Bluejay Diagnostics(BJDX) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes on the company's operations, significant accounting policies, and financial instruments. Key updates include the August 2023 offering, a revised FDA regulatory strategy focusing on sepsis, and the company's going concern status due to continued net losses and need for additional capital Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets | Metric | September 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------------- | :------------------ | | ASSETS | | | | Cash and cash equivalents | $5,076,937 | $10,114,990 | | Total current assets | $6,527,742 | $11,788,470 | | Total assets | $8,246,608 | $13,521,265 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $2,800,140 | $1,640,254 | | Total liabilities | $3,033,453 | $1,979,992 | | Total stockholders' equity | $5,213,155 | $11,541,273 | | Total liabilities and stockholders' equity | $8,246,608 | $13,521,265 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $ - | $ - | $ - | $ 249,040 | | Gross profit | $ - | $ - | $ - | $ 48,911 | | Research and development | $ 1,397,318 | $ 1,379,665 | $ 4,428,123 | $ 2,830,705 | | General and administrative | $ 963,534 | $ 1,284,411 | $ 3,213,614 | $ 3,801,226 | | Sales and marketing | $ (19,619) | $ 146,102 | $ 282,756 | $ 281,144 | | Total operating expenses | $ 2,341,233 | $ 2,810,178 | $ 7,924,493 | $ 6,913,075 | | Operating loss | $ (2,341,233) | $ (2,810,178) | $ (7,924,493) | $ (6,864,164) | | Total other income (expense), net | $ 43,235 | $ (149,711) | $ 273,347 | $ (46,530) | | Net loss | $ (2,297,998) | $ (2,959,889) | $ (7,651,146) | $ (6,910,694) | | Net loss per share - Basic and diluted | $ (2.08) | $ (2.94) | $ (7.30) | $ (6.86) | | Weighted average common shares outstanding: Basic and diluted | $ 1,102,966 | $ 1,007,617 | $ 1,048,430 | $ 1,007,445 | Condensed Consolidated Statements of Changes in Stockholders' Equity Condensed Consolidated Statements of Changes in Stockholders' Equity | Metric | Common Shares (Sep 30, 2023) | Common Stock Amount (Sep 30, 2023) | Additional Paid-In Capital (Sep 30, 2023) | Accumulated Deficit (Sep 30, 2023) | Total Stockholders' Equity (Sep 30, 2023) | | :--------------------------------------------------------------------------------------------------- | :--------------------------- | :------------------------- | :---------------------------------------- | :--------------------------------- | :-------------------------------------- | | Balance as of December 31, 2022 | 1,010,560 | $ 101 | $ 28,538,274 | $ (16,997,102) | $ 11,541,273 | | Stock-based compensation expense | - | - | 54,730 | - | 54,730 | | Grants of fully vested restricted stock units to settled accrued bonus, net of shares withheld | 12,188 | 1 | 107,234 | - | 107,235 | | Net loss | - | - | - | (2,539,843) | (2,539,843) | | Balance as of March 31, 2023 | 1,022,748 | 102 | 28,700,238 | (19,536,945) | 9,163,395 | | Stock-based compensation expense | - | - | 27,702 | - | 27,702 | | Issuance of common stock | 750 | - | - | - | - | | RSU tax withholding | (358) | - | (1,453) | - | (1,453) | | Net loss | - | - | - | (2,813,305) | (2,813,305) | | Balance as of June 30, 2023 | 1,023,140 | 102 | 28,726,487 | (22,350,250) | 6,376,339 | | Stock-based compensation expense | - | - | (42,482) | - | (42,482) | | Issuance of common stock, net of issuance costs of $413,544 | 216,000 | 22 | 1,177,274 | - | 1,177,296 | | Net loss | - | - | - | (2,297,998) | (2,297,998) | | Balance as of September 30, 2023 | 1,239,140 | $ 124 | $ 29,861,279 | $ (24,648,248) | $ 5,213,155 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $ (5,536,393) | $ (4,797,350) | | Net cash used in investing activities | $ (616,272) | $ (961,063) | | Net cash provided by financing activities | $ 1,114,612 | $ - | | Net decrease in cash and cash equivalents | $ (5,038,053) | $ (5,758,413) | | Cash and cash equivalents, end of period | $ 5,076,937 | $ 13,289,365 | Notes to the Condensed Consolidated Financial Statements 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION Bluejay Diagnostics is a medical diagnostics company developing rapid tests on its Symphony platform for critical care settings, with its first product being the Symphony IL-6 test for sepsis risk stratification. The company has shifted its FDA regulatory focus from COVID-19 to sepsis and plans a 510(k) submission in H1 2024. Operations are funded by IPO proceeds and a recent August 2023 offering. The company executed a 1-for-20 reverse stock split in July 2023 and faces a going concern risk due to continued net losses and the need for additional capital to fund operations beyond Q1 2024 - Bluejay's primary product is the Symphony IL-6 test, designed for rapid monitoring of disease progression in critical care, particularly for sepsis patients[48][72] - The company's FDA regulatory strategy has shifted from COVID-19 to an initial indication for risk stratification of hospitalized sepsis patients, with a 510(k) submission planned for the first half of 2024[52][100] - In August 2023, the company completed a registered direct offering of 216,000 shares of common stock at $7.365 per share, raising $1,590,840 in gross proceeds, and issued warrants[75][50][99] - A 1-for-20 reverse stock split was effective July 24, 2023, reducing authorized shares from 100,000,000 to 7,500,000 and regaining Nasdaq compliance[80][103][55] - The company has incurred net losses since inception, has negative cash flows from operations, and requires additional funding beyond Q1 2024, raising substantial doubt about its ability to continue as a going concern[104][82][56] 2. SIGNIFICANT ACCOUNTING POLICIES The company's financial statements are prepared using US GAAP, requiring management estimates for areas like stock-based compensation and accruals. No material changes to significant accounting policies were made during the nine months ended September 30, 2023. The company operates as a single segment and calculates basic and diluted net loss per share, noting that potentially dilutive securities were anti-dilutive for all periods presented - No changes to significant accounting policies were made during the nine months ended September 30, 2023, as described in the 2022 Audited Financial Statements[107] - The company uses the Black-Scholes option pricing model for stock-based compensation, recognizing expense on a straight-line basis over the service period[84][109] - Research and development costs, including salaries, supplies, and clinical trial expenses, are expensed as incurred[85][111] - The company has one operating segment. Diluted net loss per share is the same as basic due to anti-dilutive securities[113][114] Potentially Dilutive Securities (Common Stock Equivalent Shares) | Security Type | September 30, 2023 | September 30, 2022 | | :----------------------------------- | :------------------- | :------------------- | | Options to purchase common stock | 31,361 | 39,389 | | Restricted stock units | 7,875 | - | | Warrants for common stock | 271,714 | 40,594 | | Class A warrants for common stock | 124,200 | 124,200 | | Class B warrants for common stock | 3,770 | 3,770 | 3. LICENSE AND SUPPLY AGREEMENT WITH TORAY INDUSTRIES The company previously held an exclusive license with Toray for protein detection cartridges, with royalty payments contingent on regulatory approval and sales. As of September 30, 2023, no sales or revenues from these cartridges had occurred. This agreement was superseded by new agreements in October 2023 - The original License and Supply Agreement with Toray Industries granted an exclusive license (outside Japan) for protein detection cartridges, with 15% royalties on net sales after regulatory approval and minimum annual royalties of $60,000 (first year) and $100,000 (thereafter)[117] - No sales or revenues from the cartridges occurred during the nine-month periods ended September 30, 2023 and 2022[117] - The original agreement was superseded by the New Toray License Agreement and Master Supply Agreement on October 23, 2023[118][228] 4. WARRANTS As of September 30, 2023, the company had various warrants outstanding, including Common Stock Warrants, Class A Warrants, and Class B Warrants, with different exercise prices and remaining lives. The August 2023 offering included the issuance of 216,000 Common Stock Warrants and 15,120 Placement Agent Warrants Warrants Outstanding as of September 30, 2023 | Warrant Type | Shares Exercisable | Weighted Average Exercise Price | Weighted Average Remaining Life (in Years) | | :------------------- | :----------------- | :------------------------------ | :----------------------------------------- | | Common Stock Warrants | 271,714 | $15.94 | 4.5 | | Class A Warrants | 124,200 | $140.00 | 3.1 | | Class B Warrants | 3,770 | $200.00 | 3.1 | - During the three and nine months ended September 30, 2023, the company issued 216,000 Warrants and 15,120 Placement Agent Warrants as part of the August 2023 offering[91] - No Class B Warrants were exercised during the nine months ended September 30, 2023, compared to 40,100 exercised on a cashless basis in the same period of 2022[121] 5. STOCK COMPENSATION The company operates under the 2021 Stock Plan and the 2018 Stock Incentive Plan, with shares available for grant. Stock-based compensation expense was recorded for both stock options and restricted stock units, with a decrease in total expense for the nine months ended September 30, 2023, compared to 2022 - As of September 30, 2023, there were 40,377 shares available for grant under the 2021 Plan and 13,113 shares under the 2018 Plan[93][122] Stock-Based Compensation Expense | Expense Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development | $ 9,393 | $ 20,528 | $ 54,389 | $ 54,231 | | General and administrative | $ (30,275) | $ 92,531 | $ 157,971 | $ 290,397 | | Sales and marketing | $ (21,600) | $ 160 | $ (7,550) | $ 790 | | Total stock-based compensation | $ (42,482) | $ 113,219 | $ 204,810 | $ 345,418 | - The weighted average grant date fair value of options granted decreased from $29.00 per share in 2022 to $8.80 per share in 2023[125] - As of September 30, 2023, unrecognized compensation expense was $46,083 for stock options (over 8.56 years) and $31,872 for restricted stock units (over 9.11 years)[151] 6. RELATED PARTY TRANSACTIONS The company has an agreement with NanoHybrids, Inc., where company staff and facilities are used to perform work for NanoHybrids, billed at cost plus 10%. The company's Chief Technology Officer is the majority shareholder of NanoHybrids - The company provides research and development services to NanoHybrids, Inc., billing at fully burdened personnel cost plus 10%, and rebills lab supplies[152] - The company's Chief Technology Officer is the majority shareholder of NanoHybrids[152] Related Party Transactions with NanoHybrids | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Income from NanoHybrids | $ - | $ 42,649 | $ 136,773 | $ 118,575 | | Cash receipts from NanoHybrids | $ - | $ 35,040 | $ 156,504 | $ 75,926 | | Amounts receivable from NanoHybrids (Sep 30, 2023) | $ - | | | | | Amounts receivable from NanoHybrids (Dec 31, 2022) | | | | $ 19,731 | 7. PROPERTY AND EQUIPMENT, NET Property and equipment, net, increased from $1,232,070 at December 31, 2022, to $1,321,711 at September 30, 2023, primarily due to an increase in construction-in-process. The company revised the useful life of certain lab equipment in Q1 2023, resulting in additional depreciation Property and Equipment, Net | Category | September 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------------- | :------------------ | | Construction-in-process | $1,067,149 | $375,466 | | Furniture, fixtures, and equipment | $141,164 | $136,942 | | Software | $4,457 | $4,457 | | Lab equipment | $1,287,783 | $1,268,380 | | Leasehold improvements | $43,231 | $43,231 | | Total | $2,543,784 | $1,828,476 | | Less: accumulated depreciation | $(1,222,073) | $(596,406) | | Property and equipment, net | $1,321,711 | $1,232,070 | - The company revised the useful life of certain lab equipment in the first quarter of 2023, leading to approximately $431,740 of additional depreciation for the nine months ended September 30, 2023[154] 8. LEASES The company primarily leases office and laboratory space, with weighted average remaining lease terms of 3.1 years for operating leases and 4.3 years for finance leases as of September 30, 2023. Total lease assets and liabilities decreased compared to December 31, 2022 Lease Information | Metric | September 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------------- | :------------------ | | Weighted average remaining lease term - operating leases (in years) | 3.1 | 3.9 | | Weighted average remaining lease term - finance leases (in years) | 4.3 | 5.3 | | Weighted average discount rate | 7.0% | 7.0% | | Operating lease right-of-use asset | $367,248 | $465,514 | | Finance leases in Property and Equipment | $21,067 | $21,067 | | Total lease assets | $388,315 | $486,581 | | Total lease liabilities | $406,836 | $513,251 | Estimated Lease Payments (Excludes 9 months ended Sep 30, 2023) | Year | Finance Leases | Operating Leases | | :--- | :------------- | :--------------- | | 2023* | $1,202 | $42,177 | | 2024 | $4,807 | $162,991 | | 2025 | $4,807 | $100,000 | | 2026 | $4,807 | $100,000 | | 2027 | $5,207 | $25,000 | | Thereafter | $ - | $ - | | Total future lease payments | $20,830 | $430,168 | | Less: Imputed interest | $2,803 | $41,359 | | Present value of lease liability | $18,027 | $388,809 | 9. COMMITMENTS AND CONTINGENCIES The company recorded a $240,000 severance liability for its former CFO, Kenneth Fisher, following his departure in September 2023. Royalty payments to Toray are contingent on product sales, with minimum annual royalties of $60,000 (first year) and $100,000 (thereafter) after regulatory approval, but no sales have occurred to date. The company has not incurred any indemnification losses - A severance liability of $240,000 was recorded for former CFO Kenneth Fisher, included in accrued expenses as of September 30, 2023[130] - Minimum royalty payments to Toray of $60,000 (first year) and $100,000 (subsequent years) are required after the first sale of cartridges following regulatory approval, creditable against actual royalties[131] - No sales or revenues from cartridges have occurred through September 30, 2023[131] - The company has not incurred any indemnification losses to date and thus has no accruals for such issues[158] 10. SUBSEQUENT EVENTS On October 23, 2023, the company entered into new agreements with Toray, the New Toray License Agreement and New Toray Supply Agreement, which supersede previous agreements. The new license agreement reduces royalty payments to Toray from 15% to 7.5% (or less) of net sales for a 10-year term and facilitates technology transfer to Sanyoseiko for cartridge manufacturing for FDA approval purposes - The New Toray License Agreement and New Toray Supply Agreement, effective October 23, 2023, supersede prior agreements[228] - The New Toray License Agreement reduces royalty payments to Toray from 15% to 7.5% (or less in certain circumstances) of net sales for a 10-year term[159] - The new agreements provide for the transfer of certain cartridge technology to Sanyoseiko and outline Toray's near-term manufacturing of intermediate components for FDA approval purposes, with Sanyoseiko taking over after approval[159][134] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of the company's financial performance, highlighting continued net losses and negative cash flows. It details changes in revenue, operating expenses (R&D, G&A, S&M), and other income, and discusses the company's liquidity, going concern status, and its classification as an emerging growth and smaller reporting company Overview - The company is a clinical-stage medical diagnostics company developing rapid tests on its Symphony platform for critical care settings[162] - The company incurred net losses of approximately $7.7 million and $6.9 million for the nine months ended September 30, 2023 and 2022, respectively, with an accumulated deficit of approximately $24.6 million as of September 30, 2023[135] - Negative cash flow from operating activities was approximately $5.5 million and $4.8 million for the nine months ended September 30, 2023 and 2022, respectively[135] Results of Operations - Revenue and gross profit were zero for the three-month period ended September 30, 2023, and decreased by approximately $0.2 million and $0.1 million, respectively, for the nine-month period due to a minor sale to Toray in 2022 that was not anticipated to recur[137] - Research and development expenses increased to $4.4 million for the nine months ended September 30, 2023, from $2.8 million in 2022, primarily due to higher personnel and product development costs, with further increases expected for clinical trials and manufacturing[193] - General and administrative expenses decreased to $3.2 million for the nine months ended September 30, 2023, from $3.8 million in 2022, reflecting efforts to preserve capital and workforce reductions[140] - Sales and marketing expenses decreased for the three months ended September 30, 2023, primarily due to the cancellation and forfeiture of equity awards by terminated personnel and cost savings efforts[167] - Other income, net, increased for the nine months ended September 30, 2023, to $0.3 million from $0.2 million in 2022, driven by higher interest rates and increased related party income from NanoHybrids[195] Liquidity and Going Concern - As of September 30, 2023, the company had approximately $5.1 million in cash and cash equivalents and $2.8 million in current liabilities[168] - Current capital is not sufficient to fund operations for the next twelve months, necessitating additional capital through equity offerings, grants, debt, or strategic alliances, which raises substantial doubt about the company's ability to continue as a going concern[168][169][142] Summary Statement of Cash Flows Cash Flow Summary (Nine Months Ended September 30) | Activity | 2023 | 2022 | | :----------------------------------- | :------------- | :------------- | | Operating activities | $(5,536,393) | $(4,797,350) | | Investing activities | $(616,272) | $(961,063) | | Financing activities | $1,114,612 | $ - | | Net decrease in cash and cash equivalents | $(5,038,053) | $(5,758,413) | - Net cash used in operating activities increased by approximately $0.7 million in 2023 compared to 2022, primarily due to higher personnel and product development costs, partially offset by non-cash items[198] - Net cash used in investing activities decreased by approximately $0.3 million in 2023, mainly due to a reduced need for equipment purchases following a shift away from COVID-19 patient focus[145] - Net cash provided by financing activities increased significantly in 2023 due to proceeds from the August 2023 offering[171] Emerging Growth Company and Smaller Reporting Company Status - The company qualifies as an 'emerging growth company' under the JOBS Act, allowing it to delay adoption of new accounting standards and benefit from reduced disclosure obligations regarding executive compensation and auditor attestation[172][174][175][2] - The company also qualifies as a 'smaller reporting company,' which permits presenting only two most recent fiscal years of audited financial statements and reduced executive compensation disclosures[1][3] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Bluejay Diagnostics is not required to provide the information typically mandated under this item - The company is a smaller reporting company and is not required to provide information regarding quantitative and qualitative disclosures about market risk[3][176] Item 4. Controls and Procedures Management, including the CEO and Interim CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023. No material changes to internal control over financial reporting occurred during the quarter - The Chief Executive Officer and Interim Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[4] - There were no material changes in the company's internal control over financial reporting during the quarter ended September 30, 2023[177] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any legal proceedings. However, it acknowledges that litigation outcomes are unpredictable and could be costly and time-consuming if claims arise - The company is not currently involved in any legal proceedings[207] - Legal proceedings are inherently unpredictable, and any claims could be time-consuming, costly, and divert significant management resources[6] Item 1A. Risk Factors This section outlines significant risks, particularly those related to the company's new license and supply agreements with Toray and its dependence on licensed intellectual property and contract manufacturing. These risks include supply limitations, regulatory approval challenges, warranty disclaimers, potential termination of agreements, and the complexities and costs associated with protecting and enforcing intellectual property rights Risks Related to Our Business - The New License Agreement with Toray and New Supply Agreement contain significant risks that may threaten the company's viability, including minimum royalty payments regardless of sales ($60,000 initial, $100,000 thereafter)[179][209] - Toray is only required to supply cartridge intermediates until October 2025, with a maximum six-month extension, posing a risk of future supply interruption if Sanyoseiko cannot manufacture within that period[9] - The company must bear the sole expense and responsibility for obtaining all regulatory approvals (e.g., FDA) and legal permits, a process that is expensive, time-consuming, and without assurance of success[10] - Toray disclaims most representations, warranties, or covenants relating to the licensed intellectual property, including fitness for purpose or against third-party infringement, limiting the company's recourse for IP flaws[11] - Toray has the right to terminate the New License Agreement or make it non-exclusive if the company fails to generate commercial sales by October 2028 (or October 2030 if due to company-controlled events)[182] - The company is dependent on SanyoSeiko as its primary contract manufacturing organization (CMO), and any failure by SanyoSeiko could threaten the company's viability or ability to obtain FDA approval and commercialize products[213][232] Risks Related to Our Intellectual Property - The company is substantially dependent on intellectual property licensed from Toray, and disputes over this license or Toray's failure to adequately protect it could significantly harm the business[185][214] - Toray generally controls the filing, prosecution, maintenance, defense, and enforcement of the licensed intellectual property; if Toray fails to do so, the company's ability to develop and launch products may be adversely affected[14][215] - Risks to IP protection include competitors developing similar technologies, pending applications not being approved or taking longer, and the complexity and expense of enforcing IP rights[16][20][216][217] - The company and/or Toray may face significant expense and liability from litigation or other proceedings related to third-party intellectual property rights, including claims challenging invention or ownership[16][21][188][222] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable to the company for the reporting period - This item is not applicable[17] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - None[22] Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period - None[223] Item 5. Other Information There is no other information to report under this item - None[218] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, warrant forms, securities purchase agreements, the separation agreement for the former CFO, the Amended and Restated License Agreement and Master Supply Agreement with Toray, and various certifications Key Exhibits Filed | Number | Description | | :----- | :---------- | | 3.2 | Certificate of Amendment to the Amended and Restated Certificate of Incorporation, filed July 21, 2023. | | 4.1 | Form of Warrant, dated August 28, 2023. | | 10.1 | Form of Securities Purchase Agreement, dated August 24, 2023. | | 10.2* | Separation Agreement and General Release, dated October 6, 2023, with Kenneth Fisher. | | 10.3 | Amended and Restated License Agreement, entered into on October 23, 2023, by and between Bluejay Diagnostics, Inc. and Toray Industries, Inc. | | 10.4 | Master Supply Agreement, entered into on October 23, 2023, by and between Bluejay Diagnostics, Inc. and Toray Industries, Inc. | | 31.1* | Certification of the Principal Executive Officer. | | 31.2* | Certification of the Principal Financial Officer. | | 32.1* | Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350. | | 32.2* | Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350. | Signatures The report is duly signed on behalf of Bluejay Diagnostics, Inc. by its Chief Executive Officer and Director, Neil Dey, and Interim Chief Financial Officer, Frances Scally, on November 9, 2023 - The report was signed by Neil Dey, Chief Executive Officer and Director, and Frances Scally, Interim Chief Financial Officer, on November 9, 2023[192]