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Miromatrix Medical Inc. - Quarter Report: 2023 September (Form 10-Q)

Table of Contents

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, 2023

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)

Delaware

27-1285782

(State or other jurisdiction of

incorporation)

(I.R.S. Employer

Identification Number)

6455 Flying Cloud Drive, Suite 107

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:

Title of each class

Trading symbol

Name of exchange on which registered

Common Stock, par value $0.00001 per share

MIRO

The Nasdaq Stock Market LLC

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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

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 9, 2023, there were 27,419,228 shares of the registrant’s common stock outstanding.

Table of Contents

TABLE OF CONTENTS

Page

Part I

Financial Information

Item 1.

Financial Statements

3

Condensed Balance Sheets

3

Condensed Statements of Operations

4

Condensed Statements of Changes in Shareholders’ Equity

5

Condensed Statements of Cash Flows

6

Notes to Condensed Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

26

Item 4.

Controls and Procedures

26

Part II

Other Information

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

30

Item 3.

Defaults Upon Senior Securities

30

Item 4.

Mine Safety Disclosures

30

Item 5.

Other Information

30

Item 6.

Exhibits

31

Signatures

2

Table of Contents

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

MIROMATRIX MEDICAL INC.

Condensed Balance Sheets

September 30, 

December 31, 

    

2023

2022

(unaudited)

    

Assets

Current assets:

Cash and cash equivalents

$

6,116,084

$

5,208,005

Restricted cash

800,100

800,100

Short-term investments

9,945,715

19,989,489

Employee retention credit receivable

70,000

Receivable from Reprise Biomedical, Inc.

 

11,176

930,355

Interest receivable

9,433

107,861

Prepaid expenses and other current assets

 

239,922

274,952

Total current assets

 

17,192,430

27,310,762

Deferred offering costs

 

232,899

Right of use asset

1,517,956

1,673,575

Property and equipment, net

 

4,710,763

5,545,694

Total assets

$

23,421,149

$

34,762,930

Liabilities and Shareholders' Equity

Current liabilities:

Current portion of deferred royalties

$

862,609

$

979,167

Accounts payable

 

1,048,364

 

1,584,929

Current portion of financing lease obligations

17,281

44,157

Current portion of lease liability

413,650

389,649

Accrued expenses

 

2,624,031

 

1,948,376

Total current liabilities

 

4,965,935

 

4,946,278

Deferred royalties, net

 

 

491,733

Long-term debt

 

385,997

 

385,997

Financing lease obligations, net

11,689

Lease liability, net

2,406,066

2,720,781

Accrued interest

 

120,780

 

99,048

Total liabilities

 

7,878,778

 

8,655,526

Commitments and contingencies

Shareholders’ equity:

Common stock, par value $0.00001; 190,000,000 shares authorized; 27,419,228 issued and outstanding as of September 30, 2023 and 20,944,109 issued and outstanding as of December 31, 2022

 

274

 

209

Additional paid-in capital

 

140,018,271

 

130,119,106

Accumulated deficit

 

(124,476,174)

 

(104,011,911)

Total shareholders’ equity

 

15,542,371

 

26,107,404

Total liabilities and shareholders’ equity

$

23,421,149

$

34,762,930

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

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MIROMATRIX MEDICAL INC.

Condensed Statements of Operations

(Unaudited)

    

Three Months Ended

 

Nine Months Ended

September 30, 

September 30, 

2023

    

2022

    

2023

    

2022

Licensing revenue

$

11,176

$

12,395

$

27,674

$

23,115

Cost of goods sold

 

125,000

 

125,000

 

375,000

 

375,000

Gross loss

 

(113,824)

 

(112,605)

 

(347,326)

 

(351,885)

Operating expenses:

 

  

 

  

 

  

 

  

Research and development

 

3,506,054

 

4,574,534

 

11,519,395

 

13,569,434

Regulatory and clinical

 

455,313

 

381,903

 

1,259,077

 

1,156,535

Quality

 

416,476

 

634,511

 

1,515,394

 

1,592,778

General and administration

 

2,143,421

 

2,052,731

 

6,781,337

 

6,513,748

Total operating expenses

 

6,521,264

 

7,643,679

 

21,075,203

 

22,832,495

Operating loss

 

(6,635,088)

 

(7,756,284)

 

(21,422,529)

 

(23,184,380)

Other income (expense)

Interest income

 

196,681

 

143,555

 

464,820

 

205,403

Interest expense

 

(15,284)

 

(15,325)

 

(33,697)

 

(35,015)

Employee retention credit

527,143

Total other income

181,397

128,230

958,266

170,388

Net loss

$

(6,453,691)

$

(7,628,054)

$

(20,464,263)

$

(23,013,992)

Net loss per share, basic and diluted

$

(0.24)

$

(0.37)

$

(0.80)

$

(1.11)

Weighted average shares used in computing net loss per share, basic and diluted

 

27,313,881

 

20,895,513

 

25,714,215

 

20,664,494

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

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MIROMATRIX MEDICAL INC.

Condensed Statements of Shareholders’ Equity

(Unaudited)

Additional

Total

Common Stock

Paid-In

Accumulated

Shareholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

Equity

Balance at June 30, 2023

27,310,553

$

273

$

139,570,460

$

(118,022,483)

$

21,548,250

Stock-based compensation expense

 

 

 

322,812

 

 

322,812

Exercise of stock options

 

50,000

 

1

 

62,499

 

 

62,500

Exercise of stock warrants

50,000

 

62,500

 

 

62,500

Issuance of restricted shares

8,675

 

 

 

Net loss

 

 

 

 

(6,453,691)

 

(6,453,691)

Balance at September 30, 2023

 

27,419,228

$

274

$

140,018,271

$

(124,476,174)

$

15,542,371

Balance at June 30, 2022

20,813,741

$

208

$

129,448,942

$

(89,437,852)

$

40,011,298

Stock-based compensation expense

 

252,759

 

252,759

Exercise of stock options

 

85,431

1

106,787

106,788

Issuance of restricted shares

5,123

Net loss

 

 

 

 

(7,628,054)

 

(7,628,054)

Balance at September 30, 2022

 

