Miromatrix(MIRO) - 2022 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION This section provides Miromatrix Medical Inc.'s unaudited financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Financial Statements (Unaudited) This section presents Miromatrix Medical Inc.'s unaudited condensed financial statements, including balance sheets, statements of operations, changes in shareholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, investments, debt, equity, and other financial commitments for the periods ended June 30, 2022, and December 31, 2021 Condensed Balance Sheets (Unaudited) This section presents the Company's unaudited condensed balance sheets, detailing assets, liabilities, and equity for the specified periods Condensed Balance Sheet Highlights | Metric | June 30, 2022 | December 31, 2021 | Change (Absolute) | Change (%) | | :-------------------------------- | :------------ | :---------------- | :---------------- | :--------- | | Cash and cash equivalents | $12,593,315 | $52,811,531 | $(40,218,216) | -76.15% | | Short-term investments | $20,080,428 | $0 | $20,080,428 | N/A | | Total current assets | $33,959,377 | $55,337,273 | $(21,377,896) | -38.63% | | Total assets | $47,654,180 | $60,928,999 | $(13,274,819) | -21.79% | | Total current liabilities | $3,735,839 | $4,564,192 | $(828,353) | -18.15% | | Total liabilities | $7,642,882 | $6,803,115 | $839,767 | 12.34% | | Total shareholders' equity | $40,011,298 | $54,125,884 | $(14,114,586) | -26.08% | | Accumulated deficit | $(89,437,852) | $(74,051,914) | $(15,385,938) | 20.78% | Condensed Statements of Operations (Unaudited) This section provides the Company's unaudited condensed statements of operations, outlining revenues, expenses, and net loss for the periods presented Condensed Statements of Operations Highlights (Three Months Ended June 30) | Metric | Q2 2022 | Q2 2021 | Change (Absolute) | Change (%) | | :-------------------------- | :------------ | :------------ | :---------------- | :--------- | | Licensing revenue | $3,952 | $9,139 | $(5,187) | -56.8% | | Cost of goods sold | $125,000 | $125,000 | $0 | 0.0% | | Gross loss | $(121,048) | $(115,861) | $(5,187) | 4.5% | | Research and development | $4,988,233 | $2,480,887 | $2,507,346 | 101.1% | | Regulatory and clinical | $419,394 | $103,256 | $316,138 | 306.2% | | Quality | $517,333 | $86,257 | $431,076 | 499.8% | | General and administration | $2,188,460 | $786,322 | $1,402,138 | 178.3% | | Total operating expenses | $8,113,420 | $3,456,722 | $4,656,698 | 134.7% | | Operating loss | $(8,234,468) | $(3,572,583) | $(4,661,885) | 130.5% | | Net loss | $(8,182,189) | $(3,702,834) | $(4,479,355) | 121.0% | | Net loss per share (basic & diluted) | $(0.40) | $(1.27) | $0.87 | -68.5% | Condensed Statements of Operations Highlights (Six Months Ended June 30) | Metric | YTD 2022 | YTD 2021 | Change (Absolute) | Change (%) | | :-------------------------- | :------------ | :------------ | :---------------- | :--------- | | Licensing revenue | $10,720 | $15,247 | $(4,527) | -29.7% | | Cost of goods sold | $250,000 | $250,000 | $0 | 0.0% | | Gross loss | $(239,280) | $(234,753) | $(4,527) | 1.9% | | Research and development | $8,994,141 | $4,348,888 | $4,645,253 | 106.8% | | Regulatory and clinical | $774,632 | $186,961 | $587,671 | 314.3% | | Quality | $958,268 | $172,044 | $786,224 | 457.0% | | General and administration | $4,461,775 | $1,349,196 | $3,112,579 | 230.7% | | Total operating expenses | $15,188,816 | $6,057,089 | $9,131,727 | 150.8% | | Operating loss | $(15,428,096) | $(6,291,842) | $(9,136,254) | 145.2% | | Net loss | $(15,385,938) | $(4,137,176) | $(11,248,762) | 271.9% | | Net loss per share (basic & diluted) | $(0.75) | $(1.60) | $0.85 | -53.1% | Condensed Statements of Changes in Shareholders' Equity (Deficit) (Unaudited) This section details unaudited condensed statements of changes in shareholders' equity, showing movements in common stock, paid-in capital, and accumulated deficit Shareholders' Equity Changes (Six Months Ended June 30, 2022) | Item | Shares | Common Stock Amount | Additional Paid-In Capital | Accumulated Deficit | Total Shareholders' Equity | | :-------------------------- | :----- | :------------------ | :------------------------- | :------------------ | :------------------------- | | Balance at Dec 31, 2021 | 20,385,645 | $204 | $128,177,594 | $(74,051,914) | $54,125,884 | | Stock-based compensation | — | — | $600,371 | — | $600,371 | | Exercise of stock options | 205,507 | $2 | $256,881 | — | $256,883 | | Exercise of stock warrants | 191,559 | $2 | $414,096 | — | $414,098 | | Issuance of restricted shares | 31,030 | — | — | — | — | | Net loss | — | — | — | $(15,385,938) | $(15,385,938) | | Balance at June 30, 2022 | 20,813,741 | $208 | $129,448,942 | $(89,437,852) | $40,011,298 | Shareholders' Equity Changes (Six Months Ended June 30, 2021) | Item | Shares | Common Stock Amount | Additional Paid-In Capital | Accumulated Deficit | Total Shareholders' Equity | | :-------------------------- | :----- | :------------------ | :------------------------- | :------------------ | :------------------------- | | Balance at Dec 31, 2020 | 2,185,822 | $22 | $8,346,943 | $(59,381,158) | $(51,034,193) | | Stock-based compensation | — | — | $239,330 | — | $239,330 | | Exercise of stock options | 163,750 | $2 | $34,623 | — | $34,625 | | Exercise of stock warrants | 65,909 | — | $6,250 | — | $6,250 | | Conversion of preferred stock to common stock | 11,092,314 | $111 | $66,553,049 | — | $66,553,160 | | Note payable and accrued interest converted to common stock | 996,757 | $10 | $7,152,389 | — | $7,152,399 | | Sales of common stock, net of expenses | 5,520,000 | $55 | $44,593,631 | — | $44,593,686 | | Net loss | — | — | — | $(4,137,176) | $(4,137,176) | | Balance at June 30, 2021 | 20,024,552 | $200 | $126,926,215 | $(63,518,334) | $63,408,081 | Condensed Statements of Cash Flows (Unaudited) This section presents the Company's unaudited condensed statements of cash flows, categorizing cash movements from operating, investing, and financing activities Condensed Statements of Cash Flows Highlights (Six Months Ended June 30) | Cash Flow Activity | YTD 2022 | YTD 2021 | Change (Absolute) | | :----------------- | :-------------- | :-------------- | :---------------- | | Operating activities | $(13,790,978) | $(5,390,815) | $(8,400,163) | | Investing activities | $(26,757,741) | $1,913,888 | $(28,671,629) | | Financing activities | $330,503 | $65,558,289 | $(65,227,786) | | Net (decrease) increase in cash and cash equivalents | $(40,218,216) | $62,081,362 | $(102,300,000) | | Cash, cash equivalents and restricted cash at end of period | $13,393,415 | $66,525,757 | $(53,132,342) | Notes to Condensed Financial Statements (Unaudited) This section provides detailed notes to the unaudited condensed financial statements, explaining significant accounting policies, financial instruments, and other commitments NOTE 1 — DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Miromatrix Medical Inc. is a life sciences company focused on bioengineering transplantable organs using a decellularization and recellularization technology. The company is an emerging growth company and has elected to use the extended transition period for new accounting standards. It adopted ASC 842 (Leases) effective January 1, 2022, recognizing right-of-use assets and lease liabilities on the balance sheet - Miromatrix Medical Inc. is a life sciences company pioneering a novel technology for bioengineering fully transplantable organs, focusing initially on livers and kidneys, using a two-step method of decellularization and recellularization to replace porcine cells with unmodified human cells[19][85] - The Company is an emerging growth company and has elected to use the extended transition period for complying with new or revised accounting standards[25] - Effective January 1, 2022, the Company adopted ASU No. 2016-02, Leases (Topic 842), resulting in the recognition of right-of-use assets of $1,882,696 and lease liabilities of $2,020,839 on the balance sheet as of the adoption date[26][29] NOTE 2 — INVESTMENTS The Company invests its excess cash in U.S. Treasury securities, classified as held-to-maturity and recorded at amortized cost. As of June 30, 2022, total investments amounted to $26,019,391, with the majority maturing in less than one year - The Company invests its excess cash in U.S. Treasury securities, which are reported as held-to-maturity investments at amortized cost[23][32] Investments as of June 30, 2022 | Category | Amortized Cost | Unrealized Holding Losses | Fair Value | | :--------- | :------------- | :------------------------ | :--------- | | Short-term: U.S. treasury