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,
Operating expenses:
Other income (expense):
Interest expense, net of amortization of premium - (367,459 )
Impairment of property and equipment (237,309 ) -
State grant revenue - 75,000
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.
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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,
Cash proceeds provided by (used in):
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
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, 2022. 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, 2022.
Management’s Annual Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange
Act). Our Chief Executive Officer and our Chief Financial Officer assessed the effectiveness of our internal control over financial reporting
as of December 31, 2022. In making this assessment, our Chief Executive Officer and our Chief Financial Officer used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in Internal Control—Integrated Framework.
Based on that assessment and using the COSO criteria, our Chief Executive Officer and our Chief Financial Officer have concluded that,
as of December 31, 2022, our internal control over financial reporting was effective.
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, 2022, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
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.
32
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 2023 annual meeting of stockholders to be filed with the SEC within
120 days of the fiscal year ended December 31, 2022.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby
incorporated by reference to our definitive proxy statement for our 2023 annual meeting of stockholders to be filed with the SEC within
120 days of the fiscal year ended December 31, 2022.
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 2023 annual meeting of stockholders to be filed with the Securities
and Exchange Commission within 120 days of the fiscal year ended December 31, 2022.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth information regarding
our equity compensation plans at December 31, 2022:
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 2023 annual meeting of stockholders to be filed with the SEC within
120 days of the fiscal year ended December 31, 2022.
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 2023 annual meeting of stockholders to be filed with the SEC within
120 days of the fiscal year ended December 31, 2022.
33
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 Form 10-K.
(c) Other schedules are not applicable.
34
INDEX TO EXHIBITS
Exhibit No. Description of Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
* Filed herewith.
** Management contract or compensatory plan, contract or arrangement.
ITEM 16. FORM 10-K SUMMARY.
None.
35
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 20, 2023.
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 Director and Chief Executive Officer March 20, 2023
Neil Dey (Principal Executive Officer)
/s/ Kenneth Fisher Chief Financial Officer March 20, 2023
Kenneth Fisher (Principal Financial and Accounting Officer)
/s/ Douglas C. Wurth Chairman of the Board of Directors March 20, 2023
Douglas C. Wurth
/s/ Donald R. Chase Director March 20, 2023
Donald R. Chase
/s/ Svetlana Dey Director March 20, 2023
Svetlana Dey
/s/ Fred S. Zeidman Director March 20, 2023
Fred S. Zeidman
/s/ Gary Gemignani Director March 20, 2023
Gary Gemignani
36
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, 2022 and 2021, 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, 2022 and 2021, 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.
Uncertainty Relating to Going Concern
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has
incurred net losses since its inception, and has negative cash flows from operations and will need additional funding to complete planned
development efforts. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard
to these matters also are described in Note 1. The financial statements do not include any adjustments that might result from the outcome
of this uncertainty.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with 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.
Wolf & Company, P.C.
We have served as the Company's auditor since 2017.
Boston, Massachusetts
March 20, 2023
F-2
Bluejay Diagnostics, Inc.
Consolidated Balance Sheets
December 31,
ASSETS
Current assets:
Operating lease right-of-use assets 465,514 -
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Operating lease liability, current 168,706 -
Accrued expenses and other current liabilities 835,730 341,384
Operating lease liability, non-current 323,915 -
Other non-current liabilities 15,823 -
Commitments and Contingencies (See Note 13)
Stockholders’ equity:
See notes to consolidated financial statements.
F-3
Bluejay Diagnostics, Inc.
Consolidated Statements of Operations
For the Years Ended December 31,
Operating expenses:
Other income (expense):
Interest expense, net of amortization of premium - (367,459 )
Impairment of property and equipment (237,309 ) -
State grant income - 75,000
Net loss per share - Basic and diluted $ (0.46 ) $ (0.41 )
Weighted average common shares outstanding:
See notes to consolidated financial statements.
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
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
Impact of adoption of ASC 842 - - - - - - - - - - - (5,368 ) (5,368 )
Stock-based compensation expense - - - - - - - - - - 433,004 - 433,004
Exercise of common stock Series B Warrants - - - - - - - - 40,100 4 (4 ) - -
See notes to consolidated financial statements.