20,904,295

$

209

$

129,808,488

$

(97,065,906)

$

32,742,791

Additional

Total

Common Stock

Paid-In

Accumulated

Shareholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

Equity

Balance at December 31, 2022

20,944,109

$

209

$

130,119,106

$

(104,011,911)

$

26,107,404

Stock-based compensation expense

 

 

 

933,422

 

 

933,422

Exercise of stock options

 

50,000

 

1

 

62,499

 

 

62,500

Exercise of stock warrants

 

50,000

 

 

62,500

 

 

62,500

Issuance of restricted shares

125,119

1

 

(1)

 

 

Sales of common stock, net of expenses

6,250,000

63

8,855,374

8,855,437

Tax withholdings related to net share settlements of stock-based compensation awards

(14,629)

(14,629)

Net loss

 

 

 

 

(20,464,263)

 

(20,464,263)

Balance at September 30, 2023

 

27,419,228

$

274

$

140,018,271

$

(124,476,174)

$

15,542,371

Balance at December 31, 2021

20,385,645

$

204

$

128,177,594

$

(74,051,914)

$

54,125,884

Stock-based compensation expense

 

853,130

 

853,130

Exercise of stock options

290,938

3

363,668

363,671

Exercise of stock warrants

191,559

2

414,096

414,098

Issuance of restricted shares

36,153

Net loss

 

(23,013,992)

 

(23,013,992)

Balance at September 30, 2022

 

20,904,295

$

209

$

129,808,488

$

(97,065,906)

$

32,742,791

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)

Nine Months Ended September 30, 

2023

2022

    

    

Cash flows from operating activities:

 

  

 

  

Net loss

$

(20,464,263)

$

(23,013,992)

Adjustments to reconcile net loss to net cash used in operating activities:

 

  

 

  

Depreciation and amortization

 

867,466

 

817,792

Stock-based compensation

 

933,422

 

853,130

Loss on disposal of property and equipment

758

Non-cash interest income

98,428

(121,287)

Amortization of premium/discount on investments

(213,492)

23,038

Write-off of deferred offering costs

221,254

Employee retention credit receivable

(70,000)

Changes in operating assets and liabilities:

 

  

 

  

Receivable from Reprise Biomedical, Inc.

 

919,179

 

5,424

Prepaid expenses

 

35,030

 

90,258

Operating lease right of use asset

155,619

(3,120,774)

Tenant improvement receivable reimbursement

1,256,950

Accounts payable and accrued expenses

(469,201)

(640,792)

Accrued interest

 

21,732

 

20,502

Operating lease liability

(290,714)

3,201,641

Net cash used in operating activities

 

(18,255,540)

 

(20,627,352)

Cash flows from investing activities:

 

  

 

  

Purchase of investments

(9,742,734)

(26,026,125)

Proceeds from maturity of investments

20,000,000

Purchases of property and equipment

 

(32,535)

 

(856,062)

Net cash provided by (used in) investing activities

 

10,224,731

 

(26,882,187)

Cash flows from financing activities:

 

  

 

  

Payments on long-term debt

 

 

(318,432)

Payments on financing lease obligations

(38,565)

(40,612)

Payments on offering costs

(182,899)

Proceeds from sale of common stock, net

8,867,082

Employee taxes paid for shares withheld

(14,629)

Proceeds from stock warrant exercises

 

62,500

 

414,098

Proceeds from stock option exercises

 

62,500

 

363,671

Net cash provided by financing activities

 

8,938,888

 

235,826

Net increase (decrease) in cash and cash equivalents

 

908,079

 

(47,273,713)

Cash, cash equivalents and restricted cash at beginning of period

 

6,008,105

 

53,611,631

Cash, cash equivalents and restricted cash at end of period

$

6,916,184

$

6,337,918

Cash and cash equivalents

$

6,116,084

$

5,537,818

Restricted cash

800,100

800,100

Cash, cash equivalents and restricted cash at end of period

$

6,916,184

$

6,337,918

Supplemental disclosure of cash flow information:

 

 

  

Interest paid

$

11,965

$

14,513

Purchases of property and equipment in accounts payable and accrued expenses

$

$

186,791

Accrued expenses related to deferred offering costs and financing

$

$

50,000

Leased assets obtained in exchange for new operating lease liabilities

$

$

1,986,172

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 sciences company pioneering a novel technology for bioengineering fully transplantable organs to help save and improve patients’ lives. Founded in 2009, the Company is one of a small group of companies at the forefront of developing alternatives to human-donor organ transplants, and within this small group of companies there are important differences between the technologies being developed. The Company’s proprietary technology is a scalable platform that uses a two-step method of decellularization and recellularization designed to remove the porcine cells from the organs obtained from pigs and replace them with unmodified human cells. The Company’s initial development focus is on bioengineering livers and kidneys, and the Company’s technology platform is also applicable to bioengineering other organs including hearts, lungs and pancreases. The Company has collaborations with Baxter International Inc. (“Baxter”), CareDx, Inc. (“CareDx”), the Mayo Clinic, the Mount Sinai Health System and the Texas Heart Institute, and we have received strategic investments from Baxter, CareDx and DaVita Inc.

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 United States (“U.S.”) Securities and Exchange Commission applicable to interim reports of companies filing as a smaller reporting company. These condensed financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. 

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 2023 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.

Reclassifications

Certain reclassifications to previously reported financial information on the Condensed Balance Sheets and Condensed Statements of Operations have been made to conform to the current period presentation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP 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.

Employee Retention Credit

Under the provisions of the extension of the Coronavirus Aid, Relief, and Economic Security Act, the Company is eligible for a refundable employee retention credit subject to satisfaction of certain eligibility criteria. The Company qualified for the employee retention credit for the first three quarters of 2020 and the second and third quarters of 2021. The Company recognized $527,143 during the nine months ended September 30, 2023, consistent with guidance from International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance, where the Company must have substantially met the program’s eligibility conditions to record revenue. It was reported as an employee retention credit receivable on the Condensed Balance Sheet and employee retention credit other income on the Condensed Statement of Operations for the nine months ended September 30, 2023.

