Miromatrix Medical Inc. - Quarter Report: 2021 September (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

or

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-40518

Miromatrix Medical Inc.

(Exact name of registrant as specified in its charter)

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10399 West 70th Street

Eden Prairie, MN 55344

(Address of principal executive offices, including zip code)

(952) 942-6000

(Registrant’s telephone number, including area code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   ☒    No   ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  ☒    No   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☐    No  ☒

As of November 11, 2021, there were 20,254,645 shares of the registrant’s common stock outstanding.

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PART I —FINANCIAL INFORMATION

Item 1. Financial Statements.

MIROMATRIX MEDICAL INC.

Condensed Balance Sheets

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The accompanying notes are an integral part of these condensed financial statements.

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MIROMATRIX MEDICAL INC.

Condensed Statements of Operations

(Unaudited)

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The accompanying notes are an integral part of these condensed financial statements.

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MIROMATRIX MEDICAL INC.

Condensed Statements of Shareholders’ Equity (Deficit)

(Unaudited)

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The accompanying notes are an integral part of these condensed financial statements.

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MIROMATRIX MEDICAL INC.

Condensed Statements of Cash Flows

(Unaudited)

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The accompanying notes are an integral part of these condensed financial statements.

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MIROMATRIX MEDICAL INC.

Notes to Condensed Financial Statements

(Unaudited)

NOTE 1 — DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Miromatrix Medical Inc. (the “Company”) is a life science company that has a proprietary technology to remove cells from, or decellularize, and also to recellularize organs and tissues from animal and human sources, facilitating the creation of numerous products.

Basis of Preparation

The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules of the Securities and Exchange Commission (“SEC”) applicable to interim reports of companies filing as a smaller reporting company.  These financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Registration Statement on Form S-1 (File No. 333-256649), as amended, (the “Form S-1”) for the fiscal year ended December 31, 2020 filed with the SEC on June 22, 2021.  In the opinion of management, the accompanying condensed interim financial statements include all adjustments necessary in order to make the financial statements not misleading.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year or any other future period.  Certain notes to the financial statements that would substantially duplicate disclosures contained in the audited financial statements for the most recent fiscal year as reported in the Company’s Form S-1 have been omitted.  The accompanying condensed balance sheet at December 31, 2020 has been derived from the audited balance sheet at December 31, 2020 contained in the Form S-1.

In the opinion of management, the accompanying condensed financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, stockholders' equity and cash flows for the interim periods but are not necessarily indicative of the results of operations or cash flows to be anticipated for the full year 2021 or any future period. The Company has evaluated subsequent events occurring after the date of the condensed financial statements for events requiring recording or disclosure in the condensed financial statements.

Amended and Restated Charter

On May 20, 2021, the Company’s Board of Directors (the “Board”) and stockholders approved an amendment and restatement of the Company’s then-existing certificate of incorporation (the “Pre-IPO Certificate”) to create, among other changes, a Series C Convertible Preferred Stock (“Series C Stock”). The Series C Stock would convert into shares of the Company’s common stock upon the Company’s initial public offering at 80% of the price at which the common stock is being sold in the initial public offering (see Note 8).

June 2021 Amended and Restated Charter

Prior to the completion of the initial public offering of the Company’s common stock (the “IPO”), the Company's Board and stockholders approved an amendment (the “Charter Amendment”) to the Pre-IPO Certificate and an amended and restated certificate of incorporation (“Post-IPO Certificate”) that became effective on June 23, 2021. The Charter Amendment increased the number of authorized shares of the Company’s common stock from 30,000,000 to 190,000,000 and authorized 10,000,000 shares of undesignated preferred stock. Under the Post-IPO Certificate, the Company is authorized to issue two classes of stock, Common Stock and Preferred Stock.

Equity Method Investments

Investments in 20% to 50%-owned companies are accounted for under the equity method as the Company can exercise significant influence, but not control, over such investments. The equity method requires that gains (losses) are

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recognized in other income (expense), net in the statements of operations. The gain on equity investment in Reprise Biomedical, Inc. (“Reprise”) resulted from recording the fair value of the Company’s investment in Reprise upon losing a controlling interest in the Company on June 30, 2019. The Company recorded its equity method share of losses in Reprise from July 1, 2019 through December 31, 2019, from January 1, 2020 to December 31, 2020 and from January 1, 2021 to March 15, 2021 in the statements of operations. Even though the Company’s ownership dropped below 20% on November 15, 2020, the Company still had significant influence over the activities of Reprise due to common board members (See Note 4).

