.

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 generally accepted in the United States,(“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, 2016,2020, filed with the SEC on September 20, 2017.March 22, 2021. The results of operations for the three months ended March 31, 20172021, are not necessarily indicative of the results to be expected for the year ending December 31, 2017.2021. 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, 2016.2020.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”)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 ofat the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the periods then ended.period. Actual results could differ from those estimates. TheAs of March 31, 2021, the most significant estimates relateestimate relates to inventory, stock-based compensation, long-lived and intangible assets and the liability for preferred stock andderivative 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 three months ended March 31, 20172021 and 2016,2020, the Company incurred a net lossesloss of $2.2$2.6  million and $3.4generated a net income of $1.2  million, respectively, and used cash in operations of $1.8$3.0  million and $1.5$3.4 million, respectively. The Company had an accumulated deficit of $215$243.7 million and $213$241.1 million as of March 31, 20172021 and December 31, 2016,2020, respectively. To date, the Company’s operations have been principally financed byfrom 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.operations. The Company’s continuation as a going concern is dependent upon its ability to increase sales, implement cost saving measures, maintain compliance with debt covenants and/or raise additional funds through the capital markets. Whether and when the Company can attain profitability and positive cash flows from operating activitiesoperations or obtain additional financing is uncertain.

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 2017. 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, an experienced and highly successful leader for the Sales and Marketing team was recruited and hired. This individual has subsequently hired additional experienced personnel in Sales and Marketing. The Company is actively generating additional scientific and clinical data to have it published in leading industry publications. The unique features of the Company’sour silicon nitride material 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 lateral lumbar implants and the newly developed pedicle screw system (known as Taurus).in other areas outside of spinal fusion applications.

As discussed further in Note 7, in June 2014 the Company entered into a term loan with Hercules Technology Growth Capital, Inc. (“Hercules Technology”), as administrative and collateral agent for the lenders thereunder and as lender, and Hercules Technology III, LP, (“HT III” and, together with Hercules Technology, “Hercules”) as lender (the “Hercules Term Loan”). The Hercules Term Loan has a liquidity covenant that requires the Company to maintain a cash balance of not less than $2.5 million as of March 31, 2017. As of March 31, 2017, the Company’s cash balance was approximately $6.9 million. The Company believes it will be in position to maintain compliance with the liquidity covenant related to the Hercules Term Loan at least through October 2017, as once the Hercules Term Loan principal balance is reduced below $2.5 million the Company is only required to maintain a cash balance equal to the outstanding balance of the Hercules Term Loan from that point forward.

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 is engagedoffering in discussions with investment and banking firms to examine financing alternatives, including options to encourage the exercise of outstanding warrants and other lending alternatives.February 2014. On July 28, 2017,February 6, 2020, the Company entered intoclosed on a $2.5rights offering to its stockholders of units, consisting of convertible preferred stock and warrants, for gross proceeds of $9.4 million, term loan that will assistwhich excludes underwriting discounts and commissions and offering expenses payable by the Company of approximately $1.2 million. Additionally, during the period of June 2020 through August 2020, the Company closed four registered direct offerings of shares of its common stock, priced at-the-market under Nasdaq rules, resulting in the issuance of a total of 11,015,000 shares of its cash needs through November 2017common stock for gross proceeds of approximately $20.9 million, before considering issuance costs of approximately $1.6 million (see Note 11)8).

If the Company is unable to access additional funds prior to becoming non-compliant with the financial and liquidity covenants related to the Hercules Term Loan, the outstanding balance of the Hercules Term Loan would become immediately due and payable at the option of the lender. Although the Company is seeking 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.

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 forDuring the year ended December 31, 2016.2019, the Company entered into an at-the-market (2019 ATM) equity distribution agreement under which the Company could sell, from time to time, shares of common stock having an aggregate offering price of up to $2.5 million. During the year ended December 31, 2020, the Company sold 354,381 shares of common stock under the ATM, raising approximately $0.8 million before deducting fees to the placement agent and other offering expenses of approximately $0.1 million. As of March 31, 2021, no funding capacity is available under the ATM. (see Note 8). 

On February 25, 2021, the Company entered into an Equity Distribution Agreement (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 $15.0 million through Maxim, as agent. As of March 31, 2021, there have been no sales of shares of common stock under the 2021 Distribution Agreement.

Subject to the terms and conditions of the 2021 Distribution Agreement, 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 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, 2022. 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 March 31, 2021 there have been no sales of shares of common stock under the 2021 Distribution Agreement.

On October 1, 2018, the Company sold the retail spine business to CTL Medical. The sale included a $6.0 million noninterest bearing note receivable payable over a 36-month term. The 36-month term of the note receivable requires 18 payments of $138,889 followed by 18 payments of $194,444, with maturing of the note receivable to occur October 1, 2021. The Company expects cash flows of approximately $1.4  million for the remaining seven months of the term of the note.

Management has concluded existing capital resources will be sufficient to fund operations for at least the next 12 months, or through May 2022.

New Accounting Pronouncement, Not Yet AdoptedRisks Related to COVID-19 Pandemic

The COVID-19 pandemic is affecting the United States and global economies and may affect the Company’s operations and those of third parties on which the Company relies. In January 2017, the FASB issued ASU 2017-04Intangibles—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 allocatedresponse to the reporting unit. An entity still hasspread of COVID-19 and to ensure safety of employees and continuity of business operations, we closed our offices, with our administrative employees continuing their work remotely and limited the optionnumber of staff in our manufacturing facility. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to performassess or predict, 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 guidance is effective for goodwill impairment tests in fiscal years beginning after December 15, 2021. Early adoption is permitted for goodwill impairment tests performed after January 1, 2017. The impact of this guidance for the Company will dependCOVID-19 pandemic on the outcomesglobal financial markets may reduce the Company’s ability to access capital, which could negatively impact the Company’s short-term and long-term liquidity. The ultimate impact of future goodwill impairment tests.

In August 2016, the Financial Accounting Standards Board (“FASB”) updated accounting guidanceCOVID-19 pandemic is highly uncertain and subject to change. The Company does not yet know the full extent of potential delays or impacts on the following eight specific cash flow classification issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instrumentsits business, financing or other debt instruments with coupon interest rates that are insignificant in relation toactivities or on healthcare systems or the effective interest rate of the borrowing; (3) contingent consideration payments made afterglobal economy as 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 towhole. However, these effects could have a material impact on the financial statementsCompany’s liquidity, capital resources, operations and business and those of the Company.

third parties on which we rely.

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 is effective for the Company for its annual period beginning January 1, 2018. 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 InternationalNew 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 Company is in the preliminary stages of evaluating the impact that the new standard will have on its financial statements.Pronouncements Not Yet Adopted

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.

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

Basic net lossincome (loss) per share is calculated by dividing the net lossincome (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 using the treasury-stock method. Dilutive commonto be dilutive. Common stock equivalents are primarily comprised of preferred stock and warrants for the purchase of common stock and stock options.stock. For all periods presented,the three months ended March 31, 2021, there is no difference in the number of shares and net loss used to calculate basic and diluted shares outstanding because their effect would have been anti-dilutive due to the Company reporting a net loss.anti-dilutive. The Company had potentially dilutive securities, shares of common stock, totaling approximately 17.91.8  million and 800,0002.7  million as of March 31, 20172021 and 2016,2020, respectively.