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Impairment of Long-Lived Assets

The Company evaluates its long-lived assets, which consist of property and equipment and right-of-use assets, for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. The Company assesses the recoverability of long-lived assets by determining whether or not the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. No impairment charges were recorded for the three or nine months ended September 30, 2023 or 2022.

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 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 condensed financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

The FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments and an updated ASU 2018-19 that clarifies the scope of the standard in the amendments in ASU 2016-13. This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. Financial instruments impacted are trade and other receivables, held-to-maturity debt securities, loans and other instruments. The Company adopted the standard effective January 1, 2023, using the modified retrospective approach. The adoption did not have an impact on the Company's financial statements.

NOTE 2 — GOING CONCERN

The accompanying condensed financial statements have been prepared on the basis that the Company will continue as a going concern. The Company has incurred losses since inception, negative cash flows from operations, and had an accumulated deficit of approximately $124.5 million as of September 30, 2023. The Company does not have adequate liquidity to fund its operations for at least twelve months from the issuance of these financial statements without raising additional capital and such actions are not solely within the control of the Company. If the Company is unable to raise additional capital, management believes planned expenditures may need to be reduced in order to extend the time period that existing resources can fund the Company’s operations. To date, the Company has funded its operations through the issuance of equity and debt securities, and the receipt of grants. The Company intends to fund ongoing operations by utilizing its current cash, cash equivalents and short-term investments on hand, and by exploring various dilutive and non-dilutive sources of funding, including equity financings, debt financings, strategic partnerships and collaborations, as well as other sources. If the Company is unable to obtain additional capital, it would have a material adverse effect on the operations of the Company and the development of its technology, and the Company may have to cease operations altogether. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

NOTE 3 — FAIR VALUE MEASUREMENT

The fair value of the Company’s financial instruments reflects 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). The Company uses a three-tier valuation hierarchy based upon observable and non-observable inputs to measure fair value:

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Level 1: Inputs that include quoted prices in active markets for identical assets and liabilities.

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company classifies cash and cash equivalents, as well as restricted cash, as Level 1 in the fair value hierarchy.

The Company classifies its investments in U.S. Treasury notes as Level 1 in the fair value hierarchy. While the market for these securities are highly liquid and active, quoted prices for these securities may at times be derived from pricing models which use observable inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and other reference data including market research publications.

NOTE 4 — INVESTMENTS

The Company currently invests its excess cash in U.S. Treasury securities. The Company intends and has the ability to hold these investments to maturity. Securities with original maturity dates of more than three months are reported as held-to-maturity investments and are recorded at amortized cost, which approximates fair value due to the negligible risk of changes in value due to interest rates. All investments held as of September 30, 2023 had contractual maturities of less than one year.

The amortized cost and estimated fair values of the Company’s investments as of September 30, 2023 are as follows:

Amortized

Unrealized

Unrealized

Fair

Cost

Holding Gains

Holding Losses

Value

Short-term:

 

 

 

 

U.S. Treasury notes

  

$

9,945,715

  

$

  

$

7,615

  

$

9,938,100

Total

$

9,945,715

$

$

7,615

$

9,938,100

NOTE 5 — PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following as of:

    

September 30, 

    

December 31, 

2023

2022

Lab equipment

$

2,009,971

$

1,977,436

Leasehold improvements

 

3,392,220

 

3,392,220

Furniture, fixtures and computers

 

2,022,894

 

2,022,894

 

7,425,085

 

7,392,550

Less accumulated depreciation and amortization

 

(2,714,322)

 

(1,846,856)

$

4,710,763

$

5,545,694

Depreciation and amortization expense was $288,099 and $281,285 for the three months ended September 30, 2023 and 2022, respectively, and $867,466 and $817,792 for the nine months ended September 30, 2023 and 2022, respectively.

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NOTE 6 — ACCRUED EXPENSES

Accrued expenses consisted of the following as of:

    

September 30, 

    

December 31, 

2023

2022

Wages

$

1,966,953

$

1,434,675

Legal

 

286,510

 

80,794

Research and development consulting

136,500

Pre-clinical study costs

50,000

200,000

Taxes

32,820

112,974

Key opinion leader compensation

 

10,500

 

18,700

Royalties

 

 

3,422

Other

 

140,748

 

97,811

Accrued expenses

$

2,624,031

$

1,948,376

NOTE 7 — DEBT

In January 2019, the Company issued the Regents of the University of Minnesota (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 6.0% per annum, compounded annually, and is due on January 31, 2025. As of both September 30, 2023 and December 31, 2022, the balance outstanding on this loan was $385,997.

Future principal maturities for debt were as follows:

Amounts Due in the Twelve Months Ending September 30, 

    

2024

$

2025

 

385,997

Total future maturities payments

385,997

Less current portion

Long-term debt

$

385,997

NOTE 8 — EQUITY

Common Stock

The Company is authorized to issue 190,000,000 shares of common stock, with a par value of $0.00001. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of common stockholders. Subject to preferences that may be applicable to any outstanding preferred shares, each share of common stock is entitled to share pro rata in any distributions. In any distribution of capital assets, holders of common stock are entitled to receive pro rata the assets remaining after payment of liabilities and liquidation preferences on any outstanding preferred stock.

In March 2023, the Company completed a public offering pursuant to which it sold an aggregate of 6,250,000 shares of the Company’s common stock at a public offering price of $1.60 per share, resulting in gross proceeds of $10 million. The offering closed on March 10, 2023, resulting in net proceeds of approximately $8.8 million, after deducting underwriting discounts and commissions and other offering expenses.

The Company previously capitalized $232,899 of deferred offering costs relating to the $200 million shelf registration statement declared effective on July 11, 2022. When the Company completed the public offering in March 2023, $11,645 was reclassified to additional paid-in capital on the Balance Sheet and $221,254 was written-off to general and administrative expenses in the Statement of Operations, on a pro-rata basis.

As of September 30, 2023 and December 31, 2022, there were 27,419,228 and 20,944,109 shares of common stock issued and outstanding, respectively.

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Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock, with a par value of $0.00001. As of September 30, 2023 and December 31, 2022, there were no shares of preferred stock issued and outstanding.

