UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
☒ 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, 2023
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 ☒
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 ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See 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
☐
☒
☐
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. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
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 $5,175,111.
The number of shares outstanding of the registrant’s common stock, $0.01 par value per share, as of March 11, 2024 was 22,680,139.
DOCUMENTS INCORPORATED BY REFERENCE:
None
Item Number and Caption
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Signatures
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Reserved
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
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
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
Exhibits and Financial Statement Schedules
Form 10-K Summary
Index to Consolidated Financial Statements
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Page
6
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42
42
42
42
42
43
43
43
43
54
54
54
54
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55
56
56
62
67
68
69
70
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75
76
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 achieve and
sustain 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.”
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 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.
Risks Related to Our Business and Strategy
● We have incurred net losses since our inception and may never achieve or sustain profitability.
● Our success depends on our ability to successfully commercialize advanced ceramic products for biomedical, technical, and antipathogenic applications, which to date
have experienced only limited market acceptance and which we may not be able to successfully commercialize.
● We may not be able to compete effectively against the larger, well-established companies that dominate these markets or emerging and small innovative companies
seeking to increase their share of the market.
● We depend on our aerospace and biomedical customers’ ability to sell the products they manufacture. If our customers are not able to sell such products, our business
and operating results will be adversely affected.
● If we are unable to manufacture our advanced ceramic 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.
● 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 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.
● Cyber security risks and the failure to maintain the integrity of company, employee or guest data could expose us to business disruptions, data loss, litigation and
liability, and our reputation and operating results could be significantly harmed.
4
Risks Related to Regulatory Approval of Our Products and Other Government Regulations
● Contracting with government entities exposes us to additional risks and regulatory requirements.
● We cannot be certain that we will be able to obtain regulatory clearance or approval and thereafter commercialize our biomedical or antipathogenic 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 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 commercialize our
products or operate our business profitably.
● We have no patent protection covering the composition of matter for our solid silicon nitride or components of the related manufacturing process, and competitors may
create formulations or processes substantially similar to ours.
● We could become subject to intellectual property litigation that could 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.
● If our advanced ceramic 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 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 may not be able to maintain our listing on the NASDAQ Capital Market, which would adversely affect the price and liquidity of our common stock.
5
ITEM 1.
BUSINESS
PART I
Overview – SINTX Technologies
SINTX Technologies is an advanced ceramics company formed in December 1996, focused on providing solutions in a variety of biomedical, technical, and antipathogenic
applications. We have grown from focusing primarily on the research, development and commercialization of medical devices manufactured with silicon nitride to becoming an
advanced ceramics company engaged in diverse fields, including biomedical, technical and antipathogenic applications. This diversification enables us to focus on our core
competencies which are the manufacturing, research, and development of products comprised from advanced ceramic materials for external partners. We seek to connect with
new customers, partners and manufacturers to help them realize the goal of leveraging our expertise in advanced ceramics to create new, innovative products across these
sectors.
SINTX Core Business
Biomedical Applications: Since its inception, SINTX has been focused on medical grade silicon nitride. SINTX biomedical products have been shown to be biocompatible,
bioactive, antipathogenic, and to have superb bone affinity. Spinal implants made from SINTX silicon nitride have been successfully implanted in humans since 2008 in the US,
Europe, Brazil, and Taiwan. This established use, along with its inherent resistance to bacterial adhesion and bone affinity suggests that it may also be suitable in other fusion
device applications such as arthroplasty implants, foot wedges, and dental implants. Bacterial infection of any biomaterial implants is always a concern. SINTX silicon nitride
has been shown to be resistant to bacterial colonization and biofilm formation, making it antibacterial. SINTX silicon nitride products can be polished to a smooth and wear-
resistant surface for articulating applications, such as bearings for hip and knee replacements.
We believe that silicon nitride has a superb combination of properties that make it 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, 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.
In June 2022, we acquired Technology Assessment and Transfer, Inc. (TA&T), a nearly 40-year-old business with a mission to transition advanced materials and process
technologies from a laboratory environment to commercial products and services. TA&T has supplied ceramics for use in several biomedical applications. These products were
made via 3D printing and include components for surgical instruments as well as conceptual and prototype dental implants.
Technical Applications: It is our belief that our silicon nitride has the best combination of mechanical, thermal, and electrical properties of any technical ceramic material. It is
a high-performance technical ceramic with high strength, toughness, and hardness, and is extremely resistant to thermal shock and impact. It is also an electrically insulating
ceramic material. Typically, it is used in applications where high load-bearing capacity, thermal stability, and wear resistance are required. We have obtained AS9100D
certification and ITAR registration to facilitate entry into the aerospace and protective armor markets.
We entered the ceramic armor market through the purchase of assets from B4C, LLC and a technology partnership with Precision Ceramics USA. We will develop and
manufacture high-performance ceramics for personnel, aircraft, and vehicle armor including a 100% Boron Carbide material for ultimate lightweight performance in ballistic
applications, and a composite material made of Boron Carbide and Silicon Carbide for exceptional multi-hit performance against ballistic threats. We have signed a 10-year
lease at a building near our headquarters in Salt Lake City, Utah to house development and manufacturing activities for SINTX Armor.
TA&T’s primary area of expertise is material processing and fabrication know-how for a broad spectrum of monolithic ceramic, ceramic composite, and coating materials.
Primary technologies include Additive Manufacturing (3D Printing) of ceramics and metals, low-cost fabrication of fiber reinforced ceramic matrix composites (CMCs) and
refractory chemical vapor deposited (CVD) coatings, transparent ceramics for ballistic armor and optical applications, and magnetron sputtered (PVD) coatings for lubrication,
wear resistance and environmental barrier coatings for CMCs. TA&T also provides a host of services that include 3D printing, PVD-CVD coatings, material processing-CMCs,
CIP, PS, HP, HIP, and material characterization for powders and finished parts-TGA/DSC, PSD. SA, Dilatometry, UV-VIS and FTIR transmission, haze and clarity.
Antipathogenic Applications: Today, there is a global need to improve protection against pathogens in everyday life. SINTX believes that by incorporating its unique
composition of silicon nitride antipathogenic powder into products such as face masks, filters, and wound care devices, it is possible to manufacture surfaces that inactivate
pathogens, thereby limiting the spread of infection and disease. The discovery in 2020 that SINTX silicon nitride inactivates SARS-CoV-2, the virus which causes the disease
COVID-19, has opened new markets and applications for our material.
We presently manufacture advanced ceramic powders and components in our manufacturing facilities based in Salt Lake City, Utah.
6
Silicon Nitride
Our Products
To control the quality, cost and availability of our silicon nitride products and product candidates, we operate our own silicon nitride manufacturing facility. Our 31,000 square
foot corporate facility includes an 19,000 square foot FDA registered ISO 13485:2016 certified, and AS9100D certified 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. 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 allows us to produce silicon nitride in multiple
distinct forms. This capability provides us with the ability to utilize our silicon nitride in a variety of ways depending on the intended application, which, together with our
silicon nitride’s key characteristics, distinguishes us from other manufacturers of silicon nitride products.
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 which can be used for devices that require high strength, toughness, fracture
resistance and low wear. Applications include medical devices – such as interbody spinal fusion implants – and non-medical such as electrical and aerospace
components.
● 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.
● Composites of Silicon Nitride and PEEK and PEKK. We have demonstrated in the laboratory that it is possible to compound our silicon nitride powder and the
polymers PEEK and PEKK and that the ensuing composite material maintains the bioactive properties of silicon nitride. We have engaged academic and commercial
partners to assist us in developing this technology and have received NIH grants to assist in advancing this work. This composite material would allow the
straightforward machinability of complex spine and CMF devices 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.
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 element’s 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.
7
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:
● 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.
● 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.
8
● 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.
● High Dielectric Breakdown. Our silicon nitride has electrical properties that make it well suited for aerospace engine ignitor applications.
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.
Other Advanced Ceramic Products
Ceramic Armor
In 2021, SINTX entered the ceramic armor market through the purchase of assets from B4C, LLC, Dayton, Ohio, and a technology partnership with Precision Ceramics USA.
SINTX operates its armor business through its wholly owned subsidiary SINTX Armor, Inc. SINTX will develop and manufacture high-performance ceramics for personnel,
aircraft, and vehicle armor including a 100% boron carbide material for ultimate lightweight performance in ballistic applications, and a composite material made of boron
carbide and silicon carbide for exceptional multi-hit performance against ballistic threats. The demand for ceramic armor has been propelled in the defense industries and is
increasingly being used in the manufacturing of vests, backpacks, and vehicle panels for military applications. Since its introduction during the Vietnam War, ceramic armor has
developed into a modern solution for defeating ballistic threats. Armor solutions utilizing ceramics are commonly used to protect vehicles, personnel, aircraft, and marine
vessels due to their light weight and high hardness.
Boron carbide has additional uses including wear components – such as nozzles – and as a neutron absorber in nuclear reactors. SINTX is pursuing opportunities in these
market segments as well.
We have signed a 10-year lease at a building near our headquarters in Salt Lake City, Utah to house development and manufacturing activities for SINTX Armor. The Company
has relocated the B4C assets from Dayton into this facility and has made necessary upgrades to the facility infrastructure to operate the equipment.
A furnace used for our SINTX Armor manufacturing operations overheated and is no longer functional. We have been informed by our insurance carrier that a covered loss has
occurred, and coverage is available for the Company’s claim submitted with respect to the sintering furnace that overheated at SINTX Armor in October 2023. The Company
will be replacing the damaged furnace and expects the repaired furnace to be up and running in the 4th quarter 2024. Company management continues to work with third
parties to temporarily outsource the sintering process.
Technology Assessment and Transfer (“TA&T”)
TA&T’s primary area of expertise is material processing and fabrication know-how for a broad spectrum of monolithic ceramic, ceramic composite, and coating materials.
Primary technologies include Additive Manufacturing (3D Printing) of ceramics and metals, low-cost fabrication of fiber reinforced ceramic matrix composites (CMCs) and
refractory chemical vapor deposited (CVD) coatings, transparent ceramics for ballistic armor and optical applications, and magnetron sputtered (PVD) coatings for lubrication,
wear resistance and environmental barrier coatings for CMCs. TA&T also provides a host of services that include 3D printing, PVD-CVD coatings, material processing-CMCs,
CIP, PS, HP, HIP, and material characterization for powders and finished parts-TGA/DSC, PSD. SA, Dilatometry, UV-VIS and FTIR transmission, haze and clarity.
9
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 a 19,000 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. We have signed a 10-year lease at a building near its headquarters in Salt Lake City, Utah to house development and
manufacturing activities for SINTX Armor. TA&T operates out of two facilities in Millersville, MD totaling 15,840 square feet. Subsequent to December 31, 2023 we
entered into an amended lease agreement reducing this area to 13,560 square feet.
● 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.
● 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 goal is to become a leading advanced ceramics company. Key elements of our strategy to achieve this goal are the following:
Our Strategy
● Develop additional commercial opportunities outside of the medical device market. We have pursued the development of non-medical uses for our silicon nitride since
selling the retail spine business in 2018. In 2019, we became ITAR-registered and obtained AS9100D certification of our quality management system. We have hired
experienced business development employees to identify new markets and applications for our materials and develop commercial relationships. We made the first
shipments of non-medical products in our history in 2020, and several of these have transitioned from prototype to regular production orders. The launch of SINTX
Armor will generate revenue from new products. The acquisition of TA&T brings revenue from multiple markets that we have previously not participated in
● Develop new silicon nitride manufacturing technologies. Our current manufacturing process has allowed us to successfully produce spinal implants for over 10 years.
We have made advancements in our processes – including the purchase of new manufacturing equipment – which we have leveraged to develop new porous and
textured implants. In 2021, SINTX purchased new equipment for its research and development team to develop new composite products of silicon nitride with rigid
polymers and fabrics. We have received three NIH grants to develop 3D printed silicon nitride / polymer implantable medical devices.
● Apply our silicon nitride technology platform to new medical opportunities. 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 OEM and
private label partnerships. We see specific opportunities in markets such as foot and ankle, dental, maxillofacial, and arthroplasty.
● Develop new products with anti-pathogenic properties, including inactivation of the SARS-CoV-2 virus, utilizing our silicon nitride technology. We have conducted
multiple tests over the last nine years which have identified and verified the antipathogenic properties of our silicon nitride powders, fully dense components, and
silicon nitride-containing composites. Our research has explored the fundamental mechanisms responsible for these antipathogenic properties with the objective of
developing commercial products and revenue from them. We have several partnerships exploring opportunities in face masks, filters, wound care, and coatings.
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Biomedical
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 approximately 4 years remaining of 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, foot &
ankle, 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.
Technical Ceramics
We believe there is significant potential for us to leverage our experience and operational discipline with silicon nitride spinal implants and enter non-medical markets for
technical ceramics. The excellent mechanical, electrical, and thermal properties of our silicon nitride make it ideal for highly demanding applications in aerospace, welding, and
other industrial applications. Our AS9100D certification and ITAR registration for the silicon nitride factory have allowed us to obtain orders for aerospace components –
initially prototype orders which have now become regular production orders. In January 2024 we announced that we entered into a 10-year, Long-Term Agreement (LTA) with
a leading manufacturer of aerospace components and systems. Under the LTA, we will manufacture and supply key ceramic aircraft engine components which have been
qualified through a rigorous evaluation process. Furthermore, there are few US-based manufacturers of silicon nitride which means there are limited options for those markets
that require domestically produced material.
Since announcing our intent to enter the ceramic armor market in 2021, we have received many inquiries for aircraft, vehicle, and body armor. The war in Ukraine has further
increased the worldwide need for ceramic armor. Our Salt Lake City armor facility will produce boron carbide and boron carbide/silicon carbide composite armor – materials
which are some of the strongest, lightest weight options for ceramic armor. We are developing female-specific torso plates with a partner and expect this market to grow. We
also have early-stage relationships with integrators for body armor and aircraft armor.
The acquisition of TA&T has brought well-established relationships with multiple US government agencies to produce new ceramic materials for leading-edge applications in
aerospace and energy. TA&T has wide ranging manufacturing capabilities for ceramic coatings, 3D printed ceramics, and transparent ceramic armor. These technologies have
been used in over a hundred government research contracts throughout TA&T’s history and are still utilized in the development of novel ceramic-matrix composites. TA&T has
entered into a Cooperative Research and Development Agreement (CRADA) with the U.S. Army Combat Capabilities Development Command Army Research Laboratory
(DEVCOM ARL). This partnership is expected to leverage the strengths of both organizations in the areas of ceramic additive manufacturing (ceramic 3D printing) and ceramic
matrix composites (CMCs). We believe that we can successfully build on TA&T’s legacy, obtain new government contracts, and leverage its wide range of capabilities with
materials and manufacturing technologies to increase revenue from non-government sources.
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. Inclusion of silicon nitride technology into the mask may
enhance personal safety while reducing the risk of disease spread. Further applications for this technology include wound care.
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Intellectual Property
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 to have a competitive advantage, we must continue to develop and maintain the proprietary aspects of our
technologies.