Research and Development Costs

Research and development expenses consist primarily of engineering, product development, consulting services, materials, depreciation and other costs associated with products and technologies in development. These expenses include employee and non-employee compensation, including stock-based compensation, supplies, materials, consulting expenses, related travel expenses, and facility costs. Expenditures for research and development activities are charged to operations as incurred.

Stock-Based Compensation

The Company is required to determine the fair value of equity incentive awards and recognize compensation expense for all equity incentive awards made to employees and directors, including employee stock options. The Company also determines the fair value of non-statutory stock options issued to consultants based on the fair value of the consultant’s commitment at the date of grant. Such expense is recognized over the requisite service period. In addition, stock-based compensation expense recognized in the statements of operations is based on awards expected to vest and therefore the amount of expense has been reduced for estimated forfeitures. The Company uses the straight-line method for expense attribution, except for awards issued with performance-based conditions which require an accelerated attribution method over the requisite performance and service periods.

Under the applicable accounting guidance for equity incentive awards issued to non-employees, the date at which the fair value of such awards is measured is equal to the earlier of: 1) the date at which a commitment for performance by the counterparty to earn the equity instrument is reached; or 2) the date at which the counterparty’s performance is complete. The Company recognizes stock-based compensation expense for the fair value of the vested portion of the non-employee awards in the statements of operations.

The valuation model used for calculating the fair value of awards for stock-based compensation expense is the Black-Scholes option-pricing model (the “Black-Scholes model”). The Black-Scholes model requires the Company to make assumptions and judgments about the variables used in the calculation, including the expected term (weighted average period of time that the options granted are expected to be outstanding), the volatility of common stock, and an assumed risk-free interest rate. The Company uses the “simplified method” to determine the expected term of the stock option. Volatility is based on an average of the historical volatilities of the common stock of publicly-traded companies with characteristics similar to those of the Company. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected term of the option. The expected dividend assumption is based on the Company’s history of not paying dividends and its expectation that it will not declare dividends for the foreseeable future. Potential forfeitures of awards are estimated based on the Company’s historical forfeiture experience. The estimate of forfeitures will be adjusted over the service period to the extent that actual forfeitures differ, or are expected to differ, from prior estimates.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents, accounts receivable, and accounts payable.

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Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as to those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Net Loss Per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. Because we have reported a net loss for all periods presented, diluted net loss per share is the same as basic net loss per share for those periods as all potentially dilutive shares consisting of stock options and warrants were antidilutive in those periods (See Note 13).

Recent Accounting Pronouncements

During February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842).” ASU No. 2016-02 requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. During 2018, the FASB also issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases”, which addresses narrow aspects of the guidance originally issued in ASU No. 2016-02; ASU 2018-11, “Targeted Improvements”, which provides entities with an additional (and optional) transition method whereby an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption and also provides lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component. During 2019, the FASB also issued ASU No. 2019-01, which clarified Topic 842’s interim disclosure requirements and amend certain industry-specific guidance related to determining the fair value of leased assets and the cash flow presentation of principal payments received under sales-type and direct finance leases. Topic 842 (as amended) is effective for annual periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently assessing the effect that Topic 842 (as amended) will have on its results of operations, financial position and cash flows.

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NOTE 2 — INITIAL PUBLIC OFFERING

In June 2021, the Company completed the IPO in which the Company sold 5,520,000 shares of its common stock at a price to the public of $9.00 per share, which included the sale of 720,000 shares of common stock as a result of the full exercise of the underwriter’s overallotment option. The Company received proceeds of $49.7 million, excluding underwriting discounts and commissions, which was recorded to additional paid-in capital. The Company’s common stock commenced trading on the Nasdaq Capital Market on June 24, 2021 under the trading symbol “MIRO.”

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Upon the closing of the IPO, all shares of the then-outstanding convertible preferred stock were converted on their respective terms into a total of 12,139,071 shares of common stock. This resulted in a reclassification of $73.7 million to additional paid-in capital.