Below are basic and diluted loss per share data for the three months ended March 31, 2021, which are in thousands except for share and per share data:

Below  are basic and diluted loss per share data for the three months ended March 31, 2020, which are in thousands except for share and per share data:

3. Inventories net

Inventories consisted of the following (in thousands):

Finished goods included consigned inventory totaling approximately $3.0 million and $5.6 million as of March 31, 2017 and December 31, 2016, respectively. As of March 31, 2017,2021, inventories totaling $1,425approximately $0.1 million and $5,548$0.4 million were classified as current and long-term, respectively. Inventories classified as current represent the carrying value of inventories as of March 31, 20172021, that management estimates will be sold or used by March 31, 2018. As of December 31, 2016, all inventories were classified as current.

2022.

4. Intangible Assets

Intangible assets consisted of the following (in thousands):

Amortization expense is expected to approximate $400,000 for the remainder of 2017, $536,000 per year throughthree months ended March 31, 2021, $369,000 in 2022 and total $140,000 thereafter, until fully amortized.was approximately $1.3  thousand. Amortization expense for the three months ended March 31, 2020, was approximately $1.3 thousand.

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 mark-to-marketderivative 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:

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 March 31, 20172021 and December 31, 2016.2020. 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 March 31, 20172021 and December 31, 2016:2020 (in thousands):

The Company did not have any transfers of assets and liabilities between Level 1 and Level 2any levels of the fair value measurement hierarchy during the three months ended March 31, 20172021 and 2016.2020 (in thousands).

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 March 31, 2021, and December 31, 2020, the derivative liability was calculated using the Monte Carlo Simulation valuation.

The assumptions used in estimating the common stock warrant liability as of March 31, 20172021 and December 31, 20162020 were as follows:

Other Financial Instruments

The Company’s recorded values of cash and cash equivalents, accounts receivable,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 rates are reflective ofrate approximates market interest rates.

6. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

7. Debt

Hercules Term2020 PPP Loan

On June 30, 2014,April 28, 2020, the Company entered intoreceived funding under a Paycheck Protection Program (“PPP”) loan (the “PPP Loan”) from First State Community Bank (the “Lender”). The principal amount of the PPP Loan was $0.4 million. The PPP was established under the Coronavirus Aid, Relief, and Economic Security AgreementAct (the “CARES Act”) and is administered by the U.S. Small Business Administration (the “SBA”). Loans made under the PPP may be partially or fully forgiven if the recipient complies with Hercules whichthe provisions of the CARES Act, including the use of PPP Loan proceeds for payroll costs, rent, utilities and other expenses, provided that such amounts are incurred during a 24-week period that commenced on April 28, 2020 and at least 60% of any forgiven amount has been used for covered payroll costs as defined by the CARES Act. On January 5, 2021, the Lender provided notice to the Company with a $20 million term loan.that the principal amount and accrued interest had been forgiven. The Hercules TermCompany removed the PPP Loan matures on January 1, 2018. The Hercules Term Loan included a $200,000 closing fee, which was paid to Hercules on the closing dateobligation and recorded other income for forgiveness of the loan. The closing fee was recorded as a debt discount and is being amortized to interest expense over the life of the loan. The Hercules Term Loan also includes a non-refundable final payment fee of $1.7totaling $0.4 million. The final payment fee is being accrued and recordedSBA has until January of 2027 to interest expense overaudit the life of the loan. The Hercules Term Loan bears interest at the rate of the greater of either (i) the prime rate plus 9.2%, and (ii) 12.5%, and was 12.7% as of March 31, 2017. Interest accrues from the closing date of the loan and interest payments are due monthly. Principal payments commenced August 1, 2015 and are currently being made in equal monthly installments totaling approximately $500,000,Company’s compliance with the remainder due at maturity. The Hercules TermCARES Act relating to the PPP Loan.

2021 PPP Loan is secured by a first priority security interest in substantially all of its assets, including intellectual property, of the Company and contains covenants restricting payments to certain Company affiliates and certain financial reporting requirements.

On September 8, 2015,March 15, 2021, the Company entered into a Consent andreceived funding under the SBA Second Draw Program under the Paycheck Protection Program (“2021 PPP”) (the “2021 PPP Loan”) from First Amendment to Loan and Security AgreementState Community Bank (the “Amendment”“Lender”) with Hercules.. The Amendment modified the liquidity covenant to reduce the required minimum cash and cash equivalents balance by $500,000 for every $1.0 million in principal paid, up to a minimum of $2.5 million. Once the Hercules Term Loan principal balance is below $2.5 million the Company is only required to maintain a cash and cash equivalents balance equal to the outstanding principal balance on the Hercules Term loan. The minimum cash and cash equivalents balance required to maintain compliance with the minimum liquidity covenant as of March 31, 2017, was $2.5 million. The Company believes it will maintain compliance with the liquidity covenant related to the Hercules Term Loan at least through October 2017. To maintain compliance beyond that date, the Company will likely require additional cash (see Note 11).

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.the 2021 PPP Loan is $.5  million . The 2021 PPP was established under the CARES Act and is administered by the SBA. The 2021 PPP Loan has a five-year term, maturing on March 15, 2026. The interest rate on the 2021 PPP Loan is 1.0% per annum.

The Company will not be obligated to make any payments of principal or interest if the Company submits a loan forgiveness application to the Bank within 10 months after the end of the Company’s covered loan forgiveness period (as defined and interpreted by the 2021 PPP Rules) and such loan forgiveness is allowed. Generally, all or a portion of the 2021 PPP Loan may be forgiven if the Company maintains its employment and compensation within certain parameters during the twenty-four (24) week period following the loan origination date and the proceeds of the 2021 PPP Loan are spent on payroll costs, rent or lease agreements dated before February 15, 2020 and utility payments arising under service agreements in place before February 15, 2020.

8. Equity

Hercules and Riverside Debt Exchange2021 Equity Distribution Agreement

On April 4, 2016,February 25, 2021, the Company entered into an Assignment and Second Amendment to Loan and SecurityEquity Distribution Agreement (the “Assignment“2021 Distribution 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. On April 18, 2016, Riverside exercised and purchased an additional $1.0 million of the principal amount of the Hercules Term Loan and on April 27, 2016, Riverside exercised the remainder of its option and purchased an additional $1.0 million of the principal amount of the Hercules Term Loan from Hercules.

