UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2020
or
For the transition period from _______ to _________
Commission File No. 001-33624
SINTX Technologies, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
84-1375299
(IRS Employer
Identification No.)
1885 West 2100 South, Salt Lake City, UT 84119
(Address of principal executive offices and Zip Code)
(801) 839-3500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value
Trading Symbol
SINT
Name of each exchange on which registered
The NASDAQ Capital Market
Securities registered under Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
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 [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-Accelerated Filer
[ ]
[ ]
Accelerated Filer
Smaller reporting company
Emerging growth company
[ ]
[X]
[ ]
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last
sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $46,889,587.
The number of shares outstanding of the registrant’s common stock, $0.01 par value per share, as of March 17, 2021 was 24,684,574.
DOCUMENTS INCORPORATED BY REFERENCE:
None
Item Number and Caption
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Item 15.
Item 16.
Signatures
Index to Consolidated Financial Statements
Exhibits and Financial Statement Schedules
Form 10-K Summary
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F-1
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than
statements of historical fact are forward-looking statements. SINTX Technologies, Inc. (“we”, “us”, “ourselves”, “the Company”) has tried to identify forward-looking
statements by using words such as “believe,” “may,” “might,” “could,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “plan” and similar words. These
forward-looking statements are based on our current assumptions, expectations and estimates of future events and trends. Forward-looking statements are only predictions and
are subject to many risks, uncertainties and other factors that may affect our businesses and operations and could cause actual results to differ materially from those predicted.
These risks and uncertainties include, but are not limited to, factors affecting our quarterly and annual results, our ability to manage our growth, our ability to sustain our
profitability, demand for our products, our ability to compete successfully, our ability to rapidly develop and introduce new products, our ability to develop and execute on
successful business strategies, our ability to comply with changes and applicable laws and regulations that are applicable to our businesses, our ability to safeguard our
intellectual property, our success in defending legal proceedings brought against us, trends in the medical device industry, and general economic conditions, and other risks set
forth throughout this Annual Report, including under “Item 1, Business,” “Item 1A, Risk Factors,” and “Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and those discussed in other documents we file with the Securities and Exchange Commission (the “SEC”). Moreover, we operate in
an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for us to predict all risk factors and uncertainties, nor can we assess
the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any
forward-looking statements.
Given these risks and uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements. Forward-looking statements contained in this Annual
Report speak only as of the date of this Annual Report. We undertake no obligation to update any forward-looking statements as a result of new information, events or
circumstances or other factors arising or coming to our attention after the date hereof.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act. Accordingly, we file periodic reports and other information with the SEC. We will make our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports available through our Internet site, https://ir.sintx.com/ as
soon as reasonably practicable after electronically filing such materials with the SEC. They may also be obtained free of charge by writing to SINTX Technologies, Inc., Attn:
Investor Relations, 1885 West 2100 South, Salt Lake City, UT 84119. In addition, copies of these reports may be obtained through the SEC’s website at www.sec.gov or by
visiting the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 800-SEC-0330. Our common stock trades on The NASDAQ
Capital Market under the symbol “SINT.”
Unless otherwise indicated, all information contained in this Annual Report reflects a 1-for-30 reverse split which was effected on July 26, 2019.
3
SUMMARY OF PRINCIPAL RISK FACTORS
Our business operations are subject to numerous risks, factors and uncertainties, including those outside of our control, that could cause our actual results to be harmed,
including risks regarding the following:
Risks Related to Our Business and Strategy
● A pandemic, epidemic or outbreak of an infectious disease may adversely affect our business.
● We have incurred net losses since our inception and may never achieve or sustain profitability.
● Our success depends on our ability to successfully commercialize silicon nitride-based products for medical and industrial applications, which to date have experienced
only limited market acceptance.
● Our current products and our future products may not be accepted by hospitals and surgeons and may not become commercially successful.
● We may not be able to compete effectively against the larger, well-established companies that dominate this market or emerging and small innovative companies seeking
to increase their share of the market.
● We depend on CTL Medical’s ability to sell the spinal fusion products we manufacture. If CTL Medical is not able to sell such products, our business and operating
results will be adversely affected.
●
If we are unable to manufacture our silicon nitride products on a timely basis consistent with our quality standards, our results of operation will be adversely impacted.
● We depend on a limited number of third-party suppliers for key raw materials, and the loss of these third-party suppliers or their inability to supply us with adequate raw
materials could harm our business.
● We may not be able to successfully commercialize new silicon nitride-based medical device product candidates or identify other non-medical uses of silicon-nitride.
● We will depend on one or more strategic partners to develop and commercialize our total joint replacement and dental implant product candidates, and if our strategic
●
●
●
partners are unable to execute effectively on our agreements with them, we may never become profitable.
Part of our strategy is to establish and develop OEM partnerships and arrangements, which subjects us to various risks.
If hospitals and other healthcare providers are unable to obtain coverage or adequate reimbursement for procedures performed with our products, it is unlikely our
products will be widely used.
Prolonged negative economic conditions in domestic and international markets may adversely affect us and the global orthopedic market which could harm our financial
position.
● We are dependent on our senior management team, engineering team, and external advisors, and the loss of any of them could harm our business. We may not have
sufficient personnel to effectuate our business strategy due to our recent reduction in force.
●
If we experience significant disruptions in our information technology systems, our business, results of operations and financial condition could be adversely affected.
● Cyber security risks and the failure to maintain the integrity of company, employee or guest data could expose us to data loss, litigation and liability, and our reputation
could be significantly harmed.
Risks Related to Our Capital Resources and Impairments
● We will require additional financing and our failure to obtain additional funding would force us to delay, reduce or eliminate our product development programs or
commercialization efforts.
● Raising additional capital by issuing securities or through debt financings or licensing arrangements may dilute existing stockholders, restrict our operations or require us
●
to relinquish proprietary rights.
In previous years we have indicated that there was substantial doubt as to our ability to continue as a going concern. Depending on the results of our future operations,
we may again have substantial doubt as to our ability to continue as a going concern.
4
Risks Related to Regulatory Approval of Our Products and Other Government Regulations
● We cannot be certain that we will be able to obtain regulatory clearance or approval and thereafter commercialize our product candidates in a timely manner or at all.
●
● We have little experience conducting clinical trials, they may proceed more slowly than anticipated, and we cannot be certain that our product candidates will be shown
The safety of our products is not yet supported by long-term clinical data, and they may prove to be less safe and effective than our laboratory data indicate.
to be safe and effective for human use.
● Our current and future relationships with third-party payers and current and potential customers in the United States and elsewhere may be subject, directly or indirectly,
to various laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm administrative burdens and
diminished profits and future earnings.
● U.S. federal income tax reform could adversely affect us.
●
Legislation may increase the difficulty and cost for us to obtain and monitor regulatory approval or clearance of our product candidates and affect the prices we may
obtain for our products.
Risks Related to Our Intellectual Property and Litigation
●
If our patents, trade secrets and contractual provisions are inadequate to protect our intellectual property, we may not be able to successfully our products or operate our
business profitably.
● We have no patent protection covering the composition of matter for our solid silicon nitride or the related manufacturing process, and competitors may create
formulations substantially similar to ours.
● We could become subject to intellectual property litigation that could be consume significant amounts of our resources and adversely affect our business and results of
operations.
● We may be subject to damages resulting from claims that we have wrongfully used or disclosed alleged trade secrets of our competitors or are in breach of non-
●
competition agreements with our competitors or non-solicitation agreements.
I f our silicon nitride products or our product candidates conflict with the rights of others, we may not be able to manufacture or market our products or product
candidates.
Risks Related to Potential Litigation from Operating Our Business
● We may become subject to potential product liability claims or claims relating to our improper handling, storage or disposal of biological or hazardous materials, which
could be time consuming and costly.
Risks Related to Our Common Stock
●
●
The price of our common stock is volatile and is likely to continue to fluctuate.
Securities analysts may not continue to provide coverage of our common stock or may issue negative reports, which may have a negative impact on the market price of
our common stock.
● Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change in control, which could affect our stock price adversely
and prevent attempts by our stockholders to replace or remove our current management.
● We do not intend to pay cash dividends.
● Our outstanding shares of Series B Convertible Preferred Stock and Series C Convertible Preferred Stock and our outstanding common stock warrants are convertible
and exercisable into shares of our common stock and when converted or exercised, the issuance of additional shares of common stock may result in downward pressure
on the trading price of our common shares.
Risks Related to Public Companies
● We are a “smaller reporting company” and the reduced disclosure requirements applicable to smaller reporting companies may make our common stock less attractive to
investors.
● We could be delisted from Nasdaq, which could seriously harm the liquidity of our stock and our ability to raise capital.
● We incur substantial costs as a result of being a public company and our management expects to devote substantial time to public company compliance programs.
ITEM 1.
BUSINESS
5
PART I
Overview – SINTX Technologies
We are an advanced materials company focused on providing ceramic based solutions in a variety of medical, industrial, and antipathogenic applications. Prior to 2020, our
primary focus has been the research, development and commercialization of medical implant products manufactured with silicon nitride. The discovery in 2020 that SINTX
silicon nitride kills SARS-CoV-2, the virus which causes the disease COVID-19, has opened up new markets and applications for our material and we have refocused many of
our resources on these opportunities.
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- all of which have well-known practical 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, among other advantages, all of which claims are validated in our large and growing inventory of peer-
reviewed, published literature reports. 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 also believe that we are the first and only company to commercialize silicon nitride medical implants. Prior to October 1, 2018, we designed, manufactured and
commercialized silicon nitride products for our own 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 Medical and now manufacture spine implants made
with silicon nitride for CTL Medical. Prior to selling our spine implant business to CTL Medical, 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 spine implant products designed for spinal fusion
surgery. Spine implant products manufactured by us from silicon nitride are currently marketed and sold by CTL Medical under the Valeo® brand to surgeons and hospitals in
the United States and to selected markets in Europe, Taiwan, and South America. These implants are designed for use in cervical (neck) and thoracolumbar (lower back) spine
surgery. We are collaborating with CTL Medical to establish commercial partners in other parts of the world and also working with other partners to obtain regulatory approval
for silicon nitride implants in Japan.
The sale of our spine implant business to CTL Medical enabled us to focus on our core competencies. These core competencies are research and development of silicon nitride
and the design and manufacture of medical and nonmedical products manufactured from silicon nitride for our own account and in collaboration with other manufacturers. We
are targeting original equipment manufacturer (“OEM”) – including CTL Medical - and private label partnerships in order to accelerate adoption of silicon nitride in future
markets such as personal protective equipment, hip and knee replacements, dental and maxillofacial implants, extremities, trauma, and sports medicine. 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 products manufactured with silicon nitride. OEM and private label partnerships 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 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.
Our grade of silicon nitride is of a very high quality and is well suited for a wide variety of applications that would benefit from its mechanical, thermal, and chemical
properties. We have several commercial partnerships and have opportunities ranging from low-volume, highly engineered components to high-volume simple shapes. In 2020,
we fulfilled the first non-medical orders for prototypes in the Company’s history.
Since at least 2012, we have been aware of the antibacterial properties of SINTX silicon nitride. This knowledge played an important role in our desire to expand the use of our
silicon nitride into non-spine medical device implants. The 2020 discovery that our silicon nitride is also antiviral and kills SARS-CoV-2 dramatically expanded the range of
potential applications for this material into non-medical applications. As a result, we have now pivoted from primarily manufacturing discrete components for third parties and
are now adding powder manufacturing capabilities and resources. We are currently working with partners in the mask and consumer products industries to incorporate our
silicon nitride into their products to enhance the antipathogenic properties of those products. To that effect, in February 2021 we entered into a Patent License Agreement (the
“Agreement”) with O2 Design, Inc. (“O2 Design”), to commercialize face masks and mask filters that incorporate the Company’s sintered silicon nitride intended to inactivate
the SARS-CoV-2 virus. Under the terms of the Agreement, the Company granted O2 Design an exclusive world-wide license under certain of the Company’s patents to make,
use, and sell face masks and mask filters incorporating the Company’s proprietary silicon nitride materials for the purpose of enhancing the anti-viral properties of the face
masks and mask filters, in partial consideration of an upfront fee by O2 Design, royalties on the sale of face masks and mask filters incorporating silicon nitride materials and
potential performance-based milestone payments.
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.
6
Overview - Biomaterials
Biomaterials are natural or synthetic biocompatible materials that are used in virtually every medical specialty to improve or preserve body functionality. Various types of
biomaterials are used as essential components in medical devices, drug delivery systems, replacement and tissue repair technologies, prostheses, and diagnostic technologies.
There are four general categories of biomaterials:
● Ceramics. Ceramics are hard, non-metallic, non-corrosive, heat-resistant materials made by shaping and then applying high temperatures. Traditional ceramics
commonly used as biomaterials include carbon, oxides of aluminum, zirconium and titanium, calcium phosphate and zirconia-toughened alumina. Examples of medical
uses of ceramics include repair, augmentation or stabilization of fractured bones, bone and joint replacements, spinal fusion devices, dental implants and restorations,
heart valves and surgical instruments.
● Metals. Metals commonly used as biomaterials include titanium, stainless steel, cobalt, chrome, gold, silver and platinum, and alloys of these metals. Examples of
medical uses of metals include the repair or stabilization of fractured bones, stents, surgical instruments, bone and joint replacements, spinal fusion devices, dental
implants and restorations and heart valves.
● Natural biomaterials. Natural biomaterials are derived from human donors, animal or plant sources and include human bone, collagen, gelatin, cellulose, chitin, alginate
and hyaluronic acid. Examples of medical uses of natural biomaterials include the addition or substitution of hard and soft tissue, cornea protectors, vascular grafts,
repair and replacement of tendons and ligaments, bone and joint replacements, spinal fusion devices, dental restorations and heart valves.
●
Polymers. Polymers are synthetic compounds consisting of similar molecules linked together that can be created to have specific properties. Polymers commonly used as
biomaterials include nylon, silicon rubber, polyester, polyethylene, cross-linked polyethylene (a stronger version), polymethylmethacrylate, polyvinyl chloride and
polyetheretherketone – which is commonly referred to as PEEK. Examples of medical uses of polymers include soft-tissue replacement, sutures, drug delivery systems,
joint replacements, spinal fusion devices and dental restorations.
Our Silicon Nitride Technology Platform
We believe we are the only FDA-registered and ISO 13485:2016 certified silicon nitride medical device manufacturing facility in the world, and the only provider of structural
ceramics-based medical devices used for spinal fusion applications. Silicon nitride is a chemical compound comprised of the elements silicon and nitrogen, with the chemical
formula Si3N4. Silicon nitride, an advanced ceramic, is lightweight, resistant to fracture and strong, and is used in many demanding mechanical, thermal and wear applications,
such as in space shuttle bearings, jet engine components and body armor.
We believe our silicon nitride is ideal as an implant material and is superior to other biomaterials currently used in the spine implant market such as PEEK, allograft and
autograft bone, metal and traditional oxide ceramics, none of which possess all of the favorable characteristics of silicon nitride:
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Promotes Bone Growth. Our silicon nitride is osteointegrative through its inherent surface topography and surface chemistry. The surface topography provides
scaffolding for new bone growth. As a hydrophilic material, silicon nitride attracts protein cells and nutrients that stimulate osteoprogenitor cells to differentiate into
osteoblasts, which are needed for optimal bone growth environments. Our silicon nitride has an inherent surface chemistry that favors bone formation and healing, much
more so than PEEK and metals. These properties were highlighted in an in vivo study, where we measured the force required to separate devices from the spine after
being implanted for three months, which indicates the quality of osteointegration. In the absence of bacteria, the force required to separate our silicon nitride from its
surrounding bone was approximately three times that of PEEK, and nearly two times that of titanium. In the presence of bacteria, the force required to separate our
silicon nitride from its surrounding bone was over five times that of titanium, while there was effectively no separation force required for PEEK, indicating essentially no
osteointegration in a septic environment.
7
Antibacterial. We have demonstrated in in vitro and in vivo studies that silicon nitride has inherent surface antibacterial properties, which reduce the risk of bacterial
infection and biofilm in and around a silicon nitride device. PEEK, traditional ceramics, metals and bone do not have this bacterial resistance. These properties were
highlighted in an in vitro study (Acta Biomater. 2012 Dec;8(12):4447-54. doi: 10.1016/j.actbio.2012.07.038. Epub 2012 Jul 31.), where live bacteria counts were
between 8 and 30 times lower on our silicon nitride than PEEK and up to 8 times lower on our silicon nitride than titanium. In addition to improving patient outcomes,
we believe the antibacterial properties of our silicon nitride should make it an attractive biomaterial to hospitals and surgeons who are not reimbursed by third-party
payers for the treatment of acute, implant-related infections. Additionally, silicon nitride is synthetic and, therefore, there is a lower risk of disease transmission through
cross-contamination or of an adverse auto-immune response, sometimes associated with the use of allograft bone.
Antiviral: Solid-surface inactivation of microbial pathogens has ancient roots; the Smith Papyrus (2600~2200 B.C.) described the use of copper surfaces to sterilize chest
wounds and drinking water. Today, brass and bronze on doorknobs help prevent microbial spread in hospitals, and metal particles and surface coatings of selected metals
are used in hygiene-sensitive environments, both as inactivators and adjuvants in inducing cellular immunity. Cellular toxicity limits these approaches because while the
reactive oxygen radicals generated at metal surfaces efficiently kill bacteria and viruses, they also damage cells by oxidizing their proteins and lipids. Recent data have
shown that silicon nitride surfaces are effective against several types of viruses. With surface-contact transmission of viral pathogens, particularly influenza, and the
increasing use of consumer touchscreens in various retail industries, we believe that our material has value to OEM partners focused on consumer glass-based surface
coatings and treatments. We have filed a U.S. patent application on this effect.
Antifungal: We have conducted preliminary studies which suggest that our silicon nitride may be effective against fungal microbes. Plant-based viruses, bacteria, and
fungi affect some 15% of the world’s edible crops, or about 1 billion metric tons of edible produce annually, with an economic impact in the US and Canada alone
estimated to be between $1.5 to $5 Billion per year. The mycotoxins produced by these plant fungi have an overall negative impact on human health and longevity. The
inorganic nature of silicon nitride may prove to be more beneficial than the use of petrochemical or organometallic fungicides which are known to have residual effects
in soil, on plants, and in fruit
Imaging Compatible. Our silicon nitride interbody spinal fusion devices are semi-radiolucent, clearly visible in X-rays, and produce no distortion under MRI and no
scattering under CT. These characteristics enable an exact view of the device for precise intra-operative placement and post-operative bone fusion assessment in spinal
fusion procedures. These qualities provide surgeons with greater certainty of outcomes with our silicon nitride devices than with other biomaterials, such as PEEK and
metals.
● Hard, Strong and Resistant to Fracture. Our silicon nitride is hard, strong and possesses superior resistance to fracture over traditional ceramics and greater strength than
polymers currently on the market. For example, our silicon nitride’s flexural strength is more than five times that of PEEK and our silicon nitride’s compressive strength
is over twenty times that of PEEK. Unlike PEEK interbody spinal fusion devices, we believe our silicon nitride interbody spinal fusion devices can withstand the forces
exerted during implantation and daily activities over the long term.
●
Resistant to Wear. We believe our silicon nitride joint implant product candidates could have higher resistance to wear than metal-on-cross-linked polyethylene and
traditional oxide ceramic-on-cross-linked polyethylene joint implants, the two most commonly used total hip replacement implants. Wear debris associated with metal
implants increases the risk of metal sensitivity and metallosis. It is a primary reason for early failures of metal and polymer articulating joint components.
● Non-Corrosive. Our silicon nitride does not have the drawbacks associated with the corrosive nature of metal within the body, including metal sensitivity and metallosis,
nor does it result in the release of metal ions into the body. As a result, we believe our silicon nitride products will have lower revision rates and fewer complications
than comparable metal and traditional oxide ceramic products.
8
We and a number of independent third parties have conducted extensive biocompatibility, biomechanical, in vivo and in vitro testing on our silicon nitride composition to
establish its safety and efficacy in support of regulatory clearance of our biomaterial, products and product candidates. We have also completed additional testing of our silicon
nitride products and product candidates. The results of this testing have been published in over 130 peer reviewed publications and presentations that include basic science
studies, small- and large-animal data, and human clinical studies. We believe that our product development strategy is consistent with the manner in which other biomaterials
have been successfully introduced into the market and adopted as the standard of care. Listed below is an overview of some of the key testing completed on our silicon nitride
biomaterial, products and product candidates to date, as well as other information about our silicon nitride and other biomaterials.
Supporting Data
Biocompatibility
Before our silicon nitride was cleared by the FDA in 2008, we conducted a series of biocompatibility tests following the guidelines of the FDA and ISO and submitted the
results to the FDA as part of the regulatory clearance process. These tests confirmed that our silicon nitride products meet required biocompatibility standards for human use.
Promotion of Bone Growth
In 2012, we conducted two separate studies at Brown University, the results of which suggest that the chemistry and inherent surface topography of our solid silicon nitride
provides an optimal environment for bone growth onto and around the device.
The first study was a series of in vitro analyses of protein adsorption, or presence on the surface of the biomaterial, onto silicon nitride, PEEK and titanium. The results of this
study indicated that adsorption of two key proteins necessary for bone growth (fibronectin and vitronectin) were up to eight times greater on our silicon nitride than on PEEK,
and up to four times greater than on titanium. A third important protein (laminin) had up to two times greater adsorption on our silicon nitride than on PEEK, and up to two-and-
one-half times greater adsorption than on titanium.
The second study was an in vivo investigation of the osteointegration characteristics of these same three biomaterials after they had been surgically implanted into the skulls of
laboratory rats. This study included an examination of the effect of Staphylococcus epidermidis bacteria on osteointegration. At time intervals of up to three months after
implantation of the biomaterial, the amount of new bone growth within the surgical site and in direct contact with the implanted biomaterial was evaluated. In the absence of
bacteria, new bone formation within the surgical site surrounding our silicon nitride was approximately 69%, compared with 36% and 24% for titanium and PEEK, respectively.
Similarly, bone in direct contact, or apposition, with our silicon nitride, titanium and PEEK was 59%, 19% and 8%, respectively. As is common, in the presence of bacteria,
new bone formation within the surgical site was suppressed, but still significantly greater for our silicon nitride than for the other two biomaterials. Observed new bone growth
within the surgical site surrounding our silicon nitride was 41%, compared with 26% and 21% for titanium and PEEK, respectively. At the implant interface, the bone apposition
for our silicon nitride, titanium and PEEK was 23%, 9% and 5%, respectively. To further characterize the extent of osteointegration, the force needed to separate each implant
from its surrounding bone was measured. A larger force needed to separate the implant is an indication of improved osteointegration. At three months after implantation, in the
absence of bacteria, the force required to separate our silicon nitride from its surrounding bone was approximately three times that of PEEK, and nearly two times that of
titanium. In the presence of bacteria, there was effectively no separation force required for PEEK, indicating essentially no osteointegration. Our silicon nitride required over
five times the force to separate it from its surrounding bone in the presence of bacteria in comparison to titanium.
9
In 2008, we conducted an animal study in which we evaluated the level of osteointegration of our porous silicon nitride with a knee-defect model in adult sheep. At three
months after implantation, three out of five of the silicon nitride implants had extensive new bone formation at and into the implant surface, showing that the bone had grown
into our porous silicon nitride to a depth of 3 millimeters, or mm. This animal study demonstrated the rapid osteointegration potential of our porous silicon nitride composition.
Hardness, Strength and Resistance to Fracture
Comparative Information
As shown in the table of comparative information publicly available about various biomaterials below:
●
●
●
the hardness, or a material’s resistance to deformity, of silicon nitride is comparable to traditional ceramics, but is substantially higher than either polymers or metals;
the strength of silicon nitride is comparable or higher than metals and traditional ceramics, and is about sixteen to fifty-five times stronger than highly-cross-linked
polyethylene, and four to eight times stronger than PEEK; and
silicon nitride has the highest fracture resistance of any medical ceramic material and is three to eleven times more resistant to fracture than PEEK or highly-cross-linked
polyethylene. This is due to the interwoven microstructure of silicon nitride. Metals have the highest fracture resistance.
Comparison of Mechanical Properties Among Orthopedic Biomaterials
Material
Silicon Nitride
Aluminum Oxide Ceramic
Zirconia-Toughened Alumina Ceramic
PEEK
Highly-Cross-Linked Polyethylene Polymer
Cobalt-Chromium Metal
Titanium Alloy Metal
Hardness
(GPa)(1)
Strength
(MPa)(1)
Fracture Resistance
(MPam1/2)(1)
13 – 16
14 – 19
12 – 19
0.09 – 0.28
0.03 – 0.07
3 – 4
3 – 4
800 – 1200
300 – 500
700 – 1150
160 – 180
22 – 48
700 – 1000
920 – 980
8 – 11
3 – 5
5 – 10
2 – 3
1 – 2
50 – 100
75
(1) GPa is a giga-pascal. Pascals are a measure of pressure. MPam1/2 is mega-pascal times a square root meter and is a measure related to the energy required to initiate fracture
of a material.
We believe that the combination of high hardness, strength and fracture resistance positions our silicon nitride as an ideal biomaterial for many medical applications.
Burst Strength
In 2006, we conducted in-house comparative “burst strength” tests on femoral heads made from our silicon nitride produced by a contract manufacturer to our specifications
and femoral heads made from one of the strongest commercially available ceramics, BIOLOX® delta (zirconia-toughened alumina). These tests were performed on three
designs of 28 mm femoral heads using accepted testing protocols. The tests involved applying a load to each femoral head while mounted on a cobalt-chromium simulated hip
implant stem, until the head burst. This enabled us to directly compare the strength of the femoral heads made of the two biomaterials. The results also provided an indication of
each biomaterial’s resistance to fracture. The results of these tests are shown in the chart below.
10
The average burst test strength for the silicon nitride femoral heads in these tests was 75 kilonewtons, or kNs, compared with 65 kN for BIOLOX® delta, or about a 15%
improvement. The burst strengths observed in our tests for BIOLOX® delta femoral heads are comparable to those observed by an independent party testing the same design
BIOLOX® delta femoral heads as we did. We also conducted burst strength tests of 36 mm femoral heads made from our silicon nitride which showed those femoral heads had
burst strengths that averaged 164 kN.
Resistance to Wear
In 2011, we commissioned an independent laboratory to conduct a wear study using our silicon nitride femoral heads. We tested our 28 mm silicon nitride femoral heads
articulated against cross-linked polyethylene acetabular liners and our 40 mm silicon nitride femoral heads articulated against cross-linked polyethylene acetabular liners using
well-established protocols in a hip simulator for their wear performance over 5 million cycles. We then compared the results for our silicon nitride product candidates to the
results for the cobalt chrome femoral head and publicly available data from other commonly paired products. The results and comparison showed that:
●
●
o u r silicon nitride-on-cross-linked polyethylene had approximately half the wear rate of that publicly reported for cobalt chrome-on-cross-linked polyethylene
articulating hip components; and
our silicon nitride-on-cross-linked polyethylene had comparable wear to that publicly reported for traditional oxide ceramic-on-cross-linked polyethylene articulating hip
components.
Antibacterial Properties
The results of the two studies at Brown University in 2012, demonstrate that our solid silicon nitride has antibacterial properties. The objective of the in vitro study was to
determine how our silicon nitride, PEEK and titanium interact with bacteria, protein and bone cells without the use of antibiotics and compared the growth of five different
types of bacteria on silicon nitride, PEEK and titanium over time. Live bacteria counts were between 8 to 30 times lower on silicon nitride than PEEK and up to 8 times lower
on silicon nitride than titanium.
In the in vivo study, bacteria were applied to the biomaterials before implantation. Three months after implantation, no infection was observed with silicon nitride, whereas both
PEEK and titanium showed infection. The data demonstrate that our silicon nitride inhibits biofilm formation and bacterial colonization around the biomaterial. The
antibacterial attributes of silicon nitride have been confirmed by independent authors from China and Europe as well.
Antiviral and Antifungal Properties
Antiviral: Our data have shown that off-stoichiometric reactions at the surface of our silicon nitride can inactivate different types of single-strand RNA viruses. This antiviral
property derives from reactive nitrogen species without harm to mammalian cells. Testing based on polymerase chain reaction tests of viral RNA and in situ Raman
spectroscopy suggest that our material is effective in counteracting several viruses relevant to public health concerns, such as Influenza A, Feline calcivirus, Enterovirus, and
SARS-CoV-2 (the virus responsible for COVID-19). The Company has received positive testing results from independent studies that demonstrate 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.
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Antifungal: We have conducted preliminary studies which suggest that our silicon nitride may be effective against fungal microbes. After sintering and processing, powdered
silicon nitride was dissolved in a 1.5 vol.% aqueous solution that underwent field testing on two species of grape vine leaves that were infected with a fungal pathogen
Plasmopara viticola. After 1 minute of exposure to our silicon nitride, the infected area of the leaves was reduced by ~95%. The likely mechanism likely involves electrical
attraction to, and attachment of silicon nitride particles to oppositely-charged pathogen spores.
Imaging Compatibility
In 2007, we conducted a study to compare the imaging characteristics of test blanks made of PEEK, the metals titanium and tantalum, and silicon nitride using a cadaver human
vertebral body. Images of the vertebral body and the blanks were obtained using X-ray, CT and MRI under identical conditions. We assessed the radiolucent characteristics of
the blanks in X-ray images quantitatively, assessed the presence of scatter in CT qualitatively and assessed distortion in MRI quantitatively. In X-ray, the metal blanks did not
permit visualization of the underlying bone of the vertebral body, while PEEK was transparent, rendering its location difficult to determine. The silicon nitride blank had an
intermediate radiolucency that rendered it visible and allowed a visual assessment of the underlying bone of the vertebral body. CT and MRI of the metal blanks indicated the
presence of distortion while silicon nitride and PEEK exhibited no scattering.
Our Forms of Silicon Nitride
To control the quality, cost and availability of our silicon nitride products and product candidates, we operate our own manufacturing facility. Our 30,000 square foot corporate
facility includes an 18,000 square foot FDA registered and ISO 13485:2016 certified medical device manufacturing space. It is equipped with state-of-the-art powder
processing, spray drying, pressing and computerized machining equipment, sintering furnaces, and other testing equipment that enables us to control the entire manufacturing
process for our silicon nitride products and product candidates. To our knowledge, we are the only vertically integrated silicon nitride orthopedic medical device manufacturer
in the world. All operations with the exception of raw material production are performed in-house. We purchase raw materials, consisting of silicon nitride ceramic powder and
dopant chemical compounds, from several vendors which are ISO registered and approved by us. These raw materials are characterized and tested in accordance with our
specifications and then blended to formulate our silicon nitride. We believe that there are multiple vendors that can supply us these raw materials and we continually monitor the
quality and pricing offered by our vendors to ensure high quality and cost-effective supply of these materials.
The chemical composition of our in-house formulation of silicon nitride and our processing and manufacturing experience allow us to produce silicon nitride in four distinct
forms. This capability provides us with the ability to utilize our silicon nitride biomaterial in a variety of ways depending on the intended application, which, together with our
silicon nitride’s key characteristics, distinguishes us from manufacturers of products using other biomaterials.
We currently produce silicon nitride for use in our commercial products and product candidates in the following forms:
●
Solid Silicon Nitride. This form of silicon nitride is a fully dense, load-bearing solid used for devices that require high strength, toughness, fracture resistance and low
wear, including interbody spinal fusion devices, hip and knee replacement implants, and dental implants.
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●
Porous Silicon Nitride. While this form of silicon nitride has a chemical composition that is identical to that of our monolithic solid silicon nitride, this formulation has a
porous structure, which is engineered to mimic cancellous bone, the spongy bone tissue that typically makes up the interior of human bones. Our porous silicon nitride
has interconnected pores ranging in size between about 90 and 600 microns, which is similar to that of cancellous bone. This form of silicon nitride can be used for the
promotion of bone in-growth and attachment. We believe our porous silicon nitride can act as a substitute for the orthobiologics currently used to fill interbody devices in
an effort to stimulate fusion, as a bone void filler, and as a porous scaffold for medical devices.
●
Silicon Nitride Powder. We can produce silicon nitride powder that is osteogenic and antipathogenic. This powder can then be utilized to produce composites or
coatings.
● Composite of Silicon Nitride and PEEK. We have demonstrated in the laboratory that it is possible to compound our silicon nitride powder and the polymer PEEK and
that the ensuing composite material maintains the bioactive properties of silicon nitride. We have engaged commercial partners to assist us in developing this technology.
This composite material would allow the straightforward machinability of a complex device that would be more challenging to manufacture from silicon nitride alone.
●
Silicon Nitride Coating. With a similar chemical composition as our other forms of silicon nitride, this form of silicon nitride can be applied as an adherent coating to
metallic substrates, including cobalt-chromium, titanium and steel alloys, polymers, and ceramics. We believe applying an extremely thin layer of silicon nitride as a
coating may provide a highly wear-resistant articulation surface, such as on femoral heads, which may reduce problems associated with metal or polymer wear debris.
We also believe that the silicon nitride coating can be applied to devices that require firm fixation and functional connections between the device or implant and the
surrounding tissue, such as hip stems and screws. The use of silicon nitride coating may also create an antibacterial, antiviral, and antifungal barrier between the device
and the adjacent bone or tissue. We are currently evaluating several different coating technologies.
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Our Competitive Strengths
We believe we can use our silicon nitride technology platform to become a leading advanced ceramic company and have the following principal competitive strengths:
●
●
●
Sole Provider of Silicon Nitride Medical Devices. We believe we are the only company that designs, develops, manufactures and sells medical grade silicon nitride-based
products. Due to its key characteristics, we believe our silicon nitride enables us to offer new and transformative products across multiple medical specialties. In
addition, with the FDA clearance of our silicon nitride Valeo products, we are the only company to develop and manufacture a ceramic for use in FDA cleared spinal
fusion medical devices in the United States.