Equity Incentive Plans

In May 2021, the Company’s stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the issuance of stock options, restricted stock units and other awards to employees, directors and consultants of the Company. Shares of common stock underlying outstanding awards under the 2019 Plan (defined below) and the 2021 Plan that expire, are forfeited, are retained by the Company to satisfy any exercise price or any tax withholding, repurchased by the Company at their original purchase price or settled in cash may be added to the number of shares of common stock available for issuance under the 2021 Plan. The number of shares reserved for issuance under the 2021 Plan will automatically increase on the first day of each fiscal year, beginning January 1, 2022, in the amount equal to the lesser of (a) 4.5% of the total number of shares of common stock outstanding as of December 31 of the immediately preceding calendar year, (b) 600,000 shares of common stock, or (c) such lesser number of shares as determined by the Board of Directors. On January 1, 2023, the number of shares reserved for issuance under the 2021 Plan automatically increased by 600,000 shares of common stock.

The Company also maintains its prior stock option plans adopted in 2010 (the “2010 Plan”) and 2019 (the “2019 Plan”). The Company ceased making awards under the 2010 Plan upon adoption of the 2019 Plan and similarly under the 2019 Plan upon stockholder approval of the 2021 Plan.

As of September 30, 2023, there were options to purchase 2,197,353 and 265,000 shares of common stock outstanding under the 2010 Plan and 2019 Plan, respectively.

As of September 30, 2023, there were options to purchase 1,438,333 shares of common stock and restricted stock units eligible to vest and settle into 465,596 shares of common stock outstanding under the 2021 Plan.

As of September 30, 2023, there were 813,410 shares of common stock available for issuance under future awards granted under the 2021 Plan.

Stock Options

The Company recognizes stock option compensation expense based on the grant date fair value of the award. The Company issues new common shares for stock options exercised.

Stock option activity was as follows:

Weighted

Average

Exercise

    

Shares

    

Price

Options outstanding at December 31, 2022

3,831,686

$

4.12

Granted

471,000

$

2.91

Exercised

(50,000)

$

1.25

Canceled or expired

(352,000)

$

4.12

Options outstanding at September 30, 2023

 

3,900,686

$

4.01

Options exercisable at September 30, 2023

 

2,827,561

$

3.99

Stock-based compensation expense related to stock options was $175,455 and $163,326 for the three months ended September 30, 2023 and 2022, respectively. Stock-based compensation expense related to stock options was $508,510 and $495,915 for the nine months ended September 30, 2023 and 2022, respectively.

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Included in the stock-based compensation expense numbers above are stock options to be granted to key opinion leaders which are marked to market at each reporting period with the change in the accrued balance expensed through research and development operating expenses. Stock-based compensation related to the key opinion leaders decreased by $2,150 and increased by $5,175 for the three months ended September 30, 2023 and 2022, respectively, and decreased by $8,200 and $6,300 for the nine months ended September 30, 2023 and 2022, respectively.

The weighted average fair value of options granted during the nine months ended September 30, 2023 and 2022 was $2.13 and $1.42 per share, respectively.

Restricted Stock Units

The Company recognizes restricted stock unit (“RSU”) compensation expense based on the grant date fair value of the award. Each RSU is eligible to vest over time and settle into one newly issued share of Company common stock.

RSU activity was as follows:

Weighted

Average Grant

Date Fair

 

Shares

 

Value

Unvested at December 31, 2022

 

239,198

 

$

4.20

Granted

 

381,005

 

$

1.60

Vested

 

(125,119)

 

$

3.76

Canceled

 

(29,488)

 

$

4.59

Unvested at September 30, 2023

 

465,596

 

$

2.17

Stock-based compensation expense related to RSUs was $145,207 and $94,608 for the three months ended September 30, 2023 and 2022, respectively. Stock-based compensation expense related to RSUs was $416,712 and $350,915 for the nine months ended September 30, 2023 and 2022, respectively.

Employee Stock Purchase Plan

The Company accounts for employee stock purchases made under its 2021 Employee Stock Purchase Plan (“ESPP”) using the estimated grant date fair value in accordance with Accounting Standards Codification, Topic 718, Stock Compensation. The Company values ESPP shares using the Black-Scholes model.

There were 300,000 shares of common stock initially reserved for issuance under the ESPP. In addition, the ESPP contains a provision which provides for an automatic annual share increase on January 1 of each year, in an amount equal to the lesser of (i) 1% of the total number of shares outstanding as of December 31 of the immediately preceding calendar year, (ii) 200,000 shares or (iii) such number of shares as determined by the Board. As of December 31, 2022, there were 500,000 shares of common stock available for issuance under the ESPP. On January 1, 2023, the number of shares reserved for issuance under the ESPP automatically increased by 200,000 shares of common stock.

There were no shares issued under the ESPP during the nine months ended September 30, 2023.

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Stock Warrants

Stock warrant activity was as follows:

Weighted

Average

Exercise

Shares

    

Price

Warrants outstanding December 31, 2022

599,191

$

6.16

Granted

$

Exercised

(50,000)

$

1.25

Expired

(73,191)

$

2.00

Warrants outstanding September 30, 2023

476,000

$

7.32

NOTE 9 — SIGNIFICANT CUSTOMERS

The Company had one customer that accounted for 100% of total revenue for the three and nine months ended September 30, 2023 and 2022. The current receivable for this customer is included in Receivable from Reprise Biomedical, Inc. (“Reprise”) on the condensed balance sheets. The Company received $11,176 and $12,395 for the three months ended September 30, 2023 and 2022, respectively, and $27,674 and $23,115 for the nine months ended September 30, 2023 and 2022, respectively, as royalties related from the spin-out of the Acellular Business to Reprise. As of September 30, 2023 and December 31, 2022, the Company had receivables related to the minimum royalties of $814,259 and $466,934, respectively, from Reprise, but due to the uncertainty regarding collectability the Company fully reserved against the receivable.

NOTE 10 — COMMITMENTS AND CONTINGENCIES

Patent License Agreement

Under an Exclusive Patent License Agreement between the Company and the University, the Company is required to make minimum royalty payments to the University of $500,000 per year. Under the Patent and Know-How License Agreement with Reprise, Reprise has minimum royalty obligations to the Company of $500,000 per year.