Riverside Debt

On April 4, 2016, the Company entered into an exchange agreement (the “Exchange Agreement”Maxim Group LLC (“Maxim”) with Riverside,, pursuant to which the Company agreedmay sell from time to exchange $1.0 milliontime, shares of the principal amount outstanding under the Hercules Term Loan held by Riverside for a subordinated convertible promissory note in the principal amount of $1.0 million (the “First Exchange Note”) and a warrant to purchase 100,000 shares ofCompany’s common stock of the Company at a fixed exercisehaving an aggregate offering price of $1.62 per share (the “First Exchange Warrant”) (the “Exchange”). All principal accrued under the Exchange Notes was convertible into shares of common stock at the election of the Holder at any time at a fixed conversion price of $1.43 per share (the “Conversion Price”). The closing stock price on April 4, 2016, was $1.63 and a beneficial conversion feature of $245,000 was recordedup to equity and$15.0 million through Maxim, as a debt discount. The warrant value of $106,000 was recorded to equity and as a debt discount.agent.

In addition, pursuantSubject to the terms and conditions of the Exchange2021 Distribution Agreement, Maxim will use its commercially reasonable efforts to sell the Shares from time to time, based on the Company’s 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 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 2021 Distribution Agreement 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 and Riverside hadupon the option to exchange an additional $2.0 millionprovision of fifteen (15) days written notice, or (iii) February 25, 2022. Under the terms of the principal amount2021 Distribution Agreement, Maxim will be entitled to a transaction fee at a fixed rate of 2.0% of the Hercules Term Loangross sales price of Shares sold under the 2021 Distribution Agreement. The Company will also reimburse Maxim for an additional subordinated convertible promissory notecertain expenses incurred in connection with the principal amount2021 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 up to $2.0 million and an additional warrant to purchase 100,0001934, as amended. As of March 31, 2021 there have been no sales of shares of common stock (the “Second Exchange Warrant”). The Exchange Agreement also provided that ifunder the volume-weighted average price of2021 Distribution Agreement.

2020 Rights Offering

During February 2020, the Company closed on a rights offering capital raise wherein the Company’s common stock was less than the Conversion Price, the Company would issue up to an additional 150,000 sharesholders of common stock, (the “True-Up Shares”)Series C Preferred Stock, and certain outstanding warrants, obtained, at no charge, non-transferable subscription rights to Riverside, which was subsequently reduced to 140,000 shares of common stock.

On April 18, 2016,purchase certain units from the Company (“Units”). Each Unit consisted of one share of Series C Convertible Preferred Stock (“Preferred Stock”) and Riverside exercised their option675 warrants to exchange an additional $1.0 millionpurchase common stock (“Warrants”). Each Unit sold for $1,000. Each share of the principal amount of the Hercules Term Loan for an additional subordinatedPreferred Stock is convertible, promissory note in the principal amount of $1.0 million (the “Second Exchange Note”). The closing stock price on April 18, 2016, was $2.02 and a beneficial conversion feature of $412,000 was recorded to equity and as a debt discount. Additionally, on April 27, 2016, the Company and Riverside exercised their option to exchange an additional $1.0 million of the principal amount of the Term Loan for an additional subordinated convertible promissory note in the principal amount of $1.0 million (the “Third Exchange Note”) and an additional warrant to purchase 100,000 shares of the Company’s common stock at a fixed exercise price of $1.66 per share. The warrant value of $107,000 was recorded to equity and as a debt discount. The closing stock price on April 27, 2016, was $1.66 and a beneficial conversion feature of $268,000 was recorded to equity and as a debt discount. Financing costs were $267,000 and were recorded to interest expense. The unamortized deferred financing costs and debt discount of the Hercules Term Loan exchanged were $244,000 at the time of the exchange and were recorded as a loss on extinguishment of debt related to the debt exchange. The First Exchange Note, the Second Exchange Note and the Third Exchange Note are collectively referred to herein as the “Exchange Notes.”

Pursuant to the terms of the Exchange Notes, since the volume-weighted average price of the Company’s common stock was less than the Conversion Price on May 6, 2016, the Company issued an additional 140,000 shares of common stock to Riverside and recorded the value of the True-Up Shares of $199,000 to interest expense and equity.

All principal outstanding under each of the Exchange Notes was to be due on April 3, 2018 (the “Maturity Date”). Each of the Exchange Notes bore interest at a rate of 6% per annum, with the interest that would accrue on the initial principal amount of the Exchange Notes during the first 12 months being guaranteed and deemed earned as of the date of issuance. Prior to the Maturity Date, all interest accrued under the Exchange Notes was payable in cash or, if certain conditions were met, payable in shares of common stock at the Company’s option at any time on or after the first anniversary of the expiration of the rights offering or at the option of the holder at any time, into a conversionnumber of shares of our common stock equal to the quotient of the stated value of the Preferred Stock ($1,000) divided by the Conversion Price ($1.4814 per share). Each Warrant is exercisable for one share of our common stock at an exercise price of $1.34$1.50 per share. During 2016,share from the entire principal amountdate of issuance through its expiration five years from the date of issuance. The Warrants also contain a cashless exercise provision that allows the holder to receive 70% of the First and Second Exchange Notes, $300,000 ofcommon stock otherwise available under the Third Exchange Note, and the interest relatedwarrant to the First, Second, and Third Exchange Notes was convertedholder electing the cashless exercise provision. The Company issued 9,440 Units, comprised of 6,372,000 Warrants exercisable into 1,742,718 shares of our common stock. In July 2016, the Company paid Riverside $840,000 to redeem in full the remaining principal balancestock and Preferred Stock convertible into 6,372,350 shares of the Third Exchange Note. The debt discountsCommon Stock, for gross proceeds of $9.4 million before consideration of issuance costs, associated with the converted debt was recorded to interest expense.

Long-termdebt consistedissuance of the following (in thousands):

Based on contractual principal payment obligations onUnits, with $3.1 million allocated to the Hercules term loanPreferred Stock (with no issuance costs allocated to the preferred stock) and $5.1 million, net of issuance costs of approximately $1.2 million, allocated to the Warrants. In association with the Warrants that were recorded as a derivative liability, the Company immediately expensed approximately all $1.2 million of March 31, 2017, before considering acceleration of maturity payments due to potential non-compliance with loan covenants, the entire principal balance is due January 1, 2018, and therefore current.

8. Equityissuance costs.

During the three months ended March 31, 2017,2021, Series B Convertible Preferred stockholders of the Company completed a secondary offering in whichconverted no shares of Series B Convertible Preferred Stock, and Series C Convertible Preferred stockholders of the Company sold 8,900,000converted no shares of Series C Convertible Preferred Stock.

Also, during the three months ended March 31, 2021, holders of Warrants electing to use the cashless exercise option exercised 2,700 warrants, which resulted in the issuance of 1,890 shares of common stock. During the same period of time, holders of Warrants electing to exercise warrants for cash exercised 130,275 warrants, which resulted in the issuance of 130,275 shares of common stock, and warrantsthe receipt of $0.2 million of cash.