We have fifteen issued U.S. patents, twelve issued foreign patents, fifteen pending U.S. non-provisional patent applications, eighty-one pending foreign applications and one
pending PCT patent application. Our first issued patent expired in 2016, with the last of these patents expiring in 2039.
We have three U.S. patents directed to articulating implants using our high-strength, high toughness doped silicon nitride solid ceramic. These issued patents, which include US
7,666,229; US 9,051,639; and US 9,517,136 will expire in November 2023, September 2032, and March 2034, respectively.
We also have one U.S. patent 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. The issued patent US 9,649,197 will expire in July 2035.
In addition, U.S. Patent No. 10,806,831 directed to antibacterial implants and U.S. Patent No. 11,191,787 directed to antipathogenic devices were recently issued which will
expire in 2037 and 2039, 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 one divisional patent application filed in Europe and two divisional applications filed in Japan 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 to seek patent
protection for our 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 to seek patent protection for our proprietary technologies in those countries.
With respect to PCT application serial no. PCT/US2020/037170 directed to methods of surface functionalization of zirconia-toughened alumina with silicon nitride, we entered
the national stage in Europe, Australia, Brazil, Canada, China, India, Japan, and Mexico to seek patent protection for our proprietary technologies in those countries.
With respect to PCT application serial no. PCT/US2021/014725 directed to antifungal composites and methods thereof, we entered the national stage in Europe, Brazil, Japan,
Australia, Canada, China, India, Mexico, and South Korea to seek patent protection for our proprietary technologies in those countries.
With respect to PCT application serial no. PCT/US2021/027258 directed to antipathogenic face mask, we entered the national stage in Australia, Brazil, Canada, China, Europe,
India, Japan, South Korea, and Mexico to seek patent protection for our proprietary technologies in those countries.
With respect to PCT application serial no. PCT/US2021/027263 directed to systems and methods for rapid inactivation of SARS-CoV2 by silicon nitride, copper, and
aluminum nitride, we entered the national stage in Australia, Brazil, Canada, China, Europe, India, Japan, South Korea, and Mexico to seek patent protection for our proprietary
technologies in those countries.
With respect to PCT application serial no. PCT/US2021/038364 directed to antipathogenic devices and methods thereof for antifungal applications, we entered the national
stage in Australia, Brazil, Canada, China, Europe, India, Japan, South Korea, and Mexico to seek patent protection for our proprietary technologies in those countries.
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With respect to PCT application serial no. PCT/US2021/028975 directed to methods for laser coating of silicon nitride on a metal substrate, we entered the national stage in
Australia, Brazil, Canada, China, Europe, India, Japan, South Korea, and Mexico to seek patent protection for our proprietary technologies in those countries.
With respect to PCT application serial no PCT/US2021/028641 directed to methods of silicon nitride laser cladding, we entered the national stage in Australia, Brazil, Canada,
China, Europe, India, Japan, South Korea, and Mexico to seek patent protection for our proprietary technologies in those countries.
With respect to PCT application serial no. PCT/US2021/027270 directed to antiviral compositions and devices and methods of use thereof, we entered the national stage in
Australia, Brazil, Canada, China, Europe, India, Japan, South Korea, and Mexico to seek patent protection for our proprietary technologies in those countries.
With respect to PCT application serial no. PCT/US2021/056461 directed to systems and methods for selective laser sintering of silicon nitride and metal composites, we entered
the national stage in Australia, Brazil, Canada, China, Europe, India, Japan, South Korea, and Mexico to seek patent protection for our proprietary technologies in those
countries.
With respect to PCT application serial no. PCT/US2021/056452 directed to systems and methods for hot-isostatic pressing to increase nitrogen content in silicon nitride, we
entered the national stage in Australia, Brazil, Canada, China, Europe, India, Japan, South Korea, and Mexico to seek patent protection for our proprietary technologies in those
countries.
With respect to PCT application serial no. PCT/US2021/062650 directed to nitride based antipathogenic compositions and devices and method of use thereof, we entered the
national stage in Australia, Brazil, Canada, China, Europe, India, Japan, South Korea, and Mexico to seek patent protection for our proprietary technologies in those countries.
With respect to PCT application serial no. PCT/US2022/023868 directed to systems and methods for physical vapor deposition silicon nitride coatings having antimicrobial and
osteogenic enhancements, we entered the national stage in Australia, Brazil, Canada, China, Europe, India, Japan, South Korea, and Mexico to seek patent protection for our
proprietary technologies in those countries.
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.
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Our remaining issued patents and pending applications are directed to additional aspects of our products and technologies including, among other things:
● designs for intervertebral fusion devices;
● designs for hip implants;
● designs for coated, variable-density, and thin walled implants;
● designs for knee implants;
● implants with improved antibacterial characteristics;
● implants with improved wear performance and surface functionalization
● antipathogenic, antibacterial, antimicrobial, antifungal, and antiviral compositions, devices, and methods; and
● methods and systems for hot-isostatic pressing laser cladding, laser coating, and laser sintering of silicon nitride.
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 medical device market, which utilize a variety of competitive biomaterials, include: Medtronic, Inc.; DePuy Synthes Companies, a
group of Johnson & Johnson companies; Stryker Corporation; and Zimmer Biomet, 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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Our main competitors in the technical ceramics market segment include CoorsTek, Kyocera, and Saint Gobain.
Our main competitors in the antipathogenic market segment include BactiGuard and MicroBan.
Competition within our industries is primarily based on technology, innovation, product quality, and product awareness and acceptance by customers. 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 products and product candidates non-competitive. Our ability to compete successfully will depend upon our ability to develop innovative
products with advanced performance features.
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;
● 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;
● 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 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, 2024, we had 43 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. We strive toward
having a diverse team of employees and are committed to equality, inclusion and workplace diversity.
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 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, 2023 was $3.3 million. In February
2024 we closed the public offering of $4.0 million of units consisting of shares of common stock, Pre-funded Warrants, Class E Warrants and Class F Warrants, resulting in net
proceeds to us of approximately $3.7 million. We expect our current cash and cash equivalents will be sufficient to fund our operations through the second quarter of 2024. We
will require substantial future capital in order to continue to continue operating our business, conduct the research and development and regulatory clearance and approval
activities necessary to bring our products to market, and 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:
● 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 choose to conduct;
● potential changes in government regulation; and
● the timing and receipt of any regulatory approvals.
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.
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The timing and amount of our future capital requirements will depend on many factors, including:
● 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 will likely 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 will likely 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.
Risks Related to Our Business and Strategy
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, 2023 and 2022 we incurred a net loss of $8.3 million and $12.0 million,
respectively, and used cash in operations of $14.1 million and $10.3 million, respectively. We have an accumulated deficit of $270.7 and $262.5 million as of December 31,
2023 and 2022 respectively. 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 advanced ceramic products for biomedical, industrial, and antipathogenic 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 advanced ceramics company, we must increase market awareness of our silicon nitride interbody spinal fusion products in
conjunction with CTL, and develop and launch new biomedical, industrial, and antipathogenic 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 biomedical 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 largely 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 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. Even if we receive regulatory clearances or approvals for our other product candidates in development, these product candidates may not
gain market acceptance among customers.
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 orthopedic 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 number of orthopedic sales worldwide.
These companies enjoy significant competitive advantages over us, including:
● 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;
● established manufacturing operations and contract manufacturing relationships;
● significantly greater name recognition and widely recognized trademarks; and
● established relationships with healthcare providers and payers.
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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.
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 31,000 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.
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:
● 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;
● 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.
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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 product candidates, 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, in order to be successful, we will need to expand our product lines to include
other advanced ceramic products for both medical and non-medical applications. Therefore, we are developing new manufacturing technologies and new product candidates
including our new ceramic armor products. 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.
We will depend on one or more strategic partners to develop and commercialize our biomedical and antipathogenic 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 strategic partners to develop and commercialize our biomedical and antipathogenic product candidates. We will be reliant on our strategic partners to develop
and commercialize these product candidates, although we have not yet entered into an agreement with any strategic partner to develop products 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 candidates. 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.
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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 spinal 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, 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.”
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 these products and negatively affect our financial performance.
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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.
There is no assurance that federal or state healthcare reform will not also 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.
A pandemic, epidemic or outbreak of an infectious disease in the United States or elsewhere may adversely affect our business.
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.
Prolonged negative economic conditions in domestic and international markets may adversely affect us, our suppliers, partners and consumers, and 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 our target markets, but these demographics and trends are uncertain.
Actual demand for our products could be significantly less than expected if our assumptions regarding these factors prove to be incorrect or do not materialize.
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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 Regulatory Approval of Our Products and Other Government Regulations
Contracting with government entities exposes us to additional risks inherent in the government procurement process.
We provide products and services, directly and indirectly, to a variety of domestic government entities, which introduces certain risks, including extended sales and collection
cycles, varying governmental budgeting processes and adherence to complex procurement regulations and other government-specific contractual requirements. We have been,
are currently and may in the future be subject to audits and investigations relating to our government contracts and any violations could result in various civil and criminal
penalties and administrative sanctions, including termination of contracts, payment of fines and suspension or debarment from future government business, as well as harm to
our reputation and financial results.
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Changes in U.S. government defense spending could negatively impact our financial position, results of operations, liquidity and overall business.
U.S. government sales constitute a portion of our consolidated sales. Our U.S. government revenues largely result from contracts awarded under various U.S. government
programs, primarily defense-related programs with the U.S. Department of Defense (DoD). Changes in U.S. government defense spending for various reasons, including as a
result of potential changes in policy positions or priorities, could negatively impact our results of operations, financial condition and liquidity. Our programs are subject to U.S.
government policies, budget decisions and appropriation processes which are driven by numerous factors including: (1) geopolitical events; (2) macroeconomic conditions; and
(3) the ability of the U.S. government to enact relevant legislation, such as appropriations bills. In recent years, U.S. government appropriations have been affected by larger
U.S. government budgetary issues and related legislation, and the U.S. government has been unable to complete its budget process before the end of its fiscal year, resulting in
both governmental shutdowns and congress providing only enough funds for U.S. government agencies to continue operating at prior-year levels. Further, if the U.S.
government debt ceiling is not raised and the national debt reaches the statutory debt ceiling, the U.S. government could default on its debts. As a result, U.S. government
defense spending levels are subject to a wide range of outcomes and are difficult to predict beyond the near-term due to numerous factors, including the external threat
environment, future governmental priorities and the state of governmental finances. Significant changes in U.S. government defense spending or changes in U.S. government
priorities, policies and requirements could have a material adverse effect on our results of operations, financial condition and liquidity.
We design, manufacture and service products that incorporate advanced technologies; the introduction of new products and technologies involves risks and we may not
realize the degree or timing of benefits initially anticipated; competition may reduce our revenues and segment share and limit our future opportunities.
We seek to achieve growth through the design, development, production, sale and support of innovative commercial products that incorporate advanced technologies. The
product, program and service needs of our customers change and evolve regularly, and we invest substantial amounts in research and development efforts to pursue
advancements in a wide range of technologies, products and services. Our ability to realize the anticipated benefits of our technological advancements depends on a variety of
factors, including meeting development, production, certification and regulatory approval schedules; receiving regulatory approvals; execution of internal and external
performance plans; availability of supplier and internally produced parts and materials; performance of suppliers and subcontractors; availability of supplier and internal facility
capacity to perform maintenance, repair and overhaul services on our products; hiring and training of qualified personnel; achieving cost and production efficiencies;
identification of emerging technological trends for our target end-customers (such as sustainable technologies, as described below); validation of innovative technologies; risks
associated with the development of complex software; the level of customer interest in new technologies and products; and customer acceptance of products we manufacture or
that incorporate technologies we develop. In addition, many of our products must adhere to strict regulatory and market-driven safety and performance standards in a variety of
jurisdictions. The evolving nature of these standards, along with the long duration of development, production and aftermarket support programs, creates uncertainty regarding
program profitability, particularly with our aircraft engine products. Development efforts divert resources from other potential investments in our businesses, and these efforts
may not lead to the development of new technologies or products on a timely basis or meet the needs of our customers as fully as competitive offerings. In addition, the
industries for our products or products that incorporate our technologies may not develop or grow as we anticipate. We or our customers, suppliers or subcontractors may
encounter difficulties in developing and producing new products and services, and may not realize the degree or timing of benefits initially anticipated or may otherwise suffer
significant adverse financial consequences. Due to the design complexity of our products or those of our customers or third party manufacturers that incorporate our products
into theirs or our customers’ products, we may experience delays in completing the development and introduction of new products or we may experience the suspension of
production after these products enter into service due to safety concerns. Delays and/or suspension of production could result in increased development costs or deflect
resources from other projects. We operate in highly competitive industries and our competitors may have more extensive or more specialized engineering, manufacturing,
marketing and servicing capabilities than we do. Our contracts are typically awarded on a competitive basis. Our bids are based upon, among other items, the cost to provide the
products and services. To generate an acceptable return on our investment in these contracts, we must be able to accurately estimate our costs to provide the services and deliver
the products and to be able to complete the contracts in a timely manner. If we fail to accurately estimate our costs or the time required to complete a contract, the profitability
of our contracts may be materially and adversely affected. Furthermore, our competitors, including our customers, may develop competing technologies which gain industry
acceptance in advance of or instead of our products, or meet particular in-demand technological needs before us or with technology that is superior to our existing or new
technologies. For example, the enhanced focus on climate change has increased demand for more environmentally sustainable products and services, as described below. Our
competitors may develop sustainable products or services that are available to our customers before our products or services, or that are adopted more readily than our products
or services. In addition, our competitors or customers might develop new technologies or offerings that might cause our existing technologies and offerings to become obsolete
or otherwise decrease demand for our offerings. In addition, the possibility exists that competitors or customers will develop aftermarket services and aftermarket parts for our
products that attract customers and adversely impact our return on investment on new products. If we are unable to continue to compete successfully against our current or
future competitors in our core businesses, we may experience declines in revenues and industry segment share. Any of the foregoing could have a material adverse effect on our
competitive position, results of operations, financial condition or liquidity.
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Exports and imports of certain of our products are subject to various export control, sanctions and import regulations and may require authorization from regulatory
agencies of the U.S. or other countries.
We must comply with various laws and regulations relating to the export and import of products, services and technology from and into the U.S. and other countries having
jurisdiction over our operations. In the U.S., these laws and regulations include, among others, the EAR administered by the U.S. Department of Commerce, the ITAR
administered by the U.S. Department of State, embargoes and sanctions regulations administered by the U.S. Department of the Treasury, and import regulations administered
by the U.S. Department of Homeland Security and the U.S. Department of Justice. Certain of our products, services and technologies have military or strategic applications and
we are required to obtain licenses and authorizations from the appropriate U.S. government agencies before selling these products outside of the U.S. or importing these
products into the U.S. U.S. foreign policy or foreign policy of other licensing jurisdictions may affect the licensing process or otherwise prevent us from engaging in business
dealings with certain individuals, entities or countries. Any failure by us, our customers or our suppliers to comply with these laws and regulations could result in civil or
criminal penalties, fines, seizure of our products, adverse publicity, restrictions on our ability to export or import our products, or the suspension or debarment from doing
business with the U.S. government. Moreover, any changes in export control, sanctions or import regulations may further restrict the export of our products or services, and the
possibility of such changes requires constant monitoring to ensure we remain compliant. Our ability to obtain required licenses and authorizations on a timely basis or at all is
subject to risks and uncertainties, including changing U.S. government foreign policies or laws, delays in Congressional action, or geopolitical and other factors. If we are not
successful in obtaining or maintaining the necessary licenses or authorizations in a timely manner, our sales relating to those approvals may be prevented or delayed, and
revenue and profit previously recognized may be reversed. Any restrictions on the export or import of our products or product lines could have a material adverse effect on our
competitive position, results of operations, financial condition or liquidity.
