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 Annual Report
on 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 late-stage pre-revenue
company focused on improving patient outcomes through a more cost efficient, rapid, near patient product for triage, diagnosis and monitoring
of disease progression. We believe there is a market need for an on-site and rapid diagnostic system that can be employed for testing
and monitoring. Our diagnostic system, which we refer to as “Symphony,” is an exclusively licensed, patented, low-cost, system
that consists of a small footprint instrument and single-use indication specific test cartridges, that we believe, if cleared, authorized,
or approved by the U.S. Food and Drug Administration (“FDA”), can provide a solution to this market need with rapid laboratory
quality results in approximately 24 minutes, in the clinic, Intensive Care Unit (“ICU”), Emergency Room (“ER”)
and in other hospital and clinical setting settings where rapid and reliable results are required. Currently, testing is generally performed
in a laboratory, and we estimate that the transportation and logistics of transporting the samples to the lab and obtaining the result
takes between 8-48 hours. Our platform is a sample-to-result system that has been shown in a clinical study to provide results in 24 minutes.
Our business model is to generate revenue from the sale of the table-top Symphony instrument, and from the sale of single-use indication
specific cartridges that are used by the Symphony instrument for the diagnostic test. Once the test material (generally a small volume
blood sample) is transferred to a single-use indication specific Symphony cartridge, no additional sample preparation or pre-processing
is 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
$3.5 million, and $1.2 million for the years ended December 31, 2021 and 2020, respectively.
We had negative cash flow from operating activities of approximately $4.4 million and $0.5 million for the years ended December 31, 2021
and 2020, respectively, and had an accumulated deficit of approximately $7.8 million as of December 31, 2021.
Results of Operations
Comparison of Years Ended December 31, 2021
and 2020
The following table sets forth our results of operations for the years
ended December 31, 2021 and 2020:
Year Ended December 31,
Operating expenses:
Other income (expense):
Gain on forgiveness of note payable, Paycheck Protection Program 5,000 102,000
Derivative warrant liability gain (loss) 9,676 (42,434 )
Interest expense, net of amortization of premium (367,459 ) (26,997 )
State grant revenue 75,000 -
Research and Development
Research and development expenses increased approximately $621,000,
or 118%, for the year ended December 31, 2021, as compared to the same period of 2020. The increase was primarily due to expenses incurred
totaling approximately $522,000 in connection with the clinical trials and manufacturing costs related to the Symphony analyzers.
36
General and Administrative
General and administrative
expenses increased approximately $1.2 million, or 201%, for the year ended December 31, 2021, as compared to the same period of 2020.
The increase was primarily attributable to increased operating expenses related to the company’s transition from a private to public
company, including the addition of accounting, legal and audit related expenses totaling approximately $670,000. In addition, expenses
related to employee compensation and benefits increased by approximately $309,000 due to an increase in general and administrative headcount.
Expense for expiring inventory of approximately $85,000 was recorded in 2021, versus no such expense recorded during 2020.
Marketing and Business Development
Marketing and business development
expenses increased approximately $217,000, or 297%, for year end December 31, 2021, as compared to the same period of 2020. The increase
was primarily attributable to increased expenses of approximately $218,000 paid to employees and consultants to expand the commercialization
of our Symphony platform.
Derivative Warrant Liability Gain (Loss)
Derivative warrant liability
gain (loss) increased by approximately $52,000, or 123%, for the year ended December 31, 2021 as compared to the same period of 2020,
resulting from the revaluation of the Series B Warrants accounted for as liability until their reclassification into equity in June 2021.
Interest Expense, Net of Amortization of Premium
Interest expense increased
by approximately $340,000, or 1,261%, for the year ended December 31, 2021 as compared to the same period of 2020. The increase was primarily
related to the amortization of discount and accrued interest on the Convertible Debentures issued in 2021 totaling approximately $266,000
and $125,000, respectively. This was partially offset by the lower interest expense recognized on the note payable issued in 2017 of $51,000
and increased premium amortization on the note payable issued in 2017 of approximately $29,000 driven by the conversion of those notes
payable into common stock.