2020 Registered Direct Offerings

During June 2020, the Company closed two registered direct offerings of shares of its common stock, priced at-the-market under Nasdaq rules, resulting in the issuance of a total of 6,100,000 shares of its common stock for gross proceeds of approximately $9.6 million, before considering offering costs of approximately $0.8 million. On June 23, 2020, the Company entered into the first Share Purchase Agreement with certain institutional purchasers, pursuant to purchase 4,005,000which the Company agreed to issue and sell to the purchasers, in a registered direct offering, an aggregate of 3,700,000 shares of common stock, par value $0.01 per share. The shares were sold at a negotiated purchase price of $1.50 per share for $0.51 per unit (each unit consistingaggregate gross proceeds to the Company of one shareapproximately $5.5 million, before deducting offering costs. Following the initial registered direct offering, on June 26, 2020, the Company entered into the second Share Purchase Agreement with certain institutional purchasers pursuant to which the Company offered to the purchasers, in a registered direct offering, an aggregate of 2,400,000 shares of common stock, and 0.45 warrants).par value $0.01 per share. The Company received approximately $3.8 million inshares were sold at a negotiated purchase price of $1.72 per share for aggregate gross proceeds fromto the offering, which was netCompany of approximately $732,000$4.1 million, before deducting offering costs.

During July and August 2020, the Company closed two registered direct offerings of shares of its common stock, priced at-the-market under Nasdaq rules, resulting in the issuance of a total underwriting expenses, commissionof 4,915,000 shares of its common stock for gross proceeds of approximately $11.2 million, before considering offering costs of approximately $0.8 million. On July 16, 2020, the Company entered into a Share Purchase Agreement with certain institutional purchasers, pursuant to which the Company agreed to issue and othersell to the purchasers, in a registered direct offering, expenses.an aggregate of 1,500,000 shares of common stock, par value $0.01 per share. The warrants became exercisable on the closing date, expire on the five-year anniversaryshares were sold at a negotiated purchase price of the closing date, and have an initial exercise price$2.00 per share equalfor aggregate gross proceeds to $0.55the Company of $3.0 million, before deducting offering costs. On August 4, 2020, the Company entered into a Share Purchase Agreement with certain institutional purchasers, pursuant to which the Company agreed to issue and sell to the purchasers, in a registered direct offering, an aggregate of 3,415,000 shares of common stock, par value $0.01 per share. The shares were sold at a negotiated purchase price of $2.40 per share subjectfor aggregate gross proceeds to adjustments for eventsthe Company of recapitalization, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting the Company’s common stock.

On February 24, 2017, the underwriter in the 2017 secondary$8.2 million, before deducting offering exercised its option to purchase additional warrants for 360,000 shares of the Company’s common stock.

costs.

9. Stock-Based Compensation

A summary of the Company’s outstanding stock option activity for the three months ended March 31, 20172021 and 2020 is as follows:

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 Company. The expected term was calculated utilizing the simplified method.contractual life of option. 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. The following weighted average assumptions were used in the calculation to estimate the fair value of options granted to employees and non-employees during the three months ended March 31, 2016 (no options were granted for2021. During the three months ended March 31, 2017):2021 the company granted stock options with an estimated fair value of approximately $0.6  million.

SummaryOf the 368,500 options granted during the three months ended March 31, 2021, 60,000  were to non-executive members of Stock-Based Compensation Expense

Total stock-based compensation expense included in the condensed consolidated statementsboard of operations is allocateddirectors. Of the 833,893 options outstanding as follows (in thousands):of March 31, 2021, 295,000  were awarded to non-executive members of the board of directors.

Unrecognized stock-based compensation  as of March 31, 20172021, is as follows (in thousands):

10. Commitments and Contingencies

The Company has executed agreements with certain executive officers of the Company which, upon the occurrence of certain events related to a change in control, call for payments to the executives up to three times their annual salary and accelerated vesting of previously granted stock options.

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 EventsNote Receivable

On July 28, 2017,October 1, 2018, the Company entered intocompleted the sale of its spine implant business to CTL Medical. The sale included a $2.5$6.0 million noninterest bearing note receivable payable over a 36 month term loan (the “Loan”)and matures on October 1, 2021. The note receivable includes an imputed interest rate of 10%. As of March 31, 2021, the net carrying value of the note receivable was $1.3 million, with North Stadium Investments, LLC (North Stadium),expected cash proceeds of $1.4 million to the Company through the maturity date.

12. Leases

The Company leases office, warehouse and manufacturing space under a company ownedsingle operating lease. On June 7, 2019, the lease was amended to extend the rental period through 2024 and controlled byreduce the amount of space leased from 54,428 square feet to 29,534 square feet. The new rent was effective January 1, 2020. The amended lease has two five-year extension options. As of March 31, 2021, the operating lease right-of-use asset totaled approximately $1.8  million and the operating lease liability totaled approximately $1.8  million. Non-cash operating lease expense during the three months ended March 31, 2021, totaled approximately $0.1  million. As of March 31, 2021, the weighted-average discount rate for the Company’s Chief Executive Officer and Chairmanoperating lease was 6.5%.

Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense is recognized on a straight-line basis over the term of the Board.lease. The Loan bears interest at 10% per annum and requiresCompany accounts for lease components separately from the Company to make monthly interest only payments from September 5, 2017 through September 5, 2018. All principal and unpaid interest (if any) under the Loan is due and payable on July 28, 2018.non-lease components. The Loan is secured by substantially alldepreciable life of the assets of the Company but is junior to security interest in assets encumberedand leasehold improvements are limited by the Hercules Term Loan. In connectionexpected lease term.

Operating lease future minimum payments together with the Loan the Company also issued North Stadium a warrant to purchase up to 660,000 sharespresent values as of the Company’s common stock at a purchase price of $0.42 per share, subject to a 5-year term.March 31, 2021, are summarized as follows:

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements for the year ended December 31, 20162020 and the notes thereto, along with Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended December 31, 2016,2020, filed separately with the U.S. Securities and Exchange Commission. This discussion and analysis contains forward-looking statements based upon current beliefs, plans, expectations, intentions and projections that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2016,2020, and any updates to those risk factors filed from time to time in our Quarterly Reports on Form 10-Q.10-Q and in other filings with the Securities and Exchange Commission we may make from time-to-time.

Overview

We are aan advanced materials company focused on developing,that develops and commercializes silicon nitride for medical and non-medical applications. The core strength of SINTX Technologies is the manufacturing, research, and sellingdevelopment of silicon nitride ceramics that are used in medical implants and in a variety of industrial devices. At present, we commercialize silicon nitride in the spine implant market. We believe that our silicon nitride manufacturing expertise positions us favorably to introduce new and innovative devices in the medical and non- medical fields. We also believe that we are the first and only company to commercialize silicon nitride medical implants.

We have received 510(k) regulatory clearance in the United States, a CE mark in Europe, and ANVISA approval in Brazil for a number of our devices that are designed for spinal fusion surgery. To date, more than 28,000 of our silicon nitride devices have been implanted into patients, with an 8-year successful track record. We intend to file an FDA 510(k) submission for clearance in the United States of a novel composite spinal fusion device that combines porous and solid silicon nitride. The FDA sent us questions about our upcoming submission and we are currently in the process of submitting a response.

external partners. We believe that silicon nitride has a superb combination of properties that make it ideally suited for long-term human implantation. Other biomaterials are based on bone grafts, metal alloys, and polymers;polymers, all of which have well-known practical limitations.limitations and disadvantages. In contrast, silicon nitride has a legacy of success in the most demanding and extreme industrial environments. As a human implant material, silicon nitride offers bone ingrowth, resistance to bacterial and viral infection, ease of diagnostic imaging, resistance to corrosion, and superior strength and fracture resistance, and ease of diagnostic imaging, among other advantages.advantages, all of which claims are validated in our large and growing inventory of peer-reviewed, published literature reports.