NOTE 11 — LEASES

The Company leases its corporate headquarters, which houses its research and development operations and office space. The lease term began in August 2021 and is scheduled to terminate in May 2029. The Company has one option to extend the term for a period of five years. The depreciable life of assets and leasehold improvements is limited by the expected lease term. The lease provided a tenant improvement allowance of $1,256,950, which was received by the Company during the first quarter of 2022. The tenant improvement allowance is included in the calculation of the right of use asset and lease liability.

The Company also leases pieces of equipment that are accounted for as financing leases. Financing lease assets are classified as lab equipment within property and equipment on the condensed balance sheets.

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Supplemental condensed balance sheet information for the Company is as follows:

September 30, 

December 31, 

Leases

Classification

    

2023

2022

Assets

Operating lease assets

Right of use asset

$

1,517,956

$

1,673,575

Financing lease assets

Property and equipment, net of accumulated depreciation

$

52,886

$

81,325

Liabilities

Current

Operating

Current portion of lease liability

$

413,650

$

389,649

Financing

Current portion of financing lease obligations

$

17,281

$

44,157

Noncurrent

Operating

Lease liability, net

$

2,406,066

$

2,720,781

Financing

Financing lease obligations, net

$

$

11,689

Information on the Company’s lease costs is as follows:

Three Months Ended September 30, 

Lease cost

Classification

2023

2022

Operating lease cost

 

Operating expenses: General and administrative

 

$

82,886

$

82,886

Financing lease cost

 

 

 

 

Amortization of leased assets

 

Depreciation and amortization

 

$

9,480

$

9,480

Interest on lease liabilities

 

Interest expense

 

$

411

$

1,299

Variable lease cost(1)

 

Operating expenses: General and administrative

 

$

56,145

$

55,165

(1)Variable lease costs consist primarily of taxes, insurance and common area maintenance costs for the Company’s operating lease.

Nine Months Ended September 30, 

Lease cost

Classification

2023

2022

Operating lease cost

 

Operating expenses: General and administrative

$

248,657

 

$

246,455

Financing lease cost

 

 

 

 

Amortization of leased assets

 

Depreciation and amortization

$

28,439

 

$

28,439

Interest on lease liabilities

 

Interest expense

$

1,882

 

$

4,242

Variable lease cost(1)

 

Operating expenses: General and administrative

$

152,390

 

$

151,484

(1)Variable lease costs consist primarily of taxes, insurance and common area maintenance costs for the Company’s operating lease.

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Future payments for the Company’s leases are as follows:

Amounts Due in Years Ending

    

Operating Leases

Financing Leases

Total

2023

    

$

127,917

$

5,850

$

133,767

2024

527,020

12,030

539,050

2025

542,830

542,830

2026

559,115

559,115

2027

575,889

575,889

Thereafter

847,731

847,731

Total lease payments

3,180,502

17,880

3,198,382

Less imputed interest

(360,786)

(599)

(361,385)

Present value of lease liabilities

    

$

2,819,716

$

17,281

$

2,836,997

Additional information related to leases is as follows:

Lease term and discount rate

September 30, 2023

Weighted-average remaining term (years)

 

Operating lease

5.7

Financing leases

0.8

 

Weighted-average discount rate

Operating lease

4.2

%  

Financing leases

6.8

%  

NOTE 12 — NET LOSS PER SHARE

Basic net loss per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is calculated by dividing the weighted average number of common shares outstanding, after taking into consideration all dilutive potential shares outstanding during the period. Due to the existence of net losses for the three and nine months ended September 30, 2023 and 2022, basic and diluted net loss per share were the same, as the effect of potentially dilutive securities would have been anti-dilutive.

The following potentially dilutive securities outstanding have been excluded from the computations of diluted weighted average shares outstanding because such securities would have had an antidilutive impact due to losses reported for the periods presented:

Three and Nine Months Ended September 30, 

    

2023

    

2022

Common stock options outstanding

3,900,686

 

3,874,186

Restricted stock units

465,596

240,587

Common stock warrants

476,000

 

599,191

Total common stock equivalents

4,842,282

 

4,713,964

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NOTE 13 — SUBSEQUENT EVENTS

On October 29, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with United Therapeutics Corporation (“UTC”), a publicly traded bioengineering company. Pursuant to the terms of the Merger Agreement, UTC will commence a tender offer to acquire the Company for $3.25 per share in cash at closing (an aggregate of approximately $91.0 million). The transaction consideration includes an additional $1.75 per share in cash (an aggregate of approximately $54.0 million) upon the first implantation of the Company’s development-stage, fully-implantable kidney product known as mirokidney into a living human patient by the end of 2025 in a clinical trial meeting requirements set forth in the form of Contingent Value Rights Agreement attached to the Merger Agreement. The transaction is expected to close in December 2023, subject to the satisfaction of customary closing conditions, including the tender of a majority of the outstanding shares of the Company’s common stock.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

References in this report (the “Quarterly Report”) to “we,” “us,” “our” or the “Company” refer to Miromatrix Medical Inc. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report. Information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Special Note Regarding Forward-Looking Statements

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission (“SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Overview

We are a life sciences company pioneering a novel technology for bioengineering fully transplantable organs to help save and improve patients’ lives. Founded in 2009, we are one of a small group of companies at the forefront of developing alternatives to human-donor organ transplants, and within this small group of companies there are important differences between the technologies being developed. Our proprietary technology is a scalable platform that uses a two-step method of decellularization and recellularization designed to remove the porcine cells from the organs obtained from pigs and replace them with unmodified human cells. Our initial development focus is on bioengineering livers and kidneys, and our technology platform is also applicable to bioengineering other organs including hearts, lungs and pancreases. We have collaborations with the Mayo Clinic, Baxter, CareDx, Mount Sinai and the Texas Heart Institute, and have received strategic investments from Baxter, CareDx and DaVita.