In-House Manufacturing Capabilities. We operate an 18,000 square foot manufacturing facility located at our corporate headquarters in Salt Lake City, Utah. This
operation complies with the FDA’s quality system regulation, or QSR, and is certified under the International Organization for Standardization’s, or ISO, standard
13485:2016 for medical devices. This facility allows us to rapidly design and produce silicon nitride products while controlling the entire manufacturing process from
raw material to finished components.
Extensive Network of Scientific Collaborators. We have developed strong, multi-year, collaborative relationships with surgeons who have used our products. These
surgeons have supported us in collecting clinical data on silicon nitride and on reporting the successful patient outcomes they have observed. We also have long standing
relations with university laboratories in Japan and the US and participate in a European consortium on silicon nitride. Our partner in Japan has been at the forefront of
silicon nitride biomaterial research for several years and has published extensively on the subject.
● Highly Experienced Management and Technical Advisory Team. Members of our management team have extensive experience in silicon nitride, ceramics, research and
development, manufacturing and operations, product development, launching of new silicon nitride products into multiple industries. We also collaborate with a network
of leading technical advisors in the design, development and use of our silicon nitride products and product candidates.
Our Strategy
Our goal is to become a leading biomaterial company focused on using our silicon nitride technology platform to develop, manufacture and commercialize a broad range of
medical devices. Key elements of our strategy to achieve this goal are the following:
● Develop new products with anti-viral properties, including inactivation of the SARS-CoV-2 virus, utilizing our silicon nitride technology. We have entered into a
commercialization agreement with O2 DESIGN for the purpose of developing and commercializing a face mask with anti-viral properties. Should we be successful in
developing such a face mask, we expect to supply O2 DESIGN’S requirements for silicon nitride powder in the manufacture of the face masks as well as earn royalties
and milestone payments on sales of masks that incorporate our technology. We are also pursuing other opportunities for the potential application of our technology in
other personal protective equipment and products.
● Develop additional commercial opportunities outside of the spine implant market. The Company made the first shipments of non-medical products in its history in 2020.
These were primarily prototype orders and we expect some of these to transition into regular production orders. Furthermore, the potential use of the Company’s silicon
nitride in antipathogenic applications has opened up the potential to enter many new markets.
● Develop new silicon nitride manufacturing technologies. Our current manufacturing process has allowed us to successfully produce spinal implants for over 10 years.
However, this process has limitations and we are actively pursuing other manufacturing technologies such as additive manufacturing, and surface coating technologies.
● Make improvements to our current formulation of silicon nitride to increase the bioactive properties of the material. We have demonstrated in the laboratory that we can
make our material more bioactive. This work has been independently corroborated by researchers in other parts of the world. We expect that the availability of silicon
nitride with enhanced bioactivity would open up new markets to us.
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●
Apply our silicon nitride technology platform to OEM opportunities – medical and non-medical. We believe our biomaterial expertise, flexible manufacturing process,
and strong intellectual property will allow us to transition currently available medical device products made of inferior biomaterials and manufacture them using silicon
nitride and our technology platform to improve their characteristics. We are seeking partnerships to utilize our capabilities and manufacture products for medical and
non-medical OEM and private label partnerships. We see specific opportunities in markets such as dental, maxillofacial, total hip and knee joint replacements, bearings,
automotive and aerospace components, cutting tools, and antipathogenic devices such as masks and high-contact surfaces.
Overview
Market Opportunity
We believe our silicon nitride biomaterial technology platform provides us with numerous competitive advantages in the biomaterials market. We manufacture interbody spinal
fusion devices for CTL Amedica, and have a 10-year exclusive right to continue to manufacture them for CTL Amedica. We are developing products on our own behalf and for
third party manufacturers – including CTL - for use as components in spine, total hip and knee joint replacements, as well as dental and maxillofacial applications. We believe
we can also utilize our silicon nitride technology platform to develop future products in additional medical and non-medical markets.
We believe that the main drivers for growth within the orthopedic biomaterials market are the following:
●
●
Introduction of New Technologies. Better performing and longer-lasting biomaterials, improved diagnostics, and advances in surgical procedures allow for surgical
intervention earlier in the continuum of care and better outcomes for patients. We believe surgical options using better performing and longer-lasting biomaterials will
gain acceptance among surgeons and younger patients and drive accelerated growth and increase the size of the spinal fusion and joint replacement markets.
Favorable and Changing Demographics. With the growing number of elderly people, age-related ailments are expected to rise sharply, which we believe will increase
the demand and need for biomaterials and devices with improved performance capabilities. Also, middle-aged and older patients increasingly expect to enjoy active
lifestyles, and consequently demand effective treatments for painful spine and joint conditions, including better performing and longer-lasting interbody spinal fusion
devices and joint replacements.
● Market Expansion into New Geographic Areas. We anticipate that demand for biomaterials and the associated medical devices will increase as the applications in which
biomaterials are used are introduced to and become more widely accepted in underserved countries, such as Brazil and China. We also expect to introduce our products
into established markets such as Australia and Japan.
The Interbody Spinal Fusion Market
We believe there is opportunity for significant growth in the spinal fusion market for interbody spinal fusion devices manufactured with silicon nitride. Currently, in spinal
fusion procedures conducted in the United States today, a significant majority utilize interbody devices comprised of PEEK and bone, with occasional use of metals and other
materials including ceramics. The market for interbody spinal fusion devices has shifted over time as new biomaterials with superior characteristics have been incorporated into
these devices and have launched into the market. We believe the market has reached another inflection point as surgeons and hospitals recognized the limitations of devices
currently available. Similarly, we believe silicon nitride interbody spinal fusion products address the key limitations of other biomaterials currently used in interbody spinal
fusion devices and demonstrate superior characteristics needed to improve clinical outcomes.
We selected this market as the first application for our silicon nitride technology because of the limitations of currently available products, its size, and the key characteristics
silicon nitride possesses, which are critical for superior interbody spinal fusion outcomes.
15
●
●
●
●
Promotion of Bone Growth. The biomaterial should be both osteoconductive and create an osteoinductive environment to promote bone growth in and around the
interbody device to further support fusion and stability. Osteoconduction occurs when material serves as a scaffold to support the growth of new bone in and around the
material. Osteoinduction involves the stimulation of osteoprogenitor cells to develop, or differentiate, into osteoblasts, which are cells that are needed for bone growth. A
material which stimulates bone growth and accelerates fusion rates is ideal in spinal fusion procedures.
Antibacterial. Spinal fusion devices can become colonized with bacteria, which may limit fusion to adjacent vertebrae or cause serious infection. Treating device-related
infection is costly and generally requires repeat surgery, including surgery to replace the device, referred to as revision surgery, which may extend hospital stays,
suffering and disability for patients. A biomaterial that has antibacterial properties can reduce the incidence of bacteria colonization in and around the interbody device
that can lead to infection, revision surgery and associated increased costs.
Imaging Compatibility. The biomaterial should be visible through, and not inhibit the effective use of, common surgical and diagnostic imaging techniques, such as X-
ray, CT and MRI. These imaging techniques are used by surgeons during and after spinal fusion procedures to assist in the proper placement of interbody devices and to
assess the quality of post-operative bone fusion.
Strength and Resistance to Fracture. The biomaterial should be strong and resistant to fracture during implantation of the device and to successfully restore
intervertebral disc space and spinal alignment during the fusion process. The biomaterial should have high flexural strength, which is the ability to resist breakage during
bending, and high compressive strength, which is the ability to resist compression under pressure, to withstand the static and dynamic forces exerted on the spine during
daily activities over the long term.
Spinal Fusion Products
Current spinal fusion products that we manufacture for CTL Amedica are:
Valeo Interbody Fusion Devices
AL: Anterior Lumbar
PL: Posterior Lumbar
OL: Oblique Lumbar
TL: Transforaminal Lumbar
LL: Lateral Lumbar
C: Cervical
CORP: Corpectomy
C+CSC (cleared in Australia and the EU but not the USA)
C+CSC with Lumen
Silicon Nitride – Polyetheretherketone (PEEK) composite material (SN-PEEK)
Generation
2nd
1st and 2nd
1st and 2nd
1st and 2nd
2nd
1st and 2nd
1st
1st
1st
SN-PEEK is an innovative material platform that combines the best of two materials that are used to make spinal fusion implants, i.e., silicon nitride and PEEK. Clinical and
basic science data demonstrate that our silicon nitride facilitates faster bone healing, improves radiographic imaging, avoids metal ion release in the body, and has broad-
spectrum resistance to infection. PEEK is an accepted standard polymeric biomaterial that is used worldwide, especially by spine surgeons. This material is produced by
compounding an extremely fine particulate form of our Si3N4 bioceramic into an implant grade PEEK matrix. Subsequent forming operations produce new surfaces with the
same enhanced properties as the original PEEK stock composite, giving device manufacturers design and process flexibility when working with this material. PEEK’s
advantages include its low cost, favorable material modulus, ease of manufacturing, established clinical record, and a familiar fit and feel. The most immediate biomedical
applications of this product are expected to be in the spine and craniomaxillofacial medical device markets, with other applications to follow. We our exploring OEM
opportunities for this product.
16
Personal Protective Equipment (PPE)
We believe that there is the opportunity for significant growth in the personal protective equipment or PPE market for products that are shown to have antiviral properties. The
Company has demonstrated in controlled research studies the anti-viral properties of its silicon nitride which may be useful in the reduction of the spread of COVID-19 and
other pathogens. 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. To that effect, we have successfully dispersed and embedded silicon nitride particles into nonwoven and woven fabric fibers.
The first area of focus for application of our unique silicon nitride powder is in face masks and face mask filters. Face masks used by healthcare workers today can capture virus
particles, but the virus can remain viable in the mask, even as long 7 days after use. Inclusion of silicon nitride technology into the mask may enhance personal safety while
reducing the risk of disease spread. To that effect, we announced in August 2020 that we entered into a joint development agreement with Salt Lake City, Utah based O2
DESIGN, an original equipment manufacturer company who develops and commercializes face masks for medical and non-medical applications, to develop a safe and effective
consumer face mask with broad-spectrum antibacterial and antiviral activity, based on incorporating our unique silicon nitride powder into the mask filter and fabric. In
February 2021 we entered into a worldwide exclusive worldwide licensing agreement with O2 DESIGN for the purpose of commercializing face masks and mask filters
incorporating our silicon nitride technology. We expect the face mask and filters will inactivate pathogens in the fabric itself, therefore reducing the spread of viral diseases and
effectively fighting against COVID-19. The February 2021 license agreement includes a license fee, a commercial agreement on silicon nitride sales, and royalties based upon
product sales of the masks and filters.
The Dental Market
We believe there is opportunity for significant growth in the dental implant market for dental implant devices manufactured with silicon nitride and are pursuing this opportunity
aggressively. We have entered into a joint development agreement with a dental implant design company and distributor of dental technologies for the development of a silicon
nitride based dental implant system and devices.
When a tooth is removed, one common approach to restoration is to use a multi-part construct consisting of a titanium implant (or screw), a zirconia abutment, and a crown.
Potential applications for silicon nitride in this procedure include the implant and the abutment.
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Silicon nitride is appealing because this application takes advantage of the same bioactive properties discussed in the spinal implant section:
●
Promotion of bone growth
● Antibacterial
●
Imaging compatible
● Hard, strong, resistant to fracture and wear
We also believe it may be possible to leverage our knowledge of medical device manufacturing of ceramics and commercialize products for the dental market made from
ceramics other than silicon nitride. We have engaged an investment banker to assist us in identifying partner companies for our technologies.
The Hip and Knee Joint Replacement Market
We believe there is opportunity for significant growth in the hip and knee joint replacement market for interbody devices manufactured with silicon nitride.
Total joint replacement involves removing the diseased or damaged joint and replacing it with an artificial implant consisting of components made from several different types
of biomaterials. The key components of a total hip implant include an artificial femoral head, consisting of a ball mounted on an artificial stem attached to the femur, and a
liner, which is placed inside a cup affixed into the pelvic bone. The femoral head and liner move against each other to replicate natural motion in what is known as an
articulating implant. Total knee replacement implants also use articulating components and are comprised of the following four main components: a femoral condyle, which is a
specially shaped bearing that is affixed to the lower end of the femur; a tibial tray that is affixed to the upper-end of the tibia; a tibial insert that is rigidly fixed to the tibial tray
and serves as the surface against which the femoral condyle articulates; and a patella, or knee cap, which also articulates against the femoral condyle.
Implants for total hip and knee replacements are primarily differentiated by the biomaterials used in the components that articulate against one another. The combinations of
biomaterials most commonly used in hip and knee replacement implants in the United States are metal-on-cross-linked polyethylene and traditional oxide ceramic-on-cross-
linked polyethylene. The use of hip replacement implants incorporating metal-on-metal and traditional oxide ceramic-on-traditional ceramic biomaterials experienced a steep
decline in the United States over the last several years due to their significant limitations. We believe that the most commonly used biomaterials in joint replacement implants
also have limitations, and do not possess all of the following key characteristics required for optimal total joint replacement implants:
●
Resistance to Wear. The biomaterials should have sufficient hardness and toughness, as well as extremely smooth surfaces, to effectively resist wear. Because the
articulating implants move against each other, they are subject to friction, which frequently leads to abrasive wear and the release of small wear particles. This may cause
an inflammatory response which results in osteolysis, or bone loss. Surgeons have identified osteolysis as a leading cause of joint implant failure, resulting in the need
for costly revision surgery to replace the failed implant. One of the most commonly used combinations of biomaterials, metal-on-cross-linked polyethylene, as well as
metal-on-metal implants, tends to generate a large number of metal wear particles, which can cause osteolysis and a moderate to severe allergic reaction to the metal,
referred to as metal sensitivity. While less common, metal implants may also cause a serious medical condition called metallosis, which involves the deposition and
build-up of metal debris in the soft tissues of the body. Both metal sensitivity and metallosis can result in revision surgery. In addition, we believe traditional oxide
ceramics currently used in total joint replacements accelerate wear of the cross-linked polyethylene liner as compared to our non-oxide ceramic composition found in our
silicon nitride biomaterial platform.
● Non-Corrosive. The biomaterials should be non-corrosive and should not cause adverse patient reactions. Metal placed in the human body corrodes over time and also
results in the formation of metal ions, which leads to metal sensitivity in approximately 10% to 15% of the population and, less commonly, metallosis. As a result, there
are significant increased risks from using metal-on-cross-linked polyethylene and metal-on-metal implants.
● Hardness, Strength and Resistance to Fracture. The biomaterials should be hard, strong and resistant to fracture to adequately bear the significant loads placed on the
hip and knee joints during daily activities. We believe there are strength limitations associated with traditional oxide ceramic-on-cross-linked polyethylene and traditional
oxide ceramic-on-traditional oxide ceramic implants.
●
Antibacterial. The biomaterials should have antibacterial properties to reduce the risk of bacteria colonization, infection, revision surgeries and associated increased
costs. None of the most commonly used biomaterials in joint replacement implants have antibacterial properties.
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Our Total Hip Implant Product Candidates
We have developed a femoral head that is made from our solid silicon nitride, which could be used for total hip replacement product candidates. This femoral head is expected
to articulate against a cross-linked polyethylene liner fixed into a metal acetabular cup. We participated in a university study that demonstrated the comparatively better behavior
of silicon nitride femoral heads in taper fretting corrosion behavior study. As we continue to gather evidence that silicon nitride femoral heads are superior in terms of wear
performance, taper corrosion, strength and in vitro hydrothermal stability, we eventually intend to commercialize this product in cooperation with a strategic partner. However,
clearance of these types of devices by the FDA will be required. Currently, the FDA has indicated that a limited one to two-year clinical trial may be necessary to obtain
clearance.
Our Total Knee Implant Product Candidates
We have developed a femoral condyle design made from our solid silicon nitride. The femoral condyle component will attach to the lower end of the femur. The femoral
condyle is expected to articulate against a cross-linked polyethylene tibial insert that will attach to the tibial tray at the upper end of the tibia, which we expect will be made from
metal. We have successfully made prototypes of this design. Following the potential clearance of the femoral head components (discussed above), we intend to initiate
biomechanical testing with a strategic partner for silicon nitride components for use in knee replacement procedures to support a 510(k) submission to the FDA. If this clearance
is eventually obtained, we intend to commercialize our products for use in total knee replacement surgeries post-FDA clearance.
Other Product Opportunities
Our silicon nitride technology platform is adaptable, and we believe it may be used to develop products to address other significant opportunities, such as in the cranial-
maxillofacial, extremities, sports medicine and trauma markets.
We also believe our coating technology may be used to enhance metal products as well as other commercially available metal or PEEK spinal fusion and joint replacement
products. We have produced feasibility prototypes of dental implants, other components for use in total hip implants in addition to our total hip and knee implant product
candidates discussed above, a suture anchor for sports medicine applications, an osteotomy wedge for extremities applications, and prototypes of silicon nitride-coated plates for
potential trauma applications. We have also developed a process to apply our silicon nitride as a coating on other materials which may find applications in markets outside of the
medical device industry.
Our recent discoveries of the antiviral and antifungal properties of silicon nitride have opened up completely new opportunities for us in the consumer and agriculture markets.
The FDA has not evaluated any of these potential products. We plan to collaborate with medical device companies to complete the development of and commercialize any
product candidates we advance in these areas or develop any one of them ourselves if sufficient resources should become available.
We also see a wide variety of opportunities for our silicon nitride technology platform in non-medical applications. To that effect, we have begun applying our technology to the
manufacture of products for several third-party ceramic companies which we are hopeful will result in commercial partnerships with opportunities ranging from low-volume,
highly engineered components to high-volume simple shapes.
We rely on a combination of patents, trademarks, trade secrets, nondisclosure agreements, proprietary information ownership agreements and other intellectual property
measures to protect our intellectual property rights. We believe that in order to have a competitive advantage, we must continue to develop and maintain the proprietary aspects
of our technologies.
Intellectual Property
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We have thirteen issued U.S. patents, one foreign patent, four pending U.S. non-provisional patent applications, ten pending U.S. provisional patent applications, twenty-five
pending foreign applications and four pending PCT patent applications. Our first issued patent expired in 2016, with the last of these patents expiring in 2036. The core patent
(US 6,881,229) expires in 2022.
We have seven U.S. patents directed to articulating implants using our high-strength, high toughness doped silicon nitride solid ceramic. The issued patents, which include US
6,881,229; US 7,666,229; US 7,780,738; US 8,123,812; US 8,133,284; US 9,051,639; and US 9,517,136 begin to expire in 2022.
We also have two U.S. patents related to our CSC technology that are directed to implants that have both a dense load-bearing, or cortical, component and a porous, or
cancellous, component, together with a surface coating. These issued patents, US 8,133,284 and US 9,649,197 will expire in 2022 and 2035, respectively.
With respect to PCT patent application serial no. PCT/US2018/014781 directed to antibacterial biomedical implants, we entered the national stage in Europe, Australia, Brazil,
Canada, China, Japan, Hong Kong, and South Korea as well as two divisional patent applications filed in Australia and Japan in order to seek potential patent protection for our
proprietary technologies in those countries.
With respect to PCT patent application serial no. PCT/US2019/026789 directed to methods for improving the wear performance of ceramic-polyethylene or ceramic-ceramic
articulation couples utilized in orthopaedic joint prostheses, we entered the national stage in Australia, Brazil, Canada, Europe, Japan, Korea, and Mexico in order to seek
proprietary technologies in those countries.
With respect to PCT application serial no. PCT/US2019/048072 directed to antipathogenic devices and methods, we entered the national stage in Europe, Japan, Mexico,
Australia, Brazil, Canada, South Korea, China and India in order to seek proprietary technologies in those countries. A patent license agreement was executed between SINTX
Technologies and O2 Design on February 19, 2021 that provides a royalty-bearing exclusive license to make, have made, use, and sell the licensed invention claimed in PCT
application serial no. PCT/US2019/048072 as well as the related U.S. patent application serial no. 16/550,605.
In relation to the sale of our spine implant business to CTL Medical under the Asset Purchase Agreement dated September 5, 2018 we assigned our entire right to forty eight
(48) U.S. patents, two (2) foreign patents and three (3) pending patent applications from our patent portfolio to CTL Medical under that transaction. In addition, three (3) U.S.
patents (U.S. patent nos. 9,399,309; 9,517,136; and 9,649,197) directed to silicon nitride manufacturing processes were licensed to CTL Medical under an irrevocable, fully
paid-up, worldwide license for a ten year term with CTL Medical also having a Right of First Negotiation to acquire these patents if SINTX decides to later sell these IP assets
to a third party. The previously listed licensed patents under Schedule A that were licensed to SINTX (Amedica) by the Dr. Jackson and SMS Trust pursuant to a license
agreement between the parties has been assigned to CTL Medical as part of the sale of the spine implant business.
Our remaining issued patents and pending applications are directed to additional aspects of our products and technologies including, among other things:
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designs for intervertebral fusion devices;
designs for hip implants;
designs for knee implants;
implants with improved antibacterial characteristics;
implants with improved wear performance; and
antipathogenic, antibacterial, antifungal, and antiviral compositions, devices, and methods.
We also expect to rely on trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop and maintain our intellectual property position.
However, trade secrets are difficult to protect. We seek to protect the trade secrets in our proprietary technology and processes, in part, by entering into confidentiality
agreements with commercial partners, collaborators, employees, consultants, scientific advisors and other contractors and into invention assignment agreements with our
employees and some of our commercial partners and consultants. These agreements are designed to protect our proprietary information and, in the case of the invention
assignment agreements, to grant us ownership of the technologies that are developed.
Competition
The main alternatives to our silicon nitride biomaterial include: PEEK, which is predominantly manufactured by Invibio; BIOLOX® delta, which is a traditional oxide ceramic
manufactured by CeramTec; allograft bone; metals; and coated metals.
We believe our main competitors in the orthopedic implant market, which utilize a variety of competitive biomaterials, include: Medtronic, Inc.; DePuy Synthes Companies, a
group of Johnson & Johnson companies; Stryker Corporation; Biomet, Inc.; Zimmer Holdings, Inc.; Smith & Nephew plc; and Aesculap Inc. Presently, these companies buy
ceramic components on an OEM basis from manufacturers such as CeramTec, Kyocera and CoorsTek, Inc., among others. We anticipate that these and other orthopedic
companies and OEMs will seek to introduce new biomaterials and products that compete with ours.
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Competition within the industry is primarily based on technology, innovation, product quality, and product awareness and acceptance by surgeons. Our principal competitors
have substantially greater financial, technical and marketing resources, as well as significantly greater manufacturing capabilities than we do, and they may succeed in
developing products that render our implants and product candidates non-competitive. Our ability to compete successfully will depend upon our ability to develop innovative
products with advanced performance features based on our silicon nitride technologies.
Licenses and Agreements
In February 2021 we entered into the Agreement with O2 Design, to commercialize face masks and mask filters that incorporate the Company’s sintered silicon nitride intended
to inactivate the SARS-CoV-2 virus. Under the terms of the Agreement, the Company granted O2 Design an exclusive world-wide license under certain of the Company’s
patents to make, use, and sell face masks and mask filters incorporating the Company’s proprietary silicon nitride materials for the purpose of enhancing the anti-viral properties
of the face masks and mask filters, in partial consideration of an upfront fee by O2 Design, royalties on the sale of face masks and mask filters incorporating silicon nitride
materials and potential performance-based milestone payments. The Agreement also contains certain commercial diligence milestones with respect to timing for development of
the face mask and minimum net sales to be met in order to retain the exclusive license to the Company patents.
The Company will be the exclusive supplier of silicon nitride to O2 Design. The Company has agreed to supply to O2 Design its commercially reasonable requirements of the
Company’s sintered silicon nitride powder (the “Material”). The Company has agreed to exercise commercially reasonable efforts to manufacture the Material more efficiently
and to pass on any savings to O2 Design. The parties agreed to enter into a commercially standard supply agreement (“Supply Agreement”) within 30 days of execution of the
Agreement. The Supply Agreement will address, among other things, reasonable forecasting requirements and commitments, requirements, and specifications relating to the
delivery of the Material, shipping requirements, product acceptance, rejection and returns, recalls, quality control and assurance, regulatory matters, returns, liability,
indemnification, and other topics addressed in industry standard supply agreements for comparable types of products to be used in the medical industry.
O2 Design has agreed to indemnify the Company, and hold harmless and defend the Company and its officers, directors, trustees, employees and agents against any and all
claims, suits, losses, damages, costs, liabilities, fees and expenses based on, resulting from or arising out of: (i) the exercise of any license granted under the Agreement; and,
(ii) any act, error or omission of O2 Design, or its officers, directors, employees or agents, including any breach of the Agreement, any claim or negligent acts or omissions or
misconduct, and product liability claim to the extent any such claims result from grossly negligent acts or omissions or willful misconduct.
Unless earlier terminated, the Agreement will expire on February 18, 2023. The Company may terminate the Agreement if O2 Design should: (a) fail to deliver to the Company
any statement or report required when due; (b) fail to make any payment at the time that the same should be due; (c) violate or fail to perform any material covenant, condition,
or undertaking of the Agreement to be performed by it; (d) cease use of commercially diligent efforts to commercialize a product; (e) file a bankruptcy action, or have a
bankruptcy action against it, or become insolvent; or (f) enter into a composition with creditors, or have a receiver appointed for it. The Company may give written notice of
such default to O2 Design. If O2 Design should fail to cure such default within ninety (90) days of such notice, the rights, privileges, and license granted under the Agreement
will automatically terminate. Additionally, if O2 Design ceases to carry on its business with respect to the rights granted in the Agreement, the Agreement will terminate upon
thirty (30) days written notice by the Company. No termination of this Agreement by the Company will relieve O2 Design of its obligation to pay any monetary obligation due
or owing at the time of such termination and shall not impair any accrued right of the Company.
O2 Design may terminate this Agreement, in whole or as to any specified patent, at any time and from time to time without cause, by giving written notice thereof to the
Company. Such termination shall be effective one hundred twenty (120) days after such notice and all O2 Design’s rights associated therewith shall cease as of that date. Any
termination by O2 Design will not relieve O2 Design of any obligation or liability accrued hereunder prior to such termination or rescind or give rise to any right to rescind any
payments made or other consideration given to the Company prior to the time such termination becomes effective.
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Upon expiration or termination of the Agreement by either party, O2 Design will provide Company with a written inventory of all product in process of manufacture, in use or in
stock. O2 Design may dispose of any such product within the ninety (90) day period following such expiration or termination, provided, however, that O2 Design will pay
royalties and render reports to Company in the manner specified in the Agreement.
Government Regulation of Medical Devices
Governmental authorities in the United States, at the federal, state and local levels, and other countries extensively regulate, among other things, the research, development,
testing, manufacture, labeling, promotion, advertising, distribution, marketing and export and import of products such as those we are commercializing and developing. Failure
to obtain approval or clearance to market our products and products under development and to meet the ongoing requirements of these regulatory authorities could prevent us
from continuing to market or develop our products and product candidates.
United States
Pre-Marketing Regulation
In the United States, medical devices are regulated by the FDA. Unless an exemption applies, a new medical device will require either prior 510(k) clearance or approval of a
premarket approval application, or PMA, before it can be marketed in the United States. The information that must be submitted to the FDA in order to obtain clearance or
approval to market a new medical device varies depending on how the medical device is classified by the FDA. Medical devices are classified into one of three classes on the
basis of the controls deemed by the FDA to be necessary to reasonably ensure their safety and effectiveness. Class I devices, which are those that have the lowest level or risk
associated with them, are subject to general controls, including labeling, premarket notification and adherence to the QSR. Class II devices are subject to general controls and
special controls, including performance standards. Class III devices, which have the highest level of risk associated with them, are subject to most of the previously identified
requirements as well as to premarket approval. Most Class I devices and some Class II devices are exempt from the 510(k) requirements, although manufacturers of these
devices are still subject to registration, listing, labeling and QSR requirements.
A 510(k) premarket notification must demonstrate that the device in question is substantially equivalent to another legally marketed device, or predicate device, that did not
require premarket approval. In evaluating the 510(k), the FDA will determine whether the device has the same intended use as the predicate device, and (a) has the same
technological characteristics as the predicate device, or (b) has different technological characteristics, and (i) the data supporting the substantial equivalence contains
information, including appropriate clinical or scientific data, if deemed necessary by the FDA, that demonstrates that the device is as safe and as effective as a legally marketed
device, and (ii) does not raise different questions of safety and effectiveness than the predicate device. Most 510(k)s do not require clinical data for clearance, but the FDA may
request such data. The FDA’s goal is to review and act on each 510(k) within 90 days of submission, but it may take longer based on requests for additional information. In
addition, requests for additional data, including clinical data, will increase the time necessary to review the notice. If the FDA does not agree that the new device is substantially
equivalent to the predicate device, the new device will be classified in Class III, and the manufacturer must submit a PMA. Since July 2012, however, with the enactment of the
Food and Drug Administration Safety and Innovation Act, or FDASIA, a de novo pathway is directly available for certain low to moderate risk devices that do not qualify for
the 510(k) pathway due to lack of a predicate device. Modifications to a 510(k)-cleared medical device may require the submission of another 510(k) or a PMA if the changes
could significantly affect the safety or effectiveness or constitute a major change in the intended use of the device.
Modifications to a 510(k)-cleared device frequently require the submission of a traditional 510(k), but modifications meeting certain conditions may be candidates for FDA
review under a Special 510(k). If a device modification requires the submission of a 510(k), but the modification does not affect the intended use of the device or alter the
fundamental scientific technology of the device, then summary information that results from the design control process associated with the cleared device can serve as the basis
for clearing the application. A Special 510(k) allows a manufacturer to declare conformance to design controls without providing new data. When the modification involves a
change in material, the nature of the “new” material will determine whether a traditional or Special 510(k) is necessary. For example, in its Device Advice on How to Prepare a
Special 510(k), the FDA uses the example of a change in a material in a finger joint prosthesis from a known metal alloy to a ceramic that has not been used in a legally
marketed predicate device as a type of change that should not be submitted as a Special 510(k). However, if the “new” material is a type that has been used in other legally
marketed devices within the same classification for the same intended use, a Special 510(k) is appropriate. The FDA gives as an example a manufacturer of a hip implant who
changes from one alloy to another that has been used in another legally marketed predicate. Special 510(k)s are typically processed within 30 days of receipt.
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The PMA process is more complex, costly and time consuming than the 510(k) clearance procedure. A PMA must be supported by extensive data including, but not limited to,
technical, preclinical, clinical, manufacturing, control and labeling information to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its
intended use. After a PMA is submitted, the FDA has 45 days to determine whether it is sufficiently complete to permit a substantive review. If the PMA is complete, the FDA
will file the PMA. The FDA is subject to performance goal review times for PMAs and may issue a decision letter as a first action on a PMA within 180 days of filing, but if it
has questions, it will likely issue a first major deficiency letter within 150 days of filing. It may also refer the PMA to an FDA advisory panel for additional review and will
conduct a preapproval inspection of the manufacturing facility to ensure compliance with the QSR, either of which could extend the 180-day response target. While the FDA’s
ability to meet its performance goals has generally improved during the past few years, it may not meet these goals in the future. A PMA can take several years to complete and
there is no assurance that any submitted PMA will ever be approved. Even when approved, the FDA may limit the indication for which the medical device may be marketed or
to whom it may be sold. In addition, the FDA may request additional information or request the performance of additional clinical trials before it will reconsider the approval of
the PMA or as a condition of approval, in which case the trials must be completed after the PMA is approved. Changes to the device, including changes to its manufacturing
process, may require the approval of a supplemental PMA.
If a medical device is determined to present a “significant risk,” the manufacturer may not begin a clinical trial until it submits an investigational device exemption, or IDE, to
the FDA and obtains approval of the IDE from the FDA. The IDE must be supported by appropriate data, such as animal and laboratory testing results and include a proposed
clinical protocol. These clinical trials are also subject to the review, approval and oversight of an institutional review board, or IRB, which is an independent and multi-
disciplinary committee of volunteers who review and approve research proposals, and the reporting of adverse events and experiences, at each institution at which the clinical
trial will be performed. The clinical trials must be conducted in accordance with applicable regulations, including but not limited to the FDA’s IDE regulations and current good
clinical practices. A clinical trial may be suspended by the FDA, the IRB or the sponsor at any time for various reasons, including a belief that the risks to the study participants
outweigh the benefits of participation in the trial. Even if a clinical trial is completed, the results may not demonstrate the safety and efficacy of a device or may be equivocal or
otherwise not be sufficient to obtain approval.
Post-Marketing Regulation
After a device is placed on the market, numerous regulatory requirements apply. These include:
●
compliance with the QSR, which require manufacturers to follow stringent design, testing, control, documentation, record maintenance, including maintenance of
complaint and related investigation files, and other quality assurance controls during the manufacturing process;
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labeling regulations, which prohibit the promotion of products for uncleared or unapproved or “off-label” uses and impose other restrictions on labeling; and
● medical device reporting obligations, which require that manufacturers investigate and report to the FDA adverse events, including deaths, or serious injuries that may
have been or were caused by a medical device and malfunctions in the device that would likely cause or contribute to a death or serious injury if it were to recur.
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Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions:
● warning letters;
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●
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fines, injunctions, and civil penalties;
recall or seizure of our products;
operating restrictions, partial suspension or total shutdown of production;
refusal to grant 510(k) clearance or PMA approvals of new products;
● withdrawal of 510(k) clearance or PMA approvals; and
●
criminal prosecution.
To ensure compliance with regulatory requirements, medical device manufacturers are subject to market surveillance and periodic, pre-scheduled and unannounced inspections
by the FDA, and these inspections may include the manufacturing facilities of our subcontractors.