Additionally, we received positive results from an independent study that demonstrated the potential anti-viral properties of our silicon nitride. The results suggest that silicon nitride may be useful in the reduction of the spread of COVID-19. The study results demonstrated that our unique grade of silicon nitride inactivates the SARS-CoV-2 virus within a minute after exposure and has the potential to decrease the risk of viral disease spread on surfaces. Studies have shown that coronavirus spreads between humans when an infected person coughs or sneezes. Also, the virus can remain active on a variety of commonly touched surfaces for hours to days. We believe that by incorporating our unique composition of silicon nitride into products such as face masks, and personal protective equipment, it is possible to manufacture surfaces that inactivate viral particles, thereby limiting the spread of the disease. We envision incorporating our silicon nitride into high-contact surfaces such as medical equipment, screens, countertops, and doorknobs in locations where viral persistence is a concern, such as homes, casinos, and cruise ships. We believe this anti-viral discovery will open many new opportunities for us. In composites, coatings, and mixtures, silicon nitride has maintained its antibacterial and osteogenic properties, even at small fractions. We believe that incorporating our material into a variety of commonly touched surfaces may discourage viral spread and contribute to global health by reducing the risk of disease. We believe that our versatile silicon nitride manufacturing expertise positions us favorably to introduce new and innovative devices in the medical and non-medical fields.

We marketalso believe that we are the first and sellonly company to commercialize silicon nitride medical implants. Prior to October 1, 2018, we designed, manufactured and commercialized silicon nitride products for our Valeo brandown behalf in the spine implant market. Over 35,000 of our spinal implants manufactured with silicon nitride have been implanted into patients, with an excellent safety record. On October 1, 2018, we sold our spine implant business to CTL Amedica and now manufacture spine implants made with silicon nitride for CTL. Prior to selling our spine implant business to CTL, we had received 510(k) regulatory clearance in the United States, a CE mark in Europe, ANVISA approval in Brazil, and ARTG and Prostheses approvals in Australia for a number of silicon nitride implantsspine implant products designed for spinal fusion surgery. Spine implant products manufactured by us from silicon nitride are currently marketed and sold by CTL under the Valeo® brand to surgeons and hospitals in the United States and to selected markets in Europe and South America through more than 50 independent sales distributors who are supported by an in-house sales and marketing management team.America. These implants are designed for use in cervical (neck) and thoracolumbar (lower back) spine surgery. We are collaborating with CTL to establish commercial partners in other parts of the world and also working with other partners in Japan to obtain regulatory approval for silicon nitride implants in that country.Japan.

In additionThe sale of our spine implant business to our silicon nitride-based spinal fusion products, we market a line of non-silicon nitride spinal fixation products which allowsCTL enables us to provide surgeonsnow focus on our core competencies. These include research and hospitals with a broader rangedevelopment of products. These additional products are complementary to our fusion products and are designed for the treatment of deformity and degenerative spinal procedures. Although our non-silicon nitride products have accounted for approximately 45% and 46% of our product revenues for the three months ended March 31, 2017 and 2016, respectively, we believe the continued promotion and potential for adoption of our silicon nitride and the design and manufacture of medical and nonmedical products manufactured from silicon nitride and product candidates, if approved, provides us the greatest opportunity to growother ceramic materials for our businessown account and in new and existing markets and achieve our goal to become a leading biomaterial company.

In addition to direct sales, we have targeted original equipment manufacturer (“OEM”)collaboration with other medical device manufacturers. We are targeting OEM – including CTL Medical – and private label partnerships in order to accelerate adoption of silicon nitride both in the spinal space, and also in future markets such as coating products with silicon nitride, hip and knee replacements, dental and maxillofacial implants, extremities, trauma, bearings, automotive and sports medicine.aerospace components, cutting tools, and a wide range of antipathogenic applications. Existing biomaterials, based on plastics, metals, and bone grafts have well-recognized limitations that we believe are addressed by silicon nitride, and we are uniquely positioned to convert existing, successful implant designs made by other companies into silicon nitride. We believe OEM and private label partnerships will allow us to work with a variety of partners, accelerate the adoption of silicon nitride, and realize incremental revenue at improved operating margins, when compared to the cost-intensive direct sales model.

We believe that silicon nitride addresses many of the biomaterial-related limitations in medical related fields such as hip and knee replacements, dental and maxillofacial implants, sports medicine, extremities, and trauma surgery. We further believe that the inherent material properties of silicon nitride, and the ability to formulate the material in a variety of compositions, combined with precise control of the surface properties of the material, opens up a number of commercial opportunities across orthopedic surgery, neurological surgery, maxillofacial surgery, and other medical disciplines.disciplines, as well as commodity items such as industrial fasteners, bushings, and valves to addressing more complex demands of hypersonic missile radomes, aerospace, air-conditioning systems, beverage dispensers, touch-screen glass, and agribusiness fungicides. During 2020, the Company shipped multiple small quantity orders of industrial products totaling $33 thousand.

We operate a 30,000 square foot manufacturing, laboratory and administrative facility at our corporate headquarters in Salt Lake City, Utah, and we believe we are the only vertically integrated silicon nitride medical device manufacturer in the world.

Components of our Results of Operations

We manage our business within one reportable segment, which is consistent with how our management reviews our business, makes investment and resource allocation decisions and assesses operating performance.

Product Revenue

We derive our product revenue primarily from the manufacture and sale of spinal fusion and fixation devices and related products used in the treatment of spine disorders. Our product revenue is generated fromdisorders to CTL, with whom we entered into a 10-year exclusive sales to three types of customers: (1) surgeonsagreement in October 2018. We are currently pursuing other sales opportunities for silicon nitride products outside the spinal fusion application and hospitals; (2) stocking distributors; and (3) private label customers. Most of our products are sold on a consignment basis through a network of independent sales distributors; however, we also sell our products to independent stocking distributors and private label customers. Product revenue is recognized when all four of the following criteria are met: (1) persuasive evidence that an arrangement exists; (2) delivery of the products has occurred; (3) the selling price of the product is fixed or determinable; and (4) collectability is reasonably assured. We generate the majority of our revenue from the sale of inventory that is consigned to independent sales distributors that sell our products to surgeons and hospitals. Forhave shipped new orders for these products, we recognize revenue at the time we are notified the product has been used or implanted and all other revenue recognition criteria have been met. For all other transactions, we recognize revenue when title and risk of loss transfer to the stocking distributor or private label customers, and all other revenue recognition criteria have been met.products. We generally recognize revenue from sales where control transfers at a point in time as the title and risk of loss passes to stocking distributors and private label customersthe customer, which is at the time the product is shipped to the distributor. Stocking distributors and private label customers, who sell the products to their customers, take title to the products and assume all risks of ownership at time of shipment. Our stocking distributors and private label customers are obligated to pay within specified terms regardless of when, if ever, they sell the products. Our policy is to classify shipping and handling costs billed to customers as an offset to total shipping expense in the statement of operations, primarily within sales and marketing.shipped. In general, our customers docustomer does not have any rights of return or exchange.

