SkyAI, Inc. 10-K

Item 1. Business Background and Overview Sharps Technology, Inc. is an innovative medical device and pharmaceutical packaging company offering patented, best-in-class smart-safety syringe products to the healthcare industry. The Company’s product lines focus on providing ultra-low waste capabilities, that incorporate syringe technologies that use both passive and active safety features. Sharps also offers products that are designed with specialized copolymer technology to support the prefillable syringe market segment. We were initially incorporated under the laws of the State of Wyoming on December 16, 2017. Prior to March 22, 2022, we were a Wyoming corporation and on March 22, 2022, we reincorporated as a Nevada corporation pursuant to a merger into a newly formed Nevada corporation which was approved by our board of directors and the holders of the majority of our outstanding shares of common stock Sharps was incorporated to purchase, develop, and commercialize a body of intellectual property resulting in a family of smart safety syringe products and innovative drug delivery devices. Sharps closed the acquisition of this intellectual property in the fourth quarter of 2017. The intellectual property we purchased consisted of issued patent and patent files, new designs and iterations, samples, regulatory files, manufacturing files, product testing files, and market research files relating to such safety syringe products. In June 2020, we entered into an asset/share purchase agreement with Safegard Medical Kft. (“Safegard”) and certain other parties, and in August 2020, October 2020, and July 2021, we entered into amendments to this agreement (as amended, the “Safegard Agreement”). Under the Safegard Agreement, we received an option to purchase either the stock of Safegard or certain assets of Safegard, including the Securegard™ and Sologard™ product line of safety syringes and a manufacturing facility in Hungary, registered with the FDA and CE, for the manufacture of safety syringes. Through this transaction, the Company now owns and operates a 41,000 square foot manufacturing facility in Hungary, which was previously used for the development and testing of our products. It is now primarily utilized for the manufacture of our safety syringe products. The Securegard and Sologard product lines continue to be manufactured in Hungary and are actively marketed through the existing agreements detailed below. We believe these products, which feature ultra-low waste syringes incorporating both passive and active safety mechanisms, along with reuse prevention features, will provide a competitive advantage over other syringes in the market. The Sharps Securegard and Sologard lines are multi-feature safety syringes that had previously gained market acceptance prior to Sharps’ acquisition of Safegard. Both Safegard and Sologard are FDA and WHO approved, and Safegard currently holds the European CE Mark. These products remain in the qualification phases with leading EU and US companies, which could potentially generate initial revenue for the Company in 2025. Recent agreements for both Sologard and Securegard have been announced, which are expected to contribute to future revenue growth potential in 2025. In January of 2025, we completed a $20 million offering that we believe positions Sharps with the working capital needed to expand operations in Europe by adding advanced machinery, expanding our workforce, and enhancing production capabilities and returns Sharps to being debt free. Sharps is committed to advancing innovation in the syringe space and we continue to collaborate with both government and private investment sources in Hungary to increase our manufacturing footprint and meet the escalating demand for Sharps’ Securegard and Sologard syringes. We believe that the demand for our innovative injection solutions is growing rapidly, with injectables continuing to be the preferred delivery method for therapies in areas like vaccines, biologics, weight loss (GLP-1), ophthalmic and cosmetic applications, gene therapies, and diabetes and inflammatory disease management. In September 2022 and amended in September 22, 2023, Sharps entered into an agreement to acquire InjectEZ, LLC, a specialty prefillable syringe manufacturing facility based in South Carolina. This agreement was initiated to support several key areas of the Company’s development and growth initiatives through the manufacturing and distribution of Sharps’ advanced prefillable syringes. The agreement was terminated on March 8, 2024, and replaced with a revised agreement for the manufacturing and distribution of Sharps’ products. The leadership team at Sharps continues to engage with the Seller to finalize manufacturing arrangements in South Carolina, while the Company actively seeks funding partners to expand its U.S. manufacturing capacity. The Company will continue working to amend the terms of this NPC Agreement and Nephron Agreement, based on the Amended Asset Purchase Agreement below dated May 20, 2024. (See below) 4 On May 20, 2024, the Company entered into an Amendment to the Asset Purchase Agreement dated September 22, 2023, with Nephron and Nephron’s InjectEZ, LLC, (collectively, the “Seller”). The September 22, 2023 agreement superseded the manufacturing and supply agreement entered into in connection with the NPC Agreement on September 29, 2022, and the Nephron Agreement entered into on September 29, 2022. The Amended Asset Purchase Agreement includes the purchase of certain assets. In connection with the Asset Purchase agreement, the Company paid a non-refundable deposit of $1M to be held in