Offering costs incurred by the Company were approximately $1.6 million, excluding underwriting commissions and discounts, which were recorded to additional paid-in capital. The Company issued the underwriter in the IPO a warrant to purchase up to 276,000 shares of its common stock.

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NOTE 3 — LAB EQUIPMENT, FURNITURE, LEASEHOLD IMPROVEMENTS AND CONSTRUCTION IN PROGRESS

Lab equipment, furniture, leasehold improvements and construction in progress consisted of the following as of:

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Depreciation and amortization expense was $34,401 and $34,901 for the three months ended September 30, 2021 and 2020, respectively, and $93,575 and $139,921 for the nine months ended September 30, 2021 and 2020, respectively.

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The Company is moving into a new facility in December 2021 and has paid $1,166,129 toward leasehold improvements and other costs and recorded these as construction in progress.

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NOTE 4 — EQUITY METHOD INVESTMENT

The Company previously manufactured and sold acellular medical devices in the hernia mesh and wound care markets through a separately identifiable business unit (the “Acellular Business”). On June 30, 2019, the Acellular Business was spun-out to Reprise. At the time of the spin-out the common stock of Reprise was valued at $1.00 per share and therefore the Company recognized a gain of $4,495,500 on its Reprise common stock holdings. At the time of the spin-out and until November 15, 2020, the Company owned 4,500,000 shares of common stock of Reprise, which represented 45% ownership in Reprise. In November 2020, the Company sold 2,700,000 shares of common stock of Reprise and retained an 18% ownership interest in Reprise. The Company sold its remaining shares of Reprise in March 2021 for $2,000,000.

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As of December 31, 2020, the Company had an investment in Reprise that it accounts for under the equity method (See Note 1). The Company considers its investment in Reprise to be significant to its income as of December 31, 2020. Financial information from the financial statements of Reprise are summarized as follows:

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NOTE 5 — ACCRUED EXPENSES

Accrued expenses consisted of the following as of:

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NOTE 6 — FAIR VALUE MEASUREMENT

The fair value of the Company’s financial instruments reflect the amount that the Company estimates that it would receive in connection with the sale of an asset or paid in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price).

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ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820 are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

Level 3: Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

The Company classified its equity method investments as Level 3 securities.

The Company determined that a promissory note issued in March 2020 (“March 2020 Note”) contained a change in control provision which is a level 3 embedded derivative and is required to be bifurcated. In accordance with ASC 815, Derivatives and Hedging, the Company determined the fair value of the derivative liability and recorded it on the balance sheet. At inception, the fair value of the derivative liability was $195,516.

The table below discloses changes in value of the Company’s embedded derivative liabilities discussed above.

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NOTE 7 — DEBT AND CAPITAL LEASE OBLIGATION

In December 2010, the Company entered into a loan and security agreement with the Minnesota Agricultural and Economic Development Board under which the Company borrowed $250,000. The loan had a maturity date of November 1, 2020. Commencing on December 1, 2014, the loan started to bear interest at a rate of 6% per annum. Per the loan agreement, the Company began making monthly principal and interest payments on December 1, 2015 in the amount of $3,000. The Company made 59 monthly payments, plus one final payment equal to the then unpaid principal and interest. The loan was secured by the Company’s accounts receivable. As of September 30, 2021 and December 31, 2020, the principal outstanding on this loan was $0 and $168,193, respectively.

In January 2012, the Company signed a promissory note with the Regents of the University of Minnesota (the “University”) for $405,559. Commencing on January 1, 2016 the promissory note bears interest at 3% per annum, compounded monthly. On or before January 31, 2018, the Company is required to make monthly principal and interest payments of $7,737 until the note is paid in full. The note has a maturity date of December 31, 2022 and is unsecured. In association with the promissory note, the Company issued the University warrants to purchase 80,000 shares of the Company’s common stock at an exercise price of $1.69. As of September 30, 2021 and December 31, 2020, the principal outstanding on this loan was $106,320 and $172,731, respectively.