We believe our product revenue will increase dueas CTL increases sales of silicon nitride spinal fusion products, as we secure other opportunities to our sales and marketing effortsmanufacture third party products with silicon nitride, and as we continue to introduce new products into the market. We expect that our product revenue will continue to be primarily attributable to sales of our products in the United States.

Cost of Revenue

The expenses that are included in cost of revenue include all direct product costs if we obtained the product from third-party manufacturers and our in-house manufacturing costs for the products we manufacture. We obtain our non-silicon nitride products, including our metal products, from third-party manufacturers, while we currently manufacture our silicon-nitride products in-house.

Specific provisions for excess or obsolete inventory are also included in cost of revenue. In addition, we pay royalties attributable to the sale of specific products to some of our surgeon advisors that assisted us in the design, regulatory clearance or commercialization of a particular product. These payments are recorded as cost of revenue.

Gross Profit

Our gross profit measures our product revenue relative to our cost of revenue. We expect our gross profit percentage to decrease as we expand the penetration of our silicon nitride technology platform through OEM and private label partnerships.partnerships, which offer additional avenues for the adoption of silicon nitride. Prior to the sale of our retail spine implant business, our revenues and gross profits were based on our retail sales. With the focus on OEM and private label partnerships, the margins are lower, thus causing the decrease in our gross profit percentage.

Research and Development Expenses

Our research and development costs are expensed as incurred. Research and development costs consist of engineering, product development, clinical trials, test-part manufacturing, testing, developing and validating the manufacturing process, manufacturing, facility and regulatory-related costs. Research and development expenses also include employee compensation, employee and non-employee stock-based compensation, supplies and materials, consultant services, and travel and facilities expenses related to research activities. To the extent that certain research and development expenses are directly related to our manufactured products, such expenses and related overhead costs are allocated to inventory.activities.

We expect to incur additional research and development costs as we continue to develop new spinal fusion products, our product candidates for total joint replacements, such as our total hip replacement product candidate,dental applications, antipathogenic products, and dental applicationsother products which may increase our total research and development expenses.

Sales and Marketing Expenses

Sales and marketing expenses consist of salaries, benefits and other related costs, including stock-based compensation, for personnel employed in sales, marketing, medical education and training. In addition, our sales and marketing expenses include commissions and bonuses, generally based on a percentage of sales, to our sales managers and independent sales distributors. We provide our products in kits or banks that consist of a range of device sizes and separate instruments sets necessary to perform the surgical procedure. We generally consign our instruments to our distributors or our hospital customers that purchase the device used in spinal fusion surgery. Our sales and marketing expenses include depreciation of the surgical instruments.

We expect our commissions to increase in absolute terms over time but remain approximately the same or decrease as a percentage of product revenue.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation for certain members of our executive team and other personnel employed in finance, legal, compliance, administrative, information technology, customer service, executive and human resource departments. General and administrative expenses also include other expenses not part of the other cost categories mentioned above, including facility expenses and professional fees for accounting and legal services.

We expect our general and administrative expenses to remain stable or slightly decline as we continue to manage costs closely and look for opportunities to make improvements.

RESULTS OF OPERATIONS - UNAUDITED

The following is a tabular presentation of our unaudited condensed consolidated operating results for the three months ended March 31, 20172021 and 20162020 (in thousands):

Product Revenue - Unaudited

The following table sets forth our product revenue from sales of the indicated product category for the three months ended March 31, 2017 and 2016 (in thousands):

For the three months ended March 31, 2017,2021, total product revenue was $2.6$0.1 million as compared to $4.2$0.2 million in the same period 2016,2020, a decrease of $1.6$0.1 million, or 37%51%. This decrease was due to the loss of surgeons and the consequencesdecrease in orders from our restructuring, both of which occurred the latter part of 2016.CTL Amedica.

The following table sets forth, for the periods indicated, our product revenue by geographic area (in thousands):

For the three months ended March 31, 2017, domestic revenue decreased by $1.4 million, or 35%. This is attributable to the loss of surgeons and the consequences from our restructuring, both of which occurred the latter part of 2016. International revenue decreased $0.1 million, or 77% as compared to the same period in 2016. This is due to our Brazilian distributor making purchases of instrumentation equipment and inventory in the first quarter of 2016 that was not repeated in 2017.

Cost of Revenue and Gross Profit

For the three months ended March 31, 2017,2021, our cost of revenue decreased $0.2$0.1 million, or 26%63%, as compared to the same period in 2016. The2020. This decrease wasis primarily dueattributed to a declinedecrease in sales.product revenue, and the associated decrease in costs of goods sold. Gross profit remained essentially unchanged. The unchanged gross profit on decreased $1.3 million,revenue and gross margin percentage decreased by 4%. The 4% decrease in gross margin percentage was primarily duecosts of revenue is attributed to a change in both product mix and reimbursement rates during the three months ended March 31, 2017, as compared to the same period in 2016.new revenue sources with higher profit margins.

Research and Development Expenses

For the three months ended March 31, 2017,2021, research and development expenses decreasedincreased $0.6 million, or 37%60%, as compared to the same period in 2016.2020. This decreaseincrease was primarily attributable to a $0.44 million decreasean overall increase in personnel related expenses dueR&D activity to a reduction in force in October 2016, a $0.06 million decrease in product validation expenses due to no new products being produced in 2017, a $0.03 million decrease in production and lab supplies, a $0.02 million decrease in post marketing studies, a $0.02 million decrease in equipment maintenance expenses, a $0.02 million decrease in machining and tooling expenses andsupport the Company’s efforts to reduce costs.strategic objective of developing new technologies and related products.

General and Administrative Expenses

For the three months ended March 31, 2017,2021, general and administrative expenses decreased $0.45increased $0.2 million, or 29%31%, as compared to the same period in 2016.2020. This decrease wasincrease is primarily attributable to a $0.26 million decrease in personnel related expenses due to a reductionthe increase in force, a $0.1 million decrease in legalexternal consulting costs and patent expenses and a $0.08 million decrease in investor relation expense.payroll expenses.

Sales and Marketing Expenses

For the three months ended March 31, 2017,2021, sales and marketing expenses decreased $0.95increased $0.1 million, or 32%109%, as compared to the same period in 2016.2020. This decreaseincrease was primarily attributable to a $0.6 million decreasean overall increase in commissions duemarketing activities to lower revenues, a $0.23 million decreasegenerate interest in depreciation expense, a $0.09 million decrease in personnel expenses dueand exposure to the October 2016 reduction in force, a $0.04 million decrease in shipping expense, and a $0.04 million decrease in travel expenses. These improvements were offset by a $0.05 million increase in consulting and other expenses.Company’s potential new product lines.