escrow as a deposit on the purchase price. The Asset Purchase agreement stipulated that the $1M deposit would be maintained until July 19, 2024, at which date, if the contemplated transaction was not consummated, through no fault of the Seller, the escrow would be released to the Seller by the escrow agent. The escrow deposit of $1M was released to the Seller and recorded in Other Expense as a forfeited agreement cost in the three months ended June 30, 2024. As stated above, The Company and Seller continue to work towards a further amendment of the Asset Purchase Agreement. The closing of the Asset Purchase Agreement is contingent on obtaining further amendments and the necessary financing. There can be no assurance that the closing of the asset sale will occur. On July 24, 2024, the Company entered into a Supply Agreement (the “Agreement”) with Stericare Solutions, LLC, a Texas limited liability company (“Stericare”), pursuant to which Stericare agreed to purchase 520 million units of 10ml polypropylene (“PP”) Sologard syringes from the Company. The specific purchase price is confidential, but revenues are expected to exceed $50 million. Under the terms of the Agreement, Stericare has committed to purchasing 520 million units of 10ml PP Sologard syringes in the following increments: 40 million units in the first year, and 120 million units each year for the remainder of the Agreement’s term. The Agreement has an initial five (5)-year term, targeted to commence in November 2024 (the “Initial Term”). Upon expiration of the Initial Term, the Agreement will automatically renew for successive one (1)-year periods (each, a “Renewal Term”), unless either party provides written notice of termination at least ninety (90) days prior to the end of the Initial Term or any Renewal Term. To date, Sharps has used pilot tooling for initial material qualifications and concept product approvals. As part of the proceeds from the recent $20 million financing, the Company has placed orders for advanced production technology for Sologard and will soon begin installation and operational qualification for the next phase of the project with Stericare. In December 2024, Sharps signed a sales agreement with a prominent European medical supply company serving Poland, Slovakia, and the Czech Republic. The Company began deliveries for the qualification purposes of Sharps’ Securegard safety syringes, manufactured at the Company’s facility in Hungary. Early qualification processes are underway with healthcare groups, and the Company is currently shipping Securegard to across Europe for qualification approval. The proceeds from the 2023 and 2024 fundraising efforts were utilized to further increase production capacity, build inventory, and support working capital requirements. A portion of the proceeds from the January 2025 offering will be allocated to expanding production capacity in Hungary, including the purchase of advanced machinery and other facility upgrades. This expansion will facilitate the fulfillment of Securegard and Sologard orders in connection with recently announced agreements with Stericare and the European distributor. Sharps is committed to driving revenue growth from both the Securegard and Sologard projects in 2025, as well as securing manufacturing capacity for the Company’s next generation polymer-based prefillable syringes. With the recent financing secured, the Company believes that it is positioned to advance its growth strategy by utilizing new working capital to support essential operating expenses. Production is currently on track, with the Company preparing for a potential transition to revenue in the second half of 2025, subject to the successful execution of its plans. 5 The Company has delayed the commercialization of the Sharps Provensa product line. The product’s specialized technology requires further design and assembly optimization, which requires further capital investment and not currently budgeted. At this time Sharps is not able to determine a timeline for further development and commercialization of the Provensa product. Our Products DISPOSABLE SYRINGES: Smart safety disposable syringes with ultra-low waste technology are the preferred syringe platform for the administration of many vaccines and injectable medications. Their design inherently reduces the amount of drug product that is thrown away, minimizing wasted therapies and thus improving the supply of crucial and in-demand medicines. Sharp’s disposable syringe lines carry less than 20 microliters of dead space, as compared to the 70 microliters “Low Dead Space” designation and the up to 140 microliters dead space found in competitors’ syringes. In addition, both passive and active safety features are those most requested by clinicians in the field, in order to avoid infectious needlestick injuries, and reuse prevention features are a requirement by the World Health Organization. The Sharps Securegard and Sologard, safety syringe product lines incorporate both active and passive safety features and have been designed to address the primary administration concerns with syringe delivery systems 1. Accidental needlestick injuries: these occur when the clinician is stuck with an infected needle. According to the WHO, these accidents likely take place in excess of 2 million times per year. When a clinician receives an infectious needlestick injury, any blood borne disease which the patient had, could be transmitted to them. A 2016 World Health Organization Commission reported that over 16 billion injections are delivered worldwide each year (pre-Covid era). An analysis showed that 55.1% of healthcare workers had sustained a needlestick injury, or NSI, at some point in their career. Over one million healthcare worker NSIs are documented each year in the US and Europe and over 3 million worldwide with the true incidence believed to be more than double those numbers as over half of injuries go unreported. US data on injury trends disturbingly show recent worsening despite safety campaigns and protocols. In a 2016 study, economic analysis has placed the average cost of an NSI at $747 (direct plus indirect costs) and strongly supported the use of safety-engineered devices for injection. Low compliance with recommended safety protocols can be seen upon examination of injury data where a majority of injuries continue to occur with non-safety devices or before full activation of a safety-protection feature. 