In May 2015, the Company entered into a loan agreement with the Minnesota Department of Employment & Economic Development under which the Company borrowed $250,000. The loan does not bear interest, is due in a lump sum payment on April 1, 2022 and is uncollateralized. If there is a substantial ownership change in the Company (greater than 50% to one entity), the Company will pay the Minnesota Department of Employment & Economic Development additional compensation of $75,000. As of both September 30, 2021 and December 31, 2020, the balance outstanding on this loan was $250,000.

In October 2018, the Company signed a lease agreement for a piece of equipment that is being accounted for as a capitalized lease. The total cost of the equipment was $102,026. The lease bears interest at 7.2% and the Company will make 60 monthly payments of $2,003 until the lease is paid in full. As of September 30, 2021 and December 31, 2020, the amount outstanding on the lease was $43,113 and $57,127, respectively. The lease is secured by the piece of equipment.

In January 2019, Company issued the University a promissory note in the amount of $385,997 in satisfaction of the Company’s minimum royalty obligation for the year ended December 31, 2018. The note bears interest at 6% per annum and is due on January 31, 2025. In addition, the Company issued the University a 10-year warrant to purchase 20,587 shares of the Company’s common stock at an exercise price of $3.75 per share.

In March 2020, the Company entered into a note and warrant purchase agreement (the “Purchase Agreement”) with one of the Company’s shareholders under which the Company borrowed $6,000,000. As part of the Purchase Agreement, the Company signed a convertible promissory note (the “Note”) and issued the shareholder a warrant (the “Warrant”). The Note was unsecured and had a maturity date of September 6, 2021. If the Company completed a preferred stock offering of at least $34,000,000 prior to the maturity date, the Note and all accrued interest would have automatically converted into preferred shares of such offering at the offering price. The Note initially bore interest at 5% per annum. If the Note was not converted prior to May 1, 2020, the interest rate increased to 7% on May 1, 2020 and by an additional 2% on the first day of each subsequent month prior to the maturity date starting on June 1, 2020, provided that the interest rate shall not exceed 20%. The 5-year Warrant has a warrant coverage amount of $750,000 with an exercise price equal to the conversion price of the Note. If the Note had not been converted or repaid in accordance with its terms prior to May 1, 2020, the Company will issue an additional warrant on May 1, 2020, and the first day of each additional month the Note remains outstanding, for $75,000 of warrant coverage. In June 2021, the Note and all accrued interest was converted into 956,887 shares of the Company’s Series C Convertible Preferred Stock. As of September 30, 2021 and December 31, 2020, the balance outstanding on the Note was $0 and $6,000,000, respectively.

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On April 16, 2020, the Company issued a promissory note for $563,397 under the Paycheck Protection Program (“PPP”) through the U.S. Small Business Administration (SBA). The PPP was authorized in the Coronavirus Aid, Relief and Economic Security (CARES) Act. The promissory note is uncollateralized and is fully guaranteed by the Federal government. The outstanding balance of the promissory note bears interest at 1% per annum and is due on April 16, 2022. Per the PPP’s terms, some or all of the debt may be forgiven based upon the Company’s use of the funds. On March 4, 2021, $513,520 of the principal balance under the promissory note and associated interest of $4,530 were forgiven by the SBA. On August 6, 2021, the remaining principal balance of $49,877 along with associated interest of $440 were forgiven by the SBA. As of September 30, 2021 and December 31, 2020, the balance outstanding on the promissory note was $0 and $563,397 respectively.

In July 2021, the Company signed a lease agreement for a piece of equipment that is being accounted for as a capitalized lease. The total cost of the equipment was $44,251. The lease bears interest at 5.0% and the Company will make 24 monthly payments of $1,941 until the lease is paid in full. As of September 30, 2021, the amount outstanding on the lease was $37,178. The lease is secured by the piece of equipment.

In September 2021, the Company signed a lease agreement for a piece of equipment that is being accounted for as a capitalized lease. The total cost of the equipment was $43,317. The lease bears interest at 6.8% and the Company will make 36 monthly payments of $1,448 until the lease is paid in full. As of September 30, 2021, the amount outstanding on the lease was $42,319. The lease is secured by the piece of equipment.

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Principal maturities were as follows as of the periods indicated:

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NOTE 8 — CAPITAL STOCK

Convertible Preferred Stock

Immediately prior to the IPO, the Company had the following outstanding convertible preferred stock:

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