notes | $20,080,428 | $112,408 | $19,968,020 | | Long-term: U.S. treasury notes | $5,938,963 | $46,783 | $5,892,180 | | Total | $26,019,391 | $159,191 | $25,860,200 | Investment Maturity Dates as of June 30, 2022 | Maturity Period | Amount | | :-------------- | :----- | | Less than one year | $20,080,428 | | 1-2 years | $5,938,963 | | Total | $26,019,391 | NOTE 3 — PROPERTY AND EQUIPMENT The Company's property and equipment, net, increased to $5,792,166 as of June 30, 2022, from $5,591,726 at December 31, 2021, primarily due to additions in lab equipment, leasehold improvements, and furniture, fixtures, and computers. Depreciation and amortization expense significantly increased in 2022 compared to 2021 Property and Equipment, Net | Category | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Lab equipment | $1,706,468 | $1,549,416 | | Leasehold improvements | $3,366,458 | $3,239,307 | | Furniture, fixtures and computers | $1,994,172 | $1,671,793 | | Total gross property and equipment | $7,067,098 | $6,460,516 | | Less accumulated depreciation and amortization | $(1,274,932) | $(868,790) | | Total property and equipment, net | $5,792,166 | $5,591,726 | - Depreciation and amortization expense increased significantly: $273,610 for Q2 2022 versus $29,145 for Q2 2021, and $536,507 for YTD 2022 versus $59,174 for YTD 2021[34] NOTE 4 — EQUITY METHOD INVESTMENT The Company previously held an equity interest in Reprise Biomedical, Inc., which was spun out in 2019. Miromatrix sold its remaining 1,800,000 shares of Reprise in March 2021 for $2,000,000, resulting in a gain on sale of equity investment and eliminating future equity losses in the affiliate - The Company sold its remaining 1,800,000 shares of Reprise Biomedical, Inc. in March 2021 for $2,000,000, after previously reducing its ownership from 45% to 18%[35] - For the period ended March 15, 2021, the Company recorded an equity method share of net loss from Reprise of $(223,633)[36] NOTE 5 — ACCRUED EXPENSES Accrued expenses increased slightly to $1,450,934 as of June 30, 2022, from $1,428,622 at December 31, 2021, primarily driven by an increase in accrued wages, partially offset by decreases in legal, taxes, facility costs, and supplies Accrued Expenses | Category | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Wages | $923,423 | $704,502 | | Legal | $145,191 | $37,000 | | Taxes | $56,163 | $101,221 | | Insurance | $25,540 | — | | Key opinion leader compensation | $14,025 | $25,500 | | Royalties | $988 | $2,000 | | Facility costs | — | $242,892 | | Supplies | — | $127,505 | | Other | $285,604 | $188,002 | | Total Accrued expenses | $1,450,934 | $1,428,622 | NOTE 6 — FAIR VALUE MEASUREMENT The Company classifies its cash, cash equivalents, restricted cash, and investments in U.S. Treasury notes as Level 1 in the fair value hierarchy, indicating they are valued using quoted prices in active markets or observable inputs - The Company uses a three-tier valuation hierarchy (Level 1, 2, 3) for fair value measurement, based on observable and non-observable inputs[38][39] - Cash, cash equivalents, restricted cash, and investments in U.S. Treasury notes are classified as Level 1 in the fair value hierarchy[40][41] NOTE 7 — DEBT The Company has several promissory notes, including one with the University of Minnesota maturing in December 2022 with an outstanding principal of $38,399, and another with the University maturing in January 2025 with an outstanding principal of $385,997. A $250,000 loan from the Minnesota Department of Employment & Economic Development was fully repaid by June 30, 2022 - A promissory note with the University of Minnesota, originally for $405,559, had an outstanding principal of $38,399 as of June 30, 2022, and is due to mature on December 31, 2022[42] - A $250,000 loan from the Minnesota Department of Employment & Economic Development was fully repaid, with a $0 balance outstanding as of June 30, 2022, down from $250,000 at December 31, 2021[43] - Another promissory note with the University, for $385,997, bears 6% annual interest and is due on January 31, 2025, with the full principal outstanding as of June 30, 2022[44] Future Principal Maturities for Debt (as of June 30, 2022) | Fiscal Year Ending | Amount | | :----------------- | :----- | | 2023 | $38,399 | | 2024 | — | | 2025 | $385,997 | | Total future maturities