2. Wasted medicine/dead space: all needle and syringes have dead space which permits the accumulation of injectable medications which cannot be accessed and are thrown away with each injection. Sharps disposable safety syringes have less than 20 microliters of waste space – others have as much as 140 microliters of waste space. Without knowing what syringe is going to be used, pharmaceutical companies must overfill their vials to account for this loss. For difficult to manufacture injectable medications, this reduces the number of lifesaving doses which could be available to the public. When doses are extremely small, waste space can exceed the required dose. That means more medications are being thrown away than injected into the patient. When healthcare providers use ultra-low waste syringes with multi-dose vials it allows for the availability of up to 20% to 40% more medication for patients that need the treatment. 3. Reuse prevention : the reuse of a needle or syringe puts patients and populations in danger of contracting debilitating and deadly bloodborne diseases such as Hepatitis B, Hepatitis C, and possibly HIV. Both passive and active features are designed into Sharps syringes to eliminate this risk. Reuse prevention is recognized by the WHO as a required feature for its syringe distribution programs and the Securegard product line has been approved by the organization. 6 PREFILLABLE SYRINGES: Sharps has developed an alternative high-quality solution to glass syringes through the use of inert polymers such as Cyclic Olefin Polymer (COP) and Cyclic Olefin Copolymer (COC), offering a superior alternative to traditional glass syringe systems. These polymer syringes share many of the same characteristics as current pharmaceutical glass designs, supporting long-term drug stability and extending shelf life for customers in the pharmaceutical sector. Polymer syringes can also be customized, reducing the risk of breakage, minimizing dead space, limiting contamination, and supporting the development of custom devices, including autoinjectors. The product pipeline includes 1mL short, 2.25mL, 5mL, 10ml and 50ml volumetric sizes, silicone free systems and ophthalmic drug delivery for the ever-growing cosmetics market, dual chamber systems for lyophilized products, and custom container solutions for autoinjectors. The ability to produce these innovative products using advanced manufacturing techniques provides additional advantages in quality, performance, and safety when compared to similar glass syringe products. Sharps looks forward to the potential of introducing this next-generation product line to the market and is currently working to establish US based manufacturing. Competitive Environment We anticipate that our major domestic competitors will include Retractable Technologies, Inc., Becton Dickinson & Company, Medtronic Minimally Invasive Therapies (“Medtronic,” formerly known as Covidien), Terumo Medical Corp., Smiths Medical, and B. Braun. Our competitors may have greater financial resources, larger and more established sales, marketing, and distribution organizations, and greater market influence, including long-term and/or exclusive contracts. We expect to compete primarily on the basis of healthcare worker and patient safety, product performance, and quality. We believe our competitive advantages will include a family of innovative drug delivery systems incorporating both active and passive safety features, as well as ultra-low waste features. Government Regulations In the United States, the Federal Food, Drug and Cosmetic Act, or FDCA, FDA regulations and other federal and state statutes and regulations govern, among other things, medical device design and development, preclinical and clinical testing, premarket clearance or approval, registration and listing, manufacturing, labeling, storage, advertising and promotion, sales and distribution, export and import, and post-market surveillance. The FDA regulates the design, manufacturing, servicing, sale and distribution of medical devices. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution. 