International Regulation
International sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. The time required to obtain approval by a
foreign country may be longer or shorter than that required for FDA approval, and the requirements may differ. For example, the primary regulatory authority with respect to
medical devices in Europe is that of the European Union. The European Union consists of 28 countries and has a total population of over 500 million people. The unification of
these countries into a common market has resulted in the unification of laws, standards and procedures across these countries, which may expedite the introduction of medical
devices like those we are offering and developing. Norway, Iceland, Lichtenstein and Switzerland are not members of the European Union but have transposed applicable
European medical device laws into their national legislation. Thus, a device that is marketed in the European Union may also be recognized and accepted in those four non-
member European countries as well.
The European Union has adopted numerous directives and standards regulating the design, manufacture, clinical trials, labeling and adverse event reporting for medical devices.
Devices that comply with the requirements of relevant directives will be entitled to bear CE Conformity Marking, indicating that the device conforms to the essential
requirements of the applicable directives and, accordingly, can be commercially distributed throughout the European Union. Actual implementation of these directives,
however, may vary on a country-by-country basis. The CE Mark is a mandatory conformity mark on medical devices distributed and sold in the European Union and certifies
that a medical device has met applicable requirements.
The method of assessing conformity varies, but normally involves a combination of self-assessment by the manufacturer and a third-party assessment by a “Notified Body.”
Notified Bodies are independent testing houses, laboratories, or product certifiers authorized by the European Union member states to perform the required conformity
assessment tasks, such as quality system audits and device compliance testing. An assessment by a Notified Body based within the European Union is required in order for a
manufacturer to distribute the product commercially throughout the European Union. Medium and higher risk devices require the intervention of a Notified Body which will be
responsible for auditing the manufacturer’s quality system. The Notified Body will also determine whether or not the product conforms to the requirements of the applicable
directives. Devices that meet the applicable requirements of E.U. law and have undergone the appropriate conformity assessment routes will be granted CE “certification.” The
CE Mark is mandatory for medical devices sold not only within the countries of the European Union but more generally within most of Europe. As many of the European
standards are converging with international standards, the CE Mark is often used on medical devices manufactured and sold outside of Europe (notably in Asia that exports
many manufactured products to Europe). CE Marking gives companies easier access into not only the European market but also to Asian and Latin American markets, most of
whom recognize the CE Mark on medical device as a mark of quality and adhering to international standards of consumer safety, health or environmental requirements.
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Compliance with Healthcare Laws
We must comply with various U.S. federal and state laws, rules and regulations pertaining to healthcare fraud and abuse, including anti-kickback and false claims laws, rules,
and regulations, as well as other healthcare laws in connection with the commercialization of our products. Fraud and abuse laws are interpreted broadly and enforced
aggressively by various state and federal agencies, including the U.S. Department of Justice, the U.S. Office of Inspector General for the Department of Health and Human
Services and various state agencies.
We have entered into agreements with certain surgeons for assistance with the design of our products, some of whom we anticipate may make referrals to us or order our
products. A majority of these agreements contain provisions for the payments of royalties. In addition, some surgeons currently own shares of our stock. We have structured
these transactions with the intention of complying with all applicable laws, including fraud and abuse, data privacy and security, and transparency laws. Despite this intention,
there can be no assurance that a particular government agency or court would determine our practices to be in full compliance with such laws. We could be materially impacted
if regulatory or enforcement agencies or courts interpret our financial arrangements with surgeons to be in violation of healthcare laws, including, without limitation, fraud and
abuse, data privacy and security, or transparency laws.
The U.S. federal Anti-Kickback Statute prohibits persons, including a medical device manufacturer (or a party acting on its behalf), from knowingly or willfully soliciting,
receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for a service or product or the purchasing,
ordering, arranging for, or recommending the ordering of, any service or product for which payment may be made by Medicare, Medicaid or any other federal healthcare
program. This statute has been interpreted to apply to arrangements between medical device manufacturers on one hand and healthcare providers on the other. The term
“remuneration” is not defined in the federal Anti-Kickback Statute and has been broadly interpreted to include anything of value, such as cash payments, gifts or gift
certificates, discounts, waiver of payments, credit arrangements, ownership interests, the furnishing of services, supplies or equipment, and the provision of anything at less than
its fair market value. Courts have broadly interpreted the scope of the law, holding that it may be violated if merely “one purpose” of an arrangement is to induce referrals,
irrespective of the existence of other legitimate purposes. The Anti-Kickback Statute prohibits many arrangements and practices that are lawful in businesses outside of the
healthcare industry. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain business arrangements from prosecution, the exemptions
and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do
not qualify for an exemption or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from federal Anti-Kickback Statute liability. The
reach of the Anti-Kickback Statute was broadened by the enacted Patient Protection and Affordable Care Act of 2010 and the Health Care and Education Affordability
Reconciliation Act of 2010, collectively, the Affordable Care Act or ACA, which, among other things, amends the intent requirement of the federal Anti-Kickback Statute such
that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the ACA
provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent
claim for purposes of the federal False Claims Act (discussed below) or the civil monetary penalties statute, which imposes fines against any person who is determined to have
presented or caused to be presented claims to a federal healthcare program that the person knows or should know is for an item or service that was not provided as claimed or is
false or fraudulent. In addition to the federal Anti-Kickback Statute, many states have their own anti-kickback laws. Often, these laws closely follow the language of the federal
law, although they do not always have the same scope, exceptions, safe harbors or sanctions. In some states, these anti-kickback laws apply not only to payments made by
government healthcare programs but also to payments made by other third-party payors, including commercial insurance companies.
Sales, marketing, consulting, and advisory arrangements between medical device manufacturers and sales agents and physicians are subject to the Anti-Kickback Statute and
other fraud and abuse laws. Government officials have focused recent enforcement efforts on, among other things, the sales and marketing activities of healthcare companies,
including medical device manufacturers, and have brought cases against individuals or entities whose personnel allegedly offered unlawful inducements to potential or existing
customers in an attempt to procure their business. We expect these activities to continue to be a focus of government enforcement efforts. Settlements of these cases by
healthcare companies have involved significant fines and penalties and, in some instances, criminal plea agreements. We are also aware of governmental investigations of some
of the largest orthopedic device companies reportedly focusing on consulting and service agreements between these companies and orthopedic surgeons. These developments
are ongoing, and we cannot predict the effects they will have on our business.
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The federal False Claims Act imposes liability on any person that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by
a federal healthcare program. The qui tam provisions of the False Claims Act allow a private individual to bring civil actions on behalf of the federal government alleging that
the defendant has submitted a false claim, or has caused such a claim to be submitted, to the federal government, and to share in any monetary recovery. There are many
potential bases for liability under the False Claims Act. Liability arises, primarily, when a person knowingly submits, or causes another to submit, a false claim for
reimbursement to the federal government. The False Claims Act has been used to assert liability on the basis of inadequate care, kickbacks, and other improper referrals, and
allegations as to misrepresentations with respect to the services rendered. Qui tam actions have increased significantly in recent years, causing greater numbers of healthcare
companies, including medical device manufacturers, to defend false claim actions, pay damages and penalties, or be excluded from participation in Medicare, Medicaid or other
federal or state healthcare programs as a result of investigations arising out of such actions. In addition, various states have enacted similar laws analogous to the False Claims
Act. Many of these state laws apply where a claim is submitted to any third-party payor and not merely a federal healthcare program. We are unable to predict whether we
would be subject to actions under the False Claims Act or a similar state law, or the impact of such actions. However, the cost of defending such claims, as well as any sanctions
imposed, could adversely affect our financial performance. The Health Insurance Portability and Accountability Act of 1996, or HIPAA, also created several new federal
crimes, including healthcare fraud and false statements relating to healthcare matters. The healthcare fraud statute prohibits knowingly and willfully executing a scheme to
defraud any healthcare benefit program, including private third-party payors. The false statements statute prohibits knowingly and willfully falsifying, concealing, or covering
up a material fact or making any materially false, fictitious, or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items, or services.
In addition, we may be subject to, or our marketing or research activities may be limited by, data privacy and security regulation by both the federal government and the states
in which we conduct our business. For example, HIPAA and its implementing regulations established uniform federal standards for certain “covered entities” (healthcare
providers, health plans and healthcare clearinghouses) governing the conduct of certain electronic healthcare transactions and protecting the security and privacy of protected
health information. The American Recovery and Reinvestment Act of 2009, commonly referred to as the economic stimulus package, included expansion of HIPAA’s privacy
and security standards called the Health Information Technology for Economic and Clinical Health Act, or HITECH, which became effective on February 17, 2010. Among
other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates”—independent contractors or agents of covered entities that
create, receive, maintain, or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HITECH also increased the civil
and criminal penalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civil
actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. These
laws also require the reporting of breaches of protected health information to affected individuals, regulators and in some cases, local or national media. HIPAA and HITECH
impose strict limits on our physician collaborators’ ability to use and disclose patient information on our behalf.
There are also an increasing number of state “sunshine” laws that require manufacturers to provide reports to state governments on pricing and marketing information. Several
states have enacted legislation requiring medical device companies to, among other things, establish marketing compliance programs, file periodic reports with the state, make
periodic public disclosures on sales and marketing activities, and to prohibit or limit certain other sales and marketing practices. In addition, a federal law known as the
Physician Payments Sunshine Act, now requires medical device manufacturers to track and report to the federal government certain payments and other transfers of value made
to physicians and teaching hospitals and ownership or investment interests held by physicians and their immediate family members. The first reporting period covered only
payments or transfers of value made and ownership or investment interests held by physicians and their immediate family members from August 1, 2013 to December 31, 2013.
The federal government disclosed the reported information on a publicly available website beginning in September 2014. For calendar year 2014, the Physician Payments
Sunshine Act will require medical device manufacturers to report payments and transfers of values made and ownership or investment interests held by physicians and their
immediate family members for the full calendar year. These laws may adversely affect our sales, marketing, and other activities by imposing administrative and compliance
burdens on us. If we fail to track and report as required by these laws or to otherwise comply with these laws, we could be subject to the penalty provisions of the pertinent state
and federal authorities.
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Clinical research is heavily regulated by FDA regulations for the protection of human subjects (21 C.F.R. 50 and 56) and also the regulations of the U.S Department of Health
and Human Services, or the Common Rule (45 C.F.R 46). Both FDA human subject regulations and the Common Rule impose restrictions on the involvement of human
subjects in clinical research and require, among other things, the balancing of the risks and benefits of research, the documented informed consent of research participants,
initial and ongoing review of research by an IRB. Similar regulations govern research conducted in foreign countries. Compliance with human subject protection regulations is
costly and time consuming. Failure to comply could substantially and adversely impact our research program and the development of our products.
Because of the breadth of these laws and the narrowness of available statutory and regulatory exemptions, it is possible that some of our business activities could be subject to
challenge under one or more of such laws. If our operations are found to be in violation of any of the federal and state laws described above or any other governmental
regulations that apply to us, we may be subject to penalties, including criminal and significant civil monetary penalties, damages, fines, imprisonment, exclusion from
participation in government healthcare programs, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing
product clearances and approvals, private “qui tam” actions brought by individual whistleblowers in the name of the government or refusal to allow us to enter into supply
contracts, including government contracts, and the curtailment or restructuring of our operations. Public disclosure of privacy and data security violations could cause significant
reputational harm. Any of these events could adversely affect our ability to operate our business and our results of operations. To the extent that any of our products are sold in a
foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety
surveillance, anti-fraud and abuse laws, implementation of corporate compliance programs, as well as laws and regulations requiring transparency of pricing and marketing
information and governing the privacy and security of health information, such as the E.U.’s Directive 95/46 on the Protection of Individuals with regard to the Processing of
Personal Data, or the Data Directive, and the wide variety of national laws implementing the Data Directive.
Third-Party Reimbursement
Because we and our customers typically receive payment directly from hospitals and surgical centers, we do not anticipate relying directly on payment for any of our products
from third-party payors, such as Medicare, Medicaid, private insurers, and managed care companies. However, our business will be affected by policies administered by federal
and state healthcare programs, such as Medicare and Medicaid, as well as private third-party payors, which often follow the policies of the state and federal healthcare
programs. For example, our business will be indirectly impacted by the ability of a hospital or medical facility to obtain coverage and third-party reimbursement for procedures
performed using our products. Many hospitals and clinics in the United States belong to group purchasing organizations (that typically incentivize their hospital members to
make a relatively large proportion of purchases from a limited number of vendors of similar products that have contracted to offer discounted prices). Such contracts often
include exceptions for purchasing certain innovative new technologies, however. Accordingly, the commercial success of our products may also depend to some extent on our
ability to either negotiate favorable purchase contracts with key group purchasing organizations or persuade hospitals and clinics to purchase our product “off contract.” These
third-party payors may deny reimbursement if they determine that a device used in a procedure was not medically necessary; was not used in accordance with cost-effective
treatment methods, as determined by the third-party payor; or was used for an unapproved use. A national or local coverage decision denying Medicare coverage for one or
more of our products could result in private insurers and other third party payors also denying coverage. Even if favorable coverage and reimbursement status is attained for our
products, less favorable coverage policies and reimbursement rates may be implemented in the future. The cost containment measures that third-party payors and providers are
instituting, both within the United States and abroad, could significantly reduce our potential revenues from the sale of our products and any product candidates. We cannot
provide any assurances that we will be able to obtain and maintain third party coverage or adequate reimbursement for our products and product candidates in whole or in part.
For inpatient and outpatient procedures, including those that will involve use of our products, Medicare and many other third-party payors in the United States reimburse
hospitals at a prospectively determined amount. This amount is generally based on one or more diagnosis related groups, or DRGs, associated with the patient’s condition for
inpatient treatment and generally based on ambulatory payment classifications, or APCs, associated with the procedures performed as an outpatient at an ambulation
surgicenter. Each DRG or APC is associated with a level of payment and may be adjusted from time to time, usually annually. Prospective payments are intended to cover most
of the non-physician hospital costs incurred in connection with the applicable diagnosis and related procedures. Implant products, such as those we plan to sell, represent part of
the total procedure costs while labor, hospital room and board, and other supplies and services represent the balance of those costs. However, the prospective payment amounts
are typically set independently of a particular hospital’s actual costs associated with treating a particular patient and implanting a device. Therefore, the payment that a hospital
would receive for a particular hospital visit would not typically take into account the cost of our products.
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Medicare has established a number of DRGs for inpatient procedures that involve the use of products similar to ours. Although Medicare has authority to create special DRGs
for hospital services that more properly reflect the actual costs of expensive or new-technology devices implanted as part of a procedure, it has declined to do so in the past, and
we do not expect that it will do so with respect to our current products and product candidates. Medicare’s DRG and APC classifications may have implications outside of
Medicare, as many other U.S. third-party payors often use Medicare DRGs and APCs for purposes of determining reimbursement.
We believe that orthopedic implants generally have been well received by third-party payors because of the ability of these implants to greatly reduce long-term healthcare costs
for patients with degenerative joint disease. However, coverage and reimbursement policies vary from payor to payor and are subject to change. As discussed above, hospitals
that purchase medical devices for treatment of their patients generally rely on third-party payors to reimburse all or part of the costs and fees associated with the procedures
performed with these devices. Both government and private third-party coverage and reimbursement levels are critical to new product acceptance. Neither hospitals nor surgeons
are likely to use our products if they do not receive reimbursement for the procedures adequate to cover the cost of our products.
While it is expected that hospitals will be able to obtain coverage for procedures using our products, the level of payment available to them for such procedures may change over
time. State and federal healthcare programs, such as Medicare and Medicaid, closely regulate provider payment levels and have sought to contain, and sometimes reduce,
payment levels. Commercial insurers and managed care plans frequently follow government payment policies and are likewise interested in controlling increases in the cost of
medical care. These third-party payors may deny payment if they determine that a procedure was not medically necessary, a device used in a procedure was not used in
accordance with cost-effective treatment methods, as determined by the third-party payor, or was used for an unapproved use. Further, beginning January 1, 2021 and over the
course of a three-year period, CMS will eliminate the inpatient only list for Medicare which will result in all spine procedures being payable in the outpatient setting.
Reimbursement levels in the hospital outpatient and ASC settings are typically lower than for the hospital inpatient setting and may not be adequate to cover the cost of
innovative and novel medical devices.
In addition, some payors are adopting pay-for-performance programs that differentiate payments to healthcare providers based on the achievement of documented quality-of-
care metrics, cost efficiencies, or patient outcomes. These programs are intended to provide incentives to providers to find ways to deliver the same or better results while
consuming fewer resources. As a result of these programs, and related payor efforts to reduce payment levels, hospitals and other providers are seeking ways to reduce their
costs, including the amounts they pay to medical device suppliers. Adverse changes in payment rates by payors to hospitals could adversely impact our ability to market and sell
our products and negatively affect our financial performance.
In international markets, healthcare payment systems vary significantly by country and many countries have instituted price ceilings on specific product lines. There can be no
assurance that our products will be considered cost-effective by third-party payors, that reimbursement will be available or, if available, that the third-party payors’
reimbursement policies will not adversely affect our ability to sell our products profitably.
Member countries of the European Union offer various combinations of centrally financed healthcare systems and private health insurance systems. The relative importance of
government and private systems varies from country to country. Governments may influence the price of medical devices through their pricing and reimbursement rules and
control of national healthcare systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which
products may be marketed only once a reimbursement price has been agreed upon. Some of these countries may require, as condition of obtaining reimbursement or pricing
approval, the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Some E.U. member states allow
companies to fix their own prices for devices but monitor and control company profits. The choice of devices is subject to constraints imposed by the availability of funds within
the purchasing institution. Medical devices are most commonly sold to hospitals or healthcare facilities at a price set by negotiation between the buyer and the seller. A contract
to purchase products may result from an individual initiative or as a result of a competitive bidding process. In either case, the purchaser pays the supplier, and payment terms
vary widely throughout the European Union. Failure to obtain favorable negotiated prices with hospitals or healthcare facilities could adversely affect sales of our products.
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Employees
As of March 1, 2021, we had 32 employees. We believe that our success will depend, in part, on our ability to attract and retain qualified personnel. We have never experienced
a work stoppage due to labor difficulties and believe that our relations with our employees are good. None of our employees are represented by labor unions.
ITEM 1A.
RISK FACTORS
In addition to the other information contained in this Annual Report, the following risk factors should be considered carefully in evaluating our company. Our business,
financial condition, liquidity or results of operations could be materially adversely affected by any of these risks.
Risks Related to Our Business and Strategy
A pandemic, epidemic or outbreak of an infectious disease in the United States or elsewhere may adversely affect our business.
We continue to monitor the rapidly evolving situation and guidance from domestic and international authorities, including federal, state and local public health authorities,
regarding the COVID-19 pandemic, and we may need to make changes to our business based on their recommendations. In these circumstances, there may be developments
outside our control requiring us to adjust our operating plan. Although the Company cannot reasonably estimate the length or severity of the impact that the pandemic will have
on its financial results, the Company has experienced, and may continue to experience, a material adverse impact on its sales, results of operations, and cash flows in fiscal
2021.
A significant outbreak in the future of contagious diseases, such as COVID-19, could result in a widespread health crisis that could adversely affect the economies and financial
markets of many countries, resulting in an economic downturn. As a result, our ability to raise additional funds, if necessary, may be adversely impacted by risks, or the public
perception of the risks, related to the recent outbreak of COVID-19. Furthermore, the third parties we engage, or seek to engage, with respect to OEM manufacturing
relationships, and, for supply and development activities, may be adversely impacted by risks, or the public perception of the risks, related to the recent outbreak of COVID-19,
which may delay OEM relationships, and, product development opportunities, and increase our costs.
We have incurred net losses since our inception and anticipate that we will continue to incur substantial net losses for the foreseeable future. We may never achieve or
sustain profitability.
We have incurred substantial net losses since our inception. For the years ended December 31, 2020 and 2019 we incurred a net loss of $7.0 million and $4.8 million,
respectively, and used cash in operations of $9.1 million and $6.4 million, respectively. We have an accumulated deficit of $241.1 million as of December 31, 2020. Our losses
have resulted principally from costs incurred in connection with our sales and marketing activities, research and development activities, manufacturing activities, general and
administrative expenses associated with our operations, impairments on intangible assets and property and equipment, interest expense, loss on extinguishment of debt and
offering costs. Even if we are successful in launching new products into the market, we expect to continue to incur substantial losses for the foreseeable future as we continue to
manufacture products for CTL Medical and other OEM customers and research and develop and seek regulatory approvals for our product candidates.
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If sales revenue from any of our products or product candidates that receive marketing clearance from the FDA or other regulatory body is insufficient, if we are unable to
develop and commercialize any of our product candidates, or if our product development is delayed, we may never become profitable. Even if we do become profitable, we may
be unable to sustain or increase our profitability on a quarterly or annual basis.
Our success depends on our ability to successfully commercialize silicon nitride-based products for medical and industrial applications, which to date have experienced only
limited market acceptance.
We believe we are the first and only company to use silicon nitride in medical applications. To date, however, we have had limited acceptance of our silicon nitride-based
products and prior to the disposition of our spine implant business to CTL, our product revenue was derived substantially from our non-silicon nitride products. In order to
succeed in our goal of becoming a leading biomaterial technology company utilizing silicon nitride, we must increase market awareness of our silicon nitride interbody spinal
fusion products in conjunction with CTL, successfully work together with O2 DESIGN on the development and commercialization of an anti-viral face mask and mask filter,
continue to develop our other product candidates outside of spinal fusion applications, enhance our commercial infrastructure and commercialize our silicon nitride joint
replacement components and other products. If we fail in any of these endeavors or experience delays in pursuing them, we will not generate revenues as planned and will need
to curtail operations or seek additional financing earlier than otherwise anticipated.
Our current products and our future products may not be accepted by hospitals and surgeons and may not become commercially successful.
With the sale of our spine implant business to CTL we are now dependent on the efforts of CTL to sell the spinal fusion products that we manufacture and then sell to CTL. If
CTL is not able to sell such products or is unable to increase demand for such products, then our revenues will substantially decline. Since obtaining regulatory clearance from
the FDA for our first silicon nitride spinal fusion products in 2008, we have not been able to obtain significant market share of the interbody spinal fusion market, and CTL may
not obtain such market share in the future. Additionally, if successful in developing a face mask and mask filters with antiviral properties with O2 DESIGN, we will be
dependent on O2 DESIGNS’ ability to successfully market and sale face masks and mask filters. As a result, our future revenues will also be dependent on O2 DESIGN. Even if
we receive regulatory clearances or approvals for our other product candidates in development, these product candidates may not gain market acceptance among orthopedic
surgeons and the medical community.
If surgeons do not perceive silicon nitride products and product candidates as superior alternatives to competing products, we will not be able to generate significant
revenues, if any.
Even if surgeons are convinced of the superior characteristics of our silicon nitride products and our product candidates that we successfully introduce compared to the
limitations of the current commonly used biomaterials, surgeons may find other methods or turn to other biomaterials besides silicon nitride to overcome such limitations. For
instance, with respect to interbody spinal fusion products, surgeons or device manufacturers may use more effective markers for enhancing the imaging compatibility of PEEK
devices, more effective antibiotics to prevent or treat implant-related infections, and more effective osteoconductive and osteoinductive materials when implanting an interbody
spinal fusion device. Device manufacturers may also coat metal with existing traditional ceramics to reduce the risk of metal wear particles and corrosion in total joint
replacement implants. Additionally, surgeons may increase their use of metal interbody spinal fusion devices if there is an increasing perception that PEEK devices are limited
by their strength and resistance to fracture.
The orthopedic market is highly competitive, and we may not be able to compete effectively against the larger, well-established companies that dominate this market or
emerging and small innovative companies that may seek to obtain or increase their share of the market.
The markets for spinal fusions and total hip and knee implant products are intensely competitive, and many of our competitors are much larger and have substantially more
financial and human resources than we do. Many have long histories and strong reputations within the industry, and a relatively small number of companies dominate these
markets. Medtronic, Inc.; DePuy Synthes Companies, a group of Johnson & Johnson companies; Stryker Corporation; Zimmer-Biomet, Inc.; Zimmer Holdings, Inc.; and Smith
& Nephew plc, account for a significant amount of orthopedic sales worldwide.
These companies enjoy significant competitive advantages over us, including:
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broad product offerings, which address the needs of orthopedic surgeons and hospitals in a wide range of procedures;
products that are supported by long-term clinical data;
greater experience in, and resources for, launching, marketing, distributing and selling products, including strong sales forces and established distribution networks;
existing relationships with orthopedic surgeons;
extensive intellectual property portfolios and greater resources for patent protection;
greater financial and other resources for product research and development;
greater experience in obtaining and maintaining FDA and other regulatory clearances and approvals for products and product enhancements;
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established manufacturing operations and contract manufacturing relationships;
significantly greater name recognition and widely recognized trademarks; and
established relationships with healthcare providers and payers.
Our products and any product candidates that we may introduce into the market may not enable us to overcome the competitive advantages of these large and dominant
orthopedic companies. In addition, even if we successfully introduce additional product candidates incorporating our silicon nitride biomaterial into the market, emerging and
small innovative companies may seek to increase their market share and they may eventually possess competitive advantages, which could adversely impact our business. Our
competitors may also employ pricing strategies that could adversely affect the pricing of our products and pricing in the spinal fusion and total joint replacement market
generally.
Moreover, many other companies are seeking to develop new biomaterials and products which may compete effectively against our products in terms of performance and price.
For example, Smith & Nephew has developed a ceramic-coated metal, known as Oxinium, which may overcome certain of the limitations of metal joint replacement products
and could directly compete with our silicon nitride and silicon nitride-coated product candidates.
We are dependent on CTL’s ability to sell the spinal fusion products we manufacture from silicon nitride. If CTL is not able to sell such products or increase demand for
the products our revenues will be substantially impacted which would have a significant impact on our business and operating results.
Sales of spinal fusion products manufactured from silicon nitride to CTL account for all our revenues from the sale of products. We have entered into a 10-year manufacturing
and supply agreement with CTL to supply CTL with its requirements of silicon nitride manufactured spinal fusion products. CTL is not under any obligation to purchase any
minimum quantities of products from us. If CTL is not successful in creating demand for such products and selling such products, then they are not required to purchase any
products from us. Because of our significant customer concentration, our revenue could fluctuate significantly due to changes in economic conditions, the use of competitive
products, or the loss of, reduction of business with, CTL. A reduction or delay in orders from CTL, or a delay or default in payment by any significant customer, could
materially harm our business and results of operations.
We are dependent on O2 DESIGN’s ability to sell face mask products manufacture with silicon nitride. If O2 DESIGN is not able to sell such products or increase demand
for the products our revenues will be substantially impacted which would have a significant impact on our business and operating results.
We have entered into a two-year exclusive worldwide patent license agreement with O2 DESIGN giving the exclusive right to O2 DESIGN to commercialize face masks and
mask filters that incorporate our silicon nitride technology. If O2 DESIGN is not successful in creating demand for such products and selling such products, our revenue could
fluctuate significantly due to changes in economic conditions, the use of competitive products, future revenues will be adversely impacted. Failure of O2 DESIGN to
successfully commercialize face masks and filters could materially harm our business and results of operations.
The manufacturing process for our silicon nitride products is complex and requires sophisticated state-of-the-art equipment, experienced manufacturing personnel and
highly specialized knowledge. If we are unable to manufacture our silicon nitride products on a timely basis consistent with our quality standards, our results of operation
will be adversely impacted.
In order to control the quality, cost and availability of our silicon nitride products, we developed our own manufacturing capabilities. We operate a 30,000 square foot facility
which is certified under the ISO 13485 medical device manufacturing standard for medical devices and operates under the FDA’s quality systems regulations, or QSRs. All
operations with the exception of raw material production are performed at this facility.
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We are the sole manufacturer of our silicon-nitride based products. Our reliance solely on our internal resources to manufacture our silicon nitride products entails risks to which
we would not be subject if we had secondary suppliers for their manufacture, including:
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the inability to meet our product specifications and quality requirements consistently;
a delay or inability to procure or expand sufficient manufacturing capacity to meet additional demand for our products;
● manufacturing and product quality issues related to the scale-up of manufacturing;
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the inability to produce a sufficient supply of our products to meet product demands;
the disruption of our manufacturing facility due to equipment failure, natural disaster or failure to retain key personnel; and
our inability to ensure our compliance with regulations and standards of the FDA, including QSRs, and corresponding state and international regulatory authorities,
including the CFDA.
Any of these events could lead to a reduction in our product sales, product launch delays, failure to obtain regulatory clearance or approval or impact our ability to successfully
sell our products and commercialize our products candidates.
We depend on a limited number of third-party suppliers for key raw materials used in the manufacturing of our silicon nitride products, and the loss of these third-party
suppliers or their inability to supply us with adequate raw materials could harm our business.
We rely on a limited number of third-party suppliers for the raw materials required for the production of our silicon nitride products and product candidates. Our dependence on
a limited number of third-party suppliers involves several risks, including limited control over pricing, availability, quality, and delivery schedules for raw materials. We have
no supply agreements in place with any of our suppliers and cannot be certain that our current suppliers will continue to provide us with the quantities of raw materials that we
require or that satisfy our anticipated specifications and quality requirements. Any supply interruption in limited or single sourced raw materials could materially harm our
ability to manufacture our products until a new source of supply, if any, could be identified and qualified. We may be unable to find a sufficient alternative supply channel
within a reasonable time or on commercially reasonable terms. Any performance failure on the part of our suppliers could delay the production of our silicon nitride products
and product candidates and delay the development and commercialization of our product candidates, including limiting supplies necessary for commercial sale, clinical trials
and regulatory approvals, which could have a material adverse effect on our business.
In order to be successful, we must expand our available product lines by commercializing new silicon nitride-based medical device product candidates and identify other
non-medical uses of silicon-nitride, but we may not be able to do so in a timely fashion and at expected costs, or at all.
Although we are currently manufacturing silicon nitride interbody spinal fusion implants for CTL, and have entered into a commercialization agreement with O2 DESIGN to
commercialize face masks and filters incorporating our silicon nitride technology, in order to be successful, we will need to expand our product lines to include other silicon
nitride devices and products for both medical and non-medical applications. Therefore, we are developing silicon nitride product candidates for total hip and knee replacement
procedures, dental implants, personal protective equipment, and are exploring the application of our silicon nitride technology for other potential applications. To succeed in our
commercialization efforts, we must effectively continue product development and testing, find new strategic partners, obtain regulatory clearances and approvals, and enhance
our sales and marketing capabilities. Because of these uncertainties, there is no assurance that we will succeed in bringing any of our current or future product candidates to
market. If we fail in bringing our product candidates to market, or experience delays in doing so, we will not generate revenues as planned and will need to curtail operations or
seek additional financing earlier than otherwise anticipated.
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We will depend on one or more strategic partners to develop and commercialize our total joint replacement and dental implant product candidates, and if our strategic
partners are unable to execute effectively on our agreements with them, we may never become profitable.
We are seeking a strategic partner to develop and commercialize our total joint replacement and dental implant product candidates. We will be reliant on our strategic partners to
develop and commercialize a total hip or knee joint replacement product candidate that utilizes silicon nitride-coated components, although we have not yet entered into an
agreement with any strategic partner to develop products with these silicon nitride-coated components and may be unable to do so on agreeable terms. In order to succeed in our
joint commercialization efforts, we and any future partners must execute effectively on all elements of a combined business plan, including continuing to establish sales and
marketing capabilities, manage certified, validated and effective commercial-scale manufacturing operations, conduct product development and testing, and obtain regulatory
clearances and approvals for our product candidate. If we or any of our strategic partners fail in any of these endeavors, or experience delays in pursuing them, we will not
generate revenues as planned and will need to curtail operations or seek additional financing earlier than otherwise anticipated.
Part of our strategy is to establish and develop OEM partnerships and arrangements, which subjects us to various risks.
Because we believe silicon nitride is a superior platform and technology for application in the spine, total joint and other markets and industrial applications, we are establishing
OEM partnerships with other companies to replace their materials and products with silicon nitride. Sales of products to OEM customers will expose our business to a number
of risks. Sales through OEM partners could be less profitable than direct sales. Sales of our products through multiple channels could also confuse customers and cause the sale
of our products to decline. In addition, OEM customers will require that products meet strict standards. Our compliance with these requirements could result in increased
development, manufacturing, warranty and administrative costs. A significant increase in these costs could adversely affect our operating results. If we fail to meet OEM
specifications on a timely basis, our relationships with our OEM partners may be harmed. Furthermore, we would not control our OEM partners, and they could sell competing
products, may not incorporate our technology into their products in a timely manner and may devote insufficient sales efforts to the OEM products.
If hospitals and other healthcare providers are unable to obtain coverage or adequate reimbursement for procedures performed with our products, it is unlikely our
products will be widely used.
In the United States, the commercial success of our products will depend, in part, on the extent to which governmental payers at the federal and state levels, including Medicare
and Medicaid, private health insurers and other third-party payers provide coverage for and establish adequate reimbursement levels for procedures utilizing our products.
Because we typically receive payment directly from the companies for whom we manufacture, such as CTL Medical, we do not anticipate relying directly on payment from
third-party payers for our products. However, hospitals and other healthcare providers that purchase orthopedic products manufactured by us from our customers for treatment
of their patients generally rely on third-party payers to pay for all or part of the costs and fees associated with our products as part of a “bundled” rate for the associated
procedures. The existence of coverage and adequate reimbursement for our products and the procedures performed with them by government and private payers is critical to
market acceptance of our existing and future products. Neither hospitals nor surgeons are likely to use our products if they do not receive adequate reimbursement for the
procedures utilizing our products.
