Bluejay Diagnostics, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis together with our Consolidated Financial Statements and the notes thereto included elsewhere in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. For additional discussion, see “CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS” above. Overview We are a clinical-stage medical diagnostics company developing rapid, tests using whole blood on our Symphony platform (“Symphony”) to improve patient outcomes in critical care settings. Our Symphony technology platform is an exclusively licensed, patented system that consists of a mobile device and single-use test cartridges that if cleared, authorized, or approved by the U.S. Food and Drug Administration (“FDA”), can provide a solution to a significant market need in the United States. Clinical trials indicate Symphony produces laboratory-quality results in less than 20 minutes in critical care settings, including Intensive Care Units (“ICUs”) and Emergency Rooms (“ERs”), where rapid and reliable results are required. 27 Since inception, we have incurred net losses from operations each year and we expect to continue to incur losses for the foreseeable future. We incurred net losses of approximately $9.3 million and $3.5 million for the years ended December 31, 2022 and 2021, respectively. We had negative cash flow from operating activities of approximately $7.8 million and $4.4 million for the years ended December 31, 2022 and 2021, respectively, and had an accumulated deficit of approximately $17.0 million as of December 31, 2022. Results of Operations Comparison of Years Ended December 31, 2022 and 2021 The following table sets forth our results of operations for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 Revenue $ 249,040 $ - Cost of sales 200,129 - Gross profit 48,911 - Operating expenses: Research and development 4,152,152 1,147,955 General and administrative 4,763,114 1,792,482 Marketing and business development 451,421 289,726 Total operating expenses 9,366,687 3,230,163 Operating loss (9,317,776 ) (3,230,163 ) Other income (expense): Interest expense, net of amortization of premium - (367,459 ) Impairment of property and equipment (237,309 ) - State grant revenue - 75,000 Other income, net 258,137 34,324 Total other income (expense), net 20,828 (258,135 ) Net loss $ (9,296,948 ) $ (3,488,298 ) Revenue and Gross Profit Revenue and gross profit increased approximately $250,000 and $49,000 respectively, for the year ended December 31, 2022, as compared to 2021. We recognized a small, non-recurring sale to a foreign development partner in the second quarter of 2022, which we do not consider an entry to the market or indicative of expected margins. As expected, there were no sales in the remainder of 2022. Research and Development Research and development expenses increased approximately $3.0 million, or 262%, for the year ended December 31, 2022, as compared to 2021. This was due primarily to an increase in personnel; costs incurred for clinical trials necessary to support or our de novo FDA submission; and product design, testing, and manufacturing scale-up related to our Symphony device and cartridges. General and Administrative General and administrative expenses increased approximately $3.0 million, or 166%, for the year ended December 31, 2022, as compared to 2021. The increase was primarily attributable to administrative costs necessary to operate as a public company, totaling approximately $1.6 million. In addition, employee compensation and benefits increased by $1.3 million due to an increase in personnel. 28 Marketing and Business Development Marketing and business development expenses increased approximately $162,000, or 56%, for year ended December 31, 2022, as compared to 2021. The increase was primarily attributable to pre-launch activities, including the attendance of various industry conferences in 2022 introducing our Symphony platform to the market. Total Other Income (Expense), net Total other income (expense) increased approximately $279,000, or 108%, for the year ended December 31, 2022 as compared to 2021. The increase primarily related to income earned under the agreement with NanoHybrids, as discussed in Note 11, partially offset by an impairment charge recognized in September 2022 of $210,000 related to certain Allereye research and development equipment. Liquidity and Capital Resources Since our inception, we have financed our operations primarily through proceeds from our IPO, debt financings, private placements, interest income earned on cash and cash equivalents, and grants. At December 31, 2022, we had cash and cash equivalents of approximately $10.1 million. As of February 28, 2023 , we had cash and cash equivalents of approximately $7.6 million. Primary Sources of and Uses of Cash The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented. Years Ended December 31, 2022 2021 Cash proceeds provided by (used in): Operating activities $ (7,741,593 ) $ (4,366,758 ) Investing activities (1,199,270 ) (23,947 ) Financing activities 8,075 22,526,122 Net (decrease) increase in cash and cash equivalents $ (8,932,788 ) $ 18,135,417 Net cash used in operating activities During 2022, we used $7.7 million in cash for operating activities, an increase of $3.4 million from 2021. The increase in net cash used in operating activities was primarily due to increases in personnel costs, product development costs, and expenses incurred for public company operations. Net cash used in investing activities During 2022, we used $1.2 million in cash for investing activities, a $1.2 million increase from 2021. The increase in cash used in investing activities was primarily due to the purchase of lab and manufacturing equipment to support the development of the Symphony product line. Net cash provided by financing activities During 2022, we generated $8,000 in cash from financing activities, as compared to approximately $22.5 million in 2021. The $22.5 million decrease was primarily due to our IPO in November 2021, which provided net proceeds of $18.9 million. Additionally in 2021, we received $4.5 million from the issuance of convertible debentures, offset by issuance costs of approximately $563,000. 29 Contractual Obligations See Note 12 to consolidated financial statements for our lease obligations and Note 13 to the consolidated financial statements for our other non-cancellable contractual obligations. Liquidity and Going Concern We had cash and cash equivalents of $10.1 million at December 31, 2022. We continue to develop the Symphony device and its first cartridge for the measurement of IL-6. We remain committed to obtaining FDA clearance and have expanded clinical trials to obtain additional data to support our de novo FDA submission, while also continuing to build our manufacturing operations with our CMOs. Current cash resources and expected operating expenses are considered in determining our liquidity requirement; as well as $1.6 million of current liabilities on our balance sheet at December 31, 2022 and capital commitments of approximately $2 million during 2023 (see Notes 12 and 13). As of the filing of this report, we expect to need additional capital to fund our planned operations for the next twelve months. We may seek to raise such additional capital through public or private equity offerings, grant financing and support from governmental agencies, convertible debt, collaborations, strategic alliances and distribution arrangements. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available, we may be required to delay or reduce the scope of our research or development programs, our commercialization efforts or our manufacturing commitments and capacity. In addition, if we raise additional funds through collaborations, strategic alliances or distribution arrangements with third parties, we may have to relinquish valuable rights to its technologies or future revenue streams. If we are unsuccessful in our efforts to raise additional capital, based on our current and expected levels of operating expenses, our current capital will not be sufficient to fund our operations for the next twelve months. These conditions raise substantial doubt about our ability to continue as a going concern. Recent Financings Convertible Debentures On June 8, 2021, we entered into an agreement to issue a total of $4.5 million of 7.5% Senior Secured Convertible Debentures (the “Convertible Debentures”) to Sabby Volatility Master Fund, Ltd (“Sabby”), of which $3.0 million of the Convertible Debentures were issued at closing and $1.5 million in principal amount of the Convertible Debentures were issued in August 2021. Initial Public Offering We completed our IPO on November 10, 2021, whereby we sold 2,160,000 Units at a price of $10.00, with each Unit consisting of one share of common stock, one warrant to purchase one share of common stock at an exercise price of $7.00 per share (“Class A Warrant”), and one warrant to purchase one share of common stock at an exercise price of $10.00 (“Class B Warrant”) (collectively, a “Unit”). Each warrant contained within the Units is exercisable until the fifth anniversary of the IPO Date, however, holders of Class B Warrants may exercise such warrants on a “cashless” basis after the earlier of: (i) 10 trading days from closing date of the offering, or (ii) the time when $10.0 million of volume is traded in our common stock, if the volume weighted average price of our common stock on any trading day on or after the closing date of the offering fails to exceed the exercise price of the Class B Warrants (subject to adjustments as described in the warrant agreement). Additionally, the underwriter of the IPO exercised their overallotment option, solely with respect to the Class A Warrants and Class B Warrants, shortly after the IPO Date, which resulted in an additional issuance of 324,000 Class A Warrants and 324,000 Class B Warrants. The gross proceeds from the IPO were approximately $21.6 million and were offset by $2.8 million in offering costs. 30 Indemnification We have certain agreements with service providers with which we do business that contain indemnification provisions pursuant to which we typically agree to indemnify the party against certain types of third-party claims. We accrue for known indemnification issues when a loss is probable and can be reasonably estimated. We would also accrue for estimated incurred but unidentified indemnification issues based on historical activity. As we have not incurred any indemnification losses to date, there were no accruals for or expenses related to indemnification issues for any period presented. Critical Accounting Policies and Estimates Some of our critical accounting policies require us to make difficult, subjective or complex judgments or estimates. An accounting estimate is considered to be critical if it meets both of the following criteria: (i) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (ii) different estimates reasonably could have been used, or changes in the estimate that are reasonably likely to occur from period to period may have a material impact on the presentation of our financial condition, changes in financial condition or results of operations. As an emerging growth company, we have elected to opt-in to the extended transition period for new or revised accounting standards. As a result, our consolidated financial statements may not be comparable to those of companies that comply with public company effective dates. Stock-Based Compensation Our stock-based compensation expense for stock awards is estimated at the grant date based on the award’s fair value as determined by the consideration received or as calculated by the Black-Scholes option pricing model, whichever is more readily measurable. The Black-Scholes pricing model requires various highly judgmental assumptions including expected volatility and expected term. The expected volatility is based on the historical stock volatilities of several similar public companies over a period equal to the expected terms of the awards as we do not have a sufficient trading history to use the volatility of our own common stock. To estimate the expected term, we have opted to use the simplified method, which uses of the midpoint of the vesting term and the contractual term. We recognize the compensation cost of share-based awards on a straight-line basis over the requisite service period, however, for stock awards for which vesting is subject to performance – based milestones, the expense is recorded over the implied service period after the point when the achievement of the milestone is probable, or the performance condition has been achieved. If any of the assumptions used in the Black-Scholes pricing model changes significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period Recently Adopted Accounting Standards See Note 2 to consolidated financial statements (under the caption “Recently Issued Accounting Standards”). Recently Issued Accounting Standards See Note 2 to consolidated financial statements (under the caption “Recently Issued Accounting Standards”). ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information requested by this Item is not applicable as we are electing scaled disclosure requirements available to Smaller Reporting Companies with respect to this Item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our Consolidated Financial Statements and The Report of Independent Registered Public Accounting Firm are included in this Form 10-K on pages F-1 through F-21. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 31