7 Unless an exemption applies, each medical device we wish to distribute commercially in the United States will require marketing authorization from the FDA prior to distribution. The two primary types of FDA marketing authorization applicable to a device are premarket notification, also called 510k clearance, and premarket approval, also called PMA approval. The type of marketing authorization is generally linked to the classification of the device. The FDA classifies medical devices into one of three classes (Class I, II or III) based on the degree of risk the FDA determines to be associated with a device and the level of regulatory control deemed necessary to ensure the device’s safety and effectiveness. Devices requiring fewer controls because they are deemed to pose lower risk are placed in Class I or II. Class I devices are deemed to pose the least risk and are subject only to general controls applicable to all devices, such as requirements for device labeling, premarket notification and adherence to the FDA’s current Good Manufacturing Practices, or cGMP, known as the Quality System Regulations, or QSR. Class II devices are intermediate risk devices that are subject to general controls and may also be subject to special controls such as performance standards, product-specific guidance documents, special labeling requirements, patient registries or post-market surveillance. Class III devices are those for which insufficient information exists to assure safety and effectiveness solely through general or special controls and include life sustaining, life-supporting or implantable devices, devices of substantial importance in preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury. Outside of the United States, our ability to market our products will be contingent also upon our receiving marketing authorizations from the appropriate foreign regulatory authorities, whether or not FDA approval or clearance has been obtained. The foreign regulatory approval process in most industrialized countries generally encompasses risks similar to those we will encounter in the FDA approval or clearance process. The requirements governing conduct of clinical trials and marketing authorizations, and the time required to obtain requisite approvals, may vary widely from country to country and differ from those required for FDA approval or clearance. The sale of medical products is subject to laws and regulations pertaining to health care fraud and abuse, including state and federal anti-kickback, anti-self-referral, and false claims laws in the United States. Intellectual Property Intellectual property rights, particularly patent rights, are material to our business. We own four utility patents used in the Sharps Provensa product that is not currently being commercialized and would require further R&D efforts. Such patents expire between 2035 and 2040. Our issued patents include a design patent (US 743,025) for the ornamental design for a safety syringe which will reach full term and expire on November 10, 2029, a patent (US 10,980,950) for an ultra low-waste needle and syringe system that automatically and passively renders a needle safe during the injection process, a patent (US 11,154,663) for a pre-filled safety needle and syringe system, and a patent (US 11,497,860) for a Ultra-Low Waste Disposable Safety Syringe for Low Dose Injections. We have two additional pending patent applications in the United States and four PCT (Patent Cooperation Treaty) patent applications. The patent applications, which we own, have an anticipated expiration date of 2039/2040. The pending patent applications are for (i) an ultra-low waste disposable syringe with self-adjusting integrating safety features, and (ii) a needle and syringe system with automatic safety shield that renders a needle safe. Our pending patent applications are for utility patents. With respect to the last of these patent applications, we have, in addition to our United States patent application, also filed PCT patent applications. The PCT applications have entered National Phase. Some of the issued US patents have issued in other countries, some are still pending. We have certain trademarks for Sharps Provensa, Sharps Provensa Ultra-Low Waste and filed applications to register other trademarks for use in our Sharps Provensa product line. Human Capital We have fifty-five full-time employees, two of which are our Chief Executive Officer and Chief Financial Officer, and retain the services of additional personnel, as needed, on an independent contractor basis to support R&D, Finance, Marketing and Regulatory areas. We do not have any part-time employees. Of the fifty-five employees, fifty work at our facilities in Hungary. We expect to add additional employees as we increase production capacity. 8 Corporate Information The Company was incorporated in the State of Wyoming on December 16, 2017. On March 22, 2022, we reincorporated as a Nevada corporation. Our principal business address is 105 Maxess Road, Melville, New York 11747. We maintain our corporate website at sharpstechnology.com. The reference to our website is an inactive textual reference only. The information that can be accessed through our website is not part of this Form 10K, and investors should not rely on any such information in deciding whether to purchase our securities. Available Information The address of our principal executive office is 105 Maxess Road, Melville, New York 11747. Our common stock and warrants are quoted on the Nasdaq under the symbol “STSS” and “STSSW”. We file annual, quarterly, and current reports, proxy statements and other information with the U.S. Securities Exchange Commission (the “SEC”). These filings are available to the public on the Internet at the SEC’s website at http://www.sec.gov. Our corporate website is located at www.sharpstechnology.com (this website address is not intended to function as a hyperlink and the information contained on our website is not intended to be a part of this Report ). We make available free of charge on https://ir.STSS.com// our annual, quarterly, and current reports, and amendments to those reports if any, as soon as reasonably practical after we electronically file such material with, or furnish it to, the SEC. We may from time to time provide important disclosures to investors by posting them in the Investor Relations section of our website.