Many private payers currently base their reimbursement policies on the coverage decisions and payment amounts determined by the Centers for Medicare and Medicaid
Services, or CMS, which administers the Medicare program. Others may adopt different coverage or reimbursement policies for procedures performed with our products, while
some governmental programs, such as Medicaid, have reimbursement policies that vary from state to state, some of which may not pay for the procedures performed with our
products in an adequate amount, if at all. A Medicare national or local coverage decision denying coverage for one or more of our products could result in private and other
third-party payers also denying coverage for our products. Third-party payers also may deny reimbursement for our products if they determine that a product used in a
procedure was not medically necessary, was not used in accordance with cost-effective treatment methods, as determined by the third-party payer, or was used for an
unapproved use. Unfavorable coverage or reimbursement decisions by government programs or private payers underscore the uncertainty that our products face in the market
and could have a material adverse effect on our business.
Many hospitals and clinics in the United States belong to group purchasing organizations, which typically incentivize their hospital members to make a relatively large
proportion of purchases from a limited number of vendors of similar products that have contracted to offer discounted prices. Such contracts often include exceptions for
purchasing certain innovative new technologies, however. Accordingly, the commercial success of our products may also depend to some extent on our ability to either
negotiate favorable purchase contracts with key group purchasing organizations and/or persuade hospitals and clinics to purchase our product “off contract.”
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The healthcare industry in the United States has experienced a trend toward cost containment as government and private payers seek to control healthcare costs by paying
service providers lower rates. While it is expected that hospitals will be able to obtain coverage for procedures using our products, the level of payment available to them for
such procedures may change over time. State and federal healthcare programs, such as Medicare and Medicaid, closely regulate provider payment levels and have sought to
contain, and sometimes reduce, payment levels. Private payers frequently follow government payment policies and are likewise interested in controlling increases in the cost of
medical care. In addition, some payers are adopting pay-for-performance programs that differentiate payments to healthcare providers based on the achievement of documented
quality-of-care metrics, cost efficiencies, or patient outcomes. These programs are intended to provide incentives to providers to deliver the same or better results while
consuming fewer resources. As a result of these programs, and related payer efforts to reduce payment levels, hospitals and other providers are seeking ways to reduce their
costs, including the amounts they pay to medical device manufacturers. We may not be able to sell our implants profitably if third-party payers deny or discontinue coverage or
reduce their levels of payment below that which we project, or if our production costs increase at a greater rate than payment levels. Adverse changes in payment rates by
payers to hospitals could adversely impact our ability to market and sell our products and negatively affect our financial performance.
In international markets, medical device regulatory requirements and healthcare payment systems vary significantly from country to country, and many countries have instituted
price ceilings on specific product lines. We cannot assure you that our products will be considered cost-effective by international third-party payers, that reimbursement will be
available or, if available, that the third-party payers’ reimbursement policies will not adversely affect our ability to sell our products profitably. Any failure to receive regulatory
or reimbursement approvals would negatively impact market acceptance of our products in any international markets in which those approvals are sought.
Moreover, certain legislative changes to and regulatory changes under the PPACA have occurred in the 115th United States Congress and under the Trump Administration. For
example, on December 22, 2017, former President Trump signed a budget reconciliation act into law, which among other things, repealed the penalty for individuals who do
not maintain minimum essential coverage, which was a central component of PPACA’s approach to expanding coverage. On January 9, 2018, former President Trump signed
the Bipartisan Budget Act of 2018, which, among other things, repealed the PPACA provision establishing an independent payment advisory board that would have submitted
recommendations to reduce Medicare spending if projected Medicare spending exceeded a specified growth rate we cannot predict the ultimate content, timing or effect of any
changes to the Health Care Reform Act or other federal and state reform efforts. There is no assurance that federal or state healthcare reform will not adversely affect our
business and financial results, and we cannot predict how future federal or state legislative, judicial or administrative changes relating to healthcare reform will affect our
business.
Prolonged negative economic conditions in domestic and international markets may adversely affect us, our suppliers, partners and consumers, and the global orthopedic
market which could harm our financial position.
There is a risk that one or more of our current suppliers may not continue to operate. Any lender that is obligated to provide funding to us under any future credit agreement
with us may not be able to provide funding in a timely manner, or at all, when we require it. The cost of, or lack of, available credit or equity financing could impact our ability
to develop sufficient liquidity to maintain or grow our company. These negative changes in domestic and international economic conditions or additional disruptions of either or
both of the financial and credit markets may also affect third-party payers and may have a material adverse effect on our business, results of operations, financial condition and
liquidity.
In addition, we believe that various demographics and industry-specific trends will help drive growth in the orthopedics markets, but these demographics and trends are
uncertain. Actual demand for orthopedic products generally, and our products in particular, could be significantly less than expected if our assumptions regarding these factors
prove to be incorrect or do not materialize, or if alternative treatments gain widespread acceptance.
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We are dependent on our senior management team, engineering team, and external advisors, and the loss of any of them could harm our business. We may not have
sufficient personnel to effectuate our business strategy due to our recent reduction in force.
The members of our current senior management team may not be able to successfully implement our strategy. In addition, we have not entered into employment agreements,
other than change-in-control severance agreements, with any of the members of our senior management team. There are no assurances that the services of any of these
individuals will be available to us for any specified period of time. The successful integration of our senior management team, the loss of members of our senior management
team, engineering team and key external advisors, or our inability to attract or retain other qualified personnel or advisors could have a material adverse effect on our business,
financial condition and results of operations. We may not have sufficient number of qualified personnel to effectuate our business strategy which could have a material adverse
effect on our business, financial condition and results of operations.
If we experience significant disruptions in our information technology systems, our business, results of operations and financial condition could be adversely affected.
The efficient operation of our business depends on our information technology systems. We rely on our information technology systems to effectively manage our sales and
marketing, accounting and financial functions; manufacturing processes; inventory; engineering and product development functions; and our research and development
functions. As such, our information technology systems are vulnerable to damage or interruption including from earthquakes, fires, floods and other natural disasters; terrorist
attacks and attacks by computer viruses or hackers; power losses; and computer systems, or Internet, telecommunications or data network failures. The failure of our
information technology systems to perform as we anticipate or our failure to effectively implement new systems could disrupt our entire operation and could result in decreased
sales, increased overhead costs, excess inventory and product shortages, all of which could have a material adverse effect on our reputation, business, results of operations and
financial condition.
Cyber security risks and the failure to maintain the integrity of company, employee or guest data could expose us to data loss, litigation and liability, and our reputation
could be significantly harmed.
We collect and third parties collaborating on our clinical trials collect and retain large volumes of data, including personally identifiable information regarding clinical trial
participants and others, for business purposes, including for regulatory, research and development and commercialization purposes, and our collaborators’ various information
technology systems enter, process, summarize and report such data. We also maintain personally identifiable information about our employees. The integrity and protection of
our company, employee and clinical data is critical to our business. We are subject to significant security and privacy regulations, as well as requirements imposed by
government regulation. Maintaining compliance with these evolving regulations and requirements could be difficult and may increase our expenses. In addition, a penetrated or
compromised data system or the intentional, inadvertent or negligent release or disclosure of data could result in theft, loss or fraudulent or unlawful use of company, employee
or clinical data which could harm our reputation, disrupt our operations, or result in remedial and other costs, fines or lawsuits.
Risks Related to Our Capital Resources and Impairments
We will require additional financing and our failure to obtain additional funding would force us to delay, reduce or eliminate our product development programs or
commercialization efforts.
We currently have limited committed sources of capital and we have limited liquidity. Our cash and cash equivalents as of December 31, 2020 was $25.4 million. We require
substantial future capital in order to continue to conduct the research and development and regulatory clearance and approval activities necessary to bring our products to
market, to establish effective marketing and sales capabilities. Our existing capital resources are not sufficient to enable us to fund the completion of the development and
commercialization of all of our product candidates. We cannot determine with certainty the duration and completion costs of the current or future development and
commercialization of our product candidates for spinal fusion, joint replacement and coated metals or if, when, or to what extent we will generate revenues from the
commercialization and sale of any of these product candidates for which we obtain regulatory approval. We may never succeed in achieving regulatory approval for certain or
all of these product candidates. The duration, costs and timing of clinical trials and development of our spinal fusion, joint replacement and coated metal product candidates will
depend on a variety of factors, including:
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the scope, rate of progress, and expense of our ongoing, as well as any additional, clinical trials and other research and development activities;
future clinical trial results we may must or choose to conduct;
potential changes in government regulation; and
the timing and receipt of any regulatory approvals.
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A change in the outcome of any of these variables with respect to the development of spinal fusion, joint replacement or coated metal product candidates could mean a
significant change in the costs and timing associated with the development of these product candidates.
In addition, if adequate funds to develop our product candidates are not available on a timely basis, we may terminate or delay the development of one or more of our product
candidates, or delay activities necessary to commercialize our product candidates. Additional funding may not be available to us on acceptable terms, or at all. Any additional
equity financing, if available, may not be available on favorable terms and will most likely be dilutive to our current stockholders, and debt financing, if available, may involve
more restrictive covenants. Our ability to access capital when needed is not assured and, if not achieved on a timely basis, will materially harm our business, financial condition
and results of operations or could cause us to cease operations.
The timing and amount of our future capital requirements will depend on many factors, including:
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the level of sales of our current products and the cost of revenue and sales and marketing;
the extent of any clinical trials that we will be required to conduct in support of the regulatory clearance of our total hip and knee replacement product candidates;
the scope, progress, results and cost of our product development efforts;
the costs, timing and outcomes of regulatory reviews of our product candidates;
the number and types of products we develop and commercialize;
the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims; and
the extent and scope of our general and administrative expenses.
Raising additional capital by issuing securities or through debt financings or licensing arrangements may cause dilution to existing stockholders, restrict our operations or
require us to relinquish proprietary rights.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be diluted, and the terms may include
liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or
restricting our ability to take specific actions such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through
collaboration and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or products or grant licenses on terms that are not
favorable to us. Any of these events could adversely affect our ability to achieve our product development and commercialization goals and have a material adverse effect on
our business, financial condition and results of operations.
In previous years we have indicated that there was substantial doubt as to our ability to continue as a going concern. Depending on the results of our future operations, we
may again have substantial doubt as to our ability to continue as a going concern.
If we seek additional financing to fund our business activities, investors or other financing sources may be unwilling to provide additional funding on commercially reasonable
terms or at all. If we seek additional funds and are unable to obtain sufficient additional funding, our business, prospects, financial condition and results of operations will be
materially and adversely affected, and we may be unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets
and may receive less than the value at which those assets are carried on our consolidated financial statements, and it is likely that investors will lose all or a part of their
investment. Our future reports may disclose our doubt about our ability to continue as a going concern.
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Risks Related to Regulatory Approval of Our Products and Other Government Regulations
Our long-term success depends substantially on our ability to obtain regulatory clearance or approval and thereafter commercialize our product candidates; we cannot be
certain that we will be able to do so in a timely manner or at all.
The process of obtaining regulatory clearances or approvals to market a medical device from the FDA or similar regulatory authorities outside of the United States can be costly
and time consuming, and there can be no assurance that such clearances or approvals will be granted on a timely basis, or at all. The FDA’s 510(k) clearance process generally
takes one to six months from the date of submission, depending on whether a special or traditional 510(k) premarket notification has been submitted, but can take significantly
longer. An application for premarket approval, or PMA, must be submitted to the FDA if the device cannot be cleared through the 510(k) clearance process or is not exempt
from premarket review by the FDA. The PMA process almost always requires one or more clinical trials and can take two to three years from the date of filing, or even longer.
In some cases, including in the case of our interbody spinal fusion devices which incorporate our CSC technology and our solid silicon nitride femoral head component, the
FDA requires clinical data as part of the 510(k) clearance process.
It is possible that the FDA could raise questions about spinal fusion products, spinal fusion product candidates, dental implant products, and our total hip and knee joint
replacement product candidates and could require us to perform additional studies on our products and product candidates. Even if the FDA permits us to use the 510(k)
clearance process, we cannot assure you that the FDA will not require either supporting data from laboratory tests or studies that we have not conducted, or substantial
supporting clinical data. If we are unable to use the 510(k) clearance process for any of our product candidates, are required to provide clinical data or laboratory data that we do
not possess to support our 510(k) premarket notifications for any of these product candidates, or otherwise experience delays in obtaining or fail to obtain regulatory clearances,
the commercialization of our product candidates in the United States will be delayed or prevented, which will adversely affect our ability to generate additional revenues. It also
may result in the loss of potential competitive advantages that we might otherwise attain by bringing our products to market earlier than our competitors. Additionally, although
the FDA allows modifications to be made to devices that have received 510(k) clearance with supporting documentation, the FDA may disagree with our decision to modify our
cleared devices without submission of a new 510(k) premarket notification, subjecting us to potential product recall, field alerts and corrective actions. Any of these
contingencies could adversely affect our business.
Similar to our compliance with U.S. regulatory requirements, we must obtain and comply with international requirements, in order to market and sell our products outside of the
United States and we may only promote and market our products, if approved, as permitted by applicable regulatory authorities. There is no guarantee that we will receive the
necessary regulatory approvals for our product candidates either inside the United States or internationally. If our product candidates do not receive necessary regulatory
approvals, our business could be materially and adversely affected.
The safety of our products is not yet supported by long-term clinical data, and they may prove to be less safe and effective than our laboratory data indicate.
We obtained FDA clearance for each of our spinal fusion products that we currently manufacture for CTL Medical, and we have sought and intend to seek FDA clearance or
approval through the FDA’s 510(k) or PMA process and, where applicable, CE marking for our product candidates. The 510(k) clearance process is based on the FDA’s
agreement that a new product candidate is substantially equivalent to an already marketed product for which a PMA was not required. While most 510(k) premarket
notifications do not require clinical data for clearance, the FDA may request that such data be provided. Long-term clinical data or marketing experience obtained after
clearance may indicate that our products cause unexpected complications or other unforeseen negative effects. If this happens, we could be subject to the withdrawal of our
marketing clearance and other enforcement sanctions by the FDA or other regulatory authority, product recalls, significant legal liability, significant negative publicity, damage
to our reputation and a dramatic reduction in our ability to sell our products, any one of which would have a material adverse effect on our business, financial condition and
results of operations.
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We expect to be required to conduct clinical trials to support regulatory approval of some of our product candidates. We have little experience conducting clinical trials,
they may proceed more slowly than anticipated, and we cannot be certain that our product candidates will be shown to be safe and effective for human use.
In order to commercialize our product candidates in the United States, we must submit a PMA for some of these product candidates, which will require us to conduct clinical
trials. We also plan to provide the FDA with clinical trial data to support some of our 510(k) premarket notifications. We will receive approval or clearance from the FDA to
commercialize products requiring a clinical trial only if we can demonstrate to the satisfaction of the FDA, through well-designed and properly conducted clinical trials, that our
product candidates are safe and effective and otherwise meet the appropriate standards required for approval or clearance for specified indications.
Clinical trials are complex, expensive, time consuming, uncertain and subject to substantial and unanticipated delays. Before we may begin clinical trials, we must submit and
obtain approval for an investigational device exemption, or IDE, that describes, among other things, the manufacture of, and controls for, the device and a complete
investigational plan. Clinical trials generally involve a substantial number of patients in a multi-year study. Because we do not have the experience or the infrastructure
necessary to conduct clinical trials, we will have to hire one or more contract research organizations, or CROs, to conduct trials on our behalf. CRO contract negotiations may be
costly and time consuming and we will rely heavily on the CRO to ensure that our trials are conducted in accordance with regulatory and industry standards. We may encounter
problems with our clinical trials and any of those problems could cause us or the FDA to suspend those trials or delay the analysis of the data derived from them.
A number of events or factors, including any of the following, could delay the completion of our clinical trials in the future and negatively impact our ability to obtain FDA
approval for, and to introduce our product candidates:
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failure to obtain financing necessary to bear the cost of designing and conducting clinical trials;
failure to obtain approval from the FDA or foreign regulatory authorities to commence investigational studies;
conditions imposed on us by the FDA or foreign regulatory authorities regarding the scope or design of our clinical trials;
failure to find a qualified CRO to conduct our clinical trials or to negotiate a CRO services agreement on favorable terms;
delays in obtaining or in our maintaining required approvals from institutional review boards or other reviewing entities at clinical sites selected for participation in
our clinical trials;
insufficient supply of our product candidates or other materials necessary to conduct our clinical trials;
difficulties in enrolling patients in our clinical trials;
negative or inconclusive results from clinical trials, or results that are inconsistent with earlier results, that necessitate additional clinical studies;
failure on the part of the CRO to conduct the clinical trial in accordance with regulatory requirements;
our failure to maintain a successful relationship with the CRO or termination of our contractual relationship with the CRO before completion of the clinical trials;
serious or unexpected side effects experienced by patients in whom our product candidates are implanted; or
failure by any of our third-party contractors or investigators to comply with regulatory requirements or meet other contractual obligations in a timely manner.
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Our clinical trials may need to be redesigned or may not be completed on schedule, if at all. Delays in our clinical trials may result in increased development costs for our
product candidates, which could cause our stock price to decline and limit our ability to obtain additional financing. In addition, if one or more of our clinical trials are delayed,
competitors may be able to bring products to market before we do, and the commercial viability of our product candidates could be significantly reduced.
Our current and future relationships with third-party payers and current and potential customers in the United States and elsewhere may be subject, directly or indirectly, to
applicable anti-kickback, fraud and abuse, false claims, transparency, health information privacy and security and other healthcare laws and regulations, which could
expose us to criminal sanctions, civil penalties, contractual damages, reputational harm administrative burdens and diminished profits and future earnings.
Our current and future arrangements with third-party payers and current and potential customers, including providers and physicians, as well as physician owned distributorships
or PODs, may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti-Kickback Statute and
the federal False Claims Act, which may constrain the business or financial arrangements and relationships through which we sell, market and distribute our products. In
addition, we may be subject to transparency laws and patient privacy regulations by U.S. federal and state governments and by governments in foreign jurisdictions in which we
conduct our business. The applicable federal, state and foreign healthcare laws and regulations that may affect our ability to operate include:
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t h e federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing
remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or
recommendation of, any good or service, for which payment may be made under federal healthcare programs, such as Medicare and Medicaid;
federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, which impose criminal and civil penalties,
including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government,
including the Medicare and Medicaid programs, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an
obligation to pay money to the federal government;
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for executing a scheme to defraud any
healthcare benefit program or making false statements relating to healthcare matters;
● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their respective implementing
regulations, which impose obligations on covered healthcare providers, health plans, and healthcare clearinghouses, as well as their business associates that create,
receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity, with respect to safeguarding the privacy, security and
transmission of individually identifiable health information;
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the Physician Payments Sunshine Act, which requires (i) manufacturers of drugs, devices, biologics and medical supplies for which payment is available under
Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to CMS information related to certain “payments or
other transfers of value” made to physicians, which is defined to include doctors, dentists, optometrists, podiatrists and chiropractors, and teaching hospitals, with
data collection beginning on August 1, 2013, (ii) applicable manufacturers and applicable group purchasing organizations to report annually to CMS ownership and
investment interests held in such entities by physicians and their immediate family members, with data collection beginning on August 1, 2013, (iii) manufacturers
to submit reports to CMS by March 31, 2014 and the 90th day of each subsequent calendar year, and (iv) disclosure of such information by CMS on a publicly
available website beginning in September 2014; and
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analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims
involving healthcare items or services reimbursed by non-governmental third-party payers, including private insurers; state and foreign laws that require medical
device companies to comply with the medical device industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal
government or otherwise restrict payments that may be made to healthcare providers; state and foreign laws that require medical device manufacturers to report
information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws
governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not
preempted by HIPAA, thus complicating compliance efforts. Efforts to ensure that our business arrangements with third parties will comply with applicable
healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply
with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to
be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative
penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare programs, such as Medicare and
Medicaid, and the curtailment or restructuring of our operations, which could have a material adverse effect on our business. If any of the physicians or other
healthcare providers or entities with whom we expect to do business, including our collaborators, are found not to be in compliance with applicable laws, they may
be subject to criminal, civil or administrative sanctions, including exclusions from participation in government healthcare programs, which could also materially
affect our business.
U.S. federal income tax reform could adversely affect us.
On December 22, 2017, former President Donald Trump signed into law sweeping tax reform, which overhauls individual, business and international taxes including, but not
limited to:
● Cutting the corporate federal statutory tax rate to 21%;
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Limiting net interest expense deductions to 30% of adjusted taxable income; and
Limiting the net operating loss deduction to 80% of taxable income.
The reduction in tax rate will result in a reduction in the deferred tax assets. We have previously used the 35% federal statutory tax rate to calculate the value of those assets.
Also, if we fail to generate significant taxable income, we may not be able to fully deduct the interest expense on our debt, which could result in us having to pay increased
federal income taxes. We have also generated substantial taxable losses in the past and may continue to do so in the future. Although the treatment of tax losses generated before
December 31, 2018 has not changed, tax losses generated in fiscal 2019 and beyond will only be able to offset 80% of taxable income, although the losses may be carried
forward indefinitely. This could cause us to have to pay federal income taxes despite generating a loss for federal income tax purposes in the future. We continue to work with
our tax advisors to determine the full impact that the new tax bill will have on our Company.
Recently enacted and future legislation may increase the difficulty and cost for us to obtain and monitor regulatory approval or clearance of our product candidates and
affect the prices we may obtain for our products.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that
could prevent or delay clearance and/or approval of our product candidates, restrict or regulate post-clearance and post-approval activities and affect our ability to profitably sell
our products and any product candidates for which we obtain marketing approval or clearance.
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In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new
regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of our products. Delays in receipt of or failure to
receive regulatory clearances or approvals for our new products would have a material adverse effect on our business, results of operations and financial condition. In addition,
the FDA is currently evaluating the 510(k) process and may make substantial changes to industry requirements, including which devices are eligible for 510(k) clearance, the
ability to rescind previously granted 510(k) clearances and additional requirements that may significantly impact the process.
Among policy makers and payers in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing
healthcare costs, improving quality and expanding access. In the United States, the medical device industry has been a particular focus of these efforts and has been significantly
affected by major legislative initiatives. In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and
Education Affordability Reconciliation Act, or collectively the ACA, a sweeping law intended, among other things, to broaden access to health insurance, reduce or constrain
the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose
new taxes and fees on the health industry and impose additional health policy reforms.
Among the provisions of the ACA of importance to our products and product candidates are:
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establishes a new Patient-Centered Outcomes Research Institute to oversee and identify priorities in comparative clinical effectiveness research in an effort to coordinate
and develop such research; and
implements payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the
coordination, quality and efficiency of certain healthcare services through bundled payment models.
In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. For example, on January 2, 2013, former President Obama signed into
law the American Taxpayer Relief Act of 2012, or the ATRA, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging
centers and cancer treatment centers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Moreover,
certain legislative changes to and regulatory changes under the PPACA have occurred in the 115th United States Congress and under the Trump Administration. For example,
on December 22, 2017, former President Trump signed a budget reconciliation act into law, which among other things, repealed the penalty for individuals who do not maintain
minimum essential coverage, which was a central component of PPACA’s approach to expanding coverage. On January 9, 2018, former President Trump signed the Bipartisan
Budget Act of 2018, which, among other things, repealed the PPACA provision establishing an independent payment advisory board that would have submitted
recommendations to reduce Medicare spending if projected Medicare spending exceeded a specified growth rate.
Additional legislative changes to and regulatory changes under the PPACA remain possible. We expect that other state and federal healthcare reform measures will be adopted
in the future, any of which could reduce the number of patients with coverage or limit the amounts that federal and state governments will pay for healthcare products and
services, which could result in reduced demand for our products or additional pricing pressure.
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In the European Union and some other international markets, the government provides health care at a low cost to consumers and regulates prices of healthcare products, patient
eligibility or reimbursement levels to control costs for the government-sponsored health care system. Many countries are reducing their public expenditures and we expect to
see strong efforts to reduce healthcare costs in international markets, including patient access restrictions, suspensions on price increases, prospective and possibly retroactive
price reductions and other recoupments and increased mandatory discounts or rebates and recoveries of past price increases. These cost control measures could reduce our
revenues. In addition, certain countries set prices by reference to the prices in other countries where our products are marketed. Thus, our inability to secure adequate prices in a
particular country may not only limit the marketing of our products within that country but may also adversely affect our ability to obtain acceptable prices in other markets.
This may create the opportunity for third-party cross border trade or influence our decision to sell or not to sell a product, thus adversely affecting our geographic expansion
plans and revenues.
Risks Related to Our Intellectual Property and Litigation
If the combination of patents, trade secrets and contractual provisions that we rely on to protect our intellectual property is inadequate, our ability to commercialize our
products successfully will be harmed, and we may not be able to operate our business profitably.
Our success depends significantly on our ability to protect our proprietary rights to the technologies incorporated in our products. We rely on a combination of patent protection,
trade secret laws and nondisclosure, confidentiality and other contractual restrictions to protect our proprietary technology. However, these may not adequately protect our
rights or permit us to gain or keep any competitive advantage.
The issuance of a patent is not conclusive as to its scope, validity or enforceability. The scope, validity or enforceability of our issued patents can be challenged in litigation or
proceedings before the U.S. Patent and Trademark Office, or the USPTO, or foreign patent offices. In addition, our pending patent applications include claims to numerous
important aspects of our products under development that are not currently protected by any of our issued patents. We cannot assure you that any of our pending patent
applications will result in the issuance of patents to us. The USPTO or foreign patent offices may deny or require significant narrowing of claims in our pending patent
applications. Patents issued as a result of the pending patent applications, if any, may not provide us with significant commercial protection or be issued in a form that is
advantageous to us. Proceedings before the USPTO or foreign patent offices could result in adverse decisions as to the priority of our inventions and the narrowing or
invalidation of claims in issued patents. The laws of some foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States, if
at all.
Our competitors may successfully challenge and invalidate or render unenforceable our issued patents, including any patents that may issue in the future, which could prevent or
limit our ability to market our products and could limit our ability to stop competitors from marketing products that are substantially equivalent to ours. In addition, competitors
may be able to design around our patents or develop products that provide outcomes that are comparable to our products but that are not covered by our patents.
We have also entered into confidentiality and assignment of intellectual property agreements with all of our employees, consultants and advisors as one of the ways we seek to
protect our intellectual property and other proprietary technology. However, these agreements may not be enforceable or may not provide meaningful protection for our trade
secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements.
In the event a competitor infringes upon any of our patents or other intellectual property rights, enforcing our rights may be difficult, time consuming and expensive, and would
divert management’s attention from managing our business. There can be no assurance that we will be successful on the merits in any enforcement effort. In addition, we may
not have sufficient resources to litigate, enforce or defend our intellectual property rights.
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We have no patent protection covering the composition of matter for our solid silicon nitride or the process we use for manufacturing our solid silicon nitride, and
competitors may create silicon nitride formulations substantially similar to ours.
Although we have a number of U.S. and foreign patents and pending applications relating to our solid silicon nitride products or product candidates, we have no patent
protection either for the composition of matter for our silicon nitride or for the processes of manufacturing solid silicon nitride. As a result, competitors may create silicon
nitride formulations substantially similar to ours and use their formulations in products that may compete with our silicon nitride products, provided they do not violate our
issued product patents. Although we have, and will continue to develop, significant know-how related to these processes, there can be no assurance that we will be able to
maintain this know-how as trade secrets, and competitors may develop or acquire equally valuable or more valuable know-how related to the manufacture of silicon nitride.
We could become subject to intellectual property litigation that could be costly, result in the diversion of management’s time and efforts, require us to pay damages, prevent
us from marketing our commercially available products or product candidates and/or reduce the margins we may realize from our products that we may commercialize.
The medical devices industry is characterized by extensive litigation and administrative proceedings over patent and other intellectual property rights. Whether a product
infringes a patent involves complex legal and factual issues, and the determination is often uncertain. There may be existing patents of which we are unaware that our products
under development may inadvertently infringe. The likelihood that patent infringement claims may be brought against us increases as the number of participants in the
orthopedic market increases and as we achieve more visibility in the marketplace and introduce products to market.
Any infringement claim against us, even if without merit, may cause us to incur substantial costs, and would place a significant strain on our financial resources, divert the
attention of management from our core business, and harm our reputation. In some cases, litigation may be threatened or brought by a patent holding company or other adverse
patent owner who has no relevant product revenues and against whom our patents may provide little or no deterrence. If we were found to infringe any patents, we could be
required to pay substantial damages, including triple damages if an infringement is found to be willful, and royalties and could be prevented from selling our products unless we
obtain a license or are able to redesign our products to avoid infringement. We may not be able to obtain a license enabling us to sell our products on reasonable terms, or at all,
and there can be no assurance that we would be able to redesign our products in a way that would not infringe those patents. If we fail to obtain any required licenses or make
any necessary changes to our technologies or the products that incorporate them, we may be unable to commercialize one or more of our products or may have to withdraw
products from the market, all of which would have a material adverse effect on our business, financial condition and results of operations.
In addition, in order to further our product development efforts, we have entered into agreements with orthopedic surgeons to help us design and develop new products, and we
expect to enter into similar agreements in the future. In certain instances, we have agreed to pay such surgeons royalties on sales of products which incorporate their product
development contributions. There can be no assurance that surgeons with whom we have entered into such arrangements will not claim to be entitled to a royalty even if we do
not believe that such products were developed by cooperative involvement between us and such surgeons. In addition, some of our surgeon advisors are employed by academic
or medical institutions or have agreements with other orthopedic companies pursuant to which they have agreed to assign or are under an obligation to assign to those other
companies or institutions their rights in inventions which they conceive or develop or help conceive or develop.
There can be no assurance that one or more of these orthopedic companies or institutions will not claim ownership rights to an invention we develop in collaboration with our
surgeon advisors or consultants on the basis that an agreement with such orthopedic company or institution gives it ownership rights in the invention or that our surgeon
advisors on consultants otherwise have an obligation to assign such inventions to such company or institution. Any such claim against us, even without merit, may cause us to
incur substantial costs, and would place a significant strain on our financial resources, divert the attention of management from our core business and harm our reputation.
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We may be subject to damages resulting from claims that we have wrongfully used or disclosed alleged trade secrets of our competitors or are in breach of non-competition
agreements with our competitors or non-solicitation agreements.
Many of our employees were previously employed at other orthopedic companies, including our competitors and potential competitors. Many of our former distributors and
potential distributors sell, or in the past have sold, products of our competitors. We may be subject to claims that either we, or these employees or distributors, have
inadvertently or otherwise used or disclosed the trade secrets or other proprietary information of our competitors. In addition, we have been and may in the future be subject to
claims that we caused an employee or sales agent to break the terms of his or her non-competition agreement or non-solicitation agreement. Litigation may be necessary to
defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. If we fail
in defending such claims, in addition to paying money damages, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product
could hamper or prevent our ability to commercialize products, which could have an adverse effect on our business, financial condition and results of operations.
If our silicon nitride products or our product candidates conflict with the rights of others, we may not be able to manufacture or market our products or product
candidates, which could have a material and adverse effect on us.
Our commercial success will depend in part on not infringing the patents or violating the other proprietary rights of third parties. Issued patents held by others may limit our
ability to develop commercial products. All issued patents are entitled to a presumption of validity under the laws of the United States. If we need suitable licenses to such
patents to permit us to develop or market our product candidates, we may be required to pay significant fees or royalties and we cannot be certain that we would even be able to
obtain such licenses. Competitors or third parties may obtain patents that may cover subject matter we use in developing the technology required to bring our products to
market, that we use in producing our products, or that we use in treating patients with our products. We know that others have filed patent applications in various jurisdictions
that relate to several areas in which we are developing products. Some of these patent applications have already resulted in patents and some are still pending. If we were found
to infringe any of these issued patents or any of the pending patent applications, when and if issued, we may be required to alter our processes or product candidates, pay
licensing fees or cease activities. If use of technology incorporated into or used to produce our product candidates is challenged, or if our processes or product candidates
conflict with patent rights of others, third parties could bring legal actions against us, in Europe, the United States and elsewhere, claiming damages and seeking to enjoin
manufacturing and marketing of the affected products. Additionally, it is not possible to predict with certainty what patent claims may issue from pending applications. In the
United States, for example, patent prosecution can proceed in secret prior to issuance of a patent, provided such application is not filed in foreign jurisdiction. For U.S. patent
applications that are also filed in foreign jurisdictions, such patent applications will not publish until 18 months from the filing date of the application. As a result, third parties
may be able to obtain patents with claims relating to our product candidates which they could attempt to assert against us. Further, as we develop our products, third parties may
assert that we infringe the patents currently held or licensed by them, and we cannot predict the outcome of any such action.
There has been extensive litigation in the medical devices industry over patents and other proprietary rights. If we become involved in any litigation, it could consume a
substantial portion of our resources, regardless of the outcome of the litigation. If these legal actions are successful, in addition to any potential liability for damages, we could
be required to obtain a license, grant cross-licenses and pay substantial royalties in order to continue to manufacture or market the affected products.
We cannot assure you that we would prevail in any legal action or that any license required under a third-party patent would be made available on acceptable terms, or at all.
Ultimately, we could be prevented from commercializing a product, or forced to cease some aspect of our business operations, as a result of claims of patent infringement or
violation of other intellectual property rights, which could have a material and adverse effect on our business, financial condition and results of operations.
44
Risks Related to Potential Litigation from Operating Our Business
We may become subject to potential product liability claims, and we may be required to pay damages that exceed our insurance coverage.
Our business exposes us to potential product liability claims that are inherent in the design, testing, manufacture, sale and distribution of our currently marketed products and
each of our product candidates that we are seeking to introduce to the market. The use of orthopedic medical devices can involve significant risks of serious complications,
including bleeding, nerve injury, paralysis, infection, and even death. Any product liability claim brought against us, with or without merit, could result in the increase of our
product liability insurance rates or in our inability to secure coverage in the future on commercially reasonable terms, if at all. In addition, if our product liability insurance
proves to be inadequate to pay a damage award, we may have to pay the excess of this award out of our cash reserves, which could significantly harm our financial condition. If
longer-term patient results and experience indicate that our products or any component of a product causes tissue damage, motor impairment or other adverse effects, we could
be subject to significant liability. A product liability claim, even one without merit, could harm our reputation in the industry, lead to significant legal fees, and result in the
diversion of management’s attention from managing our business.