Substantially all of our revenue to date has been generated by sales of and royalties we received from acellular biologic surgical products, which we spun out as Reprise Biomedical, Inc. (“Reprise”) effective June 30, 2019. We subsequently divested our minority ownership stake in Reprise in March 2021. We have continued to receive royalties on the sales of these products by Reprise. Our revenue for the three and nine months ended September 30, 2023 was $11,176 and $27,674, respectively, consisting entirely of licensing revenue. Our net loss for the three and nine months ended September 30, 2023 was $6,453,691 and $20,464,263, respectively. We have not been profitable since inception and as of September 30, 2023, we had an accumulated deficit of $124,476,174.

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Our product pipeline consists of three active programs, as described below:

miroliverELAP®, our External Liver Assist Product (“ELAP”) designed to provide liver dialysis for acute liver failure patients.

miroliver, our fully implantable bioengineered liver intended to treat patients with acute and chronic liver failure.

mirokidney, our fully implantable bioengineered kidney intended to treat patients with end-stage renal disease.

Recent Developments

In the fourth quarter of 2022, we filed an IND application for our miroliverELAP to the FDA. In response to the IND application, we received a clinical hold letter from the FDA in January 2023 identifying certain nonclinical and clinical deficiencies and requesting responsive information, including, among other things, new toxicology studies in an appropriate animal model, biocompatibility studies, as well as various validations to be provided in our IND application. We plan to submit our complete response to the clinical hold letter to the FDA in the fourth quarter of 2023. If our complete response addresses the deficiencies to the FDA’s satisfaction and does not raise new concerns regarding risks to subjects, we expect the FDA will lift the clinical hold and we then intend to initiate a first-in-human, phase 1 clinical trial shortly thereafter. We have reallocated resources previously intended for miroliver and mirokidney, our fully implantable bioengineered liver and kidney programs, to miroliverELAP, which will likely delay the preclinical development of miroliver and mirokidney.

On October 29, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with United Therapeutics Corporation (“UTC”), a publicly traded bioengineering company. Pursuant to the terms of the Merger Agreement, UTC will commence a tender offer to acquire us for $3.25 per share in cash at closing (an aggregate of approximately $91.0 million). The transaction consideration includes an additional $1.75 per share in cash (an aggregate of approximately $54.0 million) upon the first implantation of our development-stage, fully-implantable kidney product known as mirokidney into a living human patient by the end of 2025 in a clinical trial meeting requirements set forth in the form of Contingent Value Rights Agreement attached to the Merger Agreement. The transaction is expected to close in December 2023, subject to the satisfaction of customary closing conditions, including the tender of a majority of the outstanding shares of our common stock.

Components of Our Results of Operations

Licensing Revenue

For the periods presented, all of our revenue consists of licensing revenue pursuant to our license agreement with Reprise. Revenue pursuant to this agreement is recognized at the later of (i) when the related sales occur after the minimum guarantee is satisfied, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Due to future uncertainty regarding the collectability of the 2021 and 2023 minimum royalties from Reprise, we determined the contract did not meet the requirements of Accounting Standards Codification, Topic 606, Revenue from Contracts with Customers (“ASC 606”); therefore, we did not record revenues or a receivable.

Cost of Goods Sold

Cost of goods sold relates to our license agreement with the University of Minnesota (the “University”), pursuant to which we owe the University royalties on our revenues, which are subject to annual minimum payments.

Gross Loss

Our gross loss is calculated by subtracting our cost of goods sold from our revenue.

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Research and Development Expenses

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 payroll and related expenses, consulting expenses, laboratory supplies, and amounts incurred under certain collaborative agreements. Expenditures for research and development activities are charged to operations as incurred.

We expect research and development expenses to increase in the future, as we continue the development of our current product candidates.  Research and development expenses will be dependent upon such factors including the results of our preclinical and clinical trials, and the number of product candidates under development.

Regulatory and Clinical Expenses

Regulatory and clinical expenses include costs for developing our regulatory and clinical study strategies for our product candidates. These expenses include payroll and related expenses and consulting expenses. We expect regulatory and clinical expenses will be dependent on the size and duration of any clinical programs that we may initiate.

Quality Expenses

Quality expenses relate to costs of systems and procedures to develop a manufacturing facility that is compliant with Current Good Manufacturing Practices. These expenses include payroll and related expenses. We expect quality expenses to increase in future years as we continue to develop the process and systems needed to produce our product candidates.

General and Administrative Expenses

General and administrative expenses include costs for our executive, accounting and human resources functions. Costs consist primarily of payroll and related expenses, professional service fees related to accounting, legal and other contract and administrative services and related infrastructure expenses.

Interest Income

Interest income consists of interest earned on our cash and cash equivalents and U.S. Treasury securities.

Interest Expense

Interest expense consists of interest under our loan agreements. See “— Liquidity and Capital Resources.”

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Results of Operations

Comparison of the Three Months Ended September 30, 2023 to the Three Months Ended September 30, 2022

    

Three Months Ended

    

September 30, 

Change

    

2023

    

2022

    

Dollar

    

Percentage

Licensing revenue

$

11,176

$

12,395

$

(1,219)

(9.8)

%  

Cost of goods sold

125,000

125,000

Gross loss

(113,824)

(112,605)

(1,219)

1.1

 

Operating expenses:

 

 

  

 

  

 

 

 

  

Research and development

 

 

3,506,054

 

4,574,534

 

(1,068,480)

 

(23.4)

Regulatory and clinical

 

 

455,313

 

381,903

 

73,410

 

19.2

Quality

 

 

416,476

 

634,511

 

(218,035)

 

(34.4)

General and administrative

 

 

2,143,421

 

2,052,731

 

90,690

 

4.4

Total operating expenses

 

 

6,521,264

 

7,643,679

 

(1,122,415)

 

(14.7)

Operating loss

 

 

(6,635,088)

 

(7,756,284)

 

1,121,196

 

(14.5)

Other income (expense)

Interest income

 

 

196,681

 

143,555

 

53,126

 

37.0

Interest expense

 

 

(15,284)

 

(15,325)

 

41

 

(0.3)

Total other income

181,397

128,230

53,167

41.5

Net loss

$

(6,453,691)

$

(7,628,054)

$

1,174,363

 

(15.4)

%  

Licensing Revenue

Licensing revenue was $11,176 for the three months ended September 30, 2023 and $12,395 for the three months ended September 30, 2022, a decrease of $1,219, or 9.8%. The licensing revenue is a result of the license agreement with Reprise. The remainder of minimum royalties due from Reprise for 2023 are due in January 2024. The remainder of the minimum royalties due from Reprise for 2021 have been deferred to 2023. Due to the uncertainty regarding the collectability of the 2021 and 2023 minimum royalties from Reprise, we determined the contract did not meet the requirements of ASC 606; therefore, we did not record revenues or a receivable.