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:
Amortization of right-of-use assets 149,770 -
Impairment of property and equipment 237,309 -
Loss on disposal of property and equipment 137 -
Issuance of warrants for service - 180,339
Gain on forgiveness of note payable, Paycheck Protection Program - (5,000 )
Non-cash interest expense - 227,007
Gain on revaluation of derivative warrant liability - (9,676 )
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (40,772 ) (1,551,637 )
CASH FLOWS FROM INVESTING ACTIVITIES:
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
Payments on note payable, Paycheck Protection Program - (9,000 )
Proceeds from exercise of common stock warrants - 9,079
Payments of deferred offering costs (20,000 ) -
Payment of finance lease (801 ) -
Proceeds from exercise of stock options 28,876 22,623
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
Liabilities incurred for the purchase of property and equipment $ 41,159 $ -
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. (“Bluejay”
and/or the “Company”) is a medical diagnostics company developing rapid tests using whole blood on our Symphony technology
platform (“Symphony”) to improve patient outcomes in critical care settings. The Company’s Symphony platform is a combination
of Bluejay’s intellectual property (“IP”) and exclusively licensed and patented IP 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 (the “FDA”),
can provide a solution to a significant market need in the United States. Clinical trials indicate the Symphony device 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.
Bluejay’s first product, the Symphony IL-6
test, is for the monitoring of disease progression in critical care settings. IL-6 is a clinically established inflammatory biomarker,
considered a ‘first-responder,’ for assessment of severity of infection and inflammation across many disease indications,
including sepsis. A current challenge of healthcare professionals is the excessive time and cost associated determining a patient’s
level of severity at triage and the Symphony IL-6 test has the ability to consistently monitor this critical care biomarker with rapid
results.
In the future Bluejay plans to develop additional
tests for Symphony including two cardiac biomarkers (hsTNT and NT pro-BNP) as well as other tests using the Symphony platform. The Company
does not yet have regulatory clearance for its Symphony products, and its Symphony products will need to receive regulatory authorization
from the FDA in order to be marketed as a diagnostic product in the United States.
Bluejay’s operations to date have been funded
primarily through the proceeds of the Company’s initial public offering (the “IPO”) in November 2021 (the “IPO
Date”).
On June 4, 2021, the Company formed Bluejay Spinco, LLC, a wholly-owned
subsidiary of the Company, for purposes of further development of the Company’s ALLEREYE diagnostic test. ALLEREYE is a point-of-care
device offering healthcare providers a solution for diagnosing Allergic Conjunctivitis.
Initial Public Offering
The Company completed its initial public
offering (the “IPO”) in November 2021 (“IPO Date”), whereby it sold 2,160,000 Units at a price of $10.00, with
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 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
the Company’s 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 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.
F-7
Risks and Uncertainties
The Company is subject to a number of risks similar
to other companies in its industry, including rapid technological change, competition from larger biotechnology companies and dependence
on key personnel. The Company is also impacted by inflationary pressures and global supply chain disruptions currently impacting many
companies.
On October 25, 2022,
the Company received a notification letter from the Nasdaq Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”)
notifying the Company that the closing bid price for its common stock had been below $1.00 for the previous 30 consecutive business days
and that the Company therefore is not in compliance with the minimum bid price requirement for continued inclusion on the Nasdaq Capital
Market under Nasdaq Listing Rule 5550(a)(2). The notification has no immediate effect on the listing of the Company’s common stock
on the Nasdaq Capital Market. The Company intends to take all reasonable measures available to achieve compliance and allow for continued
listing on the Nasdaq Capital Market. However, there can be no assurance that the Company will be able to regain compliance with the minimum
bid price requirement or will otherwise be in compliance with other Nasdaq listing criteria.
Going Concern
The Consolidated Financial Statements for the
years ended December 31, 2022 and 2021 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. However, the Company has incurred
net losses since its inception, and has negative cash flows from operations and will need additional funding to complete planned development
efforts. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The Company had cash and cash equivalents of $10.1 million at December
31, 2022. It continues to develop the Symphony device and its first test for the measurement of IL-6. It remains committed to obtaining
FDA clearance and has expanded clinical trials to obtain additional data to support its de novo FDA submission, while also continuing
to build its manufacturing operations with its CMOs. Current cash resources and expected operating expenses are considered in determining
its liquidity requirement; as well as $1.6 million of current liabilities on its balance sheet at December 31, 2022 and capital commitments
of approximately $2 million during 2023 (see Notes 12 and 13). Given the Company’s current plans, the Company estimates cash resources
will be sufficient to fund its operations through the fourth quarter of 2023. The Company will need additional capital to fund its planned
operations for the next 12 months.
The Company 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 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 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.
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 in the United States (“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. 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.
F-8
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 condensed 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 condensed
consolidated financial statements.
Financial Statement Reclassifications
Certain balances in the prior year consolidated
financial statements have been reclassified to conform to the presentation in the current year 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. Cash equivalents, consisting of highly liquid
money market are carried at fair market value which approximates cost.
Revenue Recognition
The Company recognizes revenue under the core
principles of depicting the transfer of control to the Company’s customers in an amount reflecting the consideration to which the
Company expected to be entitled. In order to achieve that core principle, the Company applies the following five step approach: (1) identify
the contract with a customer, (2) identify the performance obligations in that contract, (3) determine the transaction price, (4) allocate
the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied.
The Company recognizes revenue when performance
obligations under the terms of the contract with the customer are satisfied and are recognized at a point in time, which is also when
control is transferred. When the Company performs shipping and handling activities after the transfer of control to the customer (e.g.
when control transfers prior to delivery), they are considered fulfillment activities and, accordingly, the costs are accrued for when
the related revenue is recognized. Sales tax and valued added taxes collected from the customers relating to product sales and remitted
to governmental authorities are excluded from revenues.
Leases
Effective January 1, 2022, the Company adopted
the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) ASC 842, Leases
(“ASC 842”). The Company has adopted ASC 842 using the optional transition method and, as a result, there have been no reclassification
of prior comparable periods due to this adoption.
The Company has arrangements involving the lease
of facilities. Under ASC 842, at inception of the arrangement, the Company determines whether the contract is or contains a lease and
whether the lease should be classified as an operating or a financing lease. This determination, among other considerations, involves
an assessment of whether the Company can control the underlying asset and have the right to obtain substantially all to the economic benefits
or outputs from the asset.
F-9
The Company recognizes right-of-use (“ROU”)
assets and lease liabilities as of the lease commencement date based on the net present value of the future minimum lease payments over
the lease term. ASC 842 requires the leases to use the rate implicit in the lease unless it is not readily determinable and then it may
use its incremental borrowing rate (“IBR”) to discount the future minimum lease payments. Most of the Company’s leases
do not provide an implicit rate; therefore, the Company uses its IBR to discount the future minimum lease payments. The Company determines
its IBR with its credit rating and other economic information available as of the commencement date, as well as the identified lease term.
During the assessment of the lease term, the Company considers its renewal options and extensions within the arrangements and the Company
includes these options when it’s reasonably certain to extend the term of the lease.
The Company leases include both lease and non-lease
components. Consideration is allocated to the lease and non-lease components based on estimated standalone prices. The Company has elected
to exclude non-lease components from the calculation of its ROU assets and lease liabilities.
The Company has lease arrangements that contain
incentives for tenant improvements as well as fixed rent escalation clauses. For contracts with tenant improvement incentives that are
determined to be leasehold improvements and the Company is reasonably certain to exercise, it records a reduction to the lease liability
and amortizes the incentive over the identified term of the lease as a reduction to rent expense. The Company records rental expense on
a straight-line basis over the identified lease term on contracts with rent escalation clauses.
Finance leases are not material to the Company’s
consolidated financial statements.
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
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. As of December 31, 2022 and 2021, respectively, the Company had $371,000 and $0 capitalized in
property and equipment related to pre-production molds and tooling related to the Symphony device.
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.
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.
F-10
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.
The Company recognizes forfeitures related to
employee share-based payments when they occur. Forfeited share-based awards are recorded as a reduction to stock compensation expense.
Segment Reporting