Any claims relating to our improper handling, storage or disposal of biological or hazardous materials could be time consuming and costly.
Although we do not believe that the manufacture of our silicon nitride or non-silicon nitride products will involve the use of hazardous materials, it is possible that regulatory
authorities may disagree or that changes to our manufacturing processes may result in such use. Our business and facilities and those of our suppliers and future suppliers may
therefore be subject to foreign, federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous materials and waste
products. We may incur significant expenses in the future relating to any failure to comply with environmental laws. Any such future expenses or liability could have a
significant negative impact on our business, financial condition and results of operations.
General Risk Factors
The price of our common stock is volatile and is likely to continue to fluctuate due to reasons beyond our control.
The volatility of publicly traded company stocks, including shares of our common stock, often do not correlate to the operating performance of the companies represented by
such stocks or our operating performance. Some of the factors that may cause the market price of our common stock to fluctuate include:
●
●
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●
●
the sentiment of retail investors (including as may be expressed on financial trading and other social media sites and online forums);
the direct access by retail investors to broadly available trading platforms;
the amount and status of short interest in our securities;
access to margin debt;
trading in options and other derivatives on our common stock and any related hedging;
● CTL’s ability to sell silicon nitride based spinal fusion products and our cost of manufacturing such products for CTL;
●
●
our ability to develop, obtain regulatory clearances or approvals for, and market new and enhanced product candidates on a timely basis;
our ability to enter into OEM and private label partnership agreements and the terms of those agreements;
45
●
our ability to develop products that are effective in inactivating the SARS-CoV-2 virus;
● O2 DESIGN’s ability to commercialize face masks and mask filters incorporating our silicon nitride technology;
●
●
●
●
●
●
●
●
●
●
●
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changes in governmental regulations or in the status of our regulatory approvals, clearances or future applications;
our announcements or our competitors’ announcements regarding new products, product enhancements, significant contracts, number and productivity of distributors,
number of hospitals and surgeons using products, acquisitions or strategic investments;
announcements of technological or medical innovations for the treatment of orthopedic pathology;
delays or other problems with the manufacturing of our products, product candidates and related instrumentation;
volume and timing of orders for our products and our product candidates, if and when commercialized;
changes in the availability of third-party reimbursement in the United States and other countries;
quarterly variations in our or our competitors’ results of operations;
changes in earnings estimates or recommendations by securities analysts, if any, who cover our common stock;
failure to meet estimates or recommendations by securities analysts, if any, who cover our stock;
changes in the fair value of our derivative liabilities resulting from changes in the market price of our common stock, which may result in significant fluctuations in our
quarterly and annual operating results;
changes in healthcare policy in the United States and internationally;
product liability claims or other litigation involving us;
sales of a substantial aggregate number of shares of our common stock;
sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders;
disputes or other developments with respect to intellectual property rights;
changes in accounting principles;
●
●
changes to tax policy; and
general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.
These and other external factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent our stockholders from
readily selling their shares of our common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a
stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If our stockholders brought a
lawsuit against us, we could incur substantial costs defending the lawsuit regardless of the merits of the case or the eventual outcome. Such a lawsuit also would divert the time
and attention of our management from running our company.
Securities analysts may not continue to provide coverage of our common stock or may issue negative reports, which may have a negative impact on the market price of our
common stock.
Since completing our initial public offering of shares of our common stock in February 2014, a limited number of securities analysts have been providing research coverage of
our common stock. If securities analysts do not continue to cover our common stock, the lack of research coverage may cause the market price of our common stock to decline.
The trading market for our common stock may be affected in part by the research and reports that industry or financial analysts publish about our business. If one or more of the
analysts who elect to cover us downgrade our stock, our stock price would likely decline rapidly. If one or more of these analysts cease coverage of us, we could lose visibility
in the market, which in turn could cause our stock price to decline. In addition, under the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and a global settlement
among the Securities and Exchange Commission, or the SEC, other regulatory agencies and a number of investment banks, which was reached in 2003, many investment
banking firms are required to contract with independent financial analysts for their stock research. It may be difficult for a company such as ours, with a smaller market
capitalization, to attract independent financial analysts that will cover our common stock. This could have a negative effect on the market price of our stock.
46
Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change in control, even if an acquisition would be beneficial to
our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or remove our current management.
Our restated certificate of incorporation and restated bylaws contain provisions that could discourage, delay or prevent a merger, acquisition or other change in control of our
company or changes in our board of directors that our stockholders might consider favorable, including transactions in which you might receive a premium for your shares.
These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our
common stock. Stockholders who wish to participate in these transactions may not have the opportunity to do so. Furthermore, these provisions could prevent or frustrate
attempts by our stockholders to replace or remove management. These provisions:
●
●
●
●
●
●
allow the authorized number of directors to be changed only by resolution of our board of directors;
provide for a classified board of directors, such that not all members of our board will be elected at one time;
prohibit our stockholders from filling board vacancies, limit who may call stockholder meetings, and prohibit the taking of stockholder action by written consent;
prohibit our stockholders from making certain changes to our restated certificate of incorporation or restated bylaws except with the approval of holders of 75% of
the outstanding shares of our capital stock entitled to vote;
require advance written notice of stockholder proposals that can be acted upon at stockholders’ meetings and of director nominations to our board of directors; and
authorize our board of directors to create and issue, without prior stockholder approval, preferred stock that may have rights senior to those of our common stock
and that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that is not approved by our
board of directors.
In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders
owning 15% or more of our outstanding voting stock. Any delay or prevention of a change in control transaction or changes in our board of directors could cause the market
price of our common stock to decline.
We do not intend to pay cash dividends.
We have never declared or paid cash dividends on our capital stock and we do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain
all available funds and any future earnings for debt service and use in the operation and expansion of our business. In addition, the terms of any future debt or credit facility may
preclude us from paying any dividends.
Our outstanding shares of Series B Convertible Preferred Stock and Series C Convertible Preferred Stock and our outstanding common stock warrants are convertible and
exercisable into shares of our common stock and when converted or exercised, the issuance of additional shares of common stock may result in downward pressure on the
trading price of our common shares.
We have outstanding shares of Series B Convertible Preferred Stock and Series C Convertible Preferred Stock that are each convertible into shares of common stock. We
believe that as such holders convert their preferred shares into common shares, they will immediately sell their shares of common stock. The sale of such shares of common
stock may result in downward pressure on the trading price of our common stock resulting in a lower stock price. Additionally, we have outstanding warrants to purchase shares
of common stock. Many of these warrants have a cashless exercise provision that if exercised may also result in downward pressure on the trading price of our common stock
and cause such price to decline.
47
Risks Related to Public Companies
We are a “smaller reporting company” and the reduced disclosure requirements applicable to smaller reporting companies may make our common stock less attractive to
investors.
We are currently a “smaller reporting company” as defined in the Securities Exchange Act of 1934. Smaller reporting companies are able to provide simplified executive
compensation disclosures in their filings, are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting
firms provide an attestation report on the effectiveness of internal control over financial reporting, and have certain other decreased disclosure obligations in their SEC filings,
including, among other things, only being required to provide two years of audited financial statements in annual reports. We cannot predict whether investors will find our
common stock less attractive because of our reliance on any of these exemptions. If some investors find our common stock less attractive as a result, there may be a less active
trading market for our common stock and our stock price may be more volatile.
We could be delisted from Nasdaq, which could seriously harm the liquidity of our stock and our ability to raise capital.
If we cease to be eligible to trade on the Nasdaq Capital Market:
● We may have to pursue trading on a less recognized or accepted market, such as the OTC Bulletin Board or the “pink sheets.”
●
●
The trading price of our common stock could suffer, including an increased spread between the “bid” and “asked” prices quoted by market makers.
Shares of our common stock could be less liquid and marketable, thereby reducing the ability of stockholders to purchase or sell our shares as quickly and as
inexpensively as they have done historically. If our stock is traded as a “penny stock,” transactions in our stock would be more difficult and cumbersome.
● We may be unable to access capital on favorable terms or at all, as companies trading on alternative markets may be viewed as less attractive investments with higher
associated risks, such that existing or prospective institutional investors may be less interested in, or prohibited from, investing in our common stock. This may also
cause the market price of our common stock to decline.
48
We incur substantial costs as a result of being a public company and our management expects to devote substantial time to public company compliance programs.
As a public company, we incur significant legal, insurance, accounting and other expenses, including costs associated with public company reporting. We intend to invest
resources to comply with evolving laws, regulations and standards, and this investment will result in increased general and administrative expenses and may divert
management’s time and attention from product development and commercialization activities. If our efforts to comply with new laws, regulations and standards differ from the
activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us, and our business
may be harmed. These laws and regulations could make it more difficult and costlier for us to obtain director and officer liability insurance for our directors and officers, and we
may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain
qualified executive officers and qualified members of our board of directors, particularly to serve on our audit and compensation committees. In addition, if we are unable to
continue to meet the legal, regulatory and other requirements related to being a public company, we may not be able to maintain the listing of our common stock on The
NASDAQ Capital Market, which would likely have a material adverse effect on the trading price of our common stock.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
PROPERTIES
Our 30,000 square foot corporate office and manufacturing facilities are located in Salt Lake City, Utah. We occupy these facilities pursuant to a lease that expires in December
2024. Pursuant to the terms of the lease agreement, we may extend the lease for two additional periods of five years each. We believe that our existing facilities are adequate for
our current and projected needs for the foreseeable future.
ITEM 3.
LEGAL PROCEEDINGS
We are currently not a party to any material legal proceedings. However, our industry is characterized by frequent claims and litigation, including claims regarding intellectual
property and product liability. As a result, we may be subject to various legal proceedings in the future.
ITEM 4.
MINE SAFETY DISCLOSURES
This item does not apply to our business.
49
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY
SECURITIES
Market Information
Our shares of common stock are currently quoted on The NASDAQ Capital Market under the symbol “SINT”.
The following table sets forth the high and low sale prices of our common stock, as reported by NASDAQ Capital Markets for the periods indicated:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Prices listed are adjusted to reflect the July 26, 2019 reverse stock split.
Holders of Record
2020
High
Low
3.24 $
3.13 $
3.30 $
2.25 $
2019
High
Low
10.47 $
7.20 $
4.39 $
2.78 $
0.28
0.34
1.34
1.55
4.80
2.25
1.25
1.38
$
$
$
$
$
$
$
$
As of March 1, 2021, we had approximately 157 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other
institutions on behalf of stockholders, this number is not indicative of the total number of stockholders represented by these stockholders of record.
Dividends
We have not declared or paid dividends to stockholders since inception and do not plan to pay cash dividends in the foreseeable future. We currently intend to retain earnings, if
any, to finance our growth.
Issuer Purchases of Equity Securities
None
ITEM 6.
SELECTED FINANCIAL DATA
Not applicable.
50
ITEM 7.
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 together with our consolidated financial statements and related notes
appearing elsewhere in this Annual Report. This discussion and analysis contain 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
“Risk Factors” and elsewhere in this Annual Report.
Overview
We are an advanced materials company that develops and commercializes silicon nitride for medical and non-medical applications. The core strength of SINTX Technologies is
the manufacturing, research, and development of silicon nitride ceramics for 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, all of which have well-known practical 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, among other
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 also believe that we are the first and only company to commercialize silicon nitride medical implants. Prior to October 1, 2018, we designed, manufactured and
commercialized silicon nitride products for our own 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 spine 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. 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 to obtain regulatory approval for silicon nitride implants in Japan.
The sale of our spine implant business to CTL enables us to now focus on our core competencies. These include research and development of silicon nitride and the design and
manufacture of medical and nonmedical products manufactured from silicon nitride and other ceramic materials for our own account and in 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 in future markets such as
coating products with silicon nitride, hip and knee replacements, dental and maxillofacial implants, extremities, trauma, bearings, automotive and 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.
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, other medical 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.
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 products used in the treatment of spine disorders to CTL, with whom we entered into a
10-year exclusive sales agreement in October 2018. We are currently pursuing other sales opportunities for silicon nitride products outside the spinal fusion application and have
shipped new orders for these products. We generally recognize revenue from sales where control transfers at a point in time as the title and risk of loss passes to the customer,
which is at the time the product is shipped. In general, our customer does not have rights of return or exchange.
We believe our product revenue will increase as CTL increases sales of silicon nitride spinal fusion products, as we secure other opportunities to manufacture third party
products with silicon nitride, and as we continue to introduce new products into the market.
Cost of Revenue
The expenses that are included in cost of revenue include all in-house manufacturing costs for the products we manufacture.
51
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, 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 and development activities.
We expect to incur additional research and development costs as we continue to develop new spinal fusion products, product candidates for total joint replacements, dental
applications, and other products which may increase our total research and development expenses.
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, 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.
Results of Operations
Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
The following table sets forth, for the periods indicated, our results of operations for the years ended December 31, 2020 and 2019 (in thousands):
Product revenue
Costs of revenue
Gross profit
Operating expenses:
Research and development
General and administrative
Sales and marketing
Total operating expenses
Loss from operations
Other income, net
Net loss before income taxes
Provision for income taxes
Net loss
Deemed dividend related to beneficial conversion feature and
accretion of discount on convertible preferred stock
Net loss attributable to common stockholders
Year Ended December 31,
2020
2019
$ Change
% Change
$
$
$
594
475
119
$
689
551
138
4,808
3,132
683
8,623
(8,504)
1,475
(7,029)
-
(7,029)
3,394
2,908
430
6,732
(6,594)
1,797
(4,797)
-
(4,797)
(9,565)
(16,594)
$
(2,703)
(7,500)
$
52
(95)
(76)
(19)
1,414
224
253
1,891
(1,910)
(322)
(2,232)
-
(2,232)
(6,862)
(9,094)
-14%
-14%
-14%
42%
8%
59%
28%
29%
-18%
47%
N/A
47%
254%
121%
Product Revenue
Total silicon nitride revenue was $0.6 million in 2020 as compared to $0.7 million in 2019, a decrease of $0.1 million or 14%. This decrease was primarily due to a decrease in
orders from CTL.
Costs of Revenue and Gross Profit
The Company’s cost of revenue decreased $0.1 million, or 14%, as compared to the same period in 2019. Gross profit was approximately the same as compared to the same
period in 2019. Cost of revenue decreased as a result of decreased revenue due to due to a decrease in orders from CTL.
Research and Development Expenses
Research and development expenses increased $1.4 million, or 42%, as compared to the same period in 2019. This increase was primarily attributable to an overall increase in
R&D activity to support the Company’s strategic objective of developing new technologies and related products.
General and Administrative Expenses
General and administrative expenses increased $0.2 million, or 8%, as compared to the same period in 2019. This increase is largely due to an increase in franchise tax from the
prior year.
Sales and Marketing Expenses
Sales and marketing expenses increased $0.3 million, or 59%, as compared to the same period in 2019. This increase was primarily attributable to an overall increase in
marketing activities to generate interest in and exposure to the Company’s potential new product lines.
53
Deemed Dividends
Deemed dividends related to a beneficial conversion feature and accretion of discount on convertible preferred stock was recorded at $9.6 million in 2020, compared to $2.7
million for 2019. A beneficial conversion amount was calculated in association with the 2020 issuance of certain convertible preferred stock and warrants that could convert to
common stock at a discount below the trading price on the date of issuance. The accretion of a discount related to the actual conversion of the preferred stock into common
stock. During 2020, 9,612 shares of the preferred stock were converted to common stock and 3,825 shares of the preferred stock were converted to common stock during
2019.
Other Income (Expense), Net
Other income decreased $0.3 million, or 18%, as compared to the same period in 2019. This decrease was primarily due to offering costs in the amount of $1.2 million, and a
decrease in interest income of $0.1 million offset by the increase in the change in the fair value of the derivative liabilities in the amount of $0.8 million and the increase in the
loss on the extinguishment of derivative liabilities of $0.2 million.
Liquidity and Capital Resources
The 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 consolidated financial statements.
For the years ended December 31, 2020 and 2019, the Company incurred a net loss of $7.0 million and $4.8 million, respectively, and used cash in operations of $9.1 million
and $6.4 million, respectively. The Company had an accumulated deficit of $241.1 million and $234.1 million as of December 31, 2020 and 2019, respectively. To date, the
Company’s operations have been principally financed from proceeds from the issuance of preferred and common stock and, to a lesser extent, cash generated from product
sales. It is anticipated that the Company will continue to generate operating losses and use cash in operations. The Company’s continuation as a going concern is dependent upon
its ability to increase sales, and/or raise additional funds through the capital markets. Whether and when the Company can attain profitability and positive cash flows from
operations or obtain additional financing is uncertain.
The Company is actively generating additional scientific and clinical data to have it published in leading industry publications. The unique features of our 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 in 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 items.
The Company has common stock that is publicly traded and has been able to successfully raise capital when needed since the date of the Company’s initial public offering in
February 2014. On February 6, 2020, the Company closed 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 the 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 commissions and offering
expenses payable by the Company.
54
During the year ended December 31, 2019, the Company entered into an ATM equity distribution agreement in which the Company may 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 sold 354,381 shares of common stock, raising approximately $0.8
million before considering issuance costs. As a result of the sales during the first half of 2020 there are no longer any funds available to the Company under the ATM.
On October 1, 2018, the Company sold the retail spine implant business to CTL Medical. The sale included a $6 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 $1.9 million for the remaining ten months.
Management has concluded that together with its existing capital resources and payments on the note receivable from the sale of the spine implant business will be sufficient to
fund operations for at least the next 12 months, or through March 2022.
Risks Related to COVID-19 Pandemic
The recent outbreak of COVID-19 originated in Wuhan, China, in December 2019 and has since spread to multiple countries, including the United States and several European
countries. On March 11, 2020, the World Health Organization declared the outbreak a 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. 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 does not yet know the full extent of potential delays or impacts on its business, financing or other activities or on healthcare systems or the global economy as a
whole. However, these effects could have a material impact on the Company’s liquidity, capital resources, operations and 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):
Net cash used in operating activities
Net cash provided by investing activities
Net cash provided by financing activities
Year Ended December 31,
2020
2019
$
$
(9,112)
1,751
30,925
(6,435)
1,381
1,394
Net cash provided (used)
Net Cash Used in Operating Activities
$
23,564
$
(3,660)
Net cash used in operating activities was $9.1 million in 2020, compared to $6.4 million used in 2019, an increase of $2.7 million. The increase in the net loss for operations,
and related non-cash add backs to the net loss, was $2.5 million from 2020 when compared to 2019. The increase in cash used for operating activities operations during 2020
was primarily due to the $2.5 million mentioned above plus changes in the movement of working capital items during 2020 as compared to the same period in 2019 as follows: a
$0.6 million increase in cash used in accounts payable and accrued liabilities and a $0.1 increase in cash used in prepaids, offset by a $0.4 million decrease in cash payments on
operating lease liability, and a $0.1 million decrease in cash used in account and other receivables.
Net Cash Provided By Investing Activities
Net cash provided by investing activities was $1.8 million during 2020, compared to $1.4 million provided by investing activities during the same period in 2019, an increase of
$0.4 million. The increase in cash provided in investing activities during 2020 was primarily due to an increase of $0.6 million for the proceeds from notes receivable, offset by
the increase of $0.2 million for the purchase of property and equipment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $30.9 million during 2020, compared to $1.4 million provided by financing activities during the same period in 2019, an increase
of $29.5 million. This increase was primarily attributable an increase in proceeds from warrant derivative liabilities of $6.3 million, an increase in proceeds from issuance of
common stock in the amount of $18.5 million, an increase in proceeds from issuance of preferred stock in the amount of $3.1 million, an increase in proceeds of $1.0 million
from warrants exercised for cash, a $0.4 million increase from the issuance of debt, and a $0.2 decrease in capital raise costs.
55
Indebtedness
PPP Loan
On April 28, 2020, the Company received 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 is $0.391 million. The PPP Loan has a two-year term, maturing on April 28, 2022. The term may be extended to five-years if the Lender and
we agree to do so. The interest rate on the PPP Loan is 1.0% per annum. Principal and interest are payable in 18 monthly installments, beginning on November 28, 2020, until
maturity with respect to any portion of the PPP Loan which is not forgiven as described below. The PPP Loan may be partially or fully forgiven if the Company complies with
the 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. Any
forgiveness of the PPP Loan will be subject to approval by the SBA and the Lender and will require the Company to apply for such treatment in the future.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as defined in Item 303(a)(4) of Regulation S-K.
Related-Party Transactions
For a description of our related-party transactions, see Item 13 “Certain Relationships and Related Party Transactions, Director Independence” contained in Part III of this 2020
Annual Report on Form 10-K.
Seasonality and Backlog
Our business is generally not seasonal in nature. We derive our product revenue primarily from the sale of spinal fusion products, used in the treatment of spine disorders, to
CTL Medical, with whom we have an exclusive sales agreement in place with a remaining term of 8-years. CTL Medical’s sales generally consist of products that are in stock
with them or maintained at hospitals or with their sales distributors. Accordingly, we do not have a backlog of sales orders.
Critical Accounting Policies and Estimates
A summary of our significant accounting policies and estimates is discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in
Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes to
those policies for the year ended December 31, 2020, except as explained below in Accounting Pronouncements Adopted in 2019. The preparation of the consolidated financial
statements in accordance with U.S. generally accepted accounting principles requires us to make judgments, estimates and assumptions regarding uncertainties that affect the
reported amounts of assets and liabilities. Significant areas of uncertainty that require judgments, estimates and assumptions include the accounting for income taxes and other
contingencies as well as valuation of derivative liabilities, asset impairment and collectability of accounts receivable. We use historical and other information that we consider
to be relevant to make these judgments and estimates. However, actual results may differ from those estimates and assumptions that are used to prepare our consolidated
financial statements.
56
New Accounting Pronouncement, 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 upon adoption.
Revenue Recognition
The Company derives its product revenue primarily from the sale of spinal fusion products, used in the treatment of spine disorders to CTL Medical, with whom the Company
has a 10-year exclusive sales agreement in place, 8 years of which remain. The Company is currently pursuing other sales opportunities for silicon nitride outside the spinal
fusion application. The sale of the Company’s products has a single performance obligation and revenue is recognized at the time the product is shipped to the customer. In
general, the Company’s customers do not have any rights of return or exchange.
As of January 1, 2019, the Company adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASC 606), and elected to use the modified
retrospective method. Under the modified retrospective method, the Company has presented prior periods under legacy GAAP, with the cumulative effect of initial application
adjusted through beginning retained earnings. The new standard did not have a material impact on the revenue recognition process of the Company and no cumulative effect
was recognized upon initial application.
With the adoption of ASC 606 at the beginning of 2019, revenue is recognized when control of the goods or services promised under the contract is transferred to the customer
either at a point in time (e.g., upon delivery) or over time (e.g., as performed under the contract). The Company accounts for a contract when it has approval and commitment
from both parties, the rights and payment terms of the parties are identified, the contract has commercial substance and collectability of consideration is probable. Contracts are
reviewed to determine whether there is one or multiple performance obligations. A performance obligation is a promise to transfer a distinct good or service to a customer and
represents the unit of accounting for revenue recognition. For contracts with multiple performance obligations, the expected consideration, or the transaction price, is allocated to
each performance obligation identified in the contract based on the relative standalone selling price of each performance obligation. Revenue is then recognized for the
transaction price allocated to the performance obligation when control of the promised goods or services underlying the performance obligation is transferred. Contract
consideration is not adjusted for the effects of a significant financing component when, at contract inception, the period between when control transfers and when the customer
will pay for that good or service is one year or less. Contact modifications that provide for additional distinct goods or services at the standalone selling price are treated as
separate contracts. The transaction price for our contracts reflects our estimate of returns, rebates and discounts, which historically have not been significant. Amounts billed to
customers for shipping and handling are included in the transaction price and generally are not treated as separate performance obligations as these costs fulfill a promise to
transfer the product to the customer. The Company does not employee salespeople to actively seek additional customers; there are no incremental costs for obtaining customers
that need to be capitalized.
Account and Other Receivables and Allowance for Doubtful Accounts
Account and other receivables are carried at invoiced amount less an allowance for doubtful accounts. On a regular basis, the Company evaluates account and other receivables
and estimates an allowance for doubtful accounts, as needed, based on various factors such as customers’ current credit conditions, length of time past due, and the general
economy as a whole. Receivables are written off against the allowance when they are deemed uncollectible.
57
Inventories
Inventories are stated at the lower of cost or net realizable value, with cost for manufactured inventory determined under the standard costs, which approximate actual costs,
determined on the first-in first-out (“FIFO”) method. Manufactured inventory consists of raw material, direct labor and manufacturing overhead cost components. The Company
reviews the carrying value of inventory on a periodic basis for excess or obsolete items, and records any write-down as a cost of revenue, as necessary.
Long Lived Intangible Assets
The Company evaluates the carrying value of definite-lived intangibles when events or changes in circumstances indicate that the carrying value may not be recoverable.
Factors the Company considers important which could trigger an impairment review include, but are not limited to, significant under-performance relative to historical or
projected future operating results, significant changes in the manner of its use of acquired assets or its overall business strategy, and significant industry or economic trends. The
Company amortizes definite-lived intangible assets on a straight-line basis over their useful lives. The Company recorded no impairment loss for definite-lived intangible assets
during the year ended December 31, 2020. As explained above, the Company sold most intangible assets that had a carrying value to CTL Medical, retaining the carrying value
of only one trademark asset.
Property and Equipment
Property and equipment, including leasehold improvements, are stated at cost, less accumulated depreciation and amortization. Property and equipment are depreciated using the
straight-line method over the estimated useful lives of the assets, which range from three to five years. Leasehold improvements are amortized over the shorter of their estimated
useful lives or the related lease term, generally five years.
The Company reviews the carrying value of the Company’s property and equipment that are held and used in the Company’s operations for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is determined based upon expected undiscounted
future net cash flows from the operations to which the assets relate, utilizing management’s best estimate, assumptions, and projections at the time. If the carrying value is
determined to be unrecoverable from future operating cash flows, the asset is deemed impaired and an impairment charge would be recognized to the extent the carrying value
exceeded the estimated fair value of the asset. The Company estimates the fair value of assets based on the estimated future discounted cash flows of the asset.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to the differences between the financial statement carrying value of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the fiscal year in which those
temporary differences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be
realized.
58
The Company operates in various tax jurisdictions and is subject to audit by various tax authorities. The Company provides for tax contingencies whenever it is deemed
probable that a tax asset has been impaired, or a tax liability has been incurred for events such as tax claims or changes in tax laws. Tax contingencies are based upon their
technical merits relative tax law and the specific facts and circumstances as of each reporting period. Changes in facts and circumstances could result in material changes to the
amounts recorded for such tax contingencies.
The Company recognizes uncertain income tax positions taken on income tax returns at the largest amount that is more-likely than-not to be sustained upon audit by the
relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.
The Company’s policy for recording interest and penalties associated with uncertain tax positions is to record such items as a component of our income tax provision. For the
years ended December 31, 2020 and 2019, the Company did not record any material interest income, interest expense or penalties related to uncertain tax positions or the
settlement of audits for prior periods.
Stock-Based Compensation
The Company measures stock-based compensation expense related to employee stock-based awards based on the estimated fair value of the awards as determined on the date of
grant and is recognized as expense over the remaining requisite service period. The Company utilizes the Black-Scholes-Merton option pricing model to estimate the fair value
of employee stock options. The Black-Scholes-Merton model requires the input of highly subjective and complex assumptions, including the estimated fair value of the
Company’s common stock on the date of grant, the expected term of the stock option, and the expected volatility of the Company’s common stock over the period equal to the
expected term of the grant. The Company estimates forfeitures at the date of grant and revises the estimates, if necessary, in subsequent periods if actual forfeitures differ from
those estimates. The Company accounts for stock options to purchase shares of stock that are issued to non-employees based on the estimated fair value of such instruments
using the Black-Scholes-Merton option pricing model.
Derivative Liabilities
Derivative liabilities include the fair value of instruments such as common stock warrants, preferred stock warrants and convertible features of notes, that are initially recorded
at fair value and are required to be re-measured to fair value at each reporting period. The change in fair value of the instruments is recognized as a component of other income
(expense) in the Company’s consolidated statements of operations until the instruments settle, expire or are no longer classified as derivative liabilities. The Company estimates
the fair value of these instruments using the Black-Scholes-Merton or Monte-Carlo valuation models depending on the complexity of the underlying instrument. The significant
assumptions used in estimating the fair value include the exercise price, volatility of the stock underlying the instrument, risk-free interest rate, estimated fair value of the stock
underlying the instrument and the estimated life of the instrument.
59
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements
The consolidated financial statements of the Company appear at the end of this Annual Report beginning with the index to Financial Statements on page F-1 (see Part IV, Item
15 “Financial Statements”), and are incorporated herein.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), that are
designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act, is recorded, processed, summarized, and reported within
the time periods specified by the Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information
required to be disclosed in our reports filed or submitted under the Exchange Act are properly recorded, processed, summarized and reported within the time periods required by
the Commission’s rules and forms.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (principal executive officer and
principal financial officer), of the effectiveness of the design and operation of these disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e),
as of December 31, 2020. Based on this evaluation, the Chief Executive Officer concluded that our disclosure controls and procedures were effective as of December 31, 2020,
the end of the period covered by this Annual Report on Form 10-K.
60
(b) Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our internal control over financial reporting is designed to provide reasonable assurance of achieving its objectives as specified above. Management does not expect, however,
that our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain
assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
Management, including our Chief Executive Officer, has assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making our
assessment of the effectiveness of internal control over financial reporting, management used the criteria set forth in Internal Control—Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
As defined in SEC Regulation S-X, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Based on this
assessment, management determined that, as of December 31, 2020, the Company’s internal control over financial reporting was effective.
There were no changes in our internal control over financial reporting that occurred during 2020 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
None.
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PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
The following table sets forth the names, ages, and positions with SINTX for each of our directors.
Name
B. Sonny Bal, M.D.
David W. Truetzel
Jeffrey S. White
Eric A. Stookey
Mark Froimson, M.D.
Age
58
64
67
20
60
Positions
Chairman of the Board of Directors, President and Chief Executive Officer
Director
Director
Director
Director
Our Board is divided into three classes (Class I, Class II and Class III) with staggered three-year terms. Directors in each class are elected to serve for three-year staggered terms
that expire in successive years. Officers serve at the discretion of our Board. The following is information on the business experience of each director now serving and a
discussion of the qualifications, attributes and skills that led to the Board of Directors’ conclusion that each one is qualified to serve as a director.
The following is a brief summary of the background of each of our directors.
B. Sonny Bal, M.D. has served on our Board of Directors since February 2012, as Chairman of our Board of Directors since August 2014 and as our President and Chief
Executive Officer since October 2014. Dr. Bal was a tenured Professor in Orthopaedic Surgery at the University of Missouri, Columbia, and has an extensive history of research
into silicon nitride ceramics. He is Adjunct Professor of Material Sciences at Missouri Science and Technology University at Rolla. Dr. Bal is a member of the American
Academy of Orthopaedic Surgeons, the American Association of Hip and Knee Surgeons, and the International Society of Technology in Arthroplasty. Dr. Bal received his
M.D. degree from Cornell University and an M.B.A. from Northwestern University, a J.D. from the University of Missouri, and a Ph.D. in Engineering from the Kyoto Institute
of Technology in Japan. We believe that Dr. Bal’s breadth of experience and scientific expertise in silicon nitride qualifies him to serve as our Chairman, President and Chief
Executive Officer.
62
Jeffrey S. White has served on our Board of Directors since January 2014. From January 2013 to 2018, Mr. White served as Principal at Medtech Advisory Group LLC, a firm
he founded that advises early and mid-stage medical technology firms. In that capacity Mr. White has consulted MiMedx Group Inc., the leading amniotic tissue and allograft
regenerative biomaterials firm since mid-2015 and served as Vice President, Product Management Strategies at MiMedix. Mr. White previously served as a director of
Residency Select LLC, a company which offers psychometric assessment, training and compliance products to medical and surgical residency programs. Mr. White also served
in 2014 and 2015 as President and director of Liventa Bioscience LLC, a provider of specialty amniotic tissue allografts for use in surgical and wound care applications. From
May 2006 to December 2012 he served as Global Director of Business Development for Synthes Inc., a global orthopedic firm that was acquired by Johnson and Johnson in
2012. Mr. White has served as Chief Executive Officer and/or co-founder of several start-up surgical device firms and has previously held executive level positions at United
States Surgical Corporation, now part of Medtronic. Mr. White holds a B.S. in Biology from Union College in Schenectady NY. We believe that Mr. White’s experience as an
executive and founder of medical device companies qualifies him to serve on our Board of Directors.
Class II Directors - continuing directors with a term expiring at the 2022 annual meeting of stockholders.
David W. Truetzel has served on our Board of Directors since our acquisition of US Spine, Inc. in September 2010. Mr. Truetzel has been the general partner of Augury Capital
Partners, a private equity fund that invests in life sciences and information technology companies, which he co-founded in 2006. Mr. Truetzel is a director of Enterprise Bank,
Inc., Bonfyre, LLC, a provider of enterprise technology management solutions, and Paranet, LLC, an IT services provider. Mr. Truetzel holds a B.S. in Business Administration
from Saint Louis University and an M.B.A. from The Wharton School. We believe that Mr. Truetzel’s financial and managerial expertise qualify him to serve on our Board of
Directors.
Eric A. Stookey has served on our Board of Directors since October 2014. Mr. Stookey has served as Chief Operating Officer of Osteoremedies, LLC since March of 2015.