Cost of Goods Sold

Cost of goods sold was $125,000 for both the three months ended September 30, 2023 and 2022. Cost of goods sold relates to the minimum royalty due to the University under our license agreement.

Gross Loss

Gross loss was $113,824 for the three months ended September 30, 2023 and $112,605 for the three months ended September 30, 2022, an increase of $1,219, or 1.1%.

Research and Development

Research and development expenses were $3,506,054 for the three months ended September 30, 2023 and $4,574,534 for the three months ended September 30, 2022, a decrease of $1,068,480, or 23.4%. The decrease was primarily due to a lab supply expense decrease of $1,441,931, consulting expense decrease of $421,659 and travel and entertainment expense decrease of $22,698. The decrease was partially offset by contract services expense increase of $673,543, payroll expense increase of $133,333, other expense increase of $10,304 and office expense increase of $628.

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Regulatory and Clinical

Regulatory and clinical expenses were $455,313 for the three months ended September 30, 2023 and $381,903 for the three months ended September 30, 2022, an increase of $73,410, or 19.2%. The increase was primarily due to contract services expense increase of $68,129, payroll expense increase of $64,352 and office expense increase of $322. The increase was partially offset by consulting expense decrease of $49,930, travel and entertainment expense decrease of $7,350 and other expense decrease of $2,113.

Quality

Quality expenses were $416,476 for the three months ended September 30, 2023 and $634,511 for the three months ended September 30, 2022, a decrease of $218,035, or 34.4%.  The decrease was primarily due to a lab supply decrease of $144,862, consulting expense decrease of $106,849, contract services expense decrease of $2,966 and office expense decrease of $579. The decrease was partially offset by payroll expense increase of $32,332, other expense increase of $3,889 and travel and entertainment expense increase of $1,000.

General and Administrative

General and administrative expenses were $2,143,421 for the three months ended September 30, 2023 and $2,052,731 for the three months ended September 30, 2022, an increase of $90,690, or 4.4%. The increase was primarily due to a payroll expense increase of $260,453 and professional services expense increase of $158,285. The increase was partially offset by an insurance expense decrease of $158,804, tax and license expense decrease of $64,995, consulting expense decrease of $63,029, travel and entertainment expense decrease of $20,450, office expense decrease of $10,263, shareholder expense decrease of $6,255 and other expense decrease of $4,252.

Interest Income

Interest income was $196,681 for the three months ended September 30, 2023 and $143,555 for the three months ended September 30, 2022, an increase of $53,126, or 37.0%. The increase was primarily due to U.S. Treasury securities purchased during the second quarter of 2022 and the second quarter of 2023 with cash received from our initial public offering and our secondary public offering, which was completed in the first quarter of 2023.

Interest Expense

Interest expense was $15,284 for the three months ended September 30, 2023 and $15,325 for the three months ended September 30, 2022, a decrease of $41, or 0.3%.  

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Comparison of the Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022

    

Nine Months Ended

    

September 30, 

Change

    

2023

    

2022

    

Dollar

    

Percentage

Licensing revenue

$

27,674

$

23,115

$

4,559

19.7

%  

Cost of goods sold

375,000

375,000

Gross loss

(347,326)

(351,885)

4,559

(1.3)

 

Operating expenses:

 

 

  

 

  

 

 

 

  

Research and development

 

 

11,519,395

 

13,569,434

 

(2,050,039)

 

(15.1)

Regulatory and clinical

 

 

1,259,077

 

1,156,535

 

102,542

 

8.9

Quality

 

 

1,515,394

 

1,592,778

 

(77,384)

 

(4.9)

General and administrative

 

 

6,781,337

 

6,513,748

 

267,589

 

4.1

Total operating expenses

 

 

21,075,203

 

22,832,495

 

(1,757,292)

 

(7.7)

Operating loss

 

 

(21,422,529)

 

(23,184,380)

 

1,761,851

 

(7.6)

Other income (expense)

Interest income

 

 

464,820

 

205,403

 

259,417

 

126.3

Interest expense

 

 

(33,697)

 

(35,015)

 

1,318

 

(3.8)

Employee retention credit

527,143

527,143

 

100.0

Total other income

 

 

958,266

 

170,388

 

787,878

 

462.4

Net loss

$

(20,464,263)

$

(23,013,992)

$

2,549,729

 

(11.1)

%  

Licensing Revenue

Licensing revenue was $27,674 for the nine months ended September 30, 2023 and $23,115 for the nine months ended September 30, 2022, an increase of $4,559, or 19.7%. The licensing revenue is a result of the license agreement with Reprise. The remainder of minimum royalties due from Reprise for 2023 are due in January 2024. The remainder of the minimum royalties due from Reprise for 2021 have been deferred to 2023. Due to the uncertainty regarding the collectability of the 2021 and 2023 minimum royalties from Reprise, we determined the contract did not meet the requirements of ASC 606; therefore, we did not record revenues or a receivable.

Cost of Goods Sold

Cost of goods sold was $375,000 for both the nine months ended September 30, 2023 and 2022. Cost of goods sold relates to the minimum royalty due to the University under our license agreement.

Gross Loss

Gross loss was $347,326 for the nine months ended September 30, 2023 and $351,885 for the nine months ended September 30, 2022, a decrease of $4,559, or 1.3%.

Research and Development

Research and development expenses were $11,519,395 for the nine months ended September 30, 2023 and $13,569,434 for the nine months ended September 30, 2022, a decrease of $2,050,039, or 15.1%. The decrease was primarily due to a lab supply expense decrease of $2,954,701, consulting expense decrease of $509,095, office expense decrease of $76,789 and travel and entertainment expense decrease of $45,362. The decrease was partially offset by payroll expense increase of $939,731, contract services expense increase of $522,362 and other expense increase of $73,815.