payments | $424,396 | | Less current portion | $(38,399) | | Long-term debt | $385,997 | NOTE 8 — EQUITY The Company's common stock outstanding increased to 20,813,741 shares as of June 30, 2022. The 2021 Equity Incentive Plan saw an automatic increase of 600,000 shares for issuance in January 2022. Stock option and restricted stock unit activity resulted in increased stock-based compensation expenses for the six months ended June 30, 2022 - As of June 30, 2022, there were 20,813,741 shares of common stock issued and outstanding, an increase from 20,385,645 shares at December 31, 2021[47] - The 2021 Equity Incentive Plan automatically increased by 600,000 shares on January 1, 2022, for a total of 923,257 shares available for issuance as of June 30, 2022[52][53] Stock Option Activity (Six Months Ended June 30, 2022) | Item | Shares | Weighted Average Exercise Price | | :-------------------------- | :----- | :------------------------------ | | Options outstanding at beginning of period | 3,526,138 | $3.99 | | Granted | 754,000 | $4.05 | | Exercised | (205,507) | $1.25 | | Canceled or expired | (119,875) | $6.98 | | Options outstanding at end of period | 3,954,756 | $4.03 | | Options exercisable | 2,869,631 | $3.61 | - Stock-based compensation expense related to stock options was $332,589 for the six months ended June 30, 2022, up from $239,330 in the prior year[55] Restricted Stock Unit (RSU) Activity (Six Months Ended June 30, 2022) | Item | Shares | Weighted Average Grant Date Fair Value | | :-------------------------- | :----- | :------------------------------------- | | Unvested at beginning of period | 51,331 | $8.29 | | Granted | 172,234 | $4.42 | | Vested | (31,030) | $7.38 | | Canceled | — | — | | Unvested at end of period | 192,535 | $4.78 | - Stock-based compensation expense related to RSUs was $256,307 for the six months ended June 30, 2022, with no comparable expense in the prior year[60] Stock Warrant Activity (Six Months Ended June 30, 2022) | Item | Common warrants | | :-------------------------- | :-------------- | | Warrants outstanding at beginning of period | 795,379 | | Granted | — | | Exercised | (191,559) | | Expired | (4,629) | | Warrants outstanding at end of period | 599,191 | NOTE 9 — SIGNIFICANT CUSTOMERS For the periods presented, 100% of the Company's revenue came from a single customer, Reprise Biomedical, Inc. Due to collectability uncertainty, the Company has fully reserved against the long-term minimum royalty receivable from this customer - The Company had one customer, Reprise Biomedical, Inc., that accounted for 100% of total revenue for the three and six months ended June 30, 2022 and 2021[64] - Due to uncertainty regarding collectability, the Company has fully reserved against the long-term receivable related to minimum royalties from Reprise[64] NOTE 10 — COMMITMENTS AND CONTINGENCIES The Company is committed to annual minimum royalty payments of $500,000 to the University of Minnesota under an exclusive patent license agreement. Reprise Biomedical, Inc. also has a corresponding minimum royalty obligation to the Company - Under an Exclusive Patent License Agreement with the University of Minnesota, the Company is required to make minimum royalty payments of $500,000 per year[65] - Reprise Biomedical, Inc. has a minimum royalty obligation of $500,000 per year to the Company under a separate license agreement[65] NOTE 11 — LEASES The Company leases its corporate headquarters as an operating lease and various equipment as financing leases. As of June 30, 2022, operating lease assets were $1,772,441 and liabilities were $3,291,908 (net), while financing lease assets were $100,285 and liabilities were $26,469 (net). Lease costs for the six months ended June 30, 2022, included $163,569 for operating leases and $18,959 for financing lease amortization - The Company leases its corporate headquarters (operating lease) and equipment (financing leases); the operating lease term began in August 2021 and terminates in May 2029, with a tenant improvement allowance of $1,256,950 received[66] Lease Assets and Liabilities (June 30, 2022) | Category | Classification | Amount | | :-------------------------- | :----------------------------------- | :----- | | Operating lease assets | Right of use asset | $1,772,441 | | Financing lease assets | Property and equipment, net of accumulated