From October 2011 until August 2014, Mr. Stookey served as the President of the Extremities-Biologics division at Wright Medical Group Inc. Mr. Stookey also served in
various other marketing and sales positions at Wright Medical Group Inc. since 1995, including as the Senior Vice President and Chief Commercial Officer from January 2010
to November 2011, as the Vice President North American Sales from 2007 to January 2010, as the Vice President US Sales from 2005 to 2007, as the Senior Director of Sales,
Central Region, from 2003 to 2005 and as the Director of Marketing for Large Joint Reconstruction Products from 2001 to 2003. Mr. Stookey earned his M.B.A. from Christian
Brothers University and his B.S. in Business from the Indiana University School of Business. We believe that Mr. Stookey’s industry and executive leadership experience
qualifies him to serve on our Board of Directors.
Class I Directors - up for election at the 2021 Annual Meeting of Stockholders with a term expiring at the 2024 annual meeting of stockholder if re-elected.
Mark Froimson, M.D. has served on our Board of Directors since February 2019. Dr. Froimson is currently a Principal at Riverside Health Advisors, a consulting company that
provides strategic advice and services to health care executive leaders. Dr. Froimson served as the President of the American Association of Hip and Knee Surgeons from
March 2017 to March 2018. Previously, he was the Executive Vice President and Chief Clinical Officer of Trinity Health, a major national non-profit Catholic healthcare
system comprising 93 hospitals in 22 states. Prior to his executive leadership position at Trinity Health, Dr. Froimson was President and Chief Executive Officer of Euclid
Hospital, a Cleveland Clinic Hospital. Dr. Froimson served as a staff surgeon in the Department of Orthopedic Surgery at the Cleveland Clinic for over 16 years, during which
time he held a variety of leadership positions, including President of the professional staff, Vice Chair of the Orthopedic and Rheumatologic Institute, and member of the board
of governors and board of trustees. Dr. Froimson also serves on the board of directors of Pacira Biosciences, Inc., a publicly traded company on the NASDAQ Stock Market.
Dr. Froimson received a B.S. in philosophy from Princeton University, an M.D. from Tulane University School of Medicine and an MBA from the Weatherhead School of
Business at Case Western Reserve University.
63
We believe Dr. Froimson’s qualifications to sit on our Board include his clinical expertise and executive experience in the medical field.
Executive Officers
Our current executive officers and their respective ages and positions are as follows:
Name
B. Sonny Bal, M.D.
Bryan J. McEntire
David O’Brien
Age
58
68
56
Position
Chairman of the Board of Directors, President and Chief Executive Officer, Principal Financial
Officer
Chief Scientific Officer
Chief Operating Officer
The following is a brief summary of the background of each of our executive officers.
B. Sonny Bal, M.D. has served on our Board of Directors since February 2012, as Chairman of our Board of Directors since August 2014 and as our President and Chief
Executive Officer since October 2014. Dr. Bal was a tenured Professor in Orthopaedic Surgery at the University of Missouri, Columbia, and has an extensive history of research
into silicon nitride ceramics. He is Adjunct Professor of Material Sciences at Missouri Science and Technology University at Rolla. Dr. Bal is a member of the American
Academy of Orthopaedic Surgeons, the American Association of Hip and Knee Surgeons, and the International Society of Technology in Arthroplasty. Dr. Bal received his
M.D. degree from Cornell University and an M.B.A. from Northwestern University, a J.D. from the University of Missouri, and a Ph.D. in Engineering from the Kyoto Institute
of Technology in Japan. We believe that Dr. Bal’s breadth of experience and scientific expertise in silicon nitride qualifies him to serve as our Chairman, President and Chief
Executive Officer.
Bryan J. McEntire has served as our Chief Scientific Officer since May 2012. From June 2004 to May 2012 he served as our Vice President of Manufacturing and as our Vice
President of Research from December 2006 to May 2012. Dr. McEntire has worked in various advanced ceramic product development, quality engineering and manufacturing
roles at Applied Materials, Inc., (Santa Clara, CA), Norton Advanced Ceramics, a division of Saint-Gobain Industrial Ceramics Corporation (E. Granby, CT), Norton/TRW
Ceramics (Northboro, MA) and Ceramatec, Inc., (Salt Lake City, UT). Dr. McEntire has a BS degree in Materials Science and Engineering and an MBA both from the
University of Utah (Salt Lake City, UT), and a Ph.D. from the Kyoto Institute of Technology (Kyoto, Japan).
David O’Brien has served as our Chief Operating Officer since July 2019. Mr. O’Brien previously served as the Company’s Vice President and General Manager from October
2016 to July 2019 and from March 2014 through September 2016, he held prior roles as our Vice President of Operations and Vice President of Manufacturing. Mr. O’Brien
has over 30 years of experience in engineering, manufacturing, and operations leadership in advanced materials and medical device organizations. From 2005 to 2014, he
fulfilled several engineering leadership roles for Covidien. From 1991 to 2005, he worked for Arnold Magnetic Technologies in the production of ceramic, powder metal and
molded magnets in multiple facilities across the U.S. and in England. He has extensive experience with Lean and other Continuous Improvement initiatives. Mr. O’Brien holds
an M.S. in Ceramic Engineering from the Georgia Institute of Technology, and a B.S. in Physics from the University of Texas at San Antonio.
Arrangements between Officers and Directors
To our knowledge, there is no arrangement or understanding between any of our officers and any other person, including directors, pursuant to which the officer was selected to
serve as an officer.
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Family Relationships
None of our directors are related by blood, marriage, or adoption to any other director, executive officer, or other key employees.
Other Directorships
With the exception of Dr. Froimson, who is also on the board of directors of Pacira Biosciences, Inc., a SEC public reporting company, none of the directors of the Company
are also directors of issuers with a class of securities registered under Section 12 of the Exchange Act (or which otherwise are required to file periodic reports under the
Exchange Act).
Other Involvement in Certain Legal Proceedings
None of our directors or executive officers has been involved in any bankruptcy or criminal proceedings (other than traffic and other minor offenses) or been subject to any of
the items set forth under Item 401(f) of Regulation S-K, nor have there been any judgments or injunctions brought against any of our directors or executive officers during the
last ten years that we consider material to the evaluation of the ability and integrity of any director or executive officer.
The Board and Committees
Our Board of Directors has five members. The Chairman of the Board and our Chief Executive Officer, B. Sonny Bal, MD, PhD, is a member of the Board and is a full-time
employee of SINTX. David W. Truetzel, Eric A. Stookey, Jeffrey S. White, and Mark Froimson are non-employee directors, and the Board has determined that these persons
(who constitute a majority of the Board) are “independent directors” under the criteria set forth in Rule 5605(a)(2) of the Nasdaq Listing Rules. The Board met eight (8) times
during the year ended December 31, 2020. All directors attended more than seventy-five percent (75%) of the meetings of the Board and committee meetings of which such
director was a member held during 2020.
In accordance with our restated Certificate of Incorporation, our Board of Directors is divided into three classes with staggered three-year terms. At each annual meeting of
stockholders, the successors to the directors whose terms then expire will be elected to serve until the third annual meeting following such election. Our directors are divided
among the three classes as follows:
●
●
●
The Class I director is Mark Froimson and his term will expire at the annual meeting of stockholders to be held in 2021.
The Class II directors are David W. Truetzel and Eric A. Stookey, and their terms are expiring at the 2022 annual meeting of stockholders.
The Class III directors are B. Sonny Bal, M.D. and Jeffrey S. White, and their terms will expire at the annual meeting of stockholders to be held in 2023
Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will
consist of one-third of the directors.
Our Board of Directors has three permanent committees: the Audit Committee, the Compensation Committee, and the Corporate Governance and Nominating Committee. The
written charters for these committees are on our website at https://ir.sintx.com/corporate-governance. Our Board of Directors may from time to time establish other standing
committees. In addition, from time to time, special committees may be established under the direction of our Board of Directors when necessary to address specific issues.
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The following table sets forth a description of the three permanent Board committees and the chairpersons and members of those committees, all of whom are independent
directors:
Committee
Audit Committee
Independent Chairman
Independent Members
David W. Truetzel
Eric A. Stookey
Jeffrey S. White
Compensation Committee
Jeffrey S. White
David W. Truetzel
Eric A. Stookey
Governance and Nominating Committee
Eric A. Stookey
Jeffrey S. White
David W. Truetzel
Corporate Governance and Nominating Committee
The Corporate Governance and Nominating Committee is currently comprised of the following members: Eric A. Stookey (Chairman), David W. Truetzel and Jeffrey S White.
Among other items, the Corporate Governance and Nominating Committee is tasked by the Board to: (1) identify individuals qualified to serve as members of the Board and,
recommend individuals to be nominated by the Board for election by the stockholders or to be appointed by the Board to fill vacancies consistent with the criteria approved by
the Board; (2) develop and periodically evaluate and recommend changes to SINTX’s Corporate Governance Guidelines and Code of Ethics, and to review the Company’s
policies and programs that relate to matters of corporate responsibility, including public issues of significance to the Company and its stakeholders; and (3) oversee an annual
evaluation of the performance of the Board. The Board has determined that each of the members of the Corporate Governance and Nominating Committee is “independent”
under the standard set forth in Rule 5605(a)(2) of the Nasdaq Listing Rules. The Corporate Governance and Nominating Committee did not meet as a separate committee in
2019, but rather, because the committee is comprised of all three independent directors, governance matters were addressed as necessary in meetings of the Board. The
Corporate Governance and Nominating Committee operates under a written charter adopted by the Board of Directors, which sets forth the responsibilities and powers
delegated by the Board to the Corporate Governance and Nominating Committee.
Board Nominations
In considering Board candidates, the Board seeks individuals of proven judgment and competence who have strong reputations in their respective fields. Although we do not
have a formal diversity policy, the Board considers such factors as experience, education, employment history, special talents or personal attributes, anticipated participation in
Board activities, and geographic and diversity factors. The process for identifying and evaluating nominees would include detailed consideration of the recommendations and
opinions of members of our Board, our executive officers, and our stockholders. There would be no difference in the process of evaluation of candidates recommended by a
stockholder and those recommended by other sources.
The Nominating and Governance Committee has adopted a policy and procedures for shareholders to recommend nominees to the Company’s Board. The Committee will only
consider qualified proposed nominees that meet the qualification standards set forth on Appendix A to the Committee’s charter available on the Company’s website at
www.SINTX.com. Pursuant to the policy, only shareholders who meet minimum percentage ownership requirements as established by the Board may make recommendations
for consideration by the Committee. At this time, the Board has set a minimum percentage ownership of 5% of the Company’s issued and outstanding shares of common stock
for a period of at least one year. To make recommendations, a shareholder must submit the recommendation in writing by mail, courier or personal delivery to: Corporate
Secretary, SINTX Technologies, Inc., 1885 West 2100 South, Salt Lake City, UT 84119. For each annual meeting the Committee will consider only one proposed nominee from
each shareholder or shareholder group (within the meaning of Regulation 13D under the Exchange Act).
The recommendation must set forth (1) the name, address, including telephone number, of the recommending shareholder or shareholder group; (2) the number of the
Company’s shares of common stock held by such shareholder and proof of ownership if the shareholder is not a holder of record; and (3) a statement that the shareholder has a
good faith intention of holding the shares through the record date of the Company’s next annual meeting. For shareholder groups this information must be submitted for each
shareholder in the group.
66
The recommendation must set forth in relation to the proposed nominee being recommended by the shareholder: (1) the information required by Items 401, 403 and 404 of
Regulation S-K under the Exchange Act, (2) any material relationships or agreements between the proposed nominee and the recommending shareholder or the Company’s
competitors, customers, labor unions or other persons with special interests in the Company; (3) a statement regarding the qualifications of the proposed nominee to serve on the
Board; (4) a statement that the proposed nominee can fairly represent the interests of all shareholders of the Company; and (5) a signed consent by the proposed nominee to
being interviewed by the Nominating and Governance Committee.
Recommendations must be made not later than 120 calendar days prior to the first anniversary of the date of the proxy statement for the prior annual meeting of shareholders. In
the event that the date of the annual meeting of shareholders for the current year is more than 30 days following the first anniversary date of the annual meeting of shareholders
for the prior year, the submission of a recommendation will be considered timely if it is submitted not earlier than the close of business on the 120 days prior to such annual
meeting and not later than the close of business on the later of 90 days prior to such annual meeting or the close of business 10 days following the day on which public
announcement of the date of such meeting is first made by the Company.
Audit Committee
We have a standing Audit Committee and audit committee charter, which complies with Rule 10A-3 of the Exchange Act, and the requirements of the Nasdaq Listing Rules.
Our Audit Committee was established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee is currently comprised of the following members:
David W. Truetzel (Chairman), Eric A. Stookey and Jeffrey S White. The Audit Committee provides oversight for financial reporting matters, internal controls, and compliance
with the Company’s financial policies, and meets with its auditors when appropriate. The Audit Committee did not meet as a separate committee in 2020, but rather, because
the committee is comprised of all three independent directors, committee matters were addressed as necessary in meetings of the Board. The Board has determined that David
W. Truetzel is an “audit committee financial expert” within the meaning of Item 407(d)(5) of Regulation S-K. Further, the Board has determined that each of David W.
Truetzel, Jeffrey S. White and Eric A. Stookey are “independent” under the standard set forth in Rule 5605(a)(2) of the Nasdaq Listing Rules. The Audit Committee operates
under a written charter adopted by the Board of Directors, which sets forth the responsibilities and powers delegated by the Board to the Audit Committee.
Compensation Committee
The Compensation Committee of the Board is comprised of the following members: Jeffrey S. White, (Chairman), David W. Truetzel and Eric A. Stookey. The Board has
determined that each of David W. Truetzel, Jeffrey S. White and Eric A. Stookey are “independent” under the standard set forth in Rule 5605(a)(2) of the Nasdaq Listing Rules.
The Compensation Committee recommends to the Board for determination compensation of our executive officers, including the chief executive officer, and addresses salary
and benefit matters for other key personnel and employees of the Company. The Compensation Committee did not meet as a separate committee in 2020, but rather, because the
committee is comprised of all three independent directors, committee matters were addressed as necessary in meetings of the Board. The Compensation Committee operates
under a written charter adopted by the Board of Directors, which sets forth the responsibilities and powers delegated by the Board to the Compensation Committee.
Code of Business Conduct
The Board has adopted a Code of Business Conduct that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. The
code of business conduct is available on our website at https://ir.sintx.com/corporate-governance. We intend to disclose any amendments to the code or any waivers of its
requirements on our website.
The Bylaws of the Company provide that no contract or transaction between SINTX and one or more of its directors or officers, or between SINTX and any other corporation,
firm, association, or other organization in which one or more of its directors or officers are financially interested, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of the Board of Directors or committee that authorizes or approves the contract or transaction, or
because their votes are counted for such purpose, provided that:
●
the material facts as to his, her, or their relationship or interest as to the contract or transaction are disclosed or are known to the Board of Directors or the committee
and noted in the minutes, and the Board of Directors or committee authorizes the contract or transaction in good faith by the affirmative vote of a majority of
disinterested directors, even though the disinterested directors are less than a quorum;
67
●
the material facts as to his, her, or their relationship or interest as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon
and the contract or transaction is specifically approved in good faith by vote of the stockholders; or
●
the contract or transaction is fair as to SINTX as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof, or the stockholders.
ITEM 11.
EXECUTIVE COMPENSATION
The following discussion relates to the compensation of our “named executive officers.”
Summary Compensation Table
The following table sets forth information about certain compensation awarded or paid to our named executive officers for the 2020 and 2019 fiscal years.
Name and Principal Position
B. Sonny Bal
Chief Executive Officer
Bryan McEntire
Chief Scientific Officer
David O’Brien
Chief Operating Officer
Year
2020
2019
Salary
$ 415,385
400,000
Bonus
$ 59,750
-
2020
2019
253,942
238,702
2020
2019
298,413
231,750
29,553
4,001
28,560
3,984
(1) Amount reflects matching of 401(k) contributions paid by us, unless otherwise noted.
Non-Equity
Incentive
Plan
Compensation
-
$
-
Stock
Awards
-
$
-
Option
Awards
4,398
$
-
All Other
Comp (1)
7,909
$
1,231
Total
Compensation
487,442
$
401,231
-
-
-
-
-
-
4,579
-
4,398
-
4,398
-
9,780
6,610
10,257
6,418
297,673
249,313
346,207
242,152
Narrative Disclosure to Summary Compensation Table. We do not have written employment agreements with any of our executive officers. All of our executive officers serve
on an at-will basis. The base salaries for our named executive officers were determined by our compensation committee after reviewing a number of factors, including: the
responsibilities associated with the position, the seniority of the executive’s position, the base salary level in prior years, and our financial position; and for executive officers
other than our Chief Executive Officer, recommendations made by our Chief Executive Officer.
68
Outstanding Equity Awards at Fiscal Year-End
The following table shows information regarding equity awards held by our named executive officers as of December 31, 2020:
Number of Securities Underlying
Unexercised Options (#)
Name
Sonny Bal
Exercisable
Bryan McEntire
David O’Brien
401(k) Plan
Unexercisable
-
-
-
-
50,000
-
-
-
50,000
-
-
-
50,000
1
16
9
28
-
19
13
9
-
9
6
9
-
Option Exercise
Price
$
139,158
5,221
2,321
367
0.47
5,130
5,221
608
0.47
5,129
5,222
608
0.47
Option
Expiration
Date
3/15/2022
1/7/2025
9/16/2025
9/14/2026
4/21/2030
8/13/2024
1/7/2025
1/4/2026
4/21/2030
7/17/2024
1/7/2025
1/4/2026
4/21/2030
Number of
Restricted Stock
Units that have
not vested
Market value of
shares or units of
stock that have
not vested ($)
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50,000
-
-
-
78,500
We offer our executive officers, including our named executive officers, retirement benefits, including participation in our tax-qualified profit sharing plan that includes a
“cash-or-deferred” (or 401(k)) feature in the same manner as other employees. The plan is intended to satisfy the requirements of Section 401 of the Internal Revenue Code. Our
employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit and have a like amount contributed to the plan. In addition, we may
make discretionary and/or matching contributions to the plan in amounts determined annually by our Board. We currently elect to match the contributions of our employees
who participate in our 401(k) plan as follows: a match of 100% on the first 3% of compensation contributed by a plan participant and a match of 50% on amounts above 3%, up
to 5%, of compensation contributed by a plan participant.
Potential Payments upon Termination or Change in Control
We had entered into certain agreements and maintained certain plans that may have required us to make certain payments and/or provide certain benefits to the executive
officers named in the Summary Compensation Table in the event of a termination of employment or change in control.
69
Pursuant to severance agreements that we have entered into with each of our named executive officers, upon the consummation of a change in control, all outstanding options,
restricted stock and other such rights held by the executives will fully vest. Additionally, if a change in control occurs and at any time during the one-year period following the
change in control (i) we or our successor terminate the executive’s employment other than for cause (but not including termination due to the executive’s death or disability) or
(ii) the executive terminates his employment for good reason, then such executive has the right to receive payment consisting of a lump sum payment equal to two times his
highest annual salary with us during the preceding three-year period, including the year of such termination and including bonus payments (measured on a fiscal year basis), but
not including any reimbursements and amounts attributable to stock options and other non-cash compensation. “Change in control” is defined in the severance agreements as
occurring upon: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becoming the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities representing 50% or more of the total voting power represented by our then outstanding voting securities (excluding securities
held by us or our affiliates or any of our employee benefit plans) pursuant to a transaction or a series of related transactions which our Board did not approve; (ii) a merger or
consolidation of our company, other than a merger or consolidation which would result in our voting securities outstanding immediately prior thereto continuing to represent at
least 50% of the total voting securities or such surviving entity or parent of such corporation outstanding immediately after such merger or consolidation; or (iii) the approval by
our stockholders of an agreement for the sale or disposition of all or substantially all of our assets. As defined in the severance agreements, “cause” means: (i) the executive’s
commission of a felony (other than through vicarious liability or through a motor vehicle offense); (ii) the executive’s material disloyalty or dishonesty to us; (iii) the
commission by the executive of an act of fraud, embezzlement or misappropriation of funds; (iv) a material breach by the executive of any material provision of any agreement
to which the executive and we are party, which breach is not cured within 30 days after our delivery to the executive of written notice of such breach; or (v) the executive’s
refusal to carry out a lawful written directive from our Board. “Good reason” as defined in the severance agreements means, without the executive’s consent: (i) a change in the
principal location at which the executive performs his duties to a new work location that is at least 50 miles from the prior location; or (ii) a material change in the executive’s
compensation, authority, functions, duties or responsibilities, which would cause his position with us to become of less responsibility, importance or scope than his prior
position, provided, however, that such material change is not in connection with the termination of the executive’s employment with us for any reason.
In the event that an officer entitled to receive or receives payment or benefit under the severance agreements described above, or under any other plan, agreement or
arrangement with us, or any person whose action results in a change in control or any other person affiliated with us and it is determined that the total amount of payments will
be subject to excise tax under Section 4999 of the Internal Revenue Code, or any similar successor provisions, we will be obligated to pay such officer a “gross up” payment to
cover all taxes, including any excise tax and any interest or penalties imposed with respect to such taxes due to such payment.
Code of Business Conduct Violations
It is our policy under our Code of Business Conduct to take appropriate action against any executive officer whose actions are found to violate the Code or any other policy of
SINTX. Disciplinary actions may include immediate termination of employment and, where SINTX has suffered a loss, pursuing its remedies against the executive officer
responsible. SINTX will cooperate fully with the appropriate authorities where laws have been violated.
Role of the Board in Risk Oversight
Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. Management is responsible for the day-to-day management of
the risks that we face, while our Board of Directors, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role,
our Board of Directors is responsible for satisfying itself that the risk management processes designed and implemented by management are adequate and functioning as
designed.
Our Board of Directors does not have a standing risk management committee, but rather administers this oversight function directly through our Board of Directors as a whole,
as well as through various standing committees of the Board of Directors that address risks inherent in their respective areas of oversight. In particular, our Board of Directors is
responsible for monitoring and assessing strategic risk exposure, including a determination of the nature and level of risk appropriate for us. Our Audit Committee has the
responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines
and policies to govern the process by which risk assessment and management is undertaken. The Audit Committee also monitors oversight of the performance of our internal
audit function. Our Corporate Governance and Nominating Committee monitors the effectiveness of our corporate governance guidelines, including whether they are successful
in preventing illegal or improper liability-creating conduct. Our Compensation Committee assesses and monitors whether any of our compensation policies and programs have
the potential to encourage excessive risk-taking or promote behaviors contra to our Code of Business Conduct.
70
Board Compensation
The following table shows the total compensation paid or accrued during the fiscal year ended December 31, 2020 to each of our non-employee directors.
Name
David W. Truetzel
Jeffrey S. White
Eric A. Stookey
Mark Froimson
Fees Earned or
Paid in Cash
($)
$
$
125,507
41,000
44,000
40,708
Stock Awards
($)
Option Awards
($)
Total
($)
$
-
-
-
-
$
5,277
5,277
5,277
4,838
130,784
46,277
49,277
45,546
The following compensation schedule sets forth compensation for non-employee directors (paid on a quarterly basis) as approved by the Board:
● Annual Retainer of $40,000 paid in four equal installments of $10,000 each at the beginning of each calendar quarter;
●
●
$1,000 for each board and committee meeting attended in person;
$500 for each board and committee meeting attended via telephone or other remote medium; and
● Reimbursement of reasonable expenses as supported by documentation and receipts.
A new Board appointee receives an award of 40,000 stock options upon appointment. Further, each member of the Board is awarded an option grant for 15,000 stock options on
an annual basis.
The chair of the Audit Committee is paid an annual retainer of $120,000 payable in monthly increments of $10,000 each.
The following table sets forth information as of December 31, 2020 relating to all of our equity compensation plans:
Equity Compensation Plan Information
Plan Category
Equity compensation plans
approved by stockholders
Equity compensation plans not
approved by Stockholders
Total
(a) Number of
Securities
to be Issued upon
Exercise of
Outstanding
Options
(b) Weighted-
average
Exercise
Price of
Outstanding
Options
(c) Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation
Plans (Excluding
Securities Referenced
in Column (a))
515,393(1)
$
-
515,393(1)
$
5.53(2)
-
5.53(2)
1,387,503
-
1,387,503
(1)
Includes options outstanding under our 2012 Equity Incentive Plan.
(2) Represents weighted-average exercise price per share of common stock acquirable upon exercise of outstanding stock options.
71
2020 Equity Incentive Plan
The 2020 Plan provides for the grant of nonqualified stock options, incentive stock options, restricted stock, restricted stock units, stock appreciation rights (SARs), and
performance share awards to employees, officers, consultants, advisors, non-employee directors and independent contractors designated by either the board of directors of the
Company or if so authorized by the board of directors, the Compensation Committee (the “Committee”) of the Board of Directors. Under the 2020 Plan, the maximum number
of shares of common stock which may be issued, subject to adjustment as described below, is 1,902,520 shares of common stock, which includes 2,520 shares that have been
rolled over from our 2012 Plan. In addition, there are 377 shares subject to outstanding awards under our 2012 Plan that, if, after April 21, 2020, are forfeited or reacquired by
the Company due to termination or cancellation of such awards shall also be permitted to be granted under the 2020 Plan. For stock options and SARs, the aggregate number of
shares with respect to which such awards are exercisable, rather than the number of shares actually issued upon exercise, will be counted against the number of shares available
for awards under the 2020 Plan. If awards under the 2020 Plan expire or otherwise terminate without being exercised, the shares not acquired pursuant to such awards again
become available for issuance under the 2020 Plan in accordance with its terms. However, under the following circumstances, shares will not again be available for issuance
under the 2020 Plan: (i) shares unissued due to a “net exercise” of a stock option, (ii) any shares withheld, or shares tendered to satisfy tax withholding obligations with respect
to a stock option or SAR, (iii) shares covered by a SAR that is not settled in shares upon exercise and (iv) shares repurchased using stock option exercise proceeds.
Administration
The 2020 Plan will be administered by the Committee, or in the board of director’s sole discretion, by the board of directors. The Board of Directors will fill vacancies on and
from time to time may remove or add members to the Committee, and the Committee will be so constituted to permit awards granted under the 2020 Plan to be exempt from
Section 16(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and to permit grants of awards under the plan to comply with or any other statutory rule or
regulatory requirements, unless otherwise determined by the Board of Directors.
Subject to the express provisions of the 2020 Plan, the Committee has authority to administer and interpret the 2020 Plan, including the authority to determine who is eligible to
participate in the 2020 Plan and to whom and when awards are granted under the 2020 Plan, to grant awards, to determine the number of shares of common stock subject to
awards and the exercise or purchase price of such shares under an award, to establish and verify the extent of satisfaction of any performance criteria applicable to awards, to
prescribe and amend the terms of the agreements evidencing awards made under the 2020 Plan, and to make other determinations deemed necessary or advisable for the
administration of the 2020 Plan. Also, subject to the requirements of Delaware General Corporation Law and any limitations under applicable stock exchange rules, the
Committee also has the power to delegate to officers the authority to grant and determine the terms and conditions of awards granted under the 2020 Plan. These delegated
officers shall not be permitted to grant awards to any person subject to Rule 16b-3 under the Exchange Act or Code.
Eligibility
Participants under the 2020 Plan are limited to employees, officers, non-employee directors, and consultants providing services to the Company, or any person to whom an offer
of employment or engagement with the Company is extended. In determining to whom awards will be granted and the nature of such each award, the Committee may take into
account the nature of the services rendered by the respective participant, their present and potential contributions to the success of the Company or such other factors as the
Committee, in its discretion, deems relevant.
General Terms and Conditions of Awards
Nonqualified Stock Options
The Committee may grant nonqualified stock options under the 2020 Plan which do not meet the requirements of Section 422 of the Code and which will be subject to the
following terms and conditions. The option exercise price per share will be determined by the Committee but will not be less than 100% of the “fair market value” of the
common stock on the date of grant of such option. The term “fair market value” means either (a) if the common stock is listed on any established stock exchange, the closing
price for the common stock on the date of grant or (b) in the absence of an established market for the common stock, the fair market value shall be determined in good faith by
the Committee and such determination shall be conclusive and binding on all persons. The exercise price of an option may be paid through various means specified by the
Committee, including in cash or check, by delivering to the Company shares of common stock or by a reduction in the number of shares issuable pursuant to such option. Except
in limited circumstances, every option which has not been exercised within ten years of its date of grant will lapse upon the expiration of the ten-year period, unless it has lapsed
at an earlier date as determined by the Committee.
72
During the lifetime of a participant, except as otherwise may be provided by the Committee in its discretion, options granted to that participant under the 2020 Plan generally
will be nontransferable and exercisable only by the participant. A participant will have the right to transfer any options granted to such participant upon such participant’s death
either by the terms of such participant’s will or under the laws of descent and distribution.
Incentive Stock Options
The Committee may grant incentive stock options under the 2020 Plan which meet the requirements of section 422 of the Code. Under the 2020 Plan, the aggregate fair market
value, determined at the time the option is granted, of the common stock with respect to which incentive stock options are exercisable for the first time by any participant during
any calendar year (under the 2020 Plan and any other incentive stock option plans of the Company) may not exceed $100,000, or any other limit as may be prescribed by the
Code from time to time. The option exercise price per share will be determined by the Committee but will not be less than 100% of the “fair market value” of the common stock
on the date of grant of such option. In the case of a grant of an incentive stock option to a participant who, at the time such option is granted, owns stock possessing more than
10% of the combined voting power of all classes of stock of the Company, the option exercise price per share under such option will not be less than 110% of the “fair market
value” of the common stock on the date of grant of such option and such option will expire and no longer be exercisable no later than five years from the date of grant of such
option.
SARs
The committee may grant SARs under the 2020 Plan. Subject to the express provisions of the 2020 Plan and as discussed in this paragraph, the Committee has discretion to
determine the grant value, term, methods of exercise, dates of exercise, methods of settlement and any other terms and conditions of any SAR. The grant value of each SAR
granted under the 2020 Plan will be determined by the Committee. Every SAR which has not been exercised within ten years of its date of grant will lapse upon the expiration
of such ten-year period, unless it has lapsed at an earlier date as determined by the Committee.
Restricted Stock and Restricted Stock Units
The Committee may grant restricted stock or restricted stock units under the 2020 Plan. Restricted stock and restricted stock units will be subject to such restrictions as the
Committee may impose (including, without limitation, any limitation on the right to vote a share of restricted stock or the right to receive any dividend or other right or property
with respect thereto), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the Committee may deem appropriate.
For example, awards may, at the Committee’s discretion, be conditioned upon a participant’s completion of a specified period of service, or upon the achievement of one or
more performance goals established by the Committee, or upon any combination of service-based and performance-based conditions. A restricted stock or restricted stock unit
award that is conditioned in whole or in part upon the achievement of one or more financial or other company-related performance goals (including goals specific to the
participant’s individual performance, other than performance of service alone) is generally referred to as a performance share or performance share unit award.
Any restricted stock granted under the 2020 Plan shall be issued at the time such awards are granted and may be evidenced in such manner as the Committee may deem
appropriate. In the case of restricted stock units, no common stock shall be issued at the time such awards are granted. Upon the lapse or waiver of restrictions and the restricted
period relating to restricted stock units evidencing the right to receive common stock, such common stock shall be issued and delivered to the holder of the restricted stock
units.
73
Except as otherwise determined by the Committee, if a director resigns or is removed or if the employment of an employee holding restricted stock or restricted stock units
terminates during the applicable restricted period, the restricted stock and/or restricted stock units held by such director or employee will be forfeited and reacquired by the
Company.
Transferability
Generally, no award (other than fully vested and unrestricted shares) and no right under any such award shall be transferable by a participant other than by will or by the laws of
descent and distribution, and no award (other than fully vested and unrestricted shares) or right under any such award may be pledged, alienated, attached or otherwise
encumbered. If a transfer is allowed by the Compensation Committee (other than for fully vested and unrestricted shares), the transfer will be for no value and shall comply with
the Form S-8 rules. The Committee may establish procedures to allow a participant to designate a beneficiary or beneficiaries, to exercise the rights of the participant and
receive any property distributable with respect to an award in the event of the participant’s death.
Corporate Transactions
In the event of any Change-in-Control Event (as defined in the 2020 Plan), reorganization, merger, consolidation, split-up, spin-off, combination, plan of arrangement, take-over
bid or tender offer, repurchase or exchange of common stock or other securities of the Company or any other similar corporate transaction or event involving the Company, all
outstanding options and SARs shall become immediately exercisable with respect to 100% of the shares subject to such options or SARs, and/or the restricted period shall
expire immediately with respect to 100% of the outstanding shares of restricted stock awards or restricted stock units. Further, with respect to performance share awards and
cash awards, in the event of a Change-in-Control, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels and all other terms and
conditions will be deemed met.
In addition, in the event of a Change-in-Control, the Committee may in its discretion and upon at least 10 days’ advance notice to the affected persons, cancel any outstanding
awards and pay to the holders thereof, in cash or stock, or any combination thereof, the value of such awards based upon the price per share of common stock received or to be
received by other shareholders of the Company in the event. In the case of any option or SAR with an exercise price (or SAR Exercise Price in the case of a SAR) that equals or
exceeds the price paid for a share of common stock in connection with the Change-in-Control, the Committee may cancel the option or SAR without the payment of
consideration therefor.
Amendment and Termination
No awards may be granted pursuant to the 2020 Plan after the ten-year anniversary of the effective date of the 2020 Plan which, if the shareholders approve the amendment and
restatement of the 2020 Plan, will be April 21, 2030. Except to the extent stockholder approval or participant consent is required as provided by the 2020 Plan, the Board may
amend, modify or terminate the 2020 Plan.
The Committee may amend, modify or terminate an outstanding award, provided, however, that, except as expressly provided in the 2020 Plan, the Committee may not, without
the participant’s consent, amend, modify or terminate an outstanding award unless it determines that the action would not adversely alter or impair the terms or conditions of
such award. However, the Committee reserves the right to reprice any previously granted “underwater” option or SAR by (i) lowering the exercise price, (ii) canceling the
underwater option or SAR and granting a substitute award, or (iii) repurchasing the underwater option or SAR.