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Regulatory and Clinical

Regulatory and clinical expenses were $1,259,077 for the nine months ended September 30, 2023 and $1,156,535 for the nine months ended September 30, 2022, an increase of $102,542, or 8.9%. The increase was primarily due to a headcount increase which resulted in an increase in payroll expenses of $149,552 and contract services expense increase of $60,472. The increase was partially offset by consulting expense decrease of $80,871, travel and entertainment expense decrease of $13,436, office expense decrease of $7,629 and other expense decrease of $5,546.

Quality

Quality expenses were $1,515,394 for the nine months ended September 30, 2023 and $1,592,778 for the nine months ended September 30, 2022, a decrease of $77,384, or 4.9%. The decrease was primarily due to a consulting expense decrease of $177,731, a headcount decrease which resulted in a decrease in payroll expenses of $111,376, contract service expense decrease of $10,618 and office expense decrease of $2,641. The decrease was partially offset by lab supply and quality testing increase of $197,110, other expense increase of $26,616 and travel and entertainment expense increase of $1,256.

General and Administrative

General and administrative expenses were $6,781,337 for the nine months ended September 30, 2023 and $6,513,748 for the nine months ended September 30, 2022, an increase of $267,589, or 4.1%. The increase was primarily due to payroll expense increase of $382,731, deferred offering costs write-off of $221,254, professional services expense increase of $161,836, other expense increase of $20,400 and shareholder expense increase of $1,165. The increase was partially offset by insurance expense decrease of $192,863, tax and license expense decrease of $95,871, consulting expense decrease of $94,633, travel and entertainment expense decrease of $80,325 and office expense decrease of $56,105.

Interest Income

Interest income was $464,820 for the nine months ended September 30, 2023 and $205,403 for the nine months ended September 30, 2022, an increase of $259,417, or 126.3%. The increase was primarily due to U.S. Treasury securities purchased during the second quarter of 2022 and the second quarter of 2023 with cash received from our initial public offering and our secondary public offering, which was completed in the first quarter of 2023.

Interest Expense

Interest expense was $33,697 for the nine months ended September 30, 2023 and $35,015 for the nine months ended September 30, 2022, a decrease of $1,318, or 3.8%.

Employee Retention Credit

Employee retention credit income was $527,143 for the nine months ended September 30, 2023. This is a refundable credit against certain employment taxes recognized under the provisions of the Coronavirus Aid, Relief, and Economic Security Act.

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Liquidity and Capital Resources

We have incurred net losses since our inception. For the three months ended September 30, 2023 and 2022, we incurred net losses of $6,453,691 and $7,628,054, respectively. For the nine months ended September 30, 2023 and 2022, we incurred net losses of $20,464,263 and $23,013,992, respectively. As of September 30, 2023, we had an accumulated deficit of $124,476,174.

We expect to incur additional losses in the near future, and we expect our expenses to increase in connection with our ongoing activities, particularly as we continue to develop our bioengineered organs, conduct clinical trials and other studies for our bioengineered organs, seek regulatory clearances or approvals for miroliverELAP, mirokidney and miroliver, continue preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights, invest in our infrastructure to support our future manufacturing and other activities, and incur costs associated with operating as a public company in the U.S. The timing and amount of our operating expenditures will depend largely on our ability to, among other things:

advance clinical development of our product candidates;
manufacture, or have manufactured on our behalf, our preclinical and clinical materials and develop processes for commercial manufacturing of any product candidates that may receive regulatory approval;
seek regulatory approvals for any product candidates that successfully complete clinical trials;
establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize on our own;
establish collaborations to commercialize any product candidates for which we may obtain marketing approval but do not intend to commercialize on our own;
expand our operational, financial and management systems and hire additional personnel, including personnel to support our clinical development, quality control, research and development, manufacturing and commercialization efforts, our general and administrative activities and our operations as a public company; and
obtain new intellectual property and maintain, expand and protect our intellectual property portfolio.

Sources of Liquidity

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. To date, we have primarily financed our operations through equity and debt financings, including public offerings of our common stock, as well as research grants. We do not have adequate liquidity to fund our operations for at least twelve months from the issuance of these financial statements without raising additional capital and such actions are not solely within our control. If we are unable to raise additional capital, we believe planned expenditures may need to be reduced in order to extend the time period that existing resources can fund our operations. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. As of September 30, 2023, we had cash and cash equivalents of $6,116,084 and short-term investments of $9,945,715.

Until such time, if ever, as we can generate substantial revenue from sales of our bioengineered organs, we expect to finance our cash needs through a combination of equity offerings, debt financings, strategic partnerships and collaborations, as well as other sources. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Additional capital may not be available when needed, on reasonable terms, or at all, and our ability to raise additional capital may be adversely impacted by factors not solely within our control. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, curtail or discontinue our product development or future commercialization efforts, or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.

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Debt Financing

In January 2019, we issued the University a promissory note in the amount of $385,997 in satisfaction of our minimum royalty obligation under the license agreement with the University for the year ended December 31, 2018. The note bears interest at 6% per annum, compounded annually, and is due on January 31, 2025. As of both September 30, 2023 and December 31, 2022, the principal outstanding on this loan was $385,997.

Registration Statement

We filed a Registration Statement on Form S-3 with the SEC on July 1, 2022, which was declared effective on July 11, 2022 (the “Registration Statement”). The Registration Statement registered the offer and sale of an indeterminate number of shares of common stock and preferred stock, an indeterminate principal amount of debt securities and an indeterminate number of warrants to purchase common stock, preferred stock, and various series of debt securities and warrants to purchase any of such securities, having an aggregate initial offering price of $200.0 million.

Equity Distribution Agreement

On July 1, 2022, we entered into an Equity Distribution Agreement with Piper Sandler & Co. (“Piper Sandler”). The Equity Distribution Agreement provides that, upon the terms and subject to the conditions set forth therein, we may issue and sell through Piper Sandler, acting as the sales agent, shares of our common stock having an aggregate offering price of up to $50.0 million. We have no obligