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. 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 $10.0 million and $9.3 million for the years ended December 31, 2023 and 2022, respectively. We had negative cash flow from operating activities of approximately $8.3 million and $7.7 million for the years ended December 31, 2023 and 2022, respectively, and had an accumulated deficit of approximately $26.9 million and $17.0 million as of December 31, 2023 and 2022, respectively. 29 Results of Operations Comparison of Years Ended December 31, 2023 and 2022 The following table sets forth our results of operations for the years ended December 31, 2023 and 2022: For Years Ended December 31, 2023 2022 Revenue $ - $ 249,040 Cost of sales - 200,129 Gross profit - 48,911 Operating expenses: Research and development 5,714,574 4,152,152 General and administrative 4,313,200 4,763,114 Sales and marketing 283,443 451,421 Total operating expenses 10,311,217 9,366,687 Operating loss (10,311,217 ) (9,317,776 ) Other income (expense): Impairment of property and equipment - (237,309 ) Interest income 164,900 89,673 Other income, net 192,429 168,464 Total other income 357,329 20,828 Net loss $ (9,953,888 ) $ (9,296,948 ) Revenue and Gross Profit Revenue and gross profit decreased approximately $0.2 million and $0.1 million respectively, for the year ended December 31, 2023, as compared to 2022. The decrease was due to a minor sale of five Symphony analyzers to our business partner, Toray, during 2022. Future sales to Toray after 2022 are not anticipated. Research and Development Research and development expenses increased approximately $1.6 million, or 38%, for the year ended December 31, 2023, as compared to 2022. The increase in research and development expenses was primarily due to an approximately $0.2 million increase in personnel related costs, approximately $0.6 million of additional product development costs related to bringing the Symphony analyzer and cartridges in compliance with the FDA manufacturing standards, and approximately $0.6 million of additional depreciation expense associated with the acceleration of depreciation of certain assets used for research and development activities. We expect increases in our future research and development expenses which will be focused on our clinical trial program and any necessary manufacturing improvements. 30 General and Administrative General and administrative expenses decreased approximately $0.5 million, or 9%, for the year ended December 31, 2023, as compared to 2022. The decrease in general and administrative expenses is primarily due to the cost reduction efforts focused on reducing personnel and insurance costs. We expect to monitor and continue to reduce our general and administrative spend, as necessary, to optimize operational alignment. Sales and Marketing Sales and marketing expenses decreased approximately $0.2 million, or 37%, for year ended December 31, 2023, as compared to 2022. The decrease was primarily attributable to the Company’s cost savings efforts as the Company seeks to limit marketing costs. Other Income Total other income increased approximately $0.3 million, or 1,616%, for the year ended December 31, 2023 as compared to 2022. The increase primarily related to increases in interest income from the Company’s sweep account due to increased interest rates as compared to the prior period, as well as no material impairment charge being recognized during 2023 as compared to 2022, which had an impairment charge of approximately $0.2 million. Summary Statement of Cash Flows 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, 2023 2022 Cash proceeds provided by (used in): Operating activities $ (8,313,870 ) $ (7,741,593 ) Investing activities (704,166 ) (1,199,270 ) Financing activities 1,111,562 8,075 Net (decrease) increase in cash and cash equivalents $ (7,906,474 ) $ (8,932,788 ) Net cash used in operating activities During 2023, we used approximately $8.3 million in cash for operating activities, an increase of approximately $0.6 million from 2022. The increase in net cash used in operating activities was primarily due to increases in personnel and product development costs, which ultimately led to the reduction of personnel in the second and third quarters of 2023. Net cash used in investing activities During 2023, we used approximately $0.7 million in cash for investing activities, an approximately $0.5 million decrease from 2022. The Company acquired laboratory equipment and manufacturing equipment for the development of the Symphony devices in both 2022 and 2023. Net cash provided by financing activities During 2023, we generated approximately $1.1 million in cash from financing activities, as compared to less than $0.1 million in 2022. The increase in net cash provided by financing activities was primarily due to the proceeds from the August 2023 Financing. 31 Contractual Obligations See Note 8 to consolidated financial statements for our lease obligations and Note 9 to the consolidated financial statements for our other non-cancellable contractual obligations. Liquidity and Going Concern The Company had cash and cash equivalents of $2,208,516, as of December 31, 2023. The Company has incurred net losses since its inception, and has negative cash flows from operations and had the accumulated deficit of $26,950,990 as of December 31, 2023. The Company continues to develop the Symphony device and its first test for the measurement of IL-6. The Company remains committed to obtaining FDA clearance and will conduct clinical trials to obtain sufficient data to support its FDA submission, while also continuing to build its manufacturing operations with its contract manufacturing organizations. Current cash resources and expected operating expenses are considered in determining its liquidity requirement; as well as $1,771,375 of current liabilities on its balance sheet as of December 31, 2023. The Company estimates cash resources will be sufficient to fund its operations through the second quarter of 2024. The Company will need additional capital to fund its planned operations for the next 12 months. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements for the years ended December 31, 2023 and 2022 were prepared under the assumption that the Company will continue as a going concern, which contemplates that the Company will be able to realize assets and discharge liabilities in the normal course of business. The Company expects that it will 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 it needs them on terms that are acceptable to them, or at all. If adequate funds are not available, it may be required to delay its FDA regulatory strategy, and to delay or reduce the scope of its research or development programs, its commercialization efforts or its manufacturing commitments and capacity. In addition, if it raises additional funds through collaborations, strategic alliances or distribution arrangements with third parties, it may have to relinquish valuable rights to its technologies or future revenue streams. Recent Offerings August 2023 Offering On August 24, 2023, the Company entered into a securities purchase agreement with certain institutional and accredited investors (the “Purchase Agreement”) relating to the registered direct offering and sale of 216,000 shares of the Company’s common stock at a purchase price of $7.365 per share (the “Offering”). In a concurrent private placement, the Company also issued to such institutional and accredited investors unregistered warrants to purchase up to 216,000 shares of Common Stock (the “Warrants”). Pursuant to the terms of the Purchase Agreement, for each share of Common Stock issued in this offering an accompanying Warrant was issued to the purchaser thereof. Each Warrant is exercisable for one share of Common Stock (the “Warrant Shares”) at an exercise price of $7.24 per share, will be immediately exercisable upon issuance and will expire five years from the date of issuance. The Warrants were offered and sold at a purchase price of $0.125 per underlying warrant share, which purchase price is included in the offering price per share of Common Stock issued in the Offering (the “Private Placement”). 32 Pursuant to an engagement letter, dated as of August 7, 2023 (the “Engagement Letter”), between the Company and H.C. Wainwright & Co., LLC, or the placement agent, the Company agreed to pay the placement agent a total cash fee equal to 7.0% of the gross proceeds received in the Offering and the Private Placement. The Company also agreed to pay the placement agent in connection with the Offering and the Private Placement a management fee equal to 1.0% of the gross proceeds raised in the Offering and Private Placement, $45,000 for non-accountable expenses, and $15,950 for clearing fees. In addition, the Company agreed to issue to the placement agent, or its designees, warrants to purchase up to 15,120 shares of Common Stock (the “Placement Agent Warrants”), which represents 7.0% of the aggregate number of shares of Common Stock sold in the Offering. The Placement Agent Warrants have substantially the same terms as the Warrants, except that the Placement Agent Warrants have an exercise price equal to $ 9.2063, or 125% of the offering price per share of Common Stock sold in the Offering, and a term of five years from the commencement of the sales pursuant to the Offering. The gross proceeds to the Company from the Offering and the Private Placement are $1,590,840. The Company incurred offering costs of $413,544. January 2024 Offering On January 2, 2024, the Company sold in a public offering (such transaction, the “January 2024 Offering”) (i) 537,768 shares of the Company’s common stock, par value $0.0001 per share and (ii) prefunded warrants to purchase up to an aggregate 2,154,540 shares of Common Stock (the “Prefunded Warrants”). The Shares and Prefunded Warrants were sold together with warrants to purchase up to an aggregate of 2,692,308 shares of Common Stock at an exercise price of $1.30 per share (the “January 2024 Warrants”). The combined public offering price was $1.30 per share of Common Stock and related January 2024 Warrant and $1.2999 per Prefunded Warrant and related January 2024 Warrant. The Company intends to use the net proceeds from the January Offering to fund matters related to obtaining FDA approval (including clinical studies related thereto), as well as for other research and development activities, and for general working capital needs. The Prefunded Warrants are immediately exercisable and may be exercised at any time until all of the Prefunded Warrants are exercised in full. The January 2024 Warrants are exercisable immediately upon issuance for a period of five years following the date of issuance. Pursuant to an engagement letter, dated as of August 7, 2023, as amended October 11, 2023 (the “Amended Engagement Letter”), by and between the Company and the Placement Agent, the Company paid the Placement Agent a total cash fee of $245,000 equal to 7.0% of the gross proceeds received in the January 2024 Offering. The Company also paid the Placement Agent in connection with the January Offering a management fee of $35,000 equal to 1.0% of the gross proceeds raised in the January 2024 Offering and certain expenses incurred in connection with the January Offering. In addition, the Company issued to the Placement Agent, warrants to purchase up to an aggregate 188,462 shares of Common Stock (the “January 2024 Placement Agent Warrants”), which represents 7.0% of the aggregate number of shares of Common Stock and Prefunded Warrants sold in the January 2024 Offering. The January 2024 Placement Agent Warrants have substantially the same terms as the January 2024 Warrants, except that the January 2024 Placement Agent Warrants have an exercise price equal to $1.6250, or 125% of the offering price per share of Common Stock and related January 2024 Warrant sold in the January Offering and expire on the fifth anniversary from the date of the commencement of sales in the January 2024 Offering. Concurrently with the closing of the January 2024 Offering, certain purchasers have elected to exercise Prefunded Warrants to purchase 174,770 shares of Common Stock. 33 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-20. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 34