depreciation | $100,285 | | Current Operating liabilities | Current portion of lease liability | $374,280 | | Current Financing liabilities | Current portion of financing lease obligations | $57,848 | | Noncurrent Operating liabilities | Lease liability, net | $2,917,628 | | Noncurrent Financing liabilities | Financing lease obligations, net | $26,469 | Lease Costs (Six Months Ended June 30, 2022) | Lease Cost Type | Classification | Amount | | :-------------------------- | :----------------------------------- | :----- | | Operating lease cost | Operating expenses: General and administrative | $163,569 | | Financing lease cost (Amortization) | Depreciation and amortization | $18,959 | | Financing lease cost (Interest) | Interest expense | $2,943 | | Variable lease cost | Operating expenses: General and administrative | $96,319 | Future Lease Payments (as of June 30, 2022) | Fiscal Year Ending | Operating Leases | Financing Leases | Total | | :----------------- | :--------------- | :--------------- | :---- | | Remainder of 2022 | $248,383 | $30,847 | $279,230 | | 2023 | $511,669 | $46,298 | $557,967 | | 2024 | $527,020 | $12,030 | $539,050 | | 2025 | $542,830 | — | $542,830 | | 2026 | $559,115 | — | $559,115 | | Thereafter | $1,423,621 | — | $1,423,621 | | Total lease payments | $3,812,638 | $89,175 | $3,901,813 | | Less imputed interest | $(520,730) | $(4,858) | $(525,588) | | Present value of lease liabilities | $3,291,908 | $84,317 | $3,376,225 | NOTE 12 — RELATED PARTY TRANSACTIONS The Company received licensing revenue from Reprise Biomedical, Inc., a related party, of $10,720 for the six months ended June 30, 2022, a decrease from $15,247 in the prior year. The Company has deferred royalty liabilities to the University of Minnesota totaling $1,227,421 as of June 30, 2022, and has fully reserved against long-term receivables from Reprise due to collectability uncertainty - The Company received $10,720 in royalties from Reprise Biomedical, Inc. for the six months ended June 30, 2022, a decrease from $15,247 in the same period of 2021[77] - As of June 30, 2022, the Company had a current deferred royalty liability of $735,688 and a long-term deferred royalty liability of $491,733 related to its minimum royalty obligation to the University[77] - The Company has fully reserved against long-term receivables from Reprise Biomedical, Inc. ($1,159,684 as of June 30, 2022) due to uncertainty regarding collectability[78] NOTE 13 — NET LOSS PER SHARE Due to net losses for the periods presented, basic and diluted net loss per share were identical, as the effect of potentially dilutive securities would have been anti-dilutive. As of June 30, 2022, there were 4,746,482 common stock equivalents excluded from diluted EPS calculations - Basic and diluted net loss per share were the same for the three and six months ended June 30, 2022 and 2021, because the effect of potentially dilutive securities would have been anti-dilutive due to net losses[79] Potentially Dilutive Securities Excluded from Diluted EPS | Security Type | June 30, 2022 | June 30, 2021 | | :-------------------------- | :------------ | :------------ | | Common stock options outstanding | 3,954,756 | 3,630,255 | | Common stock warrants | 599,191 | 965,619 | | Restricted stock units | 192,535 | — | | Total common stock equivalents | 4,746,482 | 4,595,874 | NOTE 14 — SUBSEQUENT EVENTS Subsequent to June 30, 2022, the Company entered into an Equity Distribution Agreement with Piper Sandler & Co. on July 1, 2022, allowing for the sale of up to $50.0 million in common stock. A Shelf Registration Statement on Form S-3 was also declared effective on July 11, 2022, registering up to $200.0 million in various securities - On July 1, 2022, the Company entered into an Equity Distribution Agreement with Piper Sandler & Co. to potentially issue and sell up to $50.0 million of common stock[81] - A Shelf Registration Statement on Form S-3, filed July 1, 2022, and declared effective July 11, 2022, registered the offer and sale of an indeterminate number of securities with an aggregate initial offering price of $200.0 million[24][137][138] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, highlighting significant increases in operating expenses, particularly R&D, regulatory, quality, and G&A, leading to a substantial increase in net losses. It also discusses