Grant Income
Grant income increased by approximately
$75,000, or 100%, for the year ended December 31, 2021 as compared to the same period of 2020. The increase was due to a $75,000 grant
received from Massachusetts Growth Capital Corporation
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, 2021, we had cash and cash equivalents of approximately $19.0 million. As of February
28, 2022, we had cash and cash equivalents of approximately $18.0 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,
Cash proceeds provided by (used in):
Investing activities (23,947 ) -
37
Net cash used in operating activities
During 2021, we used $4.4 million
in cash for operating activities, an increase of $3.9 million, as compared to approximately $509,000 in 2020. The increase in the net
cash used in operations was primarily due to approximately $500,000 increase in cash paid for personnel costs, approximately $600,000
increase in cash paid for certain design services for the Symphony machine, $240,000 increase in cash paid to Toray for licensing fees,
and $1.6 million increase in cash spent on Directors and Officers insurance premiums due to our change from a private to a public company.
Net cash used in investing activities
During 2021, we used approximately
$24,000 in cash for investing activities, a 100% increase from 2020. The increase in cash used in investing activities was primarily
due to the purchase of lab equipment to support the development of the symphony product line.
Net cash provided by financing activities
During 2021, we generated $22.5
million in cash from financing activities, as compared to $1.3 million in 2020. The $21.2 million increase in cash generated from financing
activities was primarily due to our initial public offering 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.
Liquidity
We believe that our available
cash resources will be sufficient to fund our planned operations and capital expenditure requirements for at least twelve months from
the date of this Annual Report on Form 10-K is filed with the SEC. This evaluation is based on relevant conditions and events that are
currently known or reasonably knowable. However, our forecast is a forward-looking statement that involves risks and uncertainties, and
actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital
resources sooner than we expect. Our future capital requirements will depend on many factors, including:
● the costs and any production constraints of our key contract manufacturers.
As a result, we could deplete our available capital
resources sooner than we currently expect. We expect to continue to incur net losses for the foreseeable future and believe we will need
to raise substantial additional capital to accomplish our business plan over the next several years. In order to fund continued business
development, to generate sales, to invest in further research and development and to otherwise satisfy obligations as they mature, we
may need to seek additional financing equity and/or debt financing. Additional funding, however, may not be available to us on acceptable
terms, or at all. If we are unable to access additional funds when needed, we will not be able to continue the development of our platform
and our tests, or we could be required to delay, scale back or eliminate some or all of our research and development programs and other
operations. Any additional equity financing, if available to us, may not be available on favorable terms, will most likely be dilutive
to our current stockholders, and debt financing, if available, may involve restrictive covenants. Any of these events could harm our business,
financial condition and prospects.
38
Recent Financings
Series B Redeemable, Preferred Stock
In 2020, we issued 456 shares
of Series B redeemable, preferred stock (“Series B”) and 68 Series B warrants for gross proceeds of $50,000.
Subordinated Notes
On October 22, 2020, we
issued $154,000 of 8% subordinated promissory notes (“Subordinated Notes”) to related party shareholders, as well as warrants
to purchase 1,154,000 (prior to the stock dividend) shares of common stock at $0.10 per share, exercisable in cash or through cancellation
of the notes.
Series C Redeemable, Preferred Stock
In November 2020, we issued
636 shares of Series C redeemable, convertible preferred stock (“Series C”) at a purchase price of $1,578.50 per share
and received proceeds, net of issuance costs of approximately $995,000.
Paycheck Protection Program Loan
In 2020, we received loan proceeds
of $116,000 from a Paycheck Protection Program loan (“PPP loan”). In November 2020, we received notice of forgiveness of $102,000
of principal of the PPP loan and, in February 2021, we received an adjustment which increased the forgiven balance by approximately $5,000
and repaid the $9,000 related to the unforgiven balance.
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 “Debentures”) to
Sabby Volatility Master Fund, Ltd (“Sabby”), of which $3.0 million of the Debentures were issued at closing. The agreement
provides for the purchase by Sabby of an additional $1.5 million of the Debentures after we file a registration statement for an
initial public offering. On August 4, 2021 we issued an additional $1.5 million in principal amount of the Debentures to Sabby.
Initial Public Offering
We completed our initial public
offering (“IPO”) on November 10, 2021 (“IPO Date”), whereby we sold 2,160,000 Units, 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 Unit was sold at a price of $10.00. Each warrant contained within the Units is exercisable until the fifth anniversary
of the IPO date. Additionally, the underwriter exercised its overallotment option to purchase 324,000 of Class A and Class B Warrants.
The gross proceeds from the IPO were approximately $21.6 million. The offering costs related to the IPO were approximately $2.8 million.
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.
39
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. The Company recognizes 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
In August 2020, FASB issued ASU 2020-06, Debt
— Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own
Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which, among other
things, provides guidance on how to account for contracts on an entity’s own equity. This ASU eliminates the beneficial conversion
and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s
own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, this ASU modifies how
particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The
amendments in this ASU are effective for public companies for fiscal years beginning on or after December 15, 2023, including interim
periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.
The Company elected to adopt early this guidance in the first quarter of 2021. The adoption of this standard had no material impact on
the Company’s consolidated financial statements.
Recently Issued Accounting Standards
In May 2021, the FASB
issued ASU 2021-04 Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock
Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting
for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues
Task Force). The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021,
including interim periods within those fiscal years. Early application is permitted, including in an interim period as of the beginning
of the fiscal year that includes that interim period. The Company is currently evaluating the adoption date of this ASU and the impact,
if any, adoption will have on its financial position and results of operations.
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases. The
new guidance requires the recognition of lease liabilities, representing future minimum lease payments, on a discounted basis, and corresponding
right-of-use assets on a balance sheet for most leases, along with requirements for enhanced disclosures to give financial statement users
the ability to assess the amount, timing, and uncertainty of cash flows arising from leasing arrangements. We adopted the provisions of
ASU 2016-02 on January 1, 2022 and elected to implement the transition package of practical expedients permitted within the new standard,
which included (i) not reassessing whether expired or existing contract contain leases, (ii) not reassessing lease classification, and
(iii) not revaluing initial direct costs for existing leases. Adoption of the new standard resulted in the recording of initial right-of-use
assets and lease liabilities of approximately $200,000 as of January 1, 2022. The new standard did not materially impact our consolidated
statements of operations or cash flows.
40
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 Annual Report on Form 10-K on pages F-1
through F-22.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer,
who is our principal executive officer, and our Chief Financial Officer, who is our principal financial officer, evaluated the effectiveness
of our disclosure controls and procedures as of December 31, 2021. The term “disclosure controls and procedures,” as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed
to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports
that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer
and our Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive
Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2021.
Management’s Annual Report on Internal Control Over Financial
Reporting
This annual report does not
include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the
company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission
for newly public companies.
Our independent registered
public accounting firm will not be required to formally attest to the effectiveness of our internal controls over financial reporting
for as long as we are an “emerging growth company” pursuant to the provisions of the Jumpstart Our Business Startups Act.
Changes in Internal Control Over Financial Reporting
There have been no changes
in our internal control over financial reporting during the year ended December 31, 2021, that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
41
Inherent Limitations of Controls
Management does not expect
that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all
fraud. Controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives
and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because
of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and
instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any
system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate
because of changes in conditions, or deterioration in the degree of compliance with the policies or procedures. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
ITEM 9B. OTHER INFORMATION
Not applicable.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS
Not applicable.
42
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
The information required by this item is hereby
incorporated by reference to our definitive proxy statement for our 2022 annual meeting of stockholders to be filed with the Securities
and Exchange Commission within 120 days of the fiscal year ended December 31, 2021.
Our Board of Directors has adopted a written Code
of Business Conduct and Ethics applicable to all officers, directors and employees, which is available on our website (bluejaydx.com)
under “Governance Overview” within the “Investor Relations” section. We intend to satisfy the disclosure requirement
under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of this Code and by posting such information on the website
address and location specified above.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby
incorporated by reference to our definitive proxy statement for our 2022 annual meeting of stockholders to be filed with the Securities
and Exchange Commission within 120 days of the fiscal year ended December 31, 2021.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item is hereby
incorporated by reference to our definitive proxy statement for our 2022 annual meeting of stockholders to be filed with the Securities
and Exchange Commission within 120 days of the fiscal year ended December 31, 2021.
Securities Authorized for Issuance under Equity Compensation
Plans
The following table sets forth information regarding
our equity compensation plans at December 31, 2021:
Equity compensation plans not approved by security holders (2) 559,599 $ 4.20 -
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
The information required by this item is hereby incorporated by reference
to our definitive proxy statement for our 2022 annual meeting of stockholders to be filed with the Securities and Exchange Commission
within 120 days of the fiscal year ended December 31, 2021.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is hereby incorporated by reference
to our definitive proxy statement for our 2022 annual meeting of stockholders to be filed with the Securities and Exchange Commission
within 120 days of the fiscal year ended December 31, 2021.
43
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents
are filed as part of this report:
(b) See the accompanying Index
to Exhibits filed as a part of this Annual Report.
(c) Other schedules are not
applicable.
ITEM 16. FORM 10-K SUMMARY.
None.
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized on March 10, 2022.
Bluejay Diagnostics, Inc.
By: /s/ Neil Dey
Neil Dey
Chief Executive Officer and Director
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.
Signature Title Date
/s/ Neil Dey
/s/ Gordon Kinder
/s/ Douglas C. Wurth
Douglas C. Wurth Chairman of the Board of Directors March 10, 2022
/s/ Donald R. Chase
Donald R. Chase Director March 10, 2022
/s/Svetlana Dey
Svetlana Dey Director March 10, 2022
/s/Fred S. Zeidman
Fred S. Zeidman Director March 10, 2022
/s/ Gary Gemignani
Gary Gemignani Director March 10, 2022
45
Index to Consolidated Financial Statements
Contents
Report of Independent Registered Public Accounting Firm (PCAOB ID #392) F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
F-1
Report
of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting
Firm
To the Shareholders and the Board of Directors of Bluejay Diagnostics,
Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Bluejay
Diagnostics, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’
equity (deficit) and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively,
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, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent
with respect to the Company in accordance with 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 audit 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Wolf & Company, P.C.
We have served as the Company's auditor since 2017.
Boston, Massachusetts
March 10, 2022
F-2
Bluejay Diagnostics, Inc.
Consolidated Balance Sheets
December 31,
ASSETS
Current assets:
Other non-current assets 21,019 -
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accrued expenses and other current liabilities 339,384 133,820
Note payable, Paycheck Protection Program - 14,725
Derivative warrant liability - 155,629
Commitments and Contingencies (See Note 13)
Stockholders’ equity (deficit):
See notes to consolidated financial statements.
Reflects a 1-for-3.15 stock dividend effective
June 7, 2021.
F-3
Bluejay Diagnostics, Inc.
Consolidated Statements of Operations
For the Years Ended December 31,
Operating expenses:
Other income (expense):
Gain on forgiveness of note payable, Paycheck Protection Program 5,000 102,000
Derivative warrant liability gain (loss) 9,676 (42,434 )
Interest expense, net of amortization of premium (367,459 ) (26,997 )
State grant income 75,000 -
Net loss per share - Basic and diluted $ (0.41 ) $ (0.37 )
Weighted average common shares outstanding:
See notes to consolidated financial statements.
Reflects a 1-for-3.15 stock dividend effective
June 7, 2021.
F-4
Bluejay Diagnostics, Inc.
Statements
of Changes in Redeemable Preferred Stock and Stockholders’ Equity (Deficit)
Redeemable, Convertible Preferred Stock Stockholders’ Equity (Deficit)
Additional Total Stockholder’s
Series A Series B Series C Series D Common Stock Paid-In Accumulated Equity
Allocation of proceeds to common stock warrants - - - - - - - - 148,892 148,892
Stock-based compensation expense - - - - - - - - - - 7,370 - 3,730
Fair value of warrants issued for services - - - - - - - - - - 180,339 - 180,339
Reclassification of Series B Warrants - - - - - - - - - - 145,953 - 145,953
Stock-based compensation expense - - - - - - - - - - 68,458 - 68,458
See notes to consolidated financial statements.
Reflects a 1-for-3.15 stock dividend effective
June 7, 2021.
F-5
Bluejay Diagnostics, Inc.
Consolidated Statements of Cash Flows
For the Year Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net loss to net cash used in operating activities:
Issuance of warrants for service 180,339 -
(Gain) loss on revaluation of derivative warrant liability (9,676 ) 42,434
Changes in operating assets and liabilities:
Accounts receivable - 645
Prepaid expenses and other current assets (1,551,637 ) 19,106
Non-current assets (21,019 ) -
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (23,947 ) -
Net cash used in investing activities (23,947 ) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of principal on notes payable (289,617 ) -
Payments of convertible debenture issuance costs (562,842 )
Proceeds from initial public offering, net of offering costs 18,855,879 -
Proceeds from issuance of convertible debentures 4,500,000 -
Proceeds from subscription to the 2020 Promissory Notes - 154,000
Proceeds from exercise of common stock warrants 9,079 -
Proceeds from exercise of stock options 22,623 -
Cash and cash equivalents, beginning of year 912,361 96,011
Exercise of warrants through debt principal conversion $ 132,383 $ -
Conversion of convertible debentures into preferred stock $ 4,500,000 $ -
Conversion of preferred stock into common stock $ 8,505,982 $ -
Conversion of amended 2017 convertible notes $ 580,000 $ -
Fair value of warrants for common stock issued for services $ 180,339 $ -
Fair value of warrants issued to underwriters $ 2,939,327 $
See notes to consolidated financial statements.
F-6
Bluejay Diagnostics, Inc.
Notes to the Consolidated Financial Statements
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Business
Bluejay Diagnostics, Inc. (the “Company”),
which commenced its activities on March 20, 2015, is incorporated under the laws of the State of Delaware.
The Company is a diagnostic company that aims
to develop and market a more cost efficient, rapid, near patient product for triage, diagnosis and monitoring of disease progression
The Company is utilizing the Symphony
technology platform and Symphony IL-6 test licensed from Toray Industries, Inc. of Japan (see Note 3). The Company is also developing
biomarkers for detection of other diseases such as hsTNT/I for myocardial injury and NT-proBNP for cardiac heart failure .
The Company’s ALLEREYE diagnostic test
(“ALLEREYE”) is a POC device that offers healthcare providers a cost effective, reliable, easy to use solution for diagnosis
of Allergic Conjunctivitis. ALLEREYE received clearance by the U.S. Food and Drug Administration (the “FDA”) in October 2017.
On June 4, 2021, the Company created Bluejay
Spinco, LLC, (“SpinCo”) a wholly owned subsidiary of the Company, for purposes of further development of ALLEREYE. The Company
transferred assets and liabilities related to ALLEREY to SpinCo in accordance with the Contribution and Assumption Agreement. The assets
and liabilities were transferred from the Company to SpinCo at their carrying value. The Company is responsible for the operational activities
of SpinCo and bears all costs necessary to operate SpinCo. The Company’s CEO is also the CEO of SpinCo and oversees the business
strategy and operations of SpinCo.
Initial Public Offering
The Company completed its initial public offering (“IPO”)
on November 10, 2021 (“IPO Date”), whereby it sold 2,160,000 Units, each Unit consisting of one share of the Company’s
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 Unit was sold at a price of $10.00. 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 the Company’s 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 Warrant (subject to adjustment 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 resulting 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.
Risks and Uncertainties
The Company is subject to a number of risks similar to other companies
in its industries, including rapid technological change, competition from larger biotechnology companies and dependence on key personnel.
The extent of the impact of the COVID-19 pandemic on the Company’s
business continues to be highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments
are taking continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19
pandemic, and it is possible that it could cause a lasting national and/or global economic recession. Policymakers around the globe have
responded with fiscal policy actions to support the healthcare industry and economy as a whole. The extent to which the COVID-19 pandemic
may in the future materially impact the Company’s financial condition, liquidity or results of operations is uncertain.
F-7
Liquidity
Since its inception, the Company has
devoted substantially all of its efforts to business planning, business development, research and development, and raising capital. The
income potential of the Company’s business and market are unproven. Successful transition to attaining profitable operations is
dependent upon achieving a level of revenues adequate to support the Company’s cost structure. As of December 31, 2021, the Company
had $19.0 million in cash and cash equivalents.
The Company believes it has sufficient
cash to meet its funding requirements for at least the next 12 months from the issuance of this report. However, the Company has experienced
net losses and negative cash flows from operating activities since its inception and has an accumulated deficit of $7.7 million as of
December 31, 2021. The Company expects to continue to incur net losses for the foreseeable future and believes it will need to raise substantial
additional capital to accomplish its business plan over the next several years. The Company plans to continue to fund its losses from
operations and capital funding needs through a combination of equity offerings, debt financings and generating revenue from sales to customers.
If the Company is not able to secure adequate additional funding or generate sufficient revenue, the Company may be forced to make reductions
in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs. Any of these
actions could materially harm the Company’s business, results of operations and future prospects. There can be no assurance as to
the availability or terms upon which such financing and capital might be available in the future.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements
have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and include all adjustments necessary for
the presentation of the Company’s consolidated financial position, results of operations and cash flows for the periods presented.
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany balances
and transactions have been eliminated in consolidation.
On June 7, 2021, the Company’s
Board of Directors declared a stock dividend of 2.15 shares of common stock for every share of common stock. This stock dividend was
deemed a large stock dividend and was treated as a 1-for-3.15 stock split (“Stock Split”). The common stock shares and per
share amounts (other than authorized shares) in these consolidated financial statements and related notes have been retroactively restated
to reflect the stock dividend for all periods presented.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in these consolidated
financial statements and accompanying notes. Actual results could differ materially from those estimates. The Company believes judgment
is involved in accounting for the fair value-based measurement of stock-based compensation, accruals, convertible notes and warrants.
The Company evaluates its estimates and assumptions as facts and circumstances dictate. As future events and their effects cannot be
determined with precision, actual results could differ from these estimates and assumptions, and those differences could be material
to the consolidated financial statements.
Cash and cash equivalents
The Company considers all highly liquid investments
with maturities of three months or less at the date of purchase to be cash equivalents. The Company maintains its cash in bank deposit
accounts which, at times, may exceed the federal insurance limit.
F-8
Concentration of Credit Risk
Cash, and cash equivalents consist of financial
instruments that potentially subject the Company to a concentration of credit risk in the event of a default by the related financial
institution holding the securities, to the extent of the value recorded in the balance sheet. The Company invests cash that is not required
for immediate operating needs primarily in highly liquid instruments with lower credit risk.
Research and Development Expenses
Development costs incurred in the research and
development of new products are expensed as incurred. Research and development costs include, but are not limited to, salaries, benefits,
stock-based compensation, laboratory supplies, fees for professional service providers and costs associated with product development efforts,
including preclinical studies and clinical trials.
The Company estimates preclinical study and clinical
trial expenses based on the services performed, pursuant to contracts with research institutions and clinical research organizations
that conduct and manage preclinical studies and clinical trials on its behalf. In accruing service fees, the Company estimates the time
period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance
of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly. Payments made to third
parties under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses until the services
are rendered.
Derivative instruments
The Company does not use derivative
instruments to hedge exposures to cash flow or market risks; however, certain warrants to purchase preferred stock that do not meet the
requirements for classification as equity are classified as liabilities. In such instances, net-cash settlement is assumed for financial
reporting purposes, even when the terms of the underlying contracts do not provide for a net -cash settlement. Such financial instruments
are initially recorded at fair value with subsequent changes in value charged (credited) to operations each reporting period. If these
instruments subsequently meet the requirements for classification as equity, the Company reclassifies the then fair value to equity.
The Company values its outstanding warrants using the Black-Scholes
option pricing model.
Stock-based compensation
Share-based compensation expense for
all share-based payment awards made to employees, directors and non-employees is measured based on the grant-date fair value of the award.
Share-based compensation expense for awards granted to non-employees is determined using the fair value of the consideration received
or the fair value of the equity instruments issued, whichever is more reliably measured.
The Company uses the Black-Scholes option pricing
model to determine the fair value of options granted. The Company recognizes the compensation cost of share-based awards on a straight-line
basis over the requisite service period. 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.
The determination of the fair value of share-based
payment awards utilizing the Black-Scholes model is affected by the stock price and a number of assumptions, including expected volatility,
expected life, risk-free interest rate and expected dividends. The Company does not have a history of market prices of its common stock,
and as such, volatility is estimated using historical volatilities of similar public entities. The expected life of the awards is estimated
based on the simplified method for grants to employees, and is based on the contractual term for non -employee awards. The risk-free
interest rate assumption is based on observed interest rates appropriate for the terms of the awards. The dividend yield assumption is
based on history and expectation of paying no dividends.
F-9
The Company recognizes forfeitures related to
employee share-based payments when they occur. Forfeited options are recorded as a reduction to stock compensation expense.
Fair Value Measurements
The Company applies a three-level valuation hierarchy
for fair value measurements. The categorization of assets and liabilities within the valuation hierarchy is based on the lowest level
of input that is significant to the measurement of fair value.
A change to the level of an
asset or liability within the fair value hierarchy is determined at the end of a reporting period.
Fair Values of Financial Instruments
The fair value of cash, cash equivalent, and accounts
payable approximates the carrying value of these financial instruments because of the short-term nature of any maturities. The Company
determines the estimated fair values of other financial instruments, using available market information and valuation methodologies, primarily
input from independent third-party pricing sources.