2012 Equity Incentive Plan
The Company is no longer making equity awards under the 2012 Plan. As outstanding awards under the 2012 Plan expire or terminate the shares allocated to such awards will
rollover to the 2020 Plan. All shares that were available for award under the 2012 Plan have been rolled into the 2020 Plan.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding the beneficial ownership of our common stock as of March 1, 2021 by:
●
●
●
●
each of our current directors;
each of our executive officers; and
all of our directors and executive officers as a group;
each stockholder known by us to own beneficially more than 5% of our Common Stock.
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Shares of common stock that
may be acquired by an individual or group within 60 days of March 1, 2021, pursuant to the exercise or vesting of options or warrants or conversion of convertible promissory
notes, are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person shown in the table. Percentage of shares beneficially owned is based on 24,684,574 shares issued and outstanding on
March 1, 2021.
Except as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common
stock shown to be beneficially owned by them, based on information provided to us by such stockholders. The address for each director and executive officer listed is: c/o
SINTX Technologies, Inc., 1885 West 2100 South, Salt Lake City, Utah 84119.
74
Name and Address of Beneficial Owner
Five Percent Stockholders:
none
Directors and Named Executive Officers:
B. Sonny Bal, M.D. (1)
David W. Truetzel (2)
Jeffrey S. White (3)
Eric A. Stookey (4)
Bryan McEntire (5)
David O’Brien (6)
Mark Froimson, M.D. (7)
All executive officers and directors as a group (7 persons)
Shares Beneficially Owned
Number
Percentage
15,899
16,919
16,815
16,813
14,054
33,503
15,400
129,403
*
*
*
*
*
*
*
*
*
Indicates ownership of less than 1% of the outstanding shares of the Company’s common stock.
(1) Represents 12 shares of Common Stock and options and warrants to purchase 15,887 shares of Common Stock that are currently exercisable within 60 days of March 1,
2021.
(2) Represents 71 shares of Common Stock and options to purchase 16,848 shares of Common Stock that are currently exercisable within 60 days of March 1, 2021.
(3) Represents 2 shares of Common Stock and options to purchase 16,813 shares of Common Stock that are currently exercisable within 60 days of March 1, 2021.
(4) Represents options to purchase 16,813 shares of Common Stock that are currently exercisable within 60 days of March 1, 2021.
(5) Represents 13 shares of Common Stock and options to purchase 14,041 shares of Common Stock that are currently exercisable within 60 days of March 1, 2021.
(6) Represents 5,477 shares of Common Stock, restricted stock units exercisable into 14,000 shares of Common Stock within 60 days of March 1, 2021, and options to purchase
14,026 shares of Common Stock that are currently exercisable within 60 days of March 1, 2021
(7) Represents options to purchase 15,400 shares of Common Stock that are currently exercisable within 60 days of March 1, 2021.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
We have not entered into any transactions since January 1, 2020 to which we have been a party, in which the amount involved in the transaction exceeded the lesser of $120,000
or one percent of the average of our total assets at year-end for the last two completed fiscal years, and in which any of our directors, executive officers or, to our knowledge,
beneficial owners of more than 5% of our common stock, on an as converted basis, or any member of the immediate family of any of the foregoing persons had or will have a
direct or indirect material interest, other than equity and other compensation, termination, change in control and other arrangements, which are described above under
“Executive and Director Compensation.”
Indemnification Agreements. We have entered into indemnification agreements with each of our executive officers and directors that require us to indemnify such persons
against any and all expenses, including judgments, fines or penalties, attorney’s fees, witness fees or other professional fees and related disbursements and other out-of-pocket
costs incurred, in connection with any action, suit, arbitration, alternative dispute resolution mechanism, investigation, inquiry or administrative hearing, whether threatened,
pending or completed, to which any such person may be made a party by reason of the fact that such person is or was a director, officer, employee or agent of our company,
provided that such director or officer acted in good faith and in a manner that the director or officer reasonably believed to be in, or not opposed to, our best interests. The
indemnification agreements also set forth procedures that will apply in the event of a claim for indemnification thereunder. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and officers.
75
Policy for Review of Related Party Transactions
We have a policy for the review of transactions with related persons as set forth in our Audit Committee Charter and internal practices. The policy requires review, approval or
ratification of all transactions in which we are a participant and in which any of our directors, executive officers, shareholders holding more than 5% of our outstanding
common stock, an immediate family member of any of the foregoing persons or any other person who the Board determines may be considered to be a related person has a
direct or indirect material interest and which meet the threshold requirements set forth in Item 404 of Regulation S-K under the Exchange Act (typically $120,000 or more in
value). All related party transactions must be reported for review by the Audit Committee pursuant to the Audit Committee’s charter.
In reviewing and approving such transactions, the Audit Committee shall obtain, or shall direct management to obtain on its behalf, all information that the Audit Committee
believes to be relevant and important to a review of the transaction prior to its approval. Following receipt of the necessary information, a discussion shall be held of the
relevant factors if deemed to be necessary by the Audit Committee prior to approval. No related party transaction shall be entered into prior to the completion of these
procedures.
Following its review, the Audit Committee determines whether these transactions are in, or not inconsistent with, the best interests of the Company and its stockholders, taking
into consideration whether they are on terms no less favorable to the Company than those available with other parties and the related person’s interest in the transaction.
Our policy for review of transactions with related persons was followed in all of the transactions set forth above and all such transactions were reviewed and approved in
accordance with our policy for review of transactions with related persons.
Director Independence
Information regarding the independence of directors is disclosed above under Item 10 under the heading “The Board and Committees” and incorporated herein by reference.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The aggregate fees and expenses incurred from our principal accounting firm, Tanner LLC, for fiscal years ended December 31, 2020 and 2019, were as follows (in thousands):
Audit fees
Audit related fees
Tax Fees
Total Fees
Year Ended
December 31, 2020
$
$
163,434 $
148,718
-
312,152 $
Year Ended
December 31, 2019
259,929
64,971
16,750
341,650
Each of the permitted non-audit services has been pre-approved by the Audit Committee or the Audit Committee’s Chairman pursuant to delegated authority by the Audit
Committee, other than de minimus non-audit services for which the pre-approval requirements are waived in accordance with the rules and regulations of the Securities and
Exchange Commission.
76
Audit Fees
Consist of fees billed for professional services rendered for the audit of our financial statements and review of interim consolidated financial statements included in quarterly
reports and services that are normally provided by the principal accountants in connection with statutory and regulatory filings or engagements.
Audit Related Fees
Consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not
reported under “Audit Fees”.
Tax Fees
Consist of fees billed for professional services for tax compliance, tax advice and tax planning. These services include preparation of federal and state income tax returns for the
year ended December 31, 2019.
All Other Fees
Consist of fees for product and services other than the services reported above.
Policy for Approval of Audit and Permitted Non-Audit Services
The Audit Committee charter provides that the Audit Committee will pre-approve audit services and non-audit services to be provided by our independent auditors before the
accountant is engaged to render these services. The Audit Committee may consult with management in the decision-making process, but may not delegate this authority to
management. The Audit Committee may delegate its authority to pre-approve services to one or more committee members, provided that the designees present the pre-
approvals to the full committee at the next committee meeting.
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Reference is made to the Index to Consolidated Financial Statements beginning on Page F-1 hereof.
PART IV
(1) Financial Statements. The following consolidated financial statements and the notes thereto, and the Report of Independent Registered Public Accounting Firm are
incorporated by reference as provided in Item 8 of this report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020 and 2019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019
Notes to Consolidated Financial Statements
(2) Consolidated Financial Statement Schedules
F-2
F-3
F-4
F-5
F-6
F-7
Consolidated Financial Statement Schedules have been omitted because they are either not required or not applicable, or because the information required to be presented is
included in the consolidated financial statements or the notes thereto included in this Annual Report.
77
(3) Exhibits
The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this Annual Report and such Exhibit Index is incorporated by reference.
Exhibit
Number
Exhibit Description
Filed with
this
Report
Incorporated by
Reference herein from Form or
Schedule
Filing Date
SEC File/Reg.
Number
2.1
3.1
3.1.1
3.1.2
3.1.3
3.1.4
3.1.5
3.1.6
3.2
3.2.1
4.1
4.2
4.3
Asset Purchase Agreement by and among Amedica Corporation, CTL
Corporation and US Spine Inc. dated as of September 5, 2018
Form 8-K (Exhibit 2.1)
10/5/18
001-33624
Restated Certificate of Incorporation of the Registrant
Form 8-K (Exhibit 3.1)
2/20/14
001-33624
Certificate of Amendment to the Restated Certificate of Incorporation of
SINTX Corporation
Certificate of Amendment to the Restated Certificate of Incorporation of
SINTX Corporation
Form 8-K (Exhibit 3.1)
1/22/16
001-33624
Form 8-K (Exhibit 3.1)
11/16/17
001-33624
Certificate of Designation of Series B Preferred Stock
Form 8-K (Exhibit 3.1)
5/15/18
001-33624
Certificate of Amendment to the Restated Certificate of Incorporation
Form 8-K (Exhibit 3.1)
11/02/18
001-33624
Certificate of Amendment to the Restated Certificate of Incorporation of
SINTX Technologies, Inc.
Form 8-K (Exhibit 3.1)
7/26/19
001-33624
Certificate of Designation of Series C Preferred Stock
Form 8-K (Exhibit 3.1)
2/07/20
001-33624
Restated Bylaws of the Registrant
Form 8-K (Exhibit 3.1)
2/20/14
001-33624
Amendment to the Bylaws of Amedica Corporation dated as of October
30, 2018.
Form 8-K (Exhibit 3.2)
11/02/18
001-33624
Form of Common Stock Certificate of the Registrant
Warrant to Purchase Shares of Series F Convertible Preferred Stock by
and between the Registrant and GE Capital Equity Investments, Inc.,
dated as of December 17, 2012
Warrant to Purchase Shares of Series F Convertible Preferred Stock by
and between the Registrant and Zions First National Bank, dated as of
December 17, 2012
78
Amendment No. 3 to Form S-1
(Exhibit 4.1)
1/29/14
333-192232
Form S-1 (Exhibit 4.10)
11/8/13
333-192232
Form S-1 (Exhibit 4.11)
11/8/13
333-192232
Exhibit
Number
Exhibit Description
Filed with
this
Report
Incorporated by
Reference herein from Form or
Schedule
Filing Date
SEC File/Reg.
Number
4.4
4.5
4.6
4.7
4.8
4.9
Form of Common Stock Purchase Warrant issued on April 4, 2016.
Form 8-K (Exhibit 4.1)
4/05/16
001-33624
Form of Series E Warrant
Amendment No. 3 to Form S-1
(Exhibit 4.25)
6/30/16
333-211520
Form of Warrant
Form 8-K (Exhibit 4.1)
1/20/17
001-33624
North Stadium Investments, LLC Warrant to Purchase Common Stock
Form 8-K (Exhibit 4.2)
8/3/17
001-33624
Common Stock Warrant
Form 8-K (Exhibit 3.2)
5/15/18
001-33624
Form of Warrant Agency Agreement between Amedica Corporation and
American Stock Transfer and Trust Company, LLC
Form S-1 (Exhibit 4.28)
4/26/18
333-223032
4.10
Form of Indenture
Form S-3 (Exhibit 4.2)
3/25/19
333-230492
79
Exhibit
Number
4.11
4.12
4.13
4.14
4.15
10.1
Form of Common Stock Warrant
Exhibit Description
Form of Warrant Agency Agreement between Amedica Corporation and
American Stock Transfer and Trust Company, LLC, dated February 6,
2020
Filed with
this
Report
Incorporated by
Reference herein from Form or
Schedule
Form S-1/A
Filing Date
1/15/20
SEC File/Reg.
Number
333-234438
Form 8-K (Exhibit 10.1)
2/07/20
001-33624
Warrant Issued to Maxim Group LLC on February 6, 2020
Form 8-K (Exhibit 4.1)
2/07/20
001-33624
Warrant Issued to Ascendiant Capital Markets, LLC on February 6, 2020
Form 8-K (Exhibit 4.2)
2/07/20
001-33624
Description of Registrant’s Securities
X
Centrepointe Business Park Lease Agreement Net by and between the
Registrant and Centrepointe Properties, LLC, dated as of April 21, 2009
Form S-1 (Exhibit 10.10)
11/8/13
333-192232
10.2
10.3
10.4
10.5
10.6
10.7
First Addendum to Centrepointe Business Park Lease Agreement Net by
and between the Registrant and Centrepointe Properties, LLC, dated as
of January 31, 2012
Form S-1 (Exhibit 10.11)
11/8/13
333-192232
Form of Change of Control Agreement*
Form 8-K (Exhibit 10.1)
7/22/15
001-33624
Form of Indemnification Agreement by and between the Registrant and
its officers and directors
Amendment No. 2 Form S-1
(Exhibit 10.14)
12/20/13
333-192232
SINTX Technologies Amended and Restated 2012 Equity Incentive
Plan*
Form of 2012 Stock Option Grant Notice and Stock Option Agreement*
Form of 2012 Restricted Stock Award and Restricted Stock Unit
Agreement*
80
Amendment No. 4
to Form S-1 (Exhibit 10.15)
Amendment No. 4
to Form S-1 (Exhibit 10.16)
Amendment No. 4
to Form S-1 (Exhibit 10.17)
2/12/14
333-192232
2/12/14
333-192232
2/12/14
333-192232
Exhibit
Number
10.8
10.9
10.10
Exhibit Description
Exchange Agreement dated April 4, 2016, by and among SINTX
Corporation and Riverside Merchant Partners, LLC
Warrant Agency Agreement, dated July 8, 2016, by and between SINTX
Corporation and American Stock Transfer & Trust Company, LLC
Warrant Agency Agreement dated January 24, 2017, by and between
SINTX Corporation and American Stock Transfer & Trust Company,
LLC
Filed with
this
Report
Incorporated by
Reference herein from Form or
Schedule
Form 8-K (Exhibit 10.2)
Filing Date
5/05/16
SEC File/Reg.
Number
001-33624
Form 8-K (Exhibit 10.1)
7/8/16
001-33624
Form 8-K (Exhibit 8-K)
1/24/17
001-33624
10.11
Security Agreement, dated July 28, 2017
Form 8-K (Exhibit 10.1)
8/3/17
001-33624
81
Exhibit
Number
Exhibit Description
Filed with
this
Report
Incorporated by
Reference herein from Form or
Schedule
Filing Date
SEC File/Reg.
Number
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
Securities Purchase Agreement, dated January 30, 2018, by and among
the Company and L2 Capital, LLC.
Form 8-K (Exhibit 10.1)
2/1/18
001-33624
Amended and Restated Promissory Note payable to L2 Capital
Form S-1 (Exhibit 10.25)
4/26/18
333-223032
Form of Warrant Amendment Agreement
Form S-1 (Exhibit 10.26)
4/26/18
333-223032
Amendment to Centrepointe Business Park Lease Agreement, dated June
7, 2019, between SINTX Technologies, Inc. and Centrepointe
Properties, LLC.
Promissory Note issued by CTL Corporation in favor of Amedica
Corporation dated as of October 1, 2018.
Security Agreement between Amedica Corporation and CTL
Corporation dated as of October 1, 2018.
Guaranty between Amedica Corporation and Daniel Chon dated as of
October 1, 2018.
ROFN Security Agreement between Amedica Corporation and CTL
Corporation dated as of October 1, 2018.
Promissory Note, dated April 28, 2020 between SINTX Technologies,
Inc. and First State Community Bank.
Form 8-K (Exhibit 10.1)
6/10/19
001-33624
Form 8-K (Exhibit 10.1)
10/5/18
001-33624
Form 8-K (Exhibit 10.2)
10/5/18
001-33624
Form 8-K (Exhibit 10.3)
10/5/18
001-33624
From 8-K (Exhibit 10.4)
10/5/18
001-33624
Form 8-K (Exhibit 10.1)
4/30/20
001-33624
Form of Share Purchase Agreement
Form 8-K (Exhibit 99.1)
6/29/20
001-33624
Placement Agency Agreement
Form 8-K (Exhibit 99.2)
6/29/20
001-33624
Form of Share Purchase Agreement
Form 8-K (Exhibit 99.1)
7/20/20
001-33624
Placement Agency Agreement
Form 8-K (Exhibit 99.2)
7/20/20
001-33624
Form of Share Purchase Agreement
Form 8-K (Exhibit 99.1)
8/6/20
001-33624
Placement Agency Agreement
Form 8-K (Exhibit 99.2)
8/6/20
001-33624
10.27
Form of Indenture
Form S-3 (Exhibit 4.18)
10/2/20
333-249267
10.28
Equity Distribution Agreement, dated as of February 25, 2021, by and
between SINTX Technologies, Inc. and Maxim Group LLC
Form 8-K (Exhibit 10.1)
2/26/20
001-33624
82
Exhibit
Number
Exhibit Description
Filed with
this
Report
Incorporated by
Reference herein from Form or
Schedule
Filing Date
SEC File/Reg.
Number
21.1
23.1
31.1
31.2
32
Lit of Subsidiaries (None)
Consent of Independent Registered Public Accounting Firm, Tanner
LLC
Certification of Chief Executive Officer
Certification of Principal Financial Officer
Certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002
101 SCH
XBRL Taxonomy Extension Schema Document (A)
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document (A)
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document (A)
101.LAB
XBRL Taxonomy Extension Label Linkbase Document (A)
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document (A)
X
X
X
X
X
X
X
X
X
*
(A)
Management contract of compensatory plan or arrangement
XBRL (EXTENSIBLE BUSINESS REPORTING LANGUAGE) information is furnished and not filed for purposes of Section 11 and 12 of the Securities Act of 1933
and Section 18 of the Securities Exchange Act of 1934.
ITEM 16.
FORM 10-K SUMMARY
None.
83
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 22, 2021
SINTX Technologies, Inc.
/s/ B. Sonny Bal
B. Sonny Bal
Chief Executive Officer
(Principal Executive Officer and Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Date: March 22, 2021
Date: March 22, 2021
Date: March 22, 2021
Date: March 22, 2021
Date: March 22, 2021
/s/ B. Sonny Bal
B. Sonny Bal, M.D., Director
/s/ David W. Truetzel
David W. Truetzel, Director
/s/ Jeffrey S. White
Jeffrey S. White, Director
/s/ Eric A. Stookey
Eric A. Stookey, Director
/s/ Mark Froimson
Mark Froimson, M.D., Director
84
As of and For the Years ended December 31, 2020 and 2019
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
F-2
F-3
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Board of Directors and Stockholders of
SINTX Technologies, Inc.
Salt Lake City, Utah
Opinion on the Consolidated Financial Statements
F-1
Report of Independent Registered Public Accounting Firm
F-4
F-5
F-6
F-7
We have audited the accompanying consolidated balance sheets of SINTX Technologies, Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related
consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes
(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with
accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be
communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are
not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
Warrants classified as Derivative Liabilities Valuation
As described in Note 1 to the financial statements, the Company initially records warrants classified as derivative liabilities at fair value and is required to re-measure the
fair value each reporting period. The Company estimates the fair value of these instruments using Monte-Carlo valuation models. The significant assumptions used in
estimating the fair value include the exercise price, volatility of the stock underlying the instrument, risk-free interest rate, estimated fair value of the stock underlying the
instrument and the estimated life of the instrument.
We obtained an understanding, evaluated the design and implementation of controls over the Company’s process for calculating the fair values of the warrants classified
as derivative liabilities, including controls over management’s review of the significant assumptions described above.
To test the estimated fair value of the warrants classified as derivative liabilities, we performed audit procedures that included, among others, assessing methodologies
and testing the significant assumptions discussed above as well as underlying data used by the Company in its analysis, and evaluated management’s specialist.
/s/ TANNER LLC
March 22, 2021
Lehi, Utah
We have served as the Company’s auditors since 2017
Assets
Current assets:
Cash and cash equivalents
Account and other receivables, net of allowance
Prepaid expenses and other current assets
Inventories
Note receivable, current portion
F-2
SINTX Technologies, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
As of December 31,
2020
2019
$
$
25,351
41
243
99
1,856
1,787
136
310
106
1,724
Total current assets
Inventories
Property and equipment, net
Intangible assets, net
Long-term note receivable, net of current portion
Operating lease right of use asset
Other long-term assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued liabilities
Current portion of long-term debt
Derivative liabilities
Current portion of operating lease liability
Other current liabilities
Total current liabilities
Operating lease liability, net of current portion
Long term debt, net of current portion
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock Series B, $0.01 par value, 130,000,000 total shares authorized inclusive of all
series of preferred; 26 shares and 249 shares issued and outstanding as of December 31, 2020 and 2019,
respectively.
Convertible preferred stock Series C, $0.01 par value, 130,000,000 total shares authorized inclusive of all
series of preferred; 51 shares and 0 shares issued and outstanding as of December 31, 2020 and 2019,
respectively.
Common stock, $0.01 par value, 250,000,000 shares authorized; 24,552,409 and 2,434,009 shares issued
and outstanding as of December 31, 2020 and 2019, respectively.
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
F-3
$
$
27,590
388
471
36
-
1,926
36
30,447
194
909
109
1,238
403
26
2,879
1,477
287
4,643
4,063
533
190
41
1,944
2,341
35
9,147
191
1,266
6
220
360
23
2,066
1,867
12
3,945
-
-
245
266,666
(241,107)
25,804
30,447
$
24
239,256
(234,078)
5,202
9,147
$
$
$
SINTX Technologies, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share data)
Years Ended December 31,
2020
2019
Product revenue
Costs of revenue
Gross profit
Operating expenses:
Research and development
General and administrative
Sales and marketing
Total operating expenses
Loss from operations
Other income (expenses):
Interest expense
Interest income
Offering costs
Change in fair value of derivative liabilities
Other income
Total other income, net
Net loss before income taxes
Provision for income taxes
Net loss
Deemed dividend related to beneficial conversion feature and accretion of discount on convertible
preferred stock
Net loss attributable to common stockholders
Net loss per share – basic and diluted
Basic – net loss
Basic – deemed dividend and accretion of a discount on conversion of preferred stock
Basic – attributable to common stockholders
$
$
$
$
$
594
475
119
4,808
3,132
683
8,623
(8,504)
(2)
330
(1,246)
2,111
282
1,475
(7,029)
-
(7,029)
(9,565)
(16,594)
(0.43)
(0.58)
(1.01)
$
$
$
689
551
138
3,394
2,908
430
6,732
(6,594)
(4)
450
-
1,303
48
1,797
(4,797)
-
(4,797)
(2,703)
(7,500)
(3.08)
(1.74)
(4.82)
Diluted – net loss
Diluted - deemed dividend and accretion of a discount on conversion of preferred stock
Diluted – attributable to common stockholders
$
$
Weighted average common shares outstanding:
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
F-4
(0.53)
(0.55)
(1.08)
$
$
16,406,556
17,446,148
(3.95)
(1.74)
(5.69)
1,555,988
1,555,988
SINTX Technologies, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
Preferred B Stock
Preferred C Stock
Common Stock
Paid-In Accumulated
Total
Shares
4,074 $
Amount
-
Shares
- $
Amount
-
Shares
Amount Capital
726,455 $
7 $ 237,673 $
Deficit
Equity
(229,281) $ 8,399
Balance as of December 31, 2018
Issuance of common stock upon exercise
of warrants
Issuance of common stock for cash
Issuance of common stock due to
conversion of preferred stock
Accretion of convertible preferred stock
discount
Deemed dividend related to the issuance
of preferred stock
Extinguishment of derivative liability
upon exercise of warrant
Stock-based compensation
Net loss
Balance as of December 31, 2019
Extinguishment of derivative liability
upon exercise of warrant
Common stock issued for cash, net of fees
Issuance of common stock from the
cashless exercise of warrants
Issuance of common stock from the
exercise of warrants for cash
Preferred stock issued for cash
Common stock issued on conversion of
preferred stock
Issuance of agent warrants
Beneficial conversion feature on issuance
of convertible preferred stock
Deemed dividend related to the issuance
of preferred stock
Accretion of convertible preferred stock
discount
Deemed dividend related to the
conversion of preferred stock
Stock-based compensation
Net loss
Balance as of December 31, 2020
-
-
(3,825)
-
-
-
-
-
249
-
-
-
-
-
(223)
-
-
-
-
-
-
-
26 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
35,874
527,896
-
1,143,784
-
-
-
5
12
-
-
103
1,446
(12)
2,703
(2,703)
-
-
-
-
-
-
-
-
2,434,009
-
-
-
24
44
2
-
239,256
-
-
(4,797)
(234,078)
103
1,451
-
2,703
(2,703)
44
2
(4,797)
5,202
-
11,369,381
-
114
3,199
19,882
-
-
-
-
-
-
-
-
-
3,504,535
-
9,440
(9,389)
-
-
-
-
-
-
-
51 $
-
-
-
-
-
-
-
-
-
-
-
740,968
-
6,503,516
-
-
-
-
-
-
-
35
7
-
65
-
-
-
-
-
-
-
(35)
1,104
3,112
(65)
168
3,111
(3,111)
6,454
(6,454)
45
-
24,552,409 $
245 $ 266,666 $
-
-
-
-
-
-
-
-
-
-
3,199
19,996
-
1,111
3,112
-
168
3,111
(3,111)
6,454
-
-
(7,029)
(6,454)
45
(7,029)
(241,107) $ 25,804
The accompanying notes are an integral part of these consolidated financial statements.
F-5
SINTX Technologies, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Cash flow from operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense
Amortization of right of use asset
Amortization of intangible assets
Non-cash interest income
Stock based compensation
Change in fair value of derivative liabilities
Offering costs
Bad debt expense
Changes in operating assets and liabilities:
Account and other receivables
Prepaid expenses and other current assets
Years Ended December 31,
2020
2019
$
(7,029)
$
78
415
5
(299)
45
(2,111)
325
-
94
(91)
(4,797)
102
363
5
(443)
2
(1,303)
-
(3)
131
19
Inventories
Accounts payable and accrued liabilities
Payments on operating lease liability
Net cash used in operating activities
Cash flows from investing activities
Purchase of property and equipment
Proceeds from note receivable, net of imputed interest
Net cash provided by investing activities
Cash flows from financing activities
Proceeds from issuance of warrant derivative liabilities
Proceeds from issuance of common stock, net of fees
Proceeds from issuance of preferred stock, net of fees
Proceeds from issuance of common stock in connection with exercise of warrants
Capital raise costs
Principal payment on debt
Proceeds from issuance of debt
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Noncash investing and financing activities
Extinguishment of derivative liabilities through exercise of warrants
Change in par value due to conversion of preferred stock to common stock
Issuance of Common Stock for the Cashless Exercise of Warrants
Right-of-Use Assets and assumption of operating lease liability
Issuance of debt for equipment
Supplemental cash flow information
Cash paid for interest
The accompanying notes are an integral part of these consolidated financial statements.
F-6
1. Organization and Summary of Significant Accounting Policies
153
(350)
(347)
(9,112)
(360)
2,111
1,751
6,328
19,995
3,112
1,111
-
(27)
406
30,925
23,564
1,787
25,351
$
Years Ended December 31,
2020
2019
$
3,199
65
35
-
-
2
$
37
216
(764)
(6,435)
(147)
1,528
1,381
-
1,451
-
103
(157)
(3)
-
1,394
(3,660)
5,447
1,787
44
11
-
2,704
21
4
$
$
$
SINTX Technologies, Inc. (“SINTX” or “the Company”) was incorporated in the state of Delaware on December 10, 1996. SINTX is an OEM ceramics company that develops
and commercializes silicon nitride for medical and non-medical applications. The core strength of SINTX is the manufacturing, research, and development of silicon nitride
ceramics for external partners. The Company presently manufactures silicon nitride spinal implant in its ISO 13485 certified manufacturing facility for CTL Amedica, the
exclusive retail channel for silicon nitride spinal implants. The Company believes it is the first and only manufacturer to use silicon nitride in medical applications. The
Company’s products are primarily sold in the United States.
On October 1, 2018, the Company completed the sale of its retail spine implant business to CTL Medical, a Dallas, Texas-based privately held medical device manufacturer. As
a result of the sale, CTL Medical is now the exclusive owner of Amedica’s portfolio of metal and silicon nitride spine implant products, which are presently sold under the
brand names of Taurus, Preference, and Valeo, with access to future silicon nitride spine technologies. Manufacturing, R&D, and all intellectual property related to the core,
non-spine, biomaterial technology of silicon nitride remains with the Company. The Company will serve as CTL’s exclusive OEM provider of silicon nitride products.
On October 30, 2018, the Company amended its Certificate of Incorporation with the State of Delaware to change its corporate name to SINTX Technologies, Inc. in order to
better reflect its focus on silicon nitride science and technologies and pipeline of silicon nitride-based products in various biomedical applications. The Company also changed
its trading symbol on the NASDAQ Capital Market to “SINT”.
The previous name, Amedica, has transferred to CTL Medical, which is now CTL Amedica. The Company’s new corporate brand reflects both the Company’s core
competence in the science and production of silicon nitride ceramics, as well as encouraging prospects for the future, as an OEM supplier of spine implants to CTL Amedica,
and several opportunities outside of spine implants. 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 and Principles of Consolidation
These consolidated financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and include all
assets, liabilities and operations of the Company. In May 2020, the Company dissolved its wholly owned subsidiary 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.
Liquidity and Capital Resources
The 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 consolidated financial statements.
For the years ended December 31, 2020 and 2019, the Company incurred a net loss of $7.0 million and $4.8 million, respectively, and used cash in operations of $9.1 million
and $6.4 million, respectively. The Company had an accumulated deficit of $241.1 million and $234.1 million as of December 31, 2020 and 2019, respectively. To date, the
Company’s operations have been principally financed from proceeds from the issuance of preferred and common stock and, to a lesser extent, cash generated from product
sales. It is anticipated that the Company will continue to generate operating losses and use cash in operations. The Company’s continuation as a going concern is dependent upon
its ability to increase sales, and/or raise additional funds through the capital markets. Whether and when the Company can attain profitability and positive cash flows from
operations or obtain additional financing is uncertain.
The Company is actively generating additional scientific and clinical data to have it published in leading industry publications. The unique features of our 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 in other areas outside of spinal fusion applications.
The Company has common stock that is publicly traded and has been able to successfully raise capital when needed since the date of the Company’s initial public offering in
February 2014. On February 6, 2020, the Company closed 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 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 common stock for gross proceeds of approximately $20.9 million, before considering issuance costs of
approximately $1.6 million (see Note 8).
F-7
During the year ended December 31, 2019, the Company entered into an at-the-market (ATM) equity distribution agreement in which the Company may 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 deducting fees to the placement agent and other offering expenses of approximately $0.2 million. During the year ended December 31, 2020,
the Company sold 354,381 shares of common stock, raising approximately $0.8 million deducting fees to the placement agent and other offering expenses of approximately
$0.034 million. As of December 31, 2020, no funding capacity is available under the ATM. (see Note 8).
On October 1, 2018, the Company sold the retail spine implant business to CTL Medical. The sale included a $6 million noninterest bearing note receivable payable over a 36-
month term. With the maturing of the note receivable to occur October 1, 2021, the Company expects cash flows of approximately $1.9 million from the note during 2021.
Management has concluded existing capital resources will be sufficient to fund operations for at least the next 12 months, or through March 2022.
Reverse Stock Split
On July 26, 2019, the Company effected a 1 for 30 reverse stock split of the Company’s common stock. The par value and the authorized shares of the common and preferred
stock were not adjusted as a result of the reverse stock split. All common stock shares, equivalents, and per-share amounts for all periods presented in these consolidated
financial statements have been adjusted retroactively to reflect the reverse stock split.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses
during the period. Actual results could differ from those estimates. As of December 31, 2020, the most significant estimate relates to derivative liabilities and stock based
compensation.
Concentrations of Credit Risk and Significant Customers
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, and note receivables. Because the
financial institution that the Company currently uses does not participate in the Certificate of Deposit Account Registry Service (“CDARS”), the Company does not presently
have a program to limit its exposure to credit loss. The Company’s deposits, at times, may exceed federally insured limits.
As of December 31, 2020, two customer’s receivable balance was 91 % of the Company’s total accounts receivable. One customer accounted for 95 % and 100% of the
Company’s total revenues for the years ended December 31, 2020 and 2019 respectively.
Revenue Recognition
The Company derives its product revenue primarily from the sale of spinal fusion products, used in the treatment of spine disorders to CTL Medical, with whom the Company
signed a 10-year exclusive sales agreement in October 2018. The Company is currently pursuing other sales opportunities for silicon nitride outside the spinal fusion application.
Revenue is recognized when control of the goods or services promised under the contract is transferred to the customer either at a point in time (e.g., upon delivery) or over time
(e.g., as performed under the contract). The Company accounts for a contract when it has approval and commitment from both parties, the rights and payment terms of the
parties are identified, the contract has commercial substance and collectability of consideration is probable. Contracts are reviewed to determine whether there is one or multiple
performance obligations. A performance obligation is a promise to transfer a distinct good or service to a customer and represents the unit of accounting for revenue recognition.
For contracts with multiple performance obligations, the expected consideration, or the transaction price, is allocated to each performance obligation identified in the contract
based on the relative standalone selling price of each performance obligation. Revenue is then recognized for the transaction price allocated to the performance obligation when
control of the promised goods or services underlying the performance obligation is transferred. Contract consideration is not adjusted for the effects of a significant financing
component when, at contract inception, the period between when control transfers and when the customer will pay for that good or service is one year or less. Contact
modifications that provide for additional distinct goods or services at the standalone selling price are treated as separate contracts. The transaction price for our contracts reflects
our estimate of returns, rebates and discounts, which historically have not been significant. Amounts billed to customers for shipping and handling are included in the
transaction price and generally are not treated as separate performance obligations as these costs fulfill a promise to transfer the product to the customer. The Company does not
employee salespeople to actively seek additional customers; there are no incremental costs for obtaining customers that need to be capitalized.
The Company recognizes revenue from sales at the time the product is shipped.
F-8
Costs of Revenue
The expenses that are included in costs of revenue include all raw material and in-house manufacturing costs for the products we manufacture.
Cash and Cash Equivalents
The Company considers all cash on deposit, money market accounts and highly-liquid debt instruments purchased with original maturities of three months or less to be cash and
cash equivalents.
Inventories
Inventories are stated at the lower of cost or net realizable value, with cost for manufactured inventory determined under the standard costs, which approximate actual costs,
determined on the first-in first-out (“FIFO”) method. Manufactured inventory consists of raw material, direct labor and manufacturing overhead cost components. The Company
reviews the carrying value of inventory on a periodic basis for excess or obsolete items, and records any write-down as a cost of revenue, as necessary.
Property and Equipment
Property and equipment, including leasehold improvements, are stated at cost, less accumulated depreciation and amortization. Property and equipment are depreciated using the
straight-line method over the estimated useful lives of the assets, which range from three to five years. Leasehold improvements are amortized over the shorter of their estimated
useful lives or the related lease term, generally five years.
The Company reviews the carrying value of the Company’s property and equipment that are held and used in the Company’s operations for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is determined based upon expected undiscounted
future net cash flows from the operations to which the assets relate, utilizing management’s best estimate, assumptions, and projections at the time. If the carrying value is
determined to be unrecoverable from future operating cash flows, the asset is deemed impaired and an impairment charge would be recognized to the extent the carrying value
exceeded the estimated fair value of the asset. The Company estimates the fair value of assets based on the estimated future discounted cash flows of the asset.
F-9
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are in operating lease right of use asset and operating lease liability in our consolidated
balance sheet. Finance leases, if any, are included in property and equipment in our consolidated balance sheet. Leases with an initial term of 12 months or less are not
presented on the consolidated balance sheet. The Company accounts for lease payments separately than from non-lease components. The depreciable life of the asset and
leasehold improvement are limited by the expected lease term.
Account and Other Receivables and Allowance for Doubtful Accounts
Account and other receivables are carried at invoiced amount less an allowance for doubtful accounts. On a regular basis, the Company evaluates account and other receivables
and estimates an allowance for doubtful accounts, as needed, based on various factors such as customers’ current credit conditions, length of time past due, and the general
economy as a whole. Receivables are written off against the allowance when they are deemed uncollectible.
Long Lived Intangible Assets
The Company evaluates the carrying value of intangibles when events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the
Company considers important which could trigger an impairment review include, but are not limited to, significant under-performance relative to historical or projected future
operating results, significant changes in the manner of its use of acquired assets or its overall business strategy, and significant industry or economic trends. The Company
amortizes definite-lived intangible assets on a straight-line basis over their useful lives. The Company recorded no impairment loss for definite-lived intangible assets during the
year ended December 31, 2020.
Derivative Liabilities
Derivative liabilities include the fair value of certain common stock warrants, that are initially recorded at fair value and are required to be re-measured to fair value at each
reporting period. The change in fair value of the instruments is recognized as a component of other income (expense) in the Company’s consolidated statements of operations
until the instruments settle, expire or are no longer classified as derivative liabilities. The Company estimates the fair value of these instruments primarily using Monte-Carlo
valuation models. The significant assumptions used in estimating the fair value include the exercise price, volatility of the stock underlying the instrument, risk-free interest rate,
estimated fair value of the stock underlying the instrument and the estimated life of the instrument.
F-10
Research and Development
All research and development costs, including those funded by third parties, are expensed as incurred. Research and development costs consist of engineering, product
development, test-part manufacturing, testing, developing and validating the manufacturing process, and regulatory related costs. Research and development expenses also
include employee compensation, employee and nonemployee stock-based compensation, supplies and materials, consultant services, and travel and facilities expenses related to
research activities.
We expect to incur additional research and development costs as we continue to develop new biomedical and antipathogenic products ..
Advertising Costs
Advertising costs are expensed as incurred. The primary component of the Company’s advertising expenses is advertising in trade periodicals. Advertising costs were not
significant for each of the years ended December 31, 2020 and 2019.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to the differences between the financial statement carrying value of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the fiscal year in which those
temporary differences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be
realized.
The Company operates in various tax jurisdictions and is subject to audit by various tax authorities. The Company provides for tax contingencies whenever it is deemed
probable that a tax asset has been impaired, or a tax liability has been incurred for events such as tax claims or changes in tax laws. Tax contingencies are based upon their
technical merits relative tax law and the specific facts and circumstances as of each reporting period. Changes in facts and circumstances could result in material changes to the
amounts recorded for such tax contingencies.
The Company recognizes uncertain income tax positions taken on income tax returns at the largest amount that is more-likely than-not to be sustained upon audit by the
relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.
The Company’s policy for recording interest and penalties associated with uncertain tax positions is to record such items as a component of our income tax provision. For the
years ended December 31, 2020 and 2019, the Company did not record any material interest income, interest expense or penalties related to uncertain tax positions or the
settlement of audits for prior periods.
Stock-Based Compensation
The Company measures stock-based compensation expense related to employee stock-based awards based on the estimated fair value of the awards as determined on the date of
grant and is recognized as expense over the remaining requisite service period. The Company utilizes the Black-Scholes-Merton option pricing model to estimate the fair value
of employee stock options. The Black-Scholes-Merton model requires the input of subjective assumptions, including the estimated fair value of the Company’s common stock
on the date of grant, the expected term of the stock option, and the expected volatility of the Company’s common stock over the period equal to the expected term of the grant.
The Company estimates forfeitures at the date of grant and revises the estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The
Company accounts for stock options to purchase shares of stock that are issued to non-employees based on the estimated fair value of such instruments using the Black-Scholes-
Merton option pricing model.
F-11
Offering Costs
Offering costs consist of legal, accounting, and other advisory costs related to the Company’s efforts to raise debt and equity capital.
Offering costs paid in cash or by issuing warrants associated with the Company’s equity fundraising activities are either recorded to additional paid in capital as a reduction of
the proceeds or expensed in the case of failed offerings.
New Accounting Pronouncement, 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 upon adoption.
F-12
Net Loss Per Share – Basic and Diluted
Basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of common shares outstanding for the period, without
consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common share equivalents
outstanding for the period that are determined to be dilutive. Common stock equivalents are primarily comprised of preferred stock, options and warrants for the purchase of
common stock The Company had potentially dilutive securities, totaling approximately 1.5 million and 0.5 million shares of common stock as of December 31, 2020 and 2019,
respectively.
Below are basic and diluted loss per share data for the year ended December 31, 2020, which are in thousands except for share and per share data:
Basic
Calculation
Effect of
Dilutive
Warrant
Securities
Diluted
Calculation
Numerator:
Net loss
Deemed dividend and accretion of a discount
Net loss attributable to common stockholders
Denominator:
Number of shares used in per common share calculations:
Net loss per common share:
Net loss
Deemed dividend and accretion of a discount
Net loss attributable to common stockholders
(7,029)
(9,565)
(16,594)
16,406,556
(0.43)
(0.58)
(1.01)
$
$
$
$
$
$
$
$
F-13
(2,293)
-
(2,293)
1,039,592
(0.10)
0.03
(0.07)
Below are basic and diluted loss per share data for the year ended December 31, 2019, which are in thousands except for share and per share data:
Numerator:
Net loss
Deemed dividend and accretion of a discount
Net loss attributable to common stockholders
Denominator:
Number of shares used in per common share calculations:
Net loss per common share:
Net loss
Deemed dividend and accretion of a discount
Net loss attributable to common stockholders
2. Inventories
The components of inventory were as follows (in thousands):
Basic
Calculation
Effect of
Dilutive
Warrant
Securities
$
$
$
$
(4,797)
(2,703)
(7,500)
1,555,988
(3.08)
(1.74)
(4.82)
$
$
$
$
(1,346)
-
(1,346)
-
(0.87)
-
(0.87)
$
$
$
$
$
$
$
$
(9,323)
(9,565)
(18,888)
17,446,148
(0.53)
(0.55)
(1.08)
Diluted
Calculation
(6,143)
(2,703)
(8,846)
1,555,988
(3.95)
(1.74)
(5.69)
As of December 31,
2020
2019
Raw materials
WIP
Finished goods
3. Property and Equipment
The following is a summary of the components of property and equipment (in thousands):
Manufacturing and lab equipment
Leasehold improvements
Software and computer equipment
Furniture and equipment
Less: accumulated depreciation
$
$
$
$
388
97
2
487
$
$
As of December 31,
2020
2019
558
941
684
82
2,265
(1,794)
471
$
$
533
106
-
639
247
941
636
82
1,906
(1,716)
190
Depreciation expense for 2020 was approximately $0.1 million. Depreciation expense for 2019 was approximately $0.1 million.
F-14
4. Intangible Assets
Intangible assets consisted of the following (in thousands):
Trademarks
Less: accumulated amortization
Years Ended December 31,
2020
2019
$
$
50
(14)
36
$
$
50
(9)
41
Amortization expense for 2020 was approximately $5.0 thousand. Amortization expense for 2019 was approximately $5.0 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-market liabilities and are re-measured to fair value at each
reporting period in accordance with accounting guidance. Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date, under a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
Level 1
- quoted market prices for identical assets or liabilities in active markets.
Level 2
- observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level 3
- unobservable inputs reflecting management’s assumptions, consistent with reasonably available assumptions made by other market participants. These
valuations require significant judgment.
The Company classifies assets and liabilities measured at fair value in their entirety based on the lowest level of input that is significant to their fair value measurement. No
financial assets were measured on a recurring basis as of December 31, 2020 and 2019. 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 December 31, 2020 and 2019.
Description
Derivative liability
Common stock warrants
Description
Derivative liability
Common stock warrants
Fair Value Measurements as of December 31, 2020
(in thousands)
Level 1
Level 2
Level 3
Total
$
$
-
$
-
$
1,238
$
1,238
Fair Value Measurements as of December 31, 2019
(in thousands)
Level 1
Level 2
Level 3
Total
-
$
-
$
220
$
220
F-15
The Company did not have any transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy during the years ended December 31,
2020 and 2019. The following table presents a reconciliation of the derivative liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level
3) during the years ended December 31, 2020 and 2019 (in thousands):
Balance as of December 31, 2018
Issuance of derivatives
Change in fair value
Common Stock
Warrants
$
(1,566)
-
1,303
Exercise of warrants
Other, net
Balance as of December 31, 2019
Issuance of derivatives
Change in fair value
Exercise of warrants
Balance as of December 31, 2020
Common Stock Warrants
44
(1)
(220)
(6,328)
2,111
3,199
(1,238)
$
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 December 31, 2020, and 2019, the derivative
liability was calculated using the Monte Carlo Simulation valuation.
The assumptions used in estimating the common stock warrant liability using the Monte Carlo simulation valuation model as of December 31, 2020 and 2019 were as follows:
Weighted-average risk-free interest rate
Weighted-average expected life (in years)
Expected dividend yield
Weighted average expected volatility
Other Financial Instruments
December 31,
2020
December 31,
2019
0.09%-0.27%
0.63-4.10
-%
138.3%-175.6%
1.62%
3.4
-%
64%
F-16
The Company’s recorded values of cash and cash equivalents, account and other receivables, accounts payable and accrued liabilities approximate their fair values based on
their short-term nature. The recorded value of notes payable approximates the fair value as the interest rate approximates market interest rates.
6. Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
Payroll and related expenses
Resterilization and repackaging costs
Other
7. Debt
PPP Loan
Years Ended December 31,
2020
2019
600
-
309
909
$
$
589
392
285
1,266
$
$
On April 28, 2020, the Company received 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 is $0.391 million. The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is
administered by the U.S. Small Business Administration (the “SBA”). The PPP Loan has a two-year term, maturing on April 28, 2022. The term may be extended to five-years
if the Lender and we agree to do so. The interest rate on the PPP Loan is 1.0% per annum. Principal and interest are payable in 18 monthly installments, beginning on November
28, 2020, until maturity with respect to any portion of the PPP Loan which is not forgiven as described below. The Company did not provide any collateral or guarantees for the
PPP Loan, nor did the Company pay any facility charge to obtain the PPP Loan. The PPP Loan provides for customary events of default, including, among others, those relating
to failure to make payment, bankruptcy, breaches of representations and material adverse effects. The Company is permitted to prepay or partially prepay the PPP Loan at any
time with no prepayment penalties. The PPP Loan may be partially or fully forgiven if the Company complies with the 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. As explained in Note 15, the Company received notice the principal
amount and accrued interest had been forgiven subsequent to December 31, 2020.
F-17
8. Equity
2020 Rights Offering
During February 2020, the Company closed on a rights offering capital raise wherein the Company’s holders of common stock, Series C Preferred Stock, and certain
outstanding warrants on the date of record, obtained, at no charge, non-transferable subscription rights to purchase units (“Units”). Each Unit consisted of one share of Series C
Convertible Preferred Stock (“Preferred Stock”) and 675 warrants to purchase common stock (“Warrants”). Each Unit sold for $1,000. Each share of the Preferred Stock is
convertible, 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 number
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 $1.50 per share from the date 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 common stock otherwise available under the warrant to the holder electing the
cashless exercise provision. The Company issued 9,440 Units, which includes 6,372,000 Warrants exercisable into shares of our common stock and preferred shares that are
convertible into 6,372,350 shares of Common Stock, for gross proceeds of $9.4 million.
The Company raised $9.4 million, before consideration of issuance costs, associated with the issuance of the Units, with $3.1 million allocated to the preferred stock (with no
offering costs allocated to the preferred stock) and $5.1 million, net of offering 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 $1.2 million of the offering costs.
During the year ended December 31, 2020, Series B Convertible Preferred stockholders of the Company converted 223 shares of Series B Convertible Preferred Stock into
165,586 shares of common stock, and Series C Convertible Preferred stockholders of the Company converted 9,389 shares of Series C Convertible Preferred Stock into
6,337,930 shares of common stock .
Also, during the year ended December 31, 2020, holders of Warrants electing to use the cashless exercise option exercised 5,006,475 warrants, which resulted in the issuance of
3,504,535 shares of common stock. During the same period of time, holders of Warrants electing to exercise warrants for cash exercised 709,425 warrants, which resulted in the
issuance of 709,425 shares of common stock, and the receipt of $1.1 million of cash.
F-18
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 which 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 aggregate gross proceeds to the Company of approximately $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, par value $0.01 per share. The shares were sold at a negotiated purchase price of $1.72 per
share for aggregate gross proceeds to the Company of approximately $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 of 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 sell to the
purchasers, in a registered direct offering, an aggregate of 1,500,000 shares of common stock, par value $0.01 per share. The shares were sold at a negotiated purchase price of
$2.00 per share for aggregate gross proceeds to the 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 for aggregate gross proceeds to the
Company of $8.2 million, before deducting offering costs.
F-19
2019 ATM Stock Offerings
On June 4, 2019, the Company entered into an Equity Distribution Agreement, (the “Distribution Agreement”), with Maxim Group LLC (“Maxim”), pursuant to which the
Company may sell from time to time, shares of its common stock, having an aggregate offering price of up to $1.6 million through Maxim, as agent (the “ATM Offering”). On
September 12, 2019, the Company entered into an amendment to the Distribution Agreement with Maxim, which increased the maximum aggregate offering price of the shares
of the Company’s common stock from $1.6 million to $2.5 million. Subject to the terms and conditions of the Distribution Agreement, Maxim will use its commercially
reasonable efforts to sell the shares from time to time, based on the Company’s instructions. The Company has no obligation to sell any of the shares and may at any time
suspend offers under the Distribution Agreement. The Company agreed to pay Maxim a transaction fee at a fixed rate of 4.25% of the gross sales price of shares sold under the
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. During the year ended December 31, 2019, the Company raised approximately $1.7 million before deducting fees to the placement agent and other
offering costs of approximately $0.2 million, through the issuance of 527,896 shares of common stock under the Distribution Agreement with Maxim. During the year ending
December 31, 2020, the Company sold 354,381 shares of common stock , raising approximately $0.8 million before deducting offering costs of approximately $0.034 million.
As of December 31, 2020, no funding capacity is available under the ATM, and the Distribution Agreement was terminated.
9. Stock-Based Compensation
During the year ended December 31, 2020, the shareholders approved the 2020 Equity Incentive Plan. The 2020 Plan provides for the grant of nonqualified stock options,
incentive stock options, restricted stock, restricted stock units, stock appreciation rights (SARs), and performance share awards to employees, officers, consultants, advisors,
non-employee directors and independent contractors designated by either the board of directors of the Company or if so authorized by the board of directors, the Compensation
Committee (the “Committee”) of the board of directors. Under the 2020 Plan, the maximum number of shares of common stock which may be issued is 1,902,520 shares of
common stock, which includes 2,520 shares that have been rolled over from our 2012 Plan, as amended.
A summary of the Company’s outstanding stock option activity for the years ended December 31, 2020 and 2019 is as follows:
As of December 31, 2019
Granted
Exercised
Forfeited
Expired
As of December 31, 2020
Exercisable at December 31, 2020
Vested and expected to vest at December 31, 2020
As of December 31, 2018
December 31, 2020
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual Life
(Years)
Intrinsic
Value
7,446.69
0.47
-
-
-
5.53
6,977.42
5.53
5.3
10.0
-
-
-
9.3
4.3
9.3
$
$
$
-
-
-
-
-
511,518
-
511,518
Options
377
465,017
-
-
(1)
465,393
376
465,393
$
$
$
$
F-20
December 31, 2019
Options
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual Life
(Years)
Intrinsic
Value
377
$
7,446.69
6.3
$
-
Granted
Exercised
Forfeited
Expired
As of December 31, 2019
Exercisable and vested at December 31, 2019
-
-
-
-
377
377
$
$
-
-
-
-
7,446.69
7,446.69
-
-
-
-
5.3
5.3
$
$
-
-
-
-
-
-
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 the Company. The
expected term was 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 year
ended December 31, 2020.
Weighted-average risk-free interest rate
Weighted-average expected life (in years)
Expected dividend yield
Weighted-average expected volatility
Year Ended
December 31, 2020
0.34%
10
-%
130%
Of the 465,017 options granted during 2020, 235,000 were to non-employees. During the year ended December 31, 2020, the Company granted 50,000 common stock grants
with a fair value of $24 thousand. The stock grants vest over three years and were valued using the closing price of the Company’s common stock on the date of grant.
Unrecognized stock-based compensation as of December 31, 2020, is as follows (in thousands):
Stock options
Stock grants
10. Income Taxes
Weighted Average
Unrecognized Stock-
Based
Compensation
Remaining
of Recognition
(in years)
$
$
F-21
169
19
2.3
2.3
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes.
The following is a reconciliation of the expected statutory federal income tax provision to the actual income tax expense:
Federal statutory rate
State taxes, net of federal benefit
Return to provision
Equity related expenses
Change in valuation allowance
Total income tax expense
Significant components of the Company’s deferred tax assets and liabilities were as follows (in thousands):
Deferred tax assets:
Net operating loss carryforwards
Stock-based compensation
Federal R&D credit
Accrued expenses
Depreciation
Intangibles
Total deferred tax assets
Deferred tax liabilities:
Depreciation
Right of Use Asset/Liabilities
Total deferred tax liabilities
Less valuation allowance
Net deferred tax liability
Pre-tax book income tax at statutory rate
State taxes, net of federal benefit
Return to provision
Equity related expenses
Change in valuation allowance
December 31,
2020
2019
(21.0)%
(4.4)%
0.0%
(2.6)%
28.0%
0.0%
December 31,
2020
2019
$
50,005
2,929
2,222
135
-
103
55,394
(29)
(11)
(40)
(55,354)
-
$
December 31,
2020
2019
$
(1,476)
(312)
1
(182)
1,970
(21.0)%
(7.0)%
(11.2)%
(5.7)%
44.9%
0.0%
48,104
2,918
2,222
112
27
1
53,384
-
-
-
(53,384)
-
(1,007)
(336)
(538)
(274)
2,153
$
$
$
Other
Total income tax expense
$
(1)
-
$
2
-
As of December 31, 2020 and 2019, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $200.4 million and $192.8
million, respectively. The federal and state net operating loss carryforwards will expire from 2024 to 2039 unless previously utilized. Additionally, the Company believes an
ownership change has occurred that would trigger the limitation on usage of net operating losses imposed by Internal Revenue Code section 382. Because of this limitation, a
significant portion of the net operating losses would more likely than not expire unused.
During the years ended December 31, 2020 and 2019, the Company recognized no amounts related to interest or penalties related to uncertain tax positions. The Company is
subject to taxation in the United States and various state jurisdictions. The Company currently has no years under examination by any jurisdiction.
A valuation allowance has been established as realization of such deferred tax assets has not met the more likely-than-not threshold requirement. If the Company’s judgment
changes and it is determined that the Company will be able to realize these deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on deferred tax
assets will be accounted for as a reduction to income tax expense. The tax valuation allowance increased by approximately $2.0 million and $2.2 million for the years ended
December 31, 2020 and 2019, respectively.
F-22
11. Commitment 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.
12. 401(k) Plan
Effective June 1, 2004, the Company adopted a defined contribution retirement plan under Section 401(k) of the Internal Revenue Code. The plan covers substantially all
employees. Eligible employees may contribute amounts to the plan, via payroll withholdings, subject to certain limitations. The plan permits, but does not require, additional
matching contributions to the plan by the Company on behalf of the participants in the plan. The Company incurred approximately $0.1 million relating to retirement
contributions for each of the years ended December 31, 2020 and 2019.
13. Note Receivable
On October 1, 2018, the Company completed the sale of its spine implant business to CTL Medical. The sale included a $6 million noninterest bearing note receivable payable
over a 36 month term, with maturing of the note receivable on October 1, 2021. The note receivable includes an imputed interest rate of 10%. As of December 31, 2020, the net
carrying value of the note receivable was $1.9 million, with expected cash proceeds of $1.9 million.
F-23
14. Leases
The Company leases office, warehouse and manufacturing space under a single operating lease, which lease originally expired during 2019. On June 7, 2019, the lease was
amended to extend the rental period through 2024 and reduce the amount of space leased from 54,428 square feet to 29,534 square feet. The new rent is effective January 1,
2020. The amended lease has two five-year extension options. As of December 31, 2020, the operating lease right-of-use asset totaled approximately $1.9 million and the
operating lease liability totaled approximately $1.9 million. Amortization of right of use asset expense during the year ended December 31, 2020, totaled approximately $0.4
million. As of December 31, 2020, the weighted-average discount rate for the Company’s operating lease totaled 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 lease. The
Company accounts for lease components separately from the non-lease components. The depreciable life of the assets and leasehold improvements are limited by the expected
lease term.
Operating lease future minimum payments together with the present values as of December 31, 2020, are summarized as follows:
2021
2022
2023
2024
Total future minimum lease payments
Less amounts representing interests
Present value of lease liability
Current-portion of operating lease liability
Long-term portion operating lease liability
15. Subsequent Events
2020 PPP Loan
December 31,
2020
513
528
544
560
2,145
(265)
1,880
403
1,477
$
$
On January 5, 2021, the Lender of the PPP loan (see Note 7) provided notice to the Company the principal amount and accrued interest had been forgiven. During 2021, the
Company will remove the PPP Loan obligation and record other income for forgiveness of debt totaling $0.4 million. The SBA has until January of 2027 to audit the
Company’s compliance with the CARES Act relating to the PPP Loan.
2021 ATM Stock Offerings
On February 25, 2021, we 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 our common stock, $0.01 par value per share, having an aggregate offering price of up to $15,000,000 million through Maxim, as agent.
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 $15,000,000 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.
O2 Design Patent License Agreement
On February 25, 2021, the Company entered into an exclusive, two-year, worldwide license with O2 Design to commercialize face masks and mask filters that incorporate the
Company’s sintered silicon nitride intended to inactivate the SARS-VoV-2 virus. When the face mask incorporating the silicon nitride becomes available for sale the Company
will receive an upfront fee and royalties and potential performance-based milestone payments based on the sale of products incorporating the silicon nitride materials. The
Company will also be the exclusive supplier of silicon nitride to O2 Design.
2021 PPP Loan
On March 15, 2021, the “Company received funding under the SBA Second Draw Program under the Paycheck Protection Program (“2021 PPP”) (the “2021 PPP Loan”) from
First State Community Bank (the “Lender”). The principal amount of the 2021 PPP Loan is $509,148.00. 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 dated before February 15, 2020.
F-24
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934
EXHIBIT 4.18
SINTX Technologies, Inc. (“SINTX,” “we,” “our,” or “us”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended: our
common stock.
Authorized Shares of Capital Stock
Our Restated Certificate of Incorporation authorizes us to issue 250,000,000 shares of common stock, par value $0.01 per share, and 130,000,000 shares of preferred stock, par
value $0.01 per share. The following is a summary of the rights of our common stock and some of the provisions of our Restated Certificate of Incorporation and Restated
Bylaws, and the Delaware General Corporation Law. Because it is only a summary, it does not contain all the information that may be important to you and is subject to and
qualified in its entirety by our Restated Certificate of Incorporation and our Restated Bylaws.
Our Restated Certificate of Incorporation and our Restated Bylaws contain certain provisions that are intended to enhance the likelihood of continuity and stability in the
composition of the board of directors, which may have the effect of delaying, deferring or preventing a future takeover or change in control of the Company unless such
takeover or change in control is approved by our board of directors.
Common Stock
Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, and do not have cumulative voting
rights. Accordingly, the holders of a majority of the shares of our common stock entitled to vote can elect all of the directors standing for election. Subject to preferences that
may be applicable to any outstanding shares of preferred stock, holders of our common stock are entitled to receive ratably such dividends, if any, as may be declared from time
to time by our board of directors out of funds legally available for dividend payments. All outstanding shares of our common stock are fully paid and nonassessable. The
holders of common stock have no preferences or rights of conversion, exchange, pre- emption or other subscription rights. There are no redemption or sinking fund provisions
applicable to our common stock. In the event of any liquidation, dissolution or winding-up of our affairs, holders of our common stock will be entitled to share ratably in our
assets that are remaining after payment or provision for payment of all of our debts and obligations and after liquidation payments to holders of outstanding shares of preferred
stock, if any.
The transfer agent and registrar for our common stock is American Stock Transfer and Trust Company. The transfer agent and the registrar’s address is 59 Maiden Lane, New
York, New York 10038.
Our common stock is listed on The NASDAQ Capital Market under the symbol “SINT”.
Effects of Anti-Takeover Provisions of Our Restated Certificate of Incorporation, Our Restated Bylaws and Delaware Law
The provisions of (1) Delaware law, (2) our Restated Certificate of Incorporation and (3) our Restated Bylaws discussed below could discourage or make it more difficult to
prevail in a proxy contest or effect other change in our management or the acquisition of control by a holder of a substantial amount of our voting stock. It is possible that these
provisions could make it more difficult to accomplish, or could deter, transactions that stockholders may otherwise consider to be in their best interests or our best interests.
These provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by the board of
directors and to discourage certain types of transactions that may involve an actual or threatened change in control of our company. These provisions are designed to reduce our
vulnerability to an unsolicited acquisition proposal. These provisions also are intended to discourage certain tactics that may be used in proxy fights. These provisions also may
have the effect of preventing changes in our management.
Delaware Statutory Business Combinations Provision. We are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. In general,
Section 203 prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date
of the transaction in which the person became an interested stockholder, unless the business combination is, or the transaction in which the person became an interested
stockholder was, approved in a prescribed manner or another prescribed exception applies. For purposes of Section 203, a “business combination” is defined broadly to include
a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and, subject to certain exceptions, an “interested stockholder” is a person
who, together with his or her affiliates and associates, owns (or within three years prior, did own) 15% or more of the corporation’s voting stock.
Classified Board of Directors; Appointment of Directors to Fill Vacancies; Removal of Directors for Cause. Our Restated Certificate of Incorporation provides that our board of
directors will be divided into three classes as nearly equal in number as possible. Each year the stockholders will elect the members of one of the three classes to a three-year
term of office. All directors elected to our classified board of directors will serve until the election and qualification of their respective successors or their earlier resignation or
removal. The board of directors is authorized to create new directorships and to fill any positions so created and is permitted to specify the class to which any new position is
assigned. The person filling any of these positions would serve for the term applicable to that class. The board of directors (or its remaining members, even if less than a
quorum) is also empowered to fill vacancies on the board of directors occurring for any reason for the remainder of the term of the class of directors in which the vacancy
occurred. Members of the board of directors may only be removed for cause and only by the affirmative vote of holders of at least 80% of our outstanding voting stock. These
provisions are likely to increase the time required for stockholders to change the composition of the board of directors. For example, in general, at least two annual meetings
will be necessary for stockholders to effect a change in a majority of the members of the board of directors.
Authorization of Blank Check Preferred Stock. Our Restated Certificate of Incorporation provides that our board of directors is authorized to issue, without stockholder
approval, blank check preferred stock. Blank check preferred stock can operate as a defensive measure known as a “poison pill” by diluting the stock ownership of a potential
hostile acquirer to prevent an acquisition that is not approved by our board of directors.
Advance Notice Provisions for Stockholder Proposals and Stockholder Nominations of Directors. Our Restated Bylaws provide that, for nominations to the board of directors or
for other business to be properly brought by a stockholder before a meeting of stockholders, the stockholder must first have given timely notice of the proposal in writing to our
Secretary. For an annual meeting, a stockholder’s notice generally must be delivered not less than 90 days nor more than 120 days prior to the anniversary of the mailing date
of the proxy statement for the previous year’s annual meeting. For a special meeting, the notice must generally be delivered no less than 60 days nor more than 90 days prior to
the special meeting or ten days following the day on which public announcement of the meeting is first made. Detailed requirements as to the form of the notice and information
required in the notice are specified in our Restated Bylaws. If it is determined that business was not properly brought before a meeting in accordance with our bylaw provisions,
this business will not be conducted at the meeting.
Special Meetings of Stockholders. Special meetings of the stockholders may be called only by our board of directors pursuant to a resolution adopted by a majority of the total
number of directors.
No Stockholder Action by Written Consent. Our Restated Certificate of Incorporation does not permit our stockholders to act by written consent. As a result, any action to be
affected by our stockholders must be affected at a duly called annual or special meeting of the stockholders.
Super-Majority Stockholder Vote required for Certain Actions. The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation’s certificate of incorporation or bylaws, unless the corporation’s certificate of incorporation or bylaws, as the
case may be, requires a greater percentage. Our Restated Certificate of Incorporation requires the affirmative vote of the holders of at least 80% of our outstanding voting stock
to amend or repeal any of the provisions discussed in this section entitled “Effect of Anti-Takeover Provisions of Our Restated Certificate of Incorporation, Our Restated Bylaws
and Delaware Law” or to reduce the number of authorized shares of common stock or preferred stock. This 80% stockholder vote would be in addition to any separate class
vote that might in the future be required pursuant to the terms of any preferred stock that might then be outstanding. An 80% vote is also required for any amendment to, or
repeal of, our Restated Bylaws by the stockholders. Our Restated Bylaws may be amended or repealed by a simple majority vote of the board of directors.
Potential Effects of Authorized but Unissued Stock
We have shares of common stock and preferred stock available for future issuance without stockholder approval. We may utilize these additional shares for a variety of
corporate purposes, including future public offerings to raise additional capital, to facilitate corporate acquisitions or payment as a dividend on the capital stock.
The existence of unissued and unreserved common stock and preferred stock may enable our board of directors to issue shares to persons friendly to current management or to
issue preferred stock with terms that could render more difficult or discourage a third-party attempt to obtain control of us by means of a merger, tender offer, proxy contest or
otherwise, thereby protecting the continuity of our management. In addition, the board of directors has the discretion to determine designations, rights, preferences, privileges
and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of each series of preferred stock, all to the fullest
extent permissible under the Delaware General Corporation Law and subject to any limitations set forth in our certificate of incorporation. The purpose of authorizing the board
of directors to issue preferred stock and to determine the rights and preferences applicable to such preferred stock is to eliminate delays associated with a stockholder vote on
specific issuances. The issuance of preferred stock, while providing desirable flexibility in connection with possible financings, acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third-party to acquire, or could discourage a third-party from acquiring, a majority of our outstanding voting stock.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
SINTX Technologies, Inc.
Salt Lake City, Utah
We hereby consent to the incorporation by reference in Registration Statements on Form S-1 (Nos. 333-223032 and 333-234438), Form S-3 (Nos. 333-207289, 333-205545,
333-214804, 333-230492, and 333-249267) and Form S-8 (No. 333-194977 and 333-248846) of SINTX Technologies, Inc. (the Company) of our report dated March 22, 2021,
relating to our audit of the financial statements, which appears in this Annual Report on Form 10-K of SINTX Technologies, Inc. for the year ended December 31, 2020.
/s/ Tanner LLC
March 22, 2021
Lehi, Utah
Exhibit 31.1
I, B. Sonny Bal, certify that:
1. I have reviewed this annual report on Form 10-K of SINTX Technologies, Inc.;
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: March 22, 2021
By:
/s/ B. Sonny Bal
B. Sonny Bal
Chief Executive Officer
Exhibit 31.2
I, B. Sonny Bal, certify that:
1. I have reviewed this annual report on Form 10-K of SINTX Technologies, Inc.;
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: March 22, 2021
By:
/s/ B. Sonny Bal
B. Sonny Bal
Principal Financial Officer
CERTIFICATIONS UNDER SECTION 906
Exhibit 32
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned
officers of SINTX Technologies, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Annual Report on Form 10-K for the year ended December 31, 2020 (the “Form 10-K”) of the Company fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 22, 2021
By:
/s/ B. Sonny Bal
B. Sonny Bal
Chief Executive Officer and Principal Financial Officer