the Company's liquidity, capital resources, and future funding needs for its bioengineering organ development Overview This overview introduces Miromatrix Medical Inc.'s core business of bioengineering transplantable organs and its key collaborations - Miromatrix Medical Inc. is a life sciences company pioneering a novel technology for bioengineering fully transplantable organs, focusing on livers and kidneys, using a two-step decellularization and recellularization method[85] - The Company collaborates with Mayo Clinic, Mount Sinai Health System, and the Texas Heart Institute, and has received strategic investments from Baxter International, Inc., CareDx, Inc., and DaVita, Inc.[85] Components of Our Results of Operations This section describes the key components influencing the Company's results of operations, including revenue, cost of goods sold, and various operating expenses - Licensing revenue is solely from an agreement with Reprise Biomedical, Inc., recognized when related sales occur or performance obligations are met, with an allowance set up for uncertain minimum royalty collectability[86] - Cost of goods sold relates to minimum royalty payments owed to the University of Minnesota under a license agreement[87] - Research and development expenses, including payroll, consulting, and lab supplies, are expected to increase in absolute dollars as product candidates are developed[88][89] - Regulatory and clinical expenses are anticipated to increase in absolute dollars as product candidates advance through regulatory processes[90][91] - Quality expenses are expected to increase in absolute dollars to develop GMP-compliant manufacturing processes and systems[92] - General and administrative expenses are projected to increase in absolute dollars due to headcount expansion and costs associated with operating as a public company[93] Results of Operations This section analyzes the Company's financial performance, comparing results for the three and six months ended June 30, 2022, against the prior year Three Months Ended June 30, 2022 Compared with Three Months Ended June 30, 2021 Q2 2022 saw a 56.8% decline in licensing revenue and a 121.0% increase in net loss, driven by higher operating expenses Key Financial Changes (Q2 2022 vs. Q2 2021) | Metric | Q2 2022 | Q2 2021 | Change (Absolute) | Change (%) | | :-------------------------- | :------------ | :------------ | :---------------- | :--------- | | Licensing revenue | $3,952 | $9,139 | $(5,187) | -56.8% | | Research and development | $4,988,233 | $2,480,887 | $2,507,346 | 101.1% | | Regulatory and clinical | $419,394 | $103,256 | $316,138 | 306.2% | | Quality | $517,333 | $86,257 | $431,076 | 499.8% | | General and administration | $2,188,460 | $786,322 | $1,402,138 | 178.3% | | Operating loss | $(8,234,468) | $(3,572,583) | $(4,661,885) | 130.5% | | Interest income | $61,078 | $45 | $61,033 | 135,628.9% | | Interest expense | $(8,799) | $(280,663) | $271,864 | -96.9% | | Net loss | $(8,182,189) | $(3,702,834) | $(4,479,355) | 121.0% | - The increase in Research and Development expenses was primarily due to a $1,154,178 increase in lab supplies, a $514,899 increase in payroll expenses due to headcount, a $331,207 increase in contract pre-clinical costs, and a $321,820 increase in consulting expenses[99] - General and Administrative expenses increased due to a $670,081 increase in payroll expenses, a $276,623 increase in insurance expense, a $190,538 increase in office expense, and costs associated with being a public company[103] - Interest expense decreased significantly due to the conversion of the $6,000,000 convertible promissory note (Cheshire Note) to equity in June 2021[105] Six Months Ended June 30, 2022 Compared with Six Months Ended June 30, 2021 YTD 2022 net loss surged 271.9% to $(15.4 million), driven by increased operating expenses and the absence of prior year non-operating gains Key Financial Changes (YTD 2022 vs. YTD 2021) | Metric | YTD 2022 | YTD 2021 | Change (Absolute) | Change (%) | | :-------------------------- | :------------ | :------------ | :---------------- | :--------- | | Licensing revenue | $10,720 | $15,247 | $(4,527) | -29.7% | | Research and development | $8,994,141 | $4,348,888 | $4,645,253 | 106.8% | | Regulatory and clinical | $774,632 | $186,961 | $587,671 | 314.3% | | Quality | $958,268 | $172,044 | $786,224 | 457.0% | | General and administration | $4,461,775 | $1,349,196 | $3,112,579 | 230.7% | | Operating loss | $(15,428,096) | $(6,291,842) | $(9,136,254) | 145.2% | | Interest income | $61,848 | $85 | $61,763 | 72,662.4% | | Interest expense | $(19,690) | $(586,037) | $566,347 | -96.6% | | Net loss | $(15,385,938) | $(4,137,176) | $(11,248,762) | 271.9% | - Research and Development expenses increased due to a $2,152,553 increase in lab supplies, a $1,213,414 increase in payroll expenses, a $632,495 increase in contract pre-clinical costs, and a $377,826 increase in consulting expenses[113] - General and Administrative expenses increased due to a $1,378,467 increase in payroll expenses, a $576,081 increase in insurance expense, a $349,382 increase in office expense, and overall costs associated with being a public company[117] - The Company recognized a gain of $1,983,912 on the sale of its equity investment in Reprise and a gain of $518,050 on debt extinguishment (PPP loan forgiveness) in the six months ended June 30, 2021, which did not recur in 2022[124][125] Liquidity and Capital Resources The Company has incurred significant net losses since inception, with an accumulated deficit of $89,437,852 as of June 30, 2022. It expects to incur additional losses and increased expenses for developing bioengineered organs, conducting clinical trials, and operating as a public company. Current cash and investments are projected to fund operations through 2023, with future needs expected to be met through equity offerings and debt financings. The Company completed an IPO in June 2021, raising $44.5 million, and entered into an Equity Distribution Agreement in July 2022 for up to $50.0 million in common stock sales - The Company has incurred net losses since its inception, with an accumulated deficit of $89,437,852 as of June 30, 2022[126] - The Company expects to incur additional losses and substantially increased expenses for developing bioengineered organs, conducting clinical trials, seeking regulatory approvals, and operating as a public company[127] - Existing cash and cash equivalents ($12,593,315), short-term investments ($20,080,428), and long-term investments ($5,938,693) are expected to fund operating expenses and capital expenditure requirements through 2023[128] - Future cash needs are expected to be financed through a combination of equity offerings and debt financings[129] - In June 2021, the Company completed its IPO, issuing 5,520,000 shares of common stock at $9.00 per share, raising $44,528,060 net proceeds[136] - On July 1, 2022, the Company entered into an Equity Distribution Agreement to sell up to $50.0 million of common stock through Piper Sandler & Co[137] - A Registration Statement on Form S-3, declared effective July 11, 2022, registered the offer and sale of various securities with an aggregate initial offering price of $200.0 million[138] Cash Flows For the six months ended June 30, 2022, net cash used in operating activities increased to $(13,790,978) from $(5,390,815) in 2021, primarily due to higher net losses. Investing activities shifted from providing $1,913,888 in 2021 to using $(26,757,741) in 2022, driven by significant purchases of investments. Financing activities provided $330,503 in 2022, a substantial decrease from $65,558,289 in 2021, which included IPO proceeds Summary of Cash Flows (Six Months Ended June 30) | Cash Flow Activity | YTD 2022 | YTD 2021 | Change (Absolute) | | :----------------- | :-------------- | :-------------- | :---------------- | | Operating activities | $(13,790,978) | $(5,390,815) | $(8,400,163) | | Investing activities | $(26,757,741) | $1,913,888 | $(28,671,629) | | Financing activities | $330,503 | $65,558,289 | $(65,227,786) | | Net (decrease) increase in cash and cash equivalents | $(40,218,216) | $62,081,362 | $(102,300,000) | - Net cash used in operating activities increased due to a higher net loss of $(15,385,938) in 2022 compared to $(4,137,176) in 2021[141][142] - Investing activities in 2022 were primarily a use of cash due to $26,026,125 in purchases of investments and $731,616 in property and equipment purchases, contrasting with 2021's cash inflow from the sale of equity-method investment[143] - Financing activities in 2022 were mainly from stock warrant and option exercises, significantly lower than 2021, which included $45,679,111 from the IPO and $19,891,670 from preferred stock sales[144][145] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Miromatrix Medical Inc. is not required to provide quantitative and qualitative disclosures about market risk - The Company is not required to provide quantitative and qualitative disclosures about market risk as it is a smaller reporting company[147] Item 4. Controls and Procedures The Company's management, including its principal executive and financial officers, concluded that its disclosure controls and procedures were effective as of June 30, 2022. There were no material changes in internal control over financial reporting during the fiscal quarter Evaluation of Disclosure Controls and Procedures This section details the evaluation of the Company's disclosure controls and procedures by management - The Company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of June 30, 2022[149] Changes in Internal Control over Financial Reporting This section reports on any material changes in the Company's internal control over financial reporting during the quarter - There were no material changes in the Company's internal control over financial reporting during the fiscal quarter of 2022[150] PART II — OTHER INFORMATION This section covers other information including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The Company is not currently a party to any litigation that is believed to have a material adverse effect on its business, operating results, cash flows, or financial condition - The Company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its business, operating results, cash flows, or financial condition[153] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 - No material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021[154] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the three months ended June 30, 2022, the Company issued 191,559 shares of common stock through unregistered sales related to stock warrant exercises. The net proceeds from the June 2021 IPO, approximately $44.5 million, are being used to fund R&D activities, construct a new facility, and for general corporate purposes Unregistered Sales of Equity Securities This section details the Company's unregistered sales of equity securities, specifically common stock issued from stock warrant exercises - During the three months ended June 30, 2022, the Company issued 191,559 shares of common stock for cash related to stock warrant exercises, relying on an exemption from registration under Section 4(a)(2) of the Securities Act[155] Use of Proceeds This section outlines the allocation and investment strategy for the net proceeds received from the Company's June 2021 IPO - The Company received approximately $44.5 million in net proceeds from its June 2021 IPO[157] - IPO proceeds are allocated as follows: $34.8 million to $40.0 million for R&D activities (including Phase I trial for MiroliverELAP and pre-clinical trials), $3.0 million to $4.0 million for constructing a new facility, and the remainder for working capital and general corporate purposes[159] - Pending use, proceeds are invested in capital preservation instruments such as short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit, or U.S. government obligations[157] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities - There were no defaults upon senior securities[158] Item 4. Mine Safety Disclosures This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[159] Item 5. Other Information The Company reported no other information - No other information was reported[160] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including the Second Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, CEO and CFO certifications under Sarbanes-Oxley Act, and various Inline XBRL documents - The exhibits include the Second Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, CEO and CFO certifications (Sections 302 and 906 of Sarbanes-Oxley Act), and various Inline XBRL documents[162] Signatures The report is duly signed on August 15, 2022, by Jeffrey Ross, Chief Executive Officer, and James Douglas, Chief Financial Officer (Principal Financial and Accounting Officer) of Miromatrix Medical Inc - The report was signed on August 15, 2022, by Jeffrey Ross, Chief Executive Officer, and James Douglas, Chief Financial Officer[166]