As a U.S. government contractor, we are subject to risks relating to U.S. government audits, investigations, and disputes.
We are subject to U.S. government investigations relating to our U.S. government contracts. Such U.S. government investigations often take years to complete and could result
in administrative, civil or criminal liabilities, including repayments, fines, treble and other damages, forfeitures, restitution or penalties, or could lead to suspension or
debarment of U.S. government contracting or of export privileges. For instance, if we or one of our business units were charged with wrongdoing in connection with a U.S.
government investigation (including fraud, or violation of certain environmental or export laws, as further described below), the U.S. government could suspend us from
bidding on or receiving awards of new U.S. government contracts pending the completion of legal proceedings. If convicted or found liable, the U.S. government could fine and
debar us from new U.S. government contracting for a period generally not to exceed three years and could void any contracts found to be tainted by fraud. We also could suffer
reputational harm if allegations of impropriety were made against us, even if such allegations are later determined to be unsubstantiated. Further, our U.S. government contracts
are subject to audit. An adverse outcome of any audit or investigation could result in civil and criminal penalties and fines, which could negatively impact our results of
operations, financial condition and liquidity. In addition, if allegations of impropriety were made against us, we could suffer serious reputational harm, which could negatively
affect our financial position, results of operations and liquidity.
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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 or other medical device 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.
We may 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.
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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:
● 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.
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.
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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:
● the 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;
● 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
● 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.
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Changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results of operations and
financial condition.
We are subject to taxes by the U.S. federal, state, local and foreign tax authorities, and our tax liabilities will be affected by the allocation of expenses to differing jurisdictions.
Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:
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changes in the valuation of our deferred tax assets and liabilities;
expected timing and amount of the release of any tax valuation allowance;
tax effects of equity-based compensation;
changes in tax laws, regulations or interpretations thereof; or
future earnings being lower than anticipated in jurisdictions where we have lower statutory tax rates and higher than anticipated earnings in jurisdictions
where we have higher statutory tax rates.
We may also be subject to audits of our income, sales and other transaction taxes by U.S. federal, state, local and foreign taxing authorities. Outcomes from these audits could
have an adverse effect on our operating results and financial condition.
Proposed legislation in the U.S. Congress, including changes in U.S. tax law, and the recently enacted Inflation Reduction Act of 2022 may adversely impact us and the
value of common shares, pre-funded warrants, and Warrants.
Changes to U.S. tax laws (which changes may have retroactive application) could adversely affect us or holders of common shares, pre-funded warrants and Warrants. In recent
years, many changes to U.S. federal income tax laws have been proposed and made, and additional changes to U.S. federal income tax laws are likely to continue to occur in
the future.
The U.S. Congress is currently considering numerous items of legislation which may be enacted prospectively or with retroactive effect, which legislation could adversely
impact our financial performance and the value of common shares, pre-funded warrants, and Warrants. Additionally, states in which we operate or own assets may impose new
or increased taxes. If enacted, most of the proposals would be effective for the current or later years. The proposed legislation remains subject to change, and its impact on us
and holders of common shares, pre-funded warrants, or Warrants is uncertain.
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In addition, the Inflation Reduction Act of 2022 was recently signed into law and includes provisions that will impact the U.S. federal income taxation of corporations. Among
other items, this legislation includes provisions that will impose a minimum tax on the book income of certain large corporations and an excise tax on certain corporate stock
repurchases that would be imposed on the corporation repurchasing such stock. It is unclear how this legislation will be implemented by the U.S. Department of the Treasury
and we cannot predict how this legislation or any future changes in tax laws might affect us or holders of common shares, pre-funded warrants or Warrants.
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.
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.
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.
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.
36
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.
37
We have no patent protection covering the composition of matter for our solid silicon nitride or for all of the components of the process we use for manufacturing our
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.
38
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.
Some of our employees were previously employed at other medical device or ceramic 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 advanced ceramic 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.
39
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.
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 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.
40
We may not be able to maintain our listing on the NASDAQ Capital Market, which would adversely affect the price and liquidity of our common stock.
As a small capitalization company, the price of our common shares has been, and is likely to continue to be, highly volatile. Any announcements concerning us or our
competitors, quarterly variations in operating results, introduction of new products, delays in the introduction of new products or changes in product pricing policies by us or
our competitors, acquisition or loss of significant customers, partners and suppliers, changes in earnings estimates or our ratings by analysts, regulatory developments, or
fluctuations in the economy or general market conditions, among other factors, could cause the market price of our common shares to fluctuate substantially. There can be no
assurance that the market price of our common shares will not decline below its current price or that it will not experience significant fluctuations in the future, including
fluctuations that are unrelated to our performance.
Currently our common stock is quoted on the NASDAQ Capital Market under the symbol “SINT”. We must satisfy certain minimum listing maintenance requirements to
maintain the NASDAQ Capital Market quotation, including certain governance requirements and a series of financial tests relating to stockholders’ equity or net income or
market value, public float, number of market makers and stockholder, market capitalization, and maintaining a minimum bid price of $1.00 per share.
On October 20, 2023, we received a notice from the Listing Qualifications Department of The NASDAQ Stock Market stating that the bid price of our common stock for the
previous 30 consecutive trading days had closed below the minimum $1.00 per share required for continued listing on The NASDAQ Capital Market under NASDAQ Listing
Rule 5550(a)(2). We had a period of 180 calendar days, or until April 17, 2024, to regain compliance with the rule.
If the Company does not regain compliance with Rule 5550(a)(2) by April 17, 2024, the Company may be eligible for additional time. To qualify, the Company will be required
to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the
bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if
necessary. If the Company meets these requirements, the Staff will inform the Company that it has been granted an additional 180 calendar days. However, if it appears to Staff
that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, the Staff will provide notice that its securities will be subject to delisting.
We intend to actively monitor our bid price and will consider available options to resolve the deficiency and regain compliance with the Nasdaq Listing Rules, including
considering whether to conduct a reverse stock split.
If Nasdaq delists our common stock from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities
could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:
● a limited availability of market quotations for our securities;
● reduced liquidity for our securities;
● a determination that our common stock is a “penny stock” which will require brokers trading
in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading
activity in the secondary trading market for our securities;
● a limited amount of news and analyst coverage; and
● a decreased ability to issue additional securities or obtain additional financing in the future.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 1C. CYBERSECURITY
Risk Management and Strategy
We regularly assess risks from cybersecurity threats, monitor our information systems for potential vulnerabilities, and test those systems pursuant to our cybersecurity policies,
processes, and practices, which are integrated into our overall risk management program. To protect our information systems from cybersecurity threats, we use various security
tools that are designed to help identify, escalate, investigate, resolve, and recover from security incidents in a timely manner. Our board of directors assesses risks based on
probability and potential impact to key business systems and processes as part of our overall risk management program overseen by the board of directors. Risks that are
considered high are incorporated into our overall risk management program. We collaborate with third parties to assess the effectiveness of our cybersecurity prevention and
response systems and processes and to assist in the identification, verification, and validation of cybersecurity risks, as well as to support associated mitigation plans when
necessary. We have also developed a third-party cybersecurity risk management process to conduct due diligence on external entities, including those that perform cybersecurity
services. Cybersecurity threats, including those resulting from any previous cybersecurity incidents, have not materially affected our Company, including our business strategy,
results of operations, or financial condition. Refer to the risk factor captioned “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.” in Part I, Item 1A. “Risk Factors” for additional details regarding
cybersecurity risks and potential impacts on our business.
Governance
Our board of directors oversees our risk management process, including as it pertains to cybersecurity risks, which focuses on the most significant risks we face in the short-,
intermediate-, and long-term timeframe. Management is responsible for the operational oversight of company-wide cybersecurity strategy, policy, and standards across relevant
departments to assess and help prepare us to address cybersecurity risks. Meetings of our board of directors include discussions and presentations from management regarding
specific risk areas throughout the year, including, among others, those relating to cybersecurity threats, and reports from management on our enterprise risk profile on an annual
basis. The board of directors reviews our cybersecurity risk profile with management on a periodic basis using key performance and/or risk indicators. These key performance
indicators are metrics and measurements designed to assess the effectiveness of our cybersecurity program in the prevention, detection, mitigation, and remediation of
cybersecurity incidents. We take a risk-based approach to cybersecurity and have implemented cybersecurity policies throughout our operations that are designed to address
cybersecurity threats and incidents.
ITEM 2.
PROPERTIES
Our 30,764 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 also lease a 10,936 square foot facility located in Salt Lake City, Utah. This facility houses our Armor business. We occupy this facility pursuant to a lease that expires in
October 2031.
In connection with operation of Maryland based subsidiary Technology Assessments and Transfer, Inc., we have entered into various leases from which we conduct research,
development and manufacturing activities. The leases have various expiration dates ranging from July 2023 through April 2025.
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.
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY
PART II
SECURITIES
Market Information
Our shares of common stock are currently quoted on The NASDAQ Capital Market under the symbol “SINT”.
Holders of Record
As of December 31, 2023, we had approximately 159 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.
RESERVED
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.
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Overview
SINTX Technologies is an advanced ceramics company formed in December 1996, focused on providing solutions in a variety of biomedical, technical, and antipathogenic
applications. We have grown from focusing primarily on the research, development and commercialization of medical devices manufactured with silicon nitride to becoming an
advanced ceramics company engaged in diverse fields, including biomedical, technical and antipathogenic applications. This diversification enables us to focus on our core
competencies which are the manufacturing, research, and development of products comprised from advanced ceramic materials for external partners. We seek to connect with
new customers, partners and manufacturers to help them realize the goal of leveraging our expertise in advanced ceramics to create new, innovative products across these
sectors.
SINTX Core Business
Biomedical Applications: Since its inception, SINTX has been focused on medical grade silicon nitride. SINTX biomedical products have been shown to be biocompatible,
bioactive, antipathogenic, and to have superb bone affinity. Spinal implants made from SINTX silicon nitride have been successfully implanted in humans since 2008 in the US,
Europe, Brazil, and Taiwan. This established use, along with its inherent resistance to bacterial adhesion and bone affinity suggests that it may also be suitable in other fusion
device applications such as arthroplasty implants, foot wedges, and dental implants. Bacterial infection of any biomaterial implants is always a concern. SINTX silicon nitride
has been shown to be resistant to bacterial colonization and biofilm formation, making it antibacterial. SINTX silicon nitride products can be polished to a smooth and wear-
resistant surface for articulating applications, such as bearings for hip and knee replacements.
We believe that silicon nitride has a superb combination of properties that make it 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, 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.
In June 2022, we acquired Technology Assessment and Transfer, Inc. (TA&T), a nearly 40-year-old business with a mission to transition advanced materials and process
technologies from a laboratory environment to commercial products and services. TA&T has supplied ceramics for use in several biomedical applications. These products were
made via 3D printing and include components for surgical instruments as well as conceptual and prototype dental implants.
Technical Applications: It is our belief that our silicon nitride has the best combination of mechanical, thermal, and electrical properties of any technical ceramic material. It is
a high-performance technical ceramic with high strength, toughness, and hardness, and is extremely resistant to thermal shock and impact. It is also an electrically insulating
ceramic material. Typically, it is used in applications where high load-bearing capacity, thermal stability, and wear resistance are required. We have obtained AS9100D
certification and ITAR registration to facilitate entry into the aerospace and protective armor markets.
We entered the ceramic armor market through the purchase of assets from B4C, LLC and a technology partnership with Precision Ceramics USA. We will develop and
manufacture high-performance ceramics for personnel, aircraft, and vehicle armor including a 100% Boron Carbide material for ultimate lightweight performance in ballistic
applications, and a composite material made of Boron Carbide and Silicon Carbide for exceptional multi-hit performance against ballistic threats. We have signed a 10-year
lease at a building near our headquarters in Salt Lake City, Utah to house development and manufacturing activities for SINTX Armor.
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TA&T’s primary area of expertise is material processing and fabrication know-how for a broad spectrum of monolithic ceramic, ceramic composite, and coating materials.
Primary technologies include Additive Manufacturing (3D Printing) of ceramics and metals, low-cost fabrication of fiber reinforced ceramic matrix composites (CMCs) and
refractory chemical vapor deposited (CVD) coatings, transparent ceramics for ballistic armor and optical applications, and magnetron sputtered (PVD) coatings for lubrication,
wear resistance and environmental barrier coatings for CMCs. TA&T also provides a host of services that include 3D printing, PVD-CVD coatings, material processing-CMCs,
CIP, PS, HP, HIP, and material characterization for powders and finished parts-TGA/DSC, PSD. SA, Dilatometry, UV-VIS and FTIR transmission, haze and clarity.
Antipathogenic Applications: Today, there is a global need to improve protection against pathogens in everyday life. SINTX believes that by incorporating its unique
composition of silicon nitride antipathogenic powder into products such as face masks, filters, and wound care devices, it is possible to manufacture surfaces that inactivate
pathogens, thereby limiting the spread of infection and disease. The discovery in 2020 that SINTX silicon nitride inactivates SARS-CoV-2, the virus which causes the disease
COVID-19, has opened new markets and applications for our material.
We presently manufacture advanced ceramic powders and components in our manufacturing facilities based in Salt Lake City, Utah and Millersville, Maryland.
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.
Revenue
Our product revenue is derived from the manufacture and sale of products. These revenue sources include coatings, components for aerospace and medical device markets, toll
processing services, and government contracts and grants. 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 we secure opportunities to manufacture third party products with silicon nitride, launch and generate revenue from our ceramic
armor products, and as we continue to introduce new products into the market.
We derive grant and contract revenue from awards provided by governmental agencies.
Cost of Revenue
The expenses that are included in cost of revenue include all in-house manufacturing costs for the products we manufacture.
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Gross Profit
Our gross profit measures our product revenue relative to our cost of revenue.
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 medical devices, industrial and ceramic armor products, product candidates for
antipathogenic 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, 2023 Compared to the Year Ended December 31, 2022
The following table sets forth, for the periods indicated, our results of operations for the years ended December 31, 2023 and 2022 (dollars, in thousands):
Year Ended December 31,
2023
2022
$ Change
% Change
Product revenue
Grant and contract revenue
Total revenue
Costs of revenue
Gross profit
Operating expenses:
Research and development
General and administrative
Sales and marketing
Grant and contract expense
Total operating expenses
Loss from operations
Other income (expense), net
Net loss before income taxes
Provision for income taxes
Net loss
$
$
$
$
1,226
1,401
2,627
784
1,843
8,713
4,222
1,137
1,129
15,201
(13,358)
5,099
(8,259)
-
(8,259)
46
601
960
1,561
265
1,296
6,450
3,990
1,336
855
12,631
(11,335)
(704)
(12,039)
-
(12,039)
$
$
625
441
1,066
519
547
2,263
232
(199)
274
2,570
(2,023)
5,803
3,780
-
3,780
104%
46%
68%
196%
42%
35%
6%
-15%
32%
20%
18%
824%
-31%
-%
-31%
Product Revenue
Total product revenue increased $0.6 million, or 104%, as compared to the same period in 2022. During the year ended December 31, 2023, the Company grant and contract
revenue increased $0.4 million as compared to the same period in 2022.
Costs of Revenue and Gross Profit
Cost of revenue increased $0.5 million, or 196% as compared to the same period in 2022. This increase was primarily attributable to an increase in product revenue and a shift
in customer base and product mix. Gross profit increased $0.5 million, or 42%, as compared to the same period in 2022. This increase was primarily attributed to an increase in
grant and contract revenue and a shift in product mix to more profitable products.
Research and Development Expenses
Research and development expenses increased $2.3 million, or 35%, as compared to the same period in 2022. This increase was primarily attributable to an increase in patent
expenses, employee wages, product prototypes, and costs of operations associated with opening the SINTX Armor facility and the acquisition of TA&T.
General and Administrative Expenses
General and administrative expenses increased $0.2 million, or 6%, as compared to the same period in 2022. This increase is primarily due to an increase in costs for investor
relations, employee wages, and employee recruitment costs.
Sales and Marketing Expenses
Sales and marketing expenses decreased $0.2 million, or -15%, as compared to the same period in 2022. This decrease was primarily attributable to a reduction in employee
wages and an overall decrease in costs for outside consulting.
Grant and Contract Expenses
Grant and contract expenses increased $0.2 million, or 32%, as compared to the same period in 2022. This increase was primarily attributable to a general increase in grant and
contract revenue when compared to the prior year.
Other Income (Expense), Net
Other income (expenses) increased $5.8 million, or 824%, as compared to the same period in 2022. This increase was primarily due to the change in the fair value of the
derivative liabilities in the amount of $6.8 million, and a $0.1 million increase in other income offset by a $0.8 million in offering costs on derivative liabilities and a $0.3
million decrease in other income.
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, 2023 and 2022, the Company incurred a net loss of $8.3 million and $12.0 million, respectively, and used cash in operations of $14.1 million
and $10.3 million, respectively. The Company had an accumulated deficit of $270.7 million and $262.5 million as of December 31, 2023 and 2022, respectively.
47
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. 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 2, 2024, the Company closed on a public offering of 16,000,000 units, with each unit consisting of one share of its common stock, or one pre-funded warrant to
purchase one share of its common stock, one Class E Warrant with each warrant to purchase one share of common stock, and one Class F Warrant with each warrant to
purchase one share of common stock. Each unit was sold at a public offering price of $0.25. The Class E and Class F Warrants in the units are immediately exercisable at a
price of $0.25 per share. The Class E Warrants will expire five years from the date of issuance and the Class F Warrants will expire eighteen months from the date of issuance.
Gross proceeds, before deducting placement agent fees and other offering expenses, are approximately $4.0 million.
On February 10, 2023, the Company closed on a public offering of 2,150,000 units, with each unit consisting of one share of common stock, or one pre-funded warrant to
purchase one share of its common stock, one Class C Warrant to purchase one share of common stock, and one half of one Class D Warrant with each whole Class D Warrant
entitling the holder to purchase one share of common stock. Gross proceeds, before deducting offering expenses, totaled approximately $12.0 million. Of the $12.0 million of
gross proceeds, approximately $5.4 million were allocated to common stock and prefunded warrants ($4.8 million net of offering costs) and approximately $6.7 million were
allocated to derivative liabilities (with approximately $0.7 million of cash offering costs and $0.1 million of agent warrant offering costs recorded as derivative expense).
On October 17, 2022, the Company completed a rights offering of units consisting of convertible preferred stock and common stock warrants, resulting in gross proceeds to the
Company of approximately $4.7 million, after deducting expenses relating to the offering, including dealer-manager fees and expenses,
On February 25, 2021, the Company entered into an Equity Distribution Agreement with Maxim Group LLC (“Maxim”), which was subsequently amended on October 12,
2023 (as amended, the “2021 Distribution Agreement”), pursuant to which the Company may sell from time to time, shares of the Company’s common stock having an
aggregate offering price of up to $1.1 million through Maxim, as agent. Subject to the terms and conditions of the 2021 Distribution Agreement, as amended, Maxim will use
its commercially reasonable efforts to sell the shares from time to time, based on our instructions. Under the 2021 Distribution Agreement, Maxim may sell the Shares by any
method permitted by law deemed to be an “at-the-market” offering (the “ATM”) as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the
“Securities Act”), including, without limitation, sales made directly on the Nasdaq Capital Market. We have no obligation to sell any shares under the ATM and may at any time
suspend offers under the 2021 Distribution Agreement. The Offering will terminate upon the earlier of (i) the sale of shares having an aggregate offering price of $15.0 million,
(ii) the termination by either Maxim or the Company upon the provision of fifteen (15) days written notice, or (iii) February 25, 2025. Under the terms of the 2021 Distribution
Agreement, Maxim will be entitled to a transaction fee at a fixed rate of 2.0% of the gross sales price of Shares sold under the 2021 Distribution Agreement. The Company will
also reimburse Maxim for certain expenses incurred in connection with the 2021 Distribution Agreement and agreed to provide indemnification and contribution to Maxim with
respect to certain liabilities under the Securities Act and the Securities Exchange Act of 1934, as amended. As of March 1, 2024, there have been 1,317,749 shares of common
stock sold under the 2021 Distribution Agreement for gross proceeds of $0.5 million. Subsequent to December 31, 2023 there have been 1,154,200 shares of common stock
sold under the 2021 Distribution for gross proceeds of $0.5 million. In connection with the February 2024 offering, the Company agreed to not make any sales of securities
under the ATM for a period of six months from the date of closing the offering, February 2, 2024, until August 2, 2024.
48
These uncertainties raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
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 used in investing activities
Net cash provided by financing activities
Net cash provided (used)
Net Cash Used in Operating Activities
Year Ended December 31,
2023
2022
$
$
(14,115)
(501)
11,711
(2,905)
$
$
(10,263)
(1,101)
3,336
(8,028)
Net cash used in operating activities was $14.1 million in 2023, compared to $10.3 million used in 2022, an increase of $3.8 million. The increase in the net loss from
operations, and related non-cash add backs to the net loss, was $2.3 million from 2023 when compared to 2022. The increase in cash used for operating activities during 2023
was primarily due to the $2.3 million mentioned above plus changes in the movement of working capital items during 2023 as compared to the same period in 2022 as follows:
a $0.4 million increase in cash used in accounts receivable, a $0.3 million increase for inventory, a $0.3 million increase in cash used for prepaids, a $0.2 million increase in
cash used in other liabilities, a $0.2 million increase in cash used in accounts payable and accrued liabilities, and a $0.1 million increase in cash used for payments on operating
lease liability.
Net Cash Used in Investing Activities
Net cash used in investing activities was $0.5 million during 2023, compared to $1.1 million used in investing activities during the same period in 2022, a decrease of $0.6
million. The decrease in cash used in investing activities during 2023 was primarily due to a $0.9 million purchase of property and equipment, offset by and a $0.3 million
increase in cash acquired in acquisition in the prior year.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $11.7 million during 2023, compared to $3.3 million provided by financing activities during the same period in 2022, an increase
of $8.4 million. This increase was primarily attributable to an increase in proceeds from issuance of common stock of $5.1 million, an increase in proceeds from issuance of
warrant derivative liabilities of $2.8 million, and a $0.5 million decrease in the payment on debt.
Indebtedness
Business Loan
On July 20, 2021, TA&T, entered into a Loan Authorization and Agreement in the amount of approximately $350,000 (the “Business Loan”). The Company made a one-time
$35,000 buy down payment when acquiring the loan. The Business Loan bore interest at a rate of 3.75% per annum. The Business Loan was secured by a general security
interest in all of the assets of TA&T. The Business Loan contained other standard provisions that are customary of loans of this type. The business loan was paid in full during
the first quarter of 2023 and there was no outstanding balance at December 31, 2023.
49
Related Party Debt
TA&T is obligated to repay certain personal loans made by the founders of TA&T to TA&T prior to SINTX’s acquisition of TA&T (the “Personal Loans”). The total amount of
the Personal Loans at September 30, 2022 was approximately $350,000. The Company agreed to repay the outstanding balance of the Personal Loans in (i) 24 equal monthly
installments beginning September 1, 2022 and each month thereafter until paid in full as one prior owner’s portion of the Personal Loans totaling $157,000, and (ii) for the
other owner’s portion of the Personal Loans totaling $193,000. As of December 31, 2023, the related party debt had an outstanding balance of $46,000. The outstanding balance
is being paid in monthly installments ending August 1, 2024. The related party debt is not collateralized and has no interest rate.
Wells Fargo Line of Credit
Prior to SINTX’s acquisition of TA&T, TA&T entered into a revolving line of credit with Wells Fargo. As of December 31, 2023, the line of credit with Wells Fargo had no
outstanding balance and the account has been closed.
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
We have not entered into any transactions since January 1, 2021 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.
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.
Seasonality and Backlog
Our business is generally not seasonal in nature. The majority of our product revenue is derived from the manufacture and sale of spinal fusion products, used in the treatment
of spine disorders, to CTL Medical. We also retained CTL Medical to act as our exclusive broker to offer for sale, and sell, our manufacturing services to third party developers
of spinal implants and spinal devices that incorporate silicon nitride technology, which has a remaining term of 5-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, 2023. There have been no material changes to
those policies for the year ended December 31, 2023. 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.
50
New Accounting Pronouncement, Not Yet Adopted
The Company has reviewed all recently issued, but not yet adopted, accounting standards, in order to determine their effects, if any, on its results of operations, financial
position or cash flows. Based on that review, the Company believes that no other pronouncements will have a significant effect on its financial statements upon adoption.
Revenue Recognition
The Company derives its product revenue primarily from the sale of aerospace components and 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, 7 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.
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 Credit Losses Doubtful Accounts
Financial assets, which potentially subject the Company to credit losses, consist primarily of receivables. We measure expected credit losses of financial assets based on
historical loss and other information available to management using type of receivable (commercial, grants or contracts, retainage, or other) and different aging categories (less
than 90 days past due, over 90 days past due, over 180 days past due, and financially troubled customers). These expected credit losses are recorded to an allowance for credit
losses valuation account that is deducted from receivables to present the net amount expected to be collected on the financial asset on the consolidated balance sheet.
Management believes that the historical loss information it has compiled is a reasonable basis on which to determine expected credit losses for trade receivables held as of
December 31, 2023, because the composition of the trade receivables as of that date is consistent with that used in developing the historical credit-loss percentages (i.e., the
similar risk characteristics of its customers and its lending practices have not changed significantly over time).
51
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 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, 2023. As explained above, the Company sold most intangible assets that had a carrying value, 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.
52
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, 2023 and 2022, 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.
53
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, 2023. Based on this evaluation, the Chief Executive Officer concluded that our disclosure controls and procedures were effective as of December 31, 2023,
the end of the period covered by this Annual Report on Form 10-K.
54
(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, 2023. 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, 2023, the Company’s internal control over financial reporting was effective.
There were no changes in our internal control over financial reporting that occurred during 2023 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
During the three months ended December 31, 2023, none of our directors or officers adopted or terminated a “Rule 10-b5-1 trading arrangement” or “non-Rule 10-b5-1 trading
arrangement” as each term is identified in Item 408 of Regulation S-K.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
None.
55
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
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
61
67
70
53
63
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:
Class III Directors— continuing directors with a term expiring at the 2026 annual meeting of stockholder.
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 was 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.
56
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 2025 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, Paranet, LLC, an IT services provider and ScholarPath, Inc. an educational software platform.
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 Director — continuing director with a term expiring at the 2024 annual meeting of stockholders.
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.
57
Executive Officers
Our current executive officers and their respective ages and positions are as follows:
Name
B. Sonny Bal, M.D.
David O’Brien
Age
61
59
Position
Chairman of the Board of Directors, President and Chief Executive Officer, Principal Financial Officer
Executive Vice President and 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 was 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.
David O’Brien has served as our Executive Vice President and 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.
58
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 seven (7) times
during the year ended December 31, 2023. 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 2023.
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 2024.
● The Class II directors are David W. Truetzel and Eric A. Stookey, and their terms will expire at the 2025 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 2026.
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.
59
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
2023, 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.
60
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 2023, 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 2023, 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;
●
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.
61
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 2023 and 2022 fiscal years.
Name and Principal Position
B. Sonny Bal
Chief Executive Officer
David O’Brien
Chief Operating Officer
Year
2023
2022
Salary
$ 412,692
$ 400,000
Bonus
$ 36,750
$ 31,500
Non-Equity
Incentive Plan
Compensation
-
$
-
$
Stock
Awards
$ 14,772
7,616
$
Option
Awards
$ 61,367
$ 62,207
All Other
Comp (1)
$ 11,730
$ 10,462
Total
Compensation
537,312
$
511,784
$
2023
2022
367,308
300,710
23,681
20,300
-
-
9,405
15,677
41,735
44,179
11,474
11,037
453,602
391,903
(1) Amount reflects matching of 401(k) contributions paid by us, unless otherwise noted.
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. The Board, on an annual basis, adopts an executive bonus payment plan that is
designed to provide executive officers with annual incentive compensation based on the achievement of certain pre-established performance objectives. By utilizing a
combination of objective and subjective performance factors critical to our success, this program incentivizes our executive officers to achieve results that benefit them and the
Company. Performance factors include the achievement of predetermined financial performance objectives, adherence to financial discipline measures and achievement of
business development, product development and long-term business stability. The Board may modify or re-weight the objectives during the course of the fiscal year, if
necessary, to reflect changes in our business plan.
62
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, 2023:
Name
Sonny Bal
David O’Brien
Number of Securities Underlying Unexercised
Options (#)(1)
Exercisable
Unexercisable
Option Exercise
Price
Option Expiration
Date
Number of
Restricted Stock
Units that have not
vested
Market value of
shares or units of
stock that have not
vested ($)
500
683
458
-
500
455
305
-
$
-(2)
67(3)
292(4)
-
-(5)
45(6)
195(7)
-
47.00
193.00
49.00
-
47.00
193.00
49.00
-
4/21/2030
3/2/2031
1/26/2032
4/21/2030
3/2/2031
1/26/2032
$
-
6
84
5,362
-
-
4
54
3,455
-
2
32
2,045
-
-
1
20
1,318
(1) The options have not been, and may never be, exercised, and actual gains, if any, on exercise will depend on the value of the shares of common stock on the date of
exercise.
(2) 28% of the stock option vests on the one-year anniversary of the date of the grant and 3% per month thereafter.
(3) 28% of the stock option vests on the one-year anniversary of the date of the grant and 3% per month thereafter.
(4) 28% of the stock option vests on the one-year anniversary of the date of the grant and 3% per month thereafter.
(5) 28% of the stock option vests on the one-year anniversary of the date of the grant and 3% per month thereafter.
(6) 28% of the stock option vests on the one-year anniversary of the date of the grant and 3% per month thereafter.
(7) 28% of the stock option vests on the one-year anniversary of the date of the grant and 3% per month thereafter.
401(k) Plan
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.
63
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.
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.
64
Board Compensation
The following table shows the total compensation paid or accrued during the fiscal year ended December 31, 2023 to each of our non-employee directors.
Name
David W. Truetzel (1)
Jeffrey S. White (2)
Eric A. Stookey (3)
Mark Froimson (4)
Fees Earned or
Paid in Cash
($)
$
$
120,780
40,000
40,000
40,000
Stock Awards
($)
Option Awards
($)(5)
Total
($)
$
-
-
-
-
$
3,427
3,427
3,427
3,180
124,207
43,427
43,427
43,180
(1)
(2)
(3)
(4)
(5)
As of December 31, 2023 Mr. Truetzel had 900 option awards outstanding.
As of December 31, 2023 Mr. White had 900 option awards outstanding.
As of December 31, 2023 Mr. Stookey had 900 option awards outstanding.
As of December 31, 2023 Mr. Froimson had 850 option awards outstanding.
The amounts in this column do not reflect compensation actually received by our non-employee directors nor do they reflect the actual value that will be
recognized by the non-employee directors. Instead, the amounts reflect the aggregate grant date fair value computed in accordance with Accounting Standards
Codification (“ASC”) 718 of awards of stock options made to non-employee directors for the fiscal year ended December 31, 2023 but excludes an estimate
for forfeitures. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model.
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 12 equal monthly installments of $3,333 each;
● $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 400 stock options upon appointment. Further, each non-employee member of the Board is awarded an option grant for 150 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, 2023 relating to all of our equity compensation plans:
Equity Compensation Plan Information
(a) Number of
Securities
to be Issued upon
Exercise of
Outstanding
Options, Warrants
and Rights
(b) Weighted-
average
Exercise
Price of
Outstanding
Options, Warrants
and Rights
(c) Number of
Securities
Remaining Available
for Future Issuance
under
Equity
Compensation
Plans (Excluding
Securities
Referenced
in Column (a))
27,515(1)
-
27,515(1)
$
$
113.54(2)
-
113.54(2)
6,268
-
6,268
Plan Category
Equity compensation plans approved by stockholders
Equity compensation plans not approved by Stockholders
Total
(1) Includes options outstanding under our 2020 Equity Incentive Plan.
(2) Represents weighted-average exercise price per share of common stock acquirable upon exercise of outstanding stock options.
65
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 19,025 shares of common stock, which includes 25 shares that have been rolled
over from our 2012 Plan. In addition, 4 shares that were subject to outstanding awards under our 2012 Plan were forfeited or reacquired by the Company due to termination or
cancellation of the awards and are now part of the total number of shares of common stock 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 is to be administered by the Committee, or in the board of director’s sole discretion, 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.
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.
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.
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.
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.
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.
66
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, 2024 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, 2024, 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 22,400,130 shares issued and outstanding on
March 1, 2024.
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.
67
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)
David O’Brien (5)
Mark Froimson, M.D. (6)
All executive officers and directors as a group (6 persons)
Shares Beneficially Owned
Number
Percentage
3,578
900
900
900
4,001
850
11,129
*
*
*
*
*
*
*
*
Indicates ownership of less than 1% of the outstanding shares of the Company’s common stock.
(1) Represents 131 shares of Common Stock, restricted stock units exercisable into 10 shares of Common Stock within 60 days of March 1, 2024, and options to purchase
3,438 shares of Common Stock that are currently exercisable within 60 days of March 1, 2024.
(2) Represents options to purchase 900 shares of Common Stock that are currently exercisable within 60 days of March 1, 2024.
(3) Represents options to purchase 900 shares of Common Stock that are currently exercisable within 60 days of March 1, 2024.
(4) Represents options to purchase 900 shares of Common Stock that are currently exercisable within 60 days of March 1, 2024.
(5) Represents 643 shares of Common Stock, restricted stock units exercisable into 6 shares of Common Stock within 60 days of March 1, 2024, and options to purchase 3,351
shares of Common Stock that are currently exercisable within 60 days of March 1, 2024
(6) Represents options to purchase 850 shares of Common Stock that are currently exercisable within 60 days of March 1, 2024.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
We have not entered into any transactions since January 1, 2023 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.
68
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 ACCOUNTANT FEES AND SERVICES
The aggregate fees and expenses incurred from our principal accounting firm, Tanner LLC, for fiscal years ended December 31, 2023 and 2022, were as follows (in thousands):
Audit fees
Audit related fees
Total Fees
Year Ended
December 31 , 2023
Year Ended
December 31, 2022
$
$
209,666
150,253
359,919
$
$
160,620
70,953
231,573
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.
69
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 (i.e.
consents and comfort letters associated with offerings) and are not reported under “Audit Fees”.
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 AND 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, 2023 and 2022
Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2023 and 2022
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022
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.
70
(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
2.1
2.2+†
2.3†
3.1
3.1.1
3.1.2
Exhibit Description
Filed with
this
Report
Incorporated by
Reference herein from
Form or Schedule
Filing Date
SEC File/Reg.
Number
Asset Purchase Agreement by and among Amedica Corporation, CTL
Corporation and US Spine Inc. dated as of September 5, 2018
Asset Purchase Agreement by and among SINTX Technologies, Inc.
and B4C, LLC, dated July 20, 2021.
Form 8-K (Exhibit 2.1)
10/5/18
001-33624
Form 8-K (Exhibit 2.1)
7/26/21
001-33624
Stock Purchase Agreement
Form 8-K (Exhibit 2.1)
7/6/22
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
3.1.3
Certificate of Designation of Series B Preferred Stock
Form 8-K (Exhibit 3.1)
5/15/18
001-33624
3.1.4
Certificate of Amendment to the Restated Certificate of Incorporation
Form 8-K (Exhibit 3.1)
11/02/18
001-33624
3.1.5
Certificate of Amendment to the Restated Certificate of Incorporation
of SINTX Technologies, Inc.
Form 8-K (Exhibit 3.1)
7/26/19
001-33624
3.1.6
Certificate of Designation of Series C Preferred Stock
Form 8-K (Exhibit 3.1)
2/07/20
001-33624
3.1.7
Certificate of Designation of Series D Preferred Stock
Form 8-K (Exhibit 3.1)
10/17/22
001-33624
3.1.8
Certificate of Designation of Series E Preferred Stock
Form 8-K (Exhibit 3.1)
10/28/22
001-33624
3.1.9
3.2
4.1
Certificate of Amendment to the Restated Certificate of Incorporation
of Sintx Technologies, Inc.
Form 8-K (Exhibit 3.1)
12/19/22
001-33624
Amended and Restated Bylaws of SINTX Technologies, Inc.
Form 8-K (Exhibit 3.1)
10/01/21
001-33624
Form of Common Stock Certificate of the Registrant
Amendment No. 3 to Form S-1
(Exhibit 4.1)
1/29/14
333-192232
71
Exhibit
Number
Exhibit Description
Filed with
this
Report
Incorporated by
Reference herein from
Form or Schedule
Filing Date
SEC File/Reg.
Number
4.2
4.3
4.4
4.5
4.6
4.7
Form of Common Stock Warrant
Form S-1/A
1/15/20
333-234438
Form of Warrant Agency Agreement between Amedica Corporation
and American Stock Transfer and Trust Company, LLC, dated
February 6, 2020
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,
Form 8-K (Exhibit 4.2)
2/07/20
001-33624
2020
Form of Indenture
Form S-3 (Exhibit 4.2)
3/25/19
333-230492
Dealer Manager Warrants issued to Maxim Group LLC on October
Form 8-K (Exhibit 4.1)
10/17/22
001-33624
17, 2022
4.8
Dealer Manager Warrants issued to Ascendiant Capital Markets, LLC
Form 8-K (Exhibit 4.2)
10/17/22
001-33624
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
4.23
10.1
10.2
10.3
10.4
on October 17, 2022
Form of Class A Warrant
Form of Class B Warrant
Form of Class C Warrant
Form of Pre-Funded Warrant
Form of Class D Warrant
Form of Placement Agent Warrant
Warrant Agency Agreement
Form of Pre-Funded Warrant
Form of Class E Warrant
Form of Class F Warrant
Form of Placement Agent Warrant
Form of Warrant Agency Agreement
Form of Senior Indenture, to be entered into between the Registrant
and the trustee designated therein
Form of Subordinated Indenture, to be entered into between the
Registrant and the trustee designated therein
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
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 8-K (Exhibit 4.3)
10/17/22
001-33624
Form 8-K (Exhibit 4.4)
10/17/22
001-33624
Form S-1 (Exhibit 4.13)
Form S-1 (Exhibit 4.14)
Form S-1 (Exhibit 4.15)
Form S-1 (Exhibit 4.16)
Form 8-K (Exhibit 4.5)
Form 8-K (Exhibit 4.1)
Form 8-K (Exhibit 4.2)
Form 8-K (Exhibit 4.3)
Form 8-K (Exhibit 4.4)
Form 8-K (Exhibit 4.5)
2/7/23
2/6/23
2/7/23
2/6/23
2/9/23
2/2/24
2/2/24
2/2/24
2/2/24
2/2/24
333-269475
333-269475
333-269475
333-269475
001-33624
001-33624
001-33624
001-33624
001-33624
001-33624
Form S-3 (Exhibit 4.14)
10/12/23
333-274951
Form S-3 (Exhibit 4.16)
10/12/23
333-274951
Form S-1 (Exhibit 10.10)
11/8/13
333-192232
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
72
Exhibit
Number
Exhibit Description
Filed with
this
Report
Incorporated by
Reference herein from
Form or Schedule
Filing Date
SEC File/Reg.
Number
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
Exchange Agreement dated April 4, 2016, by and among SINTX
Corporation and Riverside Merchant Partners, LLC
Form 8-K (Exhibit 10.2)
4/05/16
001-33624
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
10.13
Form of Share Purchase Agreement
Form 8-K (Exhibit 99.1)
6/29/20
001-33624
10.14
Placement Agency Agreement
Form 8-K (Exhibit 99.2)
6/29/20
001-33624
10.15
Form of Share Purchase Agreement
Form 8-K (Exhibit 99.1)
7/20/20
001-33624
10.16
Placement Agency Agreement
Form 8-K (Exhibit 99.2)
7/20/20
001-33624
10.17
Form of Share Purchase Agreement
10.18
Placement Agency Agreement
10.19
Form of Indenture
10.20
Equity Distribution Agreement, dated as of February 25, 2021, by and
between SINTX Technologies, Inc. and Maxim Group LLC
Form 8-K (Exhibit 99.1)
Form 8-K (Exhibit 99.2)
8/6/20
8/6/20
001-33624
001-33624
Form S-3 (Exhibit 4.18)
10/2/20
333-249267
Form 8-K (Exhibit 10.1)
2/26/20
001-33624
10.21
2020 Equity Incentive Plan
Defn 14a Proxy Statement
7/10/2020
001-33624
10.22
10.23
Form of Warrant Agency Agreement between SINTX Technologies,
Inc. and American Stock Transfer & Trust Company, LLC
Amendment to Equity Distribution Agreement, dated as of January
10, 2023 by and between SINTX Technologies, Inc., and Maxim
Group LLC
10.24
Form of Securities Purchase Agreement
10.25
Form of Placement Agent Agreement
10.26
10.27
Form of Securities Purchase Agreement
Form of Placement Agency Agreement
73
Form 8-K (Exhibit 10.1)
10/17/22
001-33624
Form 8-K (Exhibit 10.1)
1/13/23
Form 8-K (Exhibit 10.1)
Form S-1 (Exhibit 10.25)
Form 8-K (Exhibit 10.1)
Form 8-K (Exhibit 10.2)
2/9/23
2/6/23
2/2/24
2/2/24
001-33624
333-269475
001-33624
001-33624
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
97
List of Subsidiaries
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
SINTX Technologies, Inc. Clawback Policy
101 SCH
Inline XBRL Taxonomy Extension Schema Document (A)
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
(A)
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
(A)
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document (A)
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
(A)
X
X
X
X
X
X
X
X
X
X
X
104
*
+
†
(A)
Cover Page Interactive Data File (embedded within the Inline XBRL
document)
Management contract of compensatory plan or arrangement
Schedules and exhibits to this Exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any
omitted schedule or exhibit to the SEC upon request.
A portion of this Exhibit has been omitted as it contains information that (i) is not material and (ii) would be competitively harmful if publicly disclosed.
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.
75
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.
SIGNATURES
Date: March 27, 2024
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 27, 2024
Date: March 27, 2024
Date: March 27, 2024
Date: March 27, 2024
Date: March 27, 2024
/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
76
As of and For the Years ended December 31, 2023 and 2022
Report of Independent Registered Public Accounting Firm (PCAOB ID 270)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-1
F-2
F-3
F-4
F-5
F-6
F-7
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders of
SINTX Technologies, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of SINTX Technologies, Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related
consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with
accounting principles generally accepted in the United States of America.
Going Concern
The financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has
recurring losses from operations and negative operating cash flows and needs to obtain additional financing to finance its operations. These issues raise substantial doubt about
its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
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 and 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 the underlying data used by the Company in its analysis, and evaluating management’s specialist.
/s/ TANNER LLC
(PCAOB ID 270)
We have served as the Company’s auditors since 2017
Lehi, Utah
March 27, 2024
F-2
SINTX Technologies, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share data)
As of December 31,
2023
2022
Assets
Current assets:
Cash and cash equivalents
Account and other receivables, net of allowance totaling 72 and 7 respectively
Prepaid expenses and other current assets
Inventories
Other current assets
Total current assets
Inventories, net
Property and equipment, net
Intangible assets, net
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
Other long-term liabilities
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 issued and outstanding as of both December 31, 2023 and 2022.
Convertible preferred stock Series C, $0.01 par value, 130,000,000 total shares authorized inclusive of all series of
preferred; 50 shares issued and outstanding as of both December 31, 2023 and 2022.
Convertible preferred stock Series D, $0.01 par value, 130,000,000 total shares authorized inclusive of all series of
preferred; 180 and 206 shares issued and outstanding of December 31, 2023 and December 31, 2022 respectively.
Convertible preferred stock Series E, $0.01 par value, 130,000,000 total shares authorized inclusive of all series of
preferred; 0 and 1 shares issued and outstanding of December 31, 2023 and December 31, 2022 respectively.
Common stock, $0.01 par value, 250,000,000 shares authorized; 5,320,671 and 542,145 shares issued and outstanding
as of December 31, 2023 and 2022, 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
$
$
$
$
$
$
$
3,340
685
539
888
80
5,532
333
4,826
21
4,094
559
15,365
636
1,404
46
304
512
4
2,906
3,687
-
-
6,593
-
-
-
-
6,245
328
344
284
8
7,209
453
5,691
26
2,309
85
15,773
434
1,618
160
5,126
738
2
8,078
1,621
368
2
10,069
-
-
-
-
53
279,433
(270,714)
8,772
15,365
$
5
268,154
(262,455)
5,704
15,773
SINTX Technologies, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share data)
Years Ended December 31,
2023
2022
Product revenue
Grant and contract revenue
Total revenue
Costs of revenue
Gross profit
Operating expenses:
Research and development
General and administrative
Sales and marketing
Grant and contract expenses
Total operating expenses
Loss from operations
Other income (expenses):
Interest expense
Interest income
Gain (loss) on the disposal of assets
Change in fair value of derivative liabilities
Offering costs of derivative liabilities
Other income (expense)
Total other income (expense), net
Net loss before income taxes
Provision for income taxes
Net loss
Deemed dividend related to beneficial conversion feature 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
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
$
$
$
$
$
$
$
1,226
1,401
2,627
784
1,843
8,713
4,222
1,137
1,129
15,201
(13,358)
(2)
135
17
5,718
(786)
17
5,099)
(8,259)
-
(8,259)
(26)
(8,285)
(2.21)
(0.01)
(2.22)
(3.12)
(0.01)
(3.13)
3,736,412
4,357,242
$
$
$
$
$
601
960
1,561
265
1,296
6,450
3,990
1,336
855
12,631
(11,335)
(17)
23
(1)
(1,091)
-
382
(704)
(12,039)
-
(12,039)
(4,450)
(16,489)
(39.92)
(14.75)
(54.67)
(46.79)
(14.02)
(60.81)
301,610
317,323
SINTX Technologies, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
Preferred Stock
Common Stock
Shares Amount
Shares
Amount
Paid-In Accumulated
Capital
Deficit
Total
Equity
Balance as of December 31, 2021
Stock based compensation
Preferred stock issued for cash
Preferred stock issued for derivative liability
Issuance of common stock from conversion of preferred stock
Issuance of agent warrants
Deemed dividend related to the conversion of preferred stock
Deemed dividend related to the conversion of preferred stock
Acquisition of subsidiary
Round up shares issued in reverse split
Net loss
Balance as of December 31, 2022
Stock based compensation
Common stock issued for cash, net of cash fees
Prefunded warrants issued for cash, net of cash fees
Extinguishment of derivative liability upon exercise of
warrant
Issuance of common stock from the exercise of prefunded
warrants for cash
Issuance of common stock from the cashless exercise of
warrants
Redemption of preferred stock
Issuance of agent warrants
Issuance of common stock from the conversion of preferred
stock
Deemed dividend related to the conversion of preferred stock
Deemed dividend related to the conversion of preferred stock
Round up shares issued in reverse split
Net loss
Balance as of December 31, 2023
77
-
1
4,656
(4,451)
-
-
-
-
-
-
283
-
-
-
-
-
-
(1)
-
(26)
-
-
-
-
256
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
247,105
219
-
-
294,672
-
-
-
-
149
-
542,145
229
3,092,499
-
-
170,000
1,493,600
-
-
1,723
-
-
20,475
-
5,320,671
$
$
2
-
-
-
3
-
-
-
-
-
-
5
-
31
-
-
2
15
-
-
-
-
-
-
-
53
$
$ 267,609
370
2
-
(3)
154
4,450
(4,450)
22
-
-
268,154
(250,416)
-
-
-
-
-
-
-
-
-
(12,039)
(262,455)
$ 17,195
370
2
-
-
154
4,450
(4,450)
22
-
(12,039)
5,704
291
4,763
383
5,753
(2)
(15)
(2)
108
-
-
-
-
-
-
-
-
-
(26)
26
-
-
$ 279,433
$
-
-
-
-
(8,259)
(270,714)
$
291
4,794
383
5,753
-
-
(2)
108
-
(26)
26
-
(8,259)
8,772
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
Stock based compensation
Change in fair value of derivative liabilities
Loss (gain) on disposal of equipment
Credit loss expense (recoveries)
Changes in operating assets and liabilities:
Account and other receivables
Prepaid expenses and other assets
Inventories
Accounts payable and accrued liabilities
Other liabilities
Payments on operating lease liability
Net cash used in operating activities
Cash flows from investing activities
Purchase of property and equipment
Proceeds from the sale of property and equipment
Cash acquired in acquisition (see Note 2)
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of warrant derivative liabilities
Proceeds from issuance of preferred stock recorded as derivative liabilities, net
Proceeds from issuance of common stock and prefunded warrants, net of cash fees
Proceeds from issuance of preferred stock, net
Redemption of preferred stock Series E
Principal payment on debt
Net cash provided by financing activities
Net 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
Reduction of derivative liability upon exercise of warrants
Right of use asset for amended lease liability – increase
Right-of-use assets and assumption of operating lease liability
Issuance of common stock for the cashless exercise of warrants
Issuance of prefunded warrants
Right of use asset for amended lease liability – decrease
Acquisition of subsidiary through assumption of debt (see Note 2)
Conversion of preferred stock to common stock
Supplemental cash flow information
Cash paid for interest
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Years Ended December 31,
2023
2022
$
(8,259)
$
(12,039)
907
745
5
291
(5,610)
(17)
63
(420)
(264)
(485)
(12)
(370)
(689)
(14,115)
(530)
29
-
(501)
6,650
-
5,177
-
(2)
(114)
11,711
(2,905)
6,245
3,340
$
Years Ended December 31,
2023
2022
$
5,753
2,504
114
15
2
(89)
-
-
21
$
335
623
5
369
1,091
1
(7)
(26)
13
(140)
226
(128)
(586)
(10,263)
(1,405)
1
303
(1,101)
-
3,842
-
3
-
(509)
3,336
(8,028)
14,273
6,245
-
-
27
-
-
-
22
3
1
$
$
$
1. Organization and Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of SINTX Technologies, Inc. (“SINTX”) and its wholly-owned subsidiaries, SINTX Armor, Inc. (“SINTX Armor”)
and Technology Assessment and Transfer, Inc. (TA&T), which are collectively referred to as “we” or “the Company”. SINTX was incorporated in the state of Delaware on
December 10, 1996 (and was previously known as Amedica Corporation). The Company is an advanced ceramics materials company focused on providing solutions in a
variety of medical, industrial, and antipathogenic applications. SINTX is a company that has grown over time from focusing on the research and development of silicon nitride
for use in human interbody implants to becoming an advanced ceramics company engaged in many different fields, and this has enabled the Company to focus on core
competencies. The core strength of the Company is the manufacturing, research, and development of advanced ceramics for external partners. The Company presently
manufactures ceramic powders and components in its Salt Lake City and Maryland facilities. The SINTX Salt Lake City facility is FDA and ANVISA registered, ISO
13485:2016 certified, and ASD9100D certified. The Company’s products are primarily sold in the United States.
The Company is focused on building revenue generating opportunities in three business industries - antipathogenic, industrial (including armor), and biomedical – thereby
connecting with current and new customers, partners and manufacturers to help realize the goal of leveraging expertise in high-tech ceramics to create new, innovative
opportunities across these sectors. We expect our continued investment in research and development to provide additional revenue opportunities.
The Company’s initial focus was the development and commercialization of products made from silicon nitride for use in spinal fusion and hip and knee replacement
applications. SINTX believes it is the first and only manufacturer to use silicon nitride in medical applications primarily focused on spine fusion therapies. Since then, we have
developed other applications for our silicon nitride technology as well as utilized our expertise in the use of ceramic materials in other applications. In July 2021, the Company
acquired the equipment and obtained certain proprietary know-how rights with which it intends to develop, manufacture, and commercialize protective armor from boron
carbide and a composite material of silicon carbide and boron carbide for military, law enforcement and civilian uses. The protective armor operations are housed in SINTX
Armor. In June 2022, the Company acquired TA&T, a nearly 40-year-old business with a mission to transition advanced materials and process technologies from a laboratory
environment to commercial products and services (see Note 2).
On October 1, 2018, the Company completed the sale of its retail spine business to CTL Medical, a Dallas, Texas-based privately held medical device manufacturer. As a result
of the sale, CTL Medical became the exclusive owner of the Company’s portfolio of metal and silicon nitride spine products, as well as access to future silicon nitride spine
technologies developed by the Company. The Company’s name, Amedica, was also transferred to CTL Medical, which is now CTL Amedica. The Company serves as CTL’s
exclusive OEM provider of silicon nitride products. Manufacturing, R&D, and all intellectual property related to the core, non-spine, biomaterial technology including silicon
nitride remains with the Company.
On October 30, 2018, the Company amended its Certificate of Incorporation with the State of Delaware to change its corporate name to SINTX Technologies, Inc. The
Company also changed its trading symbol on the NASDAQ Capital Market to “SINT”.
The Company’s new corporate brand reflects both the Company’s core competence in the science and production of silicon nitride ceramics and other ceramics, as well as
encouraging prospects for the future, as an OEM supplier of spine implants to CTL Amedica, and multiple opportunities outside of spine.
F-7
Basis of Presentation and Principles of Consolidation
These consolidated financial statements have been prepared by management in accordance with the rules and regulations of the United States Securities and Exchange
Commission (“SEC”) and include all assets and liabilities of the Company. In May 2020, the Company dissolved a wholly owned subsidiary ST Sub, Inc. At the time of
dissolution, the subsidiary had no assets, liabilities, equity, or operations.
Reverse Stock Split
On December 20, 2022, the Company effected a 1 for 100 reverse stock split of the Company’s common stock. The par value and the authorized shares of the common and
preferred stock were not adjusted as a result of the reverse stock split. All common stock shares, equivalents, and per-share amounts for all periods presented in these
consolidated financial statements have been adjusted retroactively to reflect the reverse stock split.
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, 2023 and 2022, the Company incurred a net loss of $8.3 million and $12.0 million, respectively, and used cash in operations of $14.1 million
and $10.3 million, respectively. The Company had an accumulated deficit of $270.7 million and $262.5 million as of December 31, 2023 and 2022, respectively. To date, the
Company’s operations have been principally financed from proceeds from the issuance of preferred and common stock and, to a lesser extent, cash generated from product
sales. It is anticipated that the Company will continue to generate operating losses and use cash in 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 advanced ceramic
materials are not well known, and we believe the publication of such data would help sales efforts as the Company approaches new prospects. The Company is also making
additional changes to the sales strategy, including a focus on revenue growth by expanding the use of silicon nitride in other areas outside of spinal fusion applications. The
Company has also acquired equipment and certain proprietary know-how for the purpose of developing, manufacturing and commercializing armored plates made from boron
carbide and a composite of boron carbide and silicon carbide for military, law enforcement and other civilian uses.
The 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.
F-8
On February 25, 2021, the Company entered into an Equity Distribution Agreement (as amended, the “2021 Distribution Agreement”) with Maxim Group LLC (“Maxim”),
pursuant to which the Company may sell from time to time, shares of the Company’s common stock having an aggregate offering price of up to $1.1 million through Maxim, as
agent. As of December 31, 2023, there have been 1,317,749 shares of common stock sold under the 2021 Distribution Agreement. Subsequent to December 31, 2023 there have
been 1,145,200 shares of common stock sold under the 2021 Distribution Agreement (see Note 15). Because the Company’s public float is less than $75 million, we may not
sell securities over a 12-month period in an amount greater than one-third of our public float.
On January 10, 2023, The Company entered into an amendment to our Equity Distribution Agreement (the “Distribution Agreement”) with Maxim, pursuant to which the
expiration date of the Distribution Agreement was extended to the earlier of: (i) the sale of shares having an aggregate offering price of $15.0 million, (ii) the termination by
either Maxim or the Company upon the provision of fifteen (15) days written notice, or (iii) February 25, 2024. No other changes were made to the terms of the Distribution
Agreement. Because the Company’s public float is less than $75 million, we may not sell securities over a 12 month period in an amount greater than one-third of our public, or
approximately $3.27 million, based on a share price of $2.68 on March 3, 2023.
On October 17, 2022, the Company closed on the sale of 4,656 Units for gross proceeds of approximately $4.7 million pursuant to the terms of a Rights Offering to holders of
the Company’s common stock, Series B and Series C preferred stock and holders of certain outstanding common stock warrants. See Note 9 below for a more detailed
discussion of the Rights Offering.
On February 10, 2023, the Company closed on a public offering of 2,150,000 units, with each unit consisting of one share of common stock, or one pre-funded warrant to
purchase one share of its common stock, one Class C Warrant to purchase one share of common stock, and one half of one Class D Warrant with each whole Class D Warrant
entitling the holder to purchase one share of common stock. Gross proceeds, before deducting offering expenses, totaled approximately $12.0 million. Of the $12.0 million of
gross proceeds, approximately $5.4 million were allocated to common stock and prefunded warrants ($4.8 million net of offering costs) and approximately $6.7 million were
allocated to derivative liabilities (with approximately $0.7 million of cash offering costs and $0.1 million of agent warrant offering costs recorded as derivative expense).
Subsequent to December 31, 2023, the company raised $4.0 million gross proceeds from a fund raise (see Note 15 Subsequent Events for more information).
These uncertainties raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
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, 2023, 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, 2023, two commercial customers and government agencies represent 80% of the Company’s total revenues and 78% of the Company’s total accounts
receivable as of and for the year ended December 31, 2023.
F-9
Revenue Recognition
The Company derived its product revenue primarily from the sale of aerospace components and spinal fusion products. The aerospace components are key ceramic aircraft
engine components sold to a leading manufacturer of aerospace components and systems whom the Company has entered into a 10-year, long-term agreement. The spinal
fusion products are used in the treatment of spine disorders and sold to CTL Medical, with whom the Company signed a 10-year exclusive sales agreement in October 2018.
The Company also records revenue from grants, contracts, and awards provided by government agencies. 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 employs 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 of products at the time the product is shipped.
Revenues from grants, contracts, and awards provided by governmental agencies are recorded based upon the terms of the specific agreements, which generally provide that
revenue is earned when the allowable costs specified in the applicable agreement have been incurred or a milestone has been met. Cash received from federal grants, contracts,
and awards can be subject to audit by the grantor and, if the examination results in a disallowance of any expenditure, repayment could be required. The duration of the
government grants, contracts, and awards varies by government entity as well as phase level. The general duration period during 2023 was 1.8 years.
Grant, contract, and award receivables relate to allowable amounts expended or otherwise incurred or earned in connection with the terms of a grant, contract, or award and for
which reimbursement has not yet taken place. As of December 31, 2023, government grants, contracts, and awards accounted for approximately $0.3 million in accounts
receivable. To be eligible to receive moneys from government agencies the Company must meet commitments as outlined in the grant, contract, and award agreements.
F-10
Costs of Revenue
The expenses that are included in costs of revenue associated with product sales 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. Inventory that
is not expected to be utilized within 12 months of December 31, 2023, and 2022, respectively is recorded as long term.
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-11
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 Credit Losses
Financial assets, which potentially subject the Company to credit losses, consist primarily of receivables. We measure expected credit losses of financial assets based on
historical loss and other information available to management using type of receivable (commercial, grants or contracts, retainage, or other) and different aging categories (less
than 90 days past due, over 90 days past due, over 180 days past due, and financially troubled customers). These expected credit losses are recorded to an allowance for credit
losses valuation account that is deducted from receivables to present the net amount expected to be collected on the financial asset on the consolidated balance sheet.
Management believes that the historical loss information it has compiled is a reasonable basis on which to determine expected credit losses for trade receivables held as of
December 31, 2023, because the composition of the trade receivables as of that date is consistent with that used in developing the historical credit-loss percentages (i.e., the
similar risk characteristics of its customers and its lending practices have not changed significantly over time).
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, 2023.
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-12
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, 2023 and 2022.
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, 2023 and 2022, 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.
New Accounting Pronouncement, Not Yet Adopted
The Company has reviewed all recently issued, but not yet adopted, accounting standards, in order to determine their effects, if any, on its results of operations, financial
position or cash flows. Based on that review, the Company believes that no other pronouncements will have a significant effect on its financial statements.
F-13
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 shares of common stock 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 shares of common stock
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 0.7 million and 0.7 million shares of common stock as of December 31,
2023 and 2022, respectively.
Below are basic and diluted loss per share data for the year ended December 31, 2023, 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
$
$
$
$
(8,259)
(26)
(8,285)
3,736,412
(2.21)
(0.01)
(2.22)
$
$
$
$
(5,320)
-
(5,320)
620,830
(8.57)
-
(8.57)
Below are basic and diluted loss per share data for the year ended December 31, 2022, 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
Basic
Calculation
Effect of
Dilutive
Warrant
Securities
(12,039)
(4,450)
(16,489)
301,610
(39.92)
(14.75)
(54.67)
$
$
$
$
(2,807)
-
(2,807)
15,713
(6.87)
0.73
(6.14)
$
$
$
$
F-14
$
$
$
$
$
$
$
$
(13,579)
(26)
(13,605)
4,357,242
(3.12)
(0.01)
(3.13)
Diluted
Calculation
(14,846)
(4,450)
(19,296)
317,323
(46.79)
(14.02)
(60.81)
2. Business Acquisition
On June 30, 2022, the Company entered into and closed a Stock Purchase Agreement (the “Purchase Agreement”) pursuant to which the Company acquired all of the
outstanding shares of common stock of TA&T, a corporation organized under the Laws of the State of Maryland. As a result, TA&T is a wholly owned subsidiary of the
Company.
The Purchase Agreement sets forth approximately $760,000, including accrued interest, in loan obligations that the Company agreed to assume in connection with the purchase.
Further, the Purchase Agreement provides for potential earnout payments to the sellers on the achievement of certain pre-determined gross revenue targets by TA&T for
calendar years 2022 and 2023. Earnouts, if any, will be expensed as incurred, as management does not expect the earnouts to be achieved.
The following table summarizes the purchase price allocation (in thousands):
June 30, 2022
Assets
Current assets
Cash and cash equivalents
Accounts and other receivables, net of allowance
Prepaid expenses and other receivables, net of allowance
Total current assets
Property and equipment, net
Operating lease right of use asset
Other long-term assets
Total assets
Liabilities and net assets acquired
Current liabilities
Accounts payable
Accrued liabilities
Current portion of debt
Current portion of related party debt
Current portion of operating lease liability
Total current liabilities
Debt, net of current portion
Related party debt, net of current portion
Operating lease liability, net of current portion
Total liabilities
Net assets acquired
F-15
$
$
303
193
14
510
599
521
7
1,637
105
241
6
242
179
773
393
107
342
1,615
22
The following proforma unaudited revenue and net loss are presented as if the acquisition had been included in the consolidated results of the Company for the year ended
December 31, 2022 (in thousands).
Revenue
Net loss
Year Ended
December 31, 2022
$
$
2,150
(12,055)
No amounts are included in the consolidated statement of operations relating to TA&T for the six months ended June 30, 2022, as the transaction was closed the end of day
June 30, 2022. TA&T’s operations are included in the Company’s consolidated statement of operations beginning July 1, 2022.
3. Inventories
The components of inventory were as follows (in thousands):
Raw materials
WIP
Finished goods
4. 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
Depreciation expense for 2023 and 2022 was approximately $0.9 million and approximately $0.3 million, respectively.
F-16
As of December 31,
2023
2022
691
426
104
1,221
$
$
As of December 31,
2023
2022
5,597
2,034
751
136
8,518
(3,692)
4,826
$
$
552
94
91
737
6,192
951
741
119
8,003
(2,312)
5,691
$
$
$
$
5. Intangible Assets
Intangible assets consisted of the following (in thousands):
Trademarks
Less: accumulated amortization
Years Ended December 31,
2023
2022
$
$
50
(29)
21
$
$
50
(24)
26
Amortization expense for 2023 was approximately $5.0 thousand. Amortization expense for 2022 was approximately $5.0 thousand.
6. 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, 2023 and 2022. The following tables set forth the financial liabilities measured at fair value on a
recurring basis by level within the fair value hierarchy as of December 31, 2023 and 2022.
Description
Derivative liabilities
Common stock warrants
Description
Derivative liabilities
Common stock warrants
Fair Value Measurements as of December 31, 2023
(in thousands)
Level 1
Level 2
Level 3
Total
$
$
-
$
-
$
304
$
304
Fair Value Measurements as of December 31, 2022
(in thousands)
Level 1
Level 2
Level 3
Total
-
$
-
$
5,126
$
5,126
F-17
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,
2023 and 2022. The following table presents a reconciliation of the derivative liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level
3) during the years ended December 31, 2023 and 2022 (in thousands):
Balance as of December 31, 2021
Issuance of derivatives
Change in fair value
Balance as of December 31, 2022
Issuance of derivatives
Exercise of warrants
Change in fair value
Other
Balance as of December 31, 2023
Common Stock Warrants
Common Stock
Warrants
(347)
(7,586)
2,807
(5,126)
(6,650)
5,753
5,718
1
(304)
$
$
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, 2023, and 2022, the derivative
liability was calculated using the Monte Carlo Simulation valuation.
The assumptions used in estimating the common stock warrant liability using the Monte Carlo simulation valuation model as of December 31, 2023 and 2022 were as follows:
Weighted-average risk-free interest rate
Weighted-average expected life (in years)
Expected dividend yield
Weighted average expected volatility
December 31, 2023
December 31, 2022
3.93-4.79%
1.10-4.12
-%
113.1%-125.7%
3.99%-4.42%
0.07-4.80
-%
103.6%-243.0%
F-18
Other Financial Instruments
The Company’s recorded values of cash and cash equivalents, account and other receivables, accounts payable and accrued liabilities approximate their fair values based on
their short-term nature. The recorded value of notes payable approximates the fair value as the interest rate approximates market interest rates.
7. Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
Payroll and related expenses
Accrued payables
Other
8. Debt
Business Loan
Years Ended December 31,
2023
2022
$
$
610
163
631
1,404
$
$
524
464
630
1,618
On July 20, 2021, TA&T (see Note 2), entered into a Loan Authorization and Agreement in the amount of approximately $350,000 (the “Business Loan”). The Company made
a one-time $35,000 buy down payment when acquiring the loan. The Business Loan bears interest at a rate of 3.75% per annum. The Business Loan is secured by a general
security interest in all of the assets of TA&T. The business loan was paid in full during the first quarter of 2023 and there was no outstanding balance at December 31, 2023.
Related Party Debt
TA&T is obligated to repay certain personal loans made by the founders of TA&T to TA&T prior to SINTX’s acquisition (see Note 2) of TA&T (the Personal Loans”). The total
amount of the Personal Loans at June 30, 2022 was approximately $350,000. The Company agreed to repay the outstanding balance of the Personal Loans in (i) 24 equal
monthly installments beginning September 1, 2022 and each month thereafter until paid in full as one prior owner’s portion of the Personal Loans totaling $157,000, and (ii) for
the other owner’s portion of the Personal Loans totaling $193,000. As of December 31, 2023, the related party debt had an outstanding balance of $46,000. The outstanding
balance is being paid in monthly installments ending August 1, 2024. The related party debt is not collateralized and has no interest rate.
F-19
9. Equity
2024 Registered Offering
Subsequent to December 31, 2023, the company raised $4.0 million gross proceeds from a fund raise. (see Note 15 Subsequent Events for more information)
2023 Registered Offering
On February 10, 2023, the Company closed on a public offering of 2,150,000 units, with each unit consisting of one share of common stock, or one pre-funded warrant to
purchase one share of its common stock, one Class C Warrant to purchase one share of common stock, and one half of one Class D Warrant with each whole Class D Warrant
entitling the holder to purchase one share of common stock. Each unit was sold at a public offering price of $5.60. The Class C and Class D Warrants are immediately
exercisable at a price of $5.60 per share. The Class C and Class D warrants each have a cashless exercise provision entitling the holders to surrender one Class C Warrant and
receive 0.4 shares of common stock and on the surrender of one Class D Warrant the holder is entitled to receive 0.8 shares of common stock. The Class C Warrants expire five
years from the date of issuance and the Class D Warrants expire three years from the date of issuance. The shares of common stock (or pre-funded warrants in lieu thereof) and
accompanying warrants were only purchasable together in this offering but were issued separately and were immediately separable upon issuance. In addition, the company
issued a total of 86,000 common stock warrants to the placement agent, Maxim Group, and the Company’s financial advisor, Ascendiant Capital. Gross proceeds, before
deducting offering expenses, totaled approximately $12.0 million. Of the $12.0 million of gross proceeds, approximately $5.4 million were allocated to common stock and
prefunded warrants ($4.8 million net of offering costs) and approximately $6.7 million were allocated to derivative liabilities (with approximately $0.7 million of cash offering
costs and $0.1 million of agent warrant offering costs recorded as derivative expense).
2022 Rights Offering
On October 17, 2022, the Company completed a rights offering (the “Rights Offering”) to holders of the Company’s Series B Preferred Shares, Series C Preferred Shares, and
warrants issued March 6, 2018, May 8, 2018, May 14, 2018, and February 6, 2020 (collectively, the “Security Holders”) for subscriptions of 4,656 rights resulting in gross
proceeds to the Company of approximately $4.7 million. Under the Rights Offering, the Company distributed to the Security Holders, at no charge, one non-transferable
subscription right for each share of common stock, share of Series B Preferred Stock, share of Series C Preferred Stock, and each participating warrant (on an as-if-converted-
to-common-stock basis) held on the record date, September 23, 2022. Each right entitled the holder to purchase one unit, at a subscription price of $1,000 per unit, consisting of
one share of Series D Convertible Preferred Stock with a face value of $1,000 (and immediately convertible into shares of SINTX’s common stock at a conversion price equal
to $15.102 (the “Conversion Price”)), and 66 common stock purchase warrants expiring five years from the date of issuance, which we refer to as the Class A Warrants, and (iii)
66 common stock purchase warrants expiring three years from the date of issuance, which we refer to as the Class B Warrants and, together with the Class A Warrants, the
Warrants with each warrant exercisable for one share of common stock at an exercise price of $15.102 per share.
2021 Equity Distribution Agreement
On February 25, 2021, the Company entered into an Equity Distribution Agreement with Maxim Group LLC (“Maxim”), which was subsequently amended on October 12,
2023 (as amended, the “2021 Distribution Agreement”), pursuant to which the Company may sell from time to time, shares of the Company’s common stock having an
aggregate offering price of up to $1.1 million through Maxim, as agent. Subject to the terms and conditions of the 2021 Distribution Agreement, as amended, Maxim will use
its commercially reasonable efforts to sell the shares from time to time, based on our instructions. Under the 2021 Distribution Agreement, Maxim may sell the Shares by any
method permitted by law deemed to be an “at-the-market” offering (the “ATM”) as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the
“Securities Act”), including, without limitation, sales made directly on the Nasdaq Capital Market. We have no obligation to sell any shares under the ATM and may at any time
suspend offers under the 2021 Distribution Agreement. The Offering will terminate upon the earlier of (i) the sale of shares having an aggregate offering price of $15.0 million,
(ii) the termination by either Maxim or the Company upon the provision of fifteen (15) days written notice, or (iii) February 25, 2025. Under the terms of the 2021 Distribution
Agreement, Maxim will be entitled to a transaction fee at a fixed rate of 2.0% of the gross sales price of Shares sold under the 2021 Distribution Agreement. The Company will
also reimburse Maxim for certain expenses incurred in connection with the 2021 Distribution Agreement and agreed to provide indemnification and contribution to Maxim with
respect to certain liabilities under the Securities Act and the Securities Exchange Act of 1934, as amended. As of March 1, 2024, there have been 2,471,949 shares of common
stock sold under the 2021 Distribution Agreement for gross proceeds of $1,030,519. As a result, there is only approximately $70,000 more that could be raised under the 2021
Distribution Agreement. Because the company’s public float is less than $75 million, we may not sell securities over a 12-month period in an amount greater than one-third of
our public float. In connection with the February 2024 offering, the Company agreed to not make any sales of securities under the ATM for a period of six months from the date
of closing the offering, February 2, 2024, until August 2, 2024 (see Note 15).
F-20
10. Stock-Based Compensation
A summary of the Company’s outstanding stock option activity for the years ended December 31, 2023 and 2022 is as follows:
As of December 31, 2022
Granted
Exercised
Forfeited
Expired
As of December 31, 2023
Exercisable at December 31, 2023
Vested and expected to vest at December 31, 2023
As of December 31, 2021
Granted
Exercised
Forfeited
Expired
As of December 31, 2022
Exercisable at December 31, 2022
Vested and expected to vest at December 31, 2022
December 31, 2023
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual Life
(Years)
Intrinsic
Value
234.02
-
-
-
-
109.77
261.49
109.27
7.9
-
-
-
-
6.9
7.0
6.9
$
$
$
-
-
-
-
-
-
-
-
December 31, 2022
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual Life
(Years)
Intrinsic
Value
391.00
44.60
-
-
-
234.02
239.73
256.90
8.7
10.0
-
-
-
7.9
7.9
7.9
$
$
$
87,553
-
-
-
-
-
-
-
Options
11,909
-
-
-
-
11,909
10,239
9,724
Options
8,339
3,570
-
-
-
11,909
11,301
10,026
$
$
$
$
$
$
$
$
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.
Unrecognized stock-based compensation as of December 31, 2023, is as follows (in thousands):
Stock options
Stock grants
Unrecognized Stock-Based
Compensation
$
82
34
Weighted Average
Remaining
of Recognition
(in years)
0.5
8.2
F-21
11. Income Taxes
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
Capitalized research expenses
Intangibles
Right of use asset/liabilities
Other
Total deferred tax assets
Deferred tax liabilities:
Depreciation
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
Other
Total income tax expense
December 31,
2023
2022
(21.0)%
(5.0)%
0.0%
(12.5)%
38.5%
0.0%
December 31,
2023
2022
$
55,797
3,171
2,222
121
3,083
292
26
18
64,730
(763)
(763)
(63,967)
-
$
December 31,
2023
2022
(1,734)
(414)
-
(1,036)
3,181
3
-
$
$
(21.0)%
(3.7)%
(0.7)%
1.9%
23.5%
0.0%
53,842
3,099
2,222
101
1,448
347
12
2
61,073
(287)
(287)
(60,786)
-
(2,531)
(450)
(86)
229
2,845
(7)
-
$
$
$
$
As of December 31, 2023 and 2022, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $223.6 million and $215.8
million, respectively. The federal and state net operating loss carryforwards incurred prior to 2018 will expire from 2024 to 2037 unless previously utilized, and the federal and
state net operating loss carryforwards incurred in 2018 and thereafter carry forward indefinitely. 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.
F-22
During the years ended December 31, 2023 and 2022, 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 $3.2 million and $2.8 million for the years ended
December 31, 2023 and 2022, respectively.
12. 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.
13. 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, 2023 and 2022.
14. Leases
The Company has entered into multiple operating leases from which it conducts its business.
SINTX
With respect to SINTX operations, the Company leases 30,764 square feet of office, warehouse and manufacturing space under a single operating lease. This lease expires in
October 2031. The lease has one five-year extension option.
SINTX Armor
On August 19, 2021, the Company, on behalf of SINTX Armor, entered into an Industrial Lease Agreement (the “SINTX Armor Lease”) pursuant to which the Company has
agreed to lease approximately 10,936 square feet of office and manufacturing space from which SINTX Armor will conduct its operations. The term of the SINTX Armor Lease
is 122 months through October 2031.
TA&T
In connection with operation of its business, TA&T has entered into various leases for approximately 15,840 square feet of office and manufacturing space from which it
conducts its research, development and manufacturing activities. The leases have various expiration dates ranging from April 30, 2024 through April 2030. Subsequent to
December 31, 2023 we entered into an amended lease agreement reducing this area to 13,560 square feet. The leases have various expiration dates ranging from July 2024
through April 2025.
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.
F-23
As of December 31, 2023, the operating lease right-of-use assets totaled approximately $4.1 million and the operating lease liability totaled approximately $4.2 million. Non-
cash operating lease expense during the year ended December 31, 2023, totaled approximately $0.7 million. As of December 31, 2023, the weighted-average discount rate for
the Company’s operating lease was 8.6%.
Operating lease future minimum payments together with the present values as of December 31, 2023, are summarized as follows:
2024
2025
2026
2027
2028
Beyond
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
2024 Registered Offerings
December 31,
856
750
668
688
709
2,124
5,795
(1,596)
4,199
512
3,687
$
$
On February 2, 2024, the Company closed on a public offering of 16,000,000 units, with each unit consisting of one share of its common stock, or one pre-funded warrant to
purchase one share of its common stock, one Class E Warrant with each warrant to purchase one share of common stock, and one Class F Warrant with each warrant to
purchase one share of common stock. Each unit was sold at a public offering price of $0.25. The Class E and Class F Warrants in the units are immediately exercisable at a
price of $0.25 per share. The Class E Warrants will expire five years from the date of issuance and the Class F Warrants will expire eighteen months from the date of issuance.
Gross proceeds, before deducting placement agent fees and other offering expenses, are approximately $4.0 million.
On March 26, 2024, the Company issued 28,400,000 common shares for approximately $1.3 million, before offering and related costs. The public offering was made pursuant
to an effective shelf registration statement on Form S-3.
Equipment Failure
A furnace used for our SINTX Armor manufacturing operations overheated and is no longer functional. Subsequent to December 31, 2023, the Company was informed by the
insurance carrier that a covered loss has occurred, and coverage is available for the Company’s claim submitted with respect to the sintering furnace that overheated at SINTX
Armor in October 2023. The Company will be replacing the damaged furnace and expects the repaired furnace to be up and running in the 4th quarter 2024. Company
management continues to work with third parties to temporarily outsource the sintering process.
2021 Distribution Agreement
Subsequent to December 31, 2023 there have been 1,154,200 shares of common stock sold under the 2021 Distribution Agreement grossing approximately $0.5 million. In
connection with the February 2024 offering, the Company agreed to not make any sales of securities under the ATM for a period of six months from the date of closing the
offering, February 2, 2024, until August 2, 2024.
F-24
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934
EXHIBIT 4.23
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.
SINTX Armor, Inc., a Utah corporation.
Technology Assessment and Transfer, Inc., a Maryland corporation.
List of Subsidiaries
Exhibit 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in Registration Statements on Form S-1 (Nos. 333-223032, 333-234438, 333-266070, 333-269475 and 333-275137) and
Form S-3 (Nos. 333-274951) and Form S-8 (Nos. 333-194977 and 333-248846) of SINTX Technologies, Inc. (the Company) of our report dated March 27, 2024, 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, 2023.
Exhibit 23.1
/s/ Tanner LLC
Lehi, UT
March 27, 2024
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 27, 2024
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 27, 2024
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, 2023 (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 27, 2024
By:
/s/ B. Sonny Bal
B. Sonny Bal
Chief Executive Officer and Principal Financial Officer
SINTX TECHNOLOGIES, INC.
INCENTIVE COMPENSATION RECOVERY POLICY
Exhibit 97
Introduction.
The Board of Directors of SINTX Technologies, Inc. (the “Company”) believes that it is in the best interests of the Company and its shareholders to create and maintain a
culture that emphasizes integrity and accountability and that reinforces the Company’s compensation philosophy. The Board has therefore adopted this policy, which provides
for the recovery of erroneously awarded incentive compensation in the event that the Company is required to prepare an accounting restatement due to material noncompliance
of the Company with any financial reporting requirements under the federal securities laws (the “Policy”). This Policy is designed to comply with Section 10D of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), related rules and the listing standards of Nasdaq Stock Market or any other securities exchange on which the
Company’s shares are listed in the future.
Administration.
This Policy shall be administered by the Board or, if so designated by the Board, the Compensation Committee (the “Committee”), in which case, all references herein to the
Board shall be deemed references to the Committee. Any determinations made by the Board shall be final and binding on all affected individuals.
Covered Executives.
Unless and until the Board determines otherwise, for purposes of this Policy, the term “Covered Executive” means a current or former employee who is or was identified by
the Company as the Company’s president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice-president of
the Company in charge of a principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or
any other person (including any executive officer of the Company’s subsidiaries or affiliates) who performs similar policy-making functions for the Company. “Policy-making
function” is not intended to include policy-making functions that are not significant. “Covered Executives” will include, at minimum, the executive officers identified by the
Company pursuant to Item 401(b) of Regulation S-K of the Exchange Act.
This Policy covers Incentive Compensation received by a person after beginning service as a Covered Executive and who served as a Covered Executive at any time during the
performance period for that Incentive Compensation.
1
Recovery: Accounting Restatement.
In the event the Company is required to prepare an Accounting Restatement, the Company will recover reasonably promptly any excess Incentive Compensation received by
any Covered Executive during the three completed fiscal years immediately preceding the date on which the Company is required to prepare an Accounting Restatement,
including transition periods resulting from a change in the Company’s fiscal year as provided in Rule 10D-1 of the Exchange Act. Incentive Compensation is deemed
“received” in the Company’s fiscal period during which the financial reporting measure specified in the Incentive Compensation award is attained, even if the payment or grant
of the Incentive Compensation occurs after the end of that period. The determination of the time when the Company is “required” to prepare an Accounting Restatement shall
be made in accordance with applicable SEC and national securities exchange rules and regulations.
(a)
Definition of Accounting Restatement.
For the purposes of this Policy, an “Accounting Restatement” means the Company is required to prepare an accounting restatement of its financial
statements filed with the Securities and Exchange Commission (the “SEC”) due to the Company’s material noncompliance with any financial reporting
requirements under the federal securities laws (including any required accounting restatement to correct an error in previously issued financial statements that
is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left
uncorrected in the current period).
The determination of the time when the Company is “required” to prepare an Accounting Restatement shall be made in accordance with applicable SEC and
national securities exchange rules and regulations.
An Accounting Restatement does not include situations in which financial statement changes did not result from material non-compliance with financial
reporting requirements, such as, but not limited to retrospective: (i) application of a change in accounting principles; (ii) revision to reportable segment
information due to a change in the structure of the Company’s internal organization; (iii) reclassification due to a discontinued operation; (iv) application of a
change in reporting entity, such as from a reorganization of entities under common control; (v) adjustment to provision amounts in connection with a prior
business combination; and (vi) revision for stock splits, stock dividends, reverse stock splits or other changes in capital structure.
(b)
Definition of Incentive Compensation.
For purposes of this Policy, “Incentive Compensation” means any compensation that is granted, earned, or vested based wholly or in part upon the
attainment of a “financial reporting measure” (as defined in paragraph (b) below), including, for example, bonuses or awards under the Company’s short and
long-term incentive plans, grants and awards under the Company’s equity incentive plans, and contributions of such bonuses or awards to the Company’s
deferred compensation plans or other employee benefit plans. Incentive Compensation does not include awards which are granted, earned and vested without
regard to attainment of financial reporting measures, such as time-vesting awards, discretionary awards and awards based wholly on subjective standards,
strategic measures or operational measures.
2
(c)
Financial Reporting Measures.
Financial reporting measures are those that are determined and presented in accordance with the accounting principles used in preparing the Company’s
financial statements (including non-GAAP financial measures) and any measures derived wholly or in part from such financial measures. For the avoidance
of doubt, financial reporting measures include stock price and total shareholder return. A measure need not be presented within the financial statements or
included in a filing with the SEC to constitute a financial reporting measure for purposes of this Policy.
(d)
Excess Incentive Compensation: Amount Subject to Recovery.
The amount(s) to be recovered from the Covered Executive will be the amount(s) by which the Covered Executive’s Incentive Compensation for the relevant
period(s) exceeded the amount(s) that the Covered Executive otherwise would have received had such Incentive Compensation been determined based on the
restated amounts contained in the Accounting Restatement. All amounts shall be computed without regard to taxes paid.
For Incentive Compensation based on financial reporting measures such as stock price or total shareholder return, where the amount of excess compensation
is not subject to mathematical recalculation directly from the information in an Accounting Restatement, the Board will calculate the amount to be reimbursed
based on a reasonable estimate of the effect of the Accounting Restatement on such financial reporting measure upon which the Incentive Compensation was
received. The Company will maintain documentation of that reasonable estimate and will provide such documentation to the applicable national securities
exchange.
(e)
Method of Recovery.
The Board will determine, in its sole discretion, the method(s) for recovering reasonably promptly excess Incentive Compensation hereunder. Such methods
may include, without limitation:
(i)
(ii)
(iii)
(iv)
(iv)
requiring reimbursement of compensation previously paid;
forfeiting any compensation contribution made under the Company’s deferred compensation plans, as well as any matching amounts and earnings
thereon;
offsetting the recovered amount from any compensation that the Covered Executive may earn or be awarded in the future (including, for the
avoidance of doubt, recovering amounts earned or awarded in the future to such individual equal to compensation paid or deferred into tax–qualified
plans or plans subject to the Employee Retirement Income Security Act of 1974 (collectively, “Exempt Plans”); provided that, no such recovery
will be made from amounts held in any Exempt Plan of the Company);
taking any other remedial and recovery action permitted by law, as determined by the Board; or
some combination of the foregoing.
3
No Indemnification or Advance.
Subject to applicable law, the Company shall not indemnify, including by paying or reimbursing for premiums for any insurance policy covering any potential losses, any
Covered Executives against the loss of any erroneously awarded Incentive Compensation, nor shall the Company advance any costs or expenses to any Covered Executives in
connection with any action to recover excess Incentive Compensation.
Interpretation.
The Board is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate or advisable for the administration of this Policy. It is
intended that this Policy be interpreted in a manner that is consistent with the requirements of Section 10D of the Exchange Act and any applicable rules or standards adopted
by the SEC or any national securities exchange on which the Company’s securities are listed.
Effective Date.
The effective date of this Policy is October 2, 2023 (the “Effective Date”). This Policy applies to Incentive Compensation received by Covered Executives on or after the
Effective Date that results from attainment of a financial reporting measure based on or derived from financial information for any fiscal period ending on or after the Effective
Date. In addition, this Policy is intended to be and will be incorporated as an essential term and condition of any Incentive Compensation agreement, change-in-control plan, or
any other plan or program that the Company establishes or maintains on or after the Effective Date.
Amendment and Termination.
The Board may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to reflect changes in regulations adopted by the SEC
under Section 10D of the Exchange Act and to comply with any rules or standards adopted by the Nasdaq Stock Market or any other securities exchange on which the
Company’s shares are listed in the future.
Other Recovery Rights.
The Board intends that this Policy will be applied to the fullest extent of the law. Upon receipt of this Policy, each Covered Executive is required to complete the Receipt and
Acknowledgement attached as Schedule A to this Policy. The Board may require that any employment agreement or similar agreement relating to Incentive Compensation
entered into on or after the Effective Date shall, as a condition to the grant of any benefit thereunder, require a Covered Executive to agree to abide by the terms of this Policy.
Any right of recovery under this Policy is in addition to, and not in lieu of, any (i) other remedies or rights of compensation recovery that may be available to the Company
pursuant to the terms of any similar policy in any employment agreement, or similar agreement relating to Incentive Compensation, unless any such agreement expressly
prohibits such right of recovery, and (ii) any other legal remedies available to the Company. The provisions of this Policy are in addition to (and not in lieu of) any rights to
repayment the Company may have under Section 304 of the Sarbanes-Oxley Act of 2002 and other applicable laws.
Impracticability.
The Company shall recover any excess Incentive Compensation in accordance with this Policy, except to the extent that certain conditions are met and the Board has
determined that such recovery would be impracticable, all in accordance with Rule 10D-1 of the Exchange Act and the Nasdaq Stock Market or any other securities exchange
on which the Company’s shares are listed in the future.
Successors.
This Policy shall be binding upon and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators or other legal representatives.
4
Schedule A
INCENTIVE-BASED COMPENSATION CLAWBACK POLICY
RECEIPT AND ACKNOWLEDGEMENT
I, __________________________________________, hereby acknowledge that I have received and read a copy of the Incentive Compensation Recovery Policy. As a
condition of my receipt of any Incentive Compensation as defined in the Policy, I hereby agree to the terms of the Policy. I further agree that if recovery of excess Incentive
Compensation is required pursuant to the Policy, the Company shall, to the fullest extent permitted by governing laws, require such recovery from me up to the amount by
which the Incentive Compensation received by me, and amounts paid or payable pursuant or with respect thereto, constituted excess Incentive Compensation. If any such
reimbursement, reduction, cancelation, forfeiture, repurchase, recoupment, offset against future grants or awards and/or other method of recovery does not fully satisfy the
amount due, I agree to immediately pay the remaining unpaid balance to the Company.
Signature
Date
5