Other Expense,Income, Net

For the three months ended March 31, 2017,2021, other expenseincome decreased $0.6$2.8 million, or 68%93%, as compared to the same period in 2016.2020. This decrease was primarily due to the incurring a $0.5change in the fair value of the derivative liabilities in the amount of $4.4 million decrease in interest expense.2020, which was partially offset by the offering costs of $1.2 million associated with the February 2020 rights offering. Whereas in 2021, the Company had other income of $0.4 million associated with the forgiveness of the 2020 PPP Loan.

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.

ForFor the three months ended March 31, 20172021 and 2016,2020 , the Company incurred a net lossesloss of $2.2$2.6  million and $3.4net income of $1.2 million, respectively, and used cash in operations of $1.8$3.0  million and $1.5$3.4 million, respectively. The Company had an accumulated deficit of $215$243.7  million and $213$233.0 million atas of March 31, 20172021 and December 31, 2016,2020, respectively. To date, the Company’s operations have been principally financed byfrom 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.operations. The Company’s continuation as a going concern is dependent upon its ability to increase sales, implement cost saving measures, maintain compliance with debt covenants and/or raise additional funds through the capital markets. Whether and when the Company can attain profitability and positive cash flows from operating activitiesoperations or obtain additional financing is uncertain.

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 2017. 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 an experienced and highly successful leader for the Sales and Marketing team was recruited and hired. This individual has subsequently hired additional experienced personnel in Sales and Marketing. The Company is actively generating additional scientific and clinical data to have it published in leading industry publications. The unique features of the Company’sour silicon nitride material 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 lateral lumbar implantsin other areas outside of spinal fusion applications. For instance, results from an independent study demonstrated the potential anti-viral properties of our silicon nitride. We believe that we may be able to apply our silicon nitride powder to personal protection products, such as face masks, gowns and gloves, resulting in inactivation of viruses that come into contact with the newly developed pedicle screw system (known as Taurus).items.

As discussed further in Note 7, in June 2014 the Company entered into a term loan with Hercules Technology Growth Capital, Inc. (“Hercules Technology”), as administrative and collateral agent for the lenders thereunder and as lender, and Hercules Technology III, LP, (“HT III” and, together with Hercules Technology, “Hercules”) as lender (the “Hercules Term Loan”). The Hercules Term Loan has a liquidity covenant that requires the Company to maintain a cash balance of not less than $2.5 million as of March 31, 2017. As of March 31, 2017, the Company’s cash balance was approximately $6.9 million. The Company believes it will be in position to maintain compliance with the liquidity covenant related to the Hercules Term Loan at least through October 2017, as once the Hercules Term Loan principal balance is reduced below $2.5 million the Company is only required to maintain a cash balance equal to the outstanding balance of the Hercules Term Loan from that point forward. 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. Theoffering in February 2014. On February 6, 2020, the Company is engagedclosed on a rights offering to its stockholders of units, consisting of convertible preferred stock and warrants, for gross proceeds of $9.4 million, which excludes underwriting discounts and commissions and offering expenses payable by the Company. Additionally, during the period of June 2020 through August 2020, the Company closed four registered direct offerings of shares of its common stock, priced at-the-market under Nasdaq rules, resulting in discussions with investmentthe issuance of a total of 11,015,000 shares of its common stock for gross proceeds of approximately $20.9 million, which excludes underwriting discounts and banking firms to examine financing alternatives, including options to encouragecommissions and offering expenses payable by the exercise of outstanding warrants and other lending alternatives. On July 28, 2017,Company.

During the year ended December 31, 2019, the Company entered into a $2.5 million term loan that will assistan ATM equity distribution agreement in which the Company in its cash needs through November 2017 (see Note 11).

Ifcould sell, from time to time, shares of common stock having an aggregate offering price of up to $2.5 million. The Company sold 527,896 shares during the year ended December 31, 2019, raising approximately $1.7 million before considering issuance costs. During the year ending December 31, 2020, the Company is unable to access additional funds prior to becoming non-compliant with the financial and liquidity covenants related to the Hercules Term Loan, the outstanding balancesold 354,381 shares of common stock, raising approximately $0.8 million before considering issuance costs. As a result of the Hercules Term Loan would become immediately due and payable atsales during the optionfirst half of the lender. Although the Company is seeking to obtain additional equity and/or debt financing, such funding is not assured and may not be2020 there are no longer any funds available to the Company under the ATM.

On February 25, 2021, the Company entered into an Equity Distribution Agreement (the “2021 Distribution Agreement”) with Maxim Group LLC (“Maxim”), pursuant to which we may sell from time to time, shares of its our common stock, $0.01 par value per share, having an aggregate offering price of up to $15.0 million through Maxim, as agent. No shares  have been sold under the 2021 Distribution Agreement as of March 31, 2021.

On October 1, 2018, the Company sold the retail spine implant business to CTL Medical. The sale included a $6.0 million noninterest bearing note receivable payable over a 36-month term. The 36-month term of the note receivable requires 18 payments of $138,889 followed by 18 payments of $194,444, with maturing of the note receivable to occur October 1, 2021. The Company expects cash flows $1.4  million for the remaining seven months.

Management has concluded that together with its existing capital resources and payments on favorablethe note receivable from the sale of the spine implant business will be sufficient to fund operations for at least the next 12 months, or acceptable terms,through May 2022.

Risks Related to COVID-19 Pandemic

The COVID-19 pandemic is affecting the United States and global economies and may involve significant restrictive covenants. Any additional equity financing is also not assuredaffect the Company’s operations and if availablethose of third parties on which the Company relies. In response to the spread of COVID-19 and to ensure safety of employees and continuity of business operations, we closed our offices, with our administrative employees continuing their work remotely and limited the number of staff in our manufacturing facility. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce the Company’s ability to access capital, which could negatively impact the Company’s short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. The Company will most likely be dilutive todoes not yet know the full extent of potential delays or impacts on its current stockholders. Ifbusiness, financing or other activities or on healthcare systems or the Company is not able to obtain additional debt or equity financing onglobal economy as a timely basis, thewhole. However, these effects could have a material impact on the Company will be materialCompany’s liquidity, capital resources, operations and adverse.

business and those of the third parties on which we rely.

Cash Flows

The following table summarizes, for the periods indicated, cash flows from operating, investing and financing activities (in thousands) – unaudited:

Net Cash Used in Operating Activities

Net cash used in operating activities increased $0.3 million to $1.8was $3.0 million during the three months ended March 31, 2017, as2021, compared to $1.5$3.4 million forused during the same period in 2016. Offset by thethree months ended March 31, 2020, a decrease in the net loss and related non-cash add backs to the net loss, the increaseof $0.4 million. The decrease in cash used infor operating activities during 20172021 was primarily due to changes in the movement of working capital items during the three months ended March 31, 20172021 as compared to the same period in 20162020 as follows: a $0.9$0.7 million changedecrease in trade accounts receivable, a $0.5 million change in prepaid and other current assets, a $0.4 change in the provision for obsolete inventory reserve and a $0.4 million changecash used in accounts payable, offset by a $0.2 million increase in cash used in prepaid expenses, and accrued expenses.a $0.1 million increase in cash used in accounts receivable.

Net Cash Used inProvided by Investing Activities

Net cash used inprovided by investing activities increased $0.05 million to $0.3remained primarily unchanged at $0.4 million during the three months ended March 31, 2017, compared to $0.25 million for2021, and the same period in 2016. The increase in cash used in investingactivities during 2017 was due to a net increase of $0.05 million in purchases of property and equipment.2020.

Net Cash Used inProvided by Financing Activities

Net cash fromprovided by financing activities was $2.2$0.7 million during the three months ended March 31, 2017,2021, compared to a negative $1.8net cash provided by financing activities of $9.4 million during the same period in 2016.2020. The $4.0$8.7 million increase in 2017decrease to net cash provided by financing activities was primarily attributable to the $3.8proceeds from rights offerings of $9.4 million in net2020 offset by a $0.5 million in proceeds received from a common stock offering,PPP loan and a $0.2 million decrease in principal payments on long-term debt.proceeds from the exercise of warrants for cash.

Indebtedness

Hercules Term2020 PPP Loan

On June 30, 2014,April 28, 2020, the Company entered intoreceived funding under a Paycheck Protection Program (“PPP”) loan (the “PPP Loan”) from First State Community Bank (the “Lender”). The principal amount of the PPP Loan was $0.4 million. The PPP was established under the Coronavirus Aid, Relief, and Economic Security AgreementAct (the “CARES Act”) and is administered by the U.S. Small Business Administration (the “SBA”). Loans made under the PPP may be partially or fully forgiven if the recipient complies with Hercules whichthe provisions of the CARES Act, including the use of PPP Loan proceeds for payroll costs, rent, utilities and other expenses, provided that such amounts are incurred during a 24-week period that commenced on April 28, 2020 and at least 60% of any forgiven amount has been used for covered payroll costs as defined by the CARES Act. On January 5, 2021, the Lender provided notice to the Company with a $20 million term loan.that the principal amount and accrued interest had been forgiven. The Hercules TermCompany removed the PPP Loan matures on January 1, 2018. The Hercules Term Loan included a $200,000 closing fee, which was paid to Hercules on the closing dateobligation and recorded other income for forgiveness of the loan. The closing fee was recorded as a debt discount and is being amortized to interest expense over the life of the loan. The Hercules Term Loan also includes a non-refundable final payment fee of $1.7totaling $0.4 million. The final payment fee is being accrued and recordedSBA has until January of 2027 to interest expense overaudit the life of the loan. The Hercules Term Loan bears interest at the rate of the greater of either (i) the prime rate plus 9.2%, and (ii) 12.5%, and was 12.7% as of March 31, 2017. Interest accrues from the closing date of the loan and interest payments are due monthly. Principal payments commenced August 1, 2015 and are currently being made in equal monthly installments totaling approximately $500,000, with the remainder due at maturity. The Company’s obligations to the Hercules Term Loan are secured by a first priority security interest in substantially all of its assets, including intellectual property. The Hercules Term Loan contains covenants related to restrictions on payments to certain Company affiliates and financial reporting requirements.

On September 8, 2015, the Company entered into a Consent and First Amendment to Loan and Security Agreement (the “Amendment”) with Hercules. The Amendment modified the liquidity covenant to reduce the required minimum cash and cash equivalent balance by $500,000 for every $1.0 million in principal paid, up to a minimum of $2.5 million. Once the Hercules Term Loan principal balance is below $2.5 million, the Company is only required to maintain a cash and cash equivalents balance equal to the outstanding principal balance on the Hercules Term loan. The minimum cash and cash equivalents balance required to maintain compliance with the minimum liquidity covenant as of March 31, 2017, was $2.5 million. The Company believes it will maintain compliance with the liquidity covenant relatedCARES Act relating to the Hercules Term Loan at least through October 2017. To maintain compliance beyond that date, the Company will likely require additional cash (see Note 11).

See discussion below with respect to the assignment of $3.0 million of the principal balance of the Hercules Term Loan to 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.PPP Loan.

Hercules and Riverside Debt Assignment

In April 2016, we entered into an Assignment Agreement with Riverside, and Hercules, pursuant to which Hercules sold $3.0 million of the principal amount outstanding under the Hercules Term2021 PPP Loan to Riverside. For a more detailed description of the Assignment Agreement refer to Note 7 in the condensed consolidated financial statements of this Report.

Riverside Debt

On April 4, 2016,March 15, 2021, the Company entered into an exchange agreement (the “Exchange Agreement”) with Riverside, pursuant to which the Company agreed to exchange $1.0 million of the principal amount outstanding“Company received funding under the Hercules Term Loan held by Riverside for a subordinated convertible promissory note inSBA Second Draw Program under the principal amount of $1.0 million (the “First Exchange Note”) and a warrant to purchase 100,000 shares of our common stock at a fixed exercise price of $1.63 per share (the “First Exchange Warrant”Paycheck Protection Program (“2021 PPP”) (the “Exchange”“2021 PPP Loan”) from First State Community Bank (the “Lender”). All principal under the Exchange Notes is convertible into shares of common stock at the election of the Holder at any time at a fixed conversion price of $1.43 per share (the “Conversion Price”).

In addition, pursuant to the terms and conditions of the Exchange Agreement, the Company and Riverside had the option to exchange an additional $2.0 million of theThe principal amount of the Hercules Term2021 PPP Loan for an additional subordinated convertible promissory note inis $0.5 million. The 2021 PPP was established under the principal amount of up to $2.0 millionCARES Act and an additional warrant to purchase 100,000 shares of common stock (the “Second Exchange Warrant”).is administered by the SBA. The Exchange Agreement also provided that if the volume-weighted average price of our common stock was less than the Conversion Price, the Company would issue up to an additional 150,000 shares of common stock (the “True-Up Shares”) to Riverside, which was subsequently reduced to 140,000 shares of common stock.

On April 18, 2016, the Company and Riverside exercised their option to exchange an additional $1.0 million of the principal amount of the Hercules Term2021 PPP Loan for an additional subordinated convertible promissory note in the principal amount of $1.0 million (the “Second Exchange Note”). Additionally,has a five-year term, maturing on April 28, 2016, the Company and Riverside exercised their option to exchange an additional $1.0 million of the principal amount of the Term Loan for an additional subordinated convertible promissory note in the principal amount of $1.0 million (the “Third Exchange Note”) and an additional warrant to purchase 100,000 shares of the Company’s common stock at a fixed exercise price of $1.66 per share.March 15, 2026. The First Exchange Note, the Second Exchange Note and the Third Exchange Note are collectively referred to herein as the “Exchange Notes.”

Pursuant to the terms of the Exchange Notes, since the volume-weighted average price of our common stock was less than the Conversion Price on May 6, 2016, the Company issued an additional 140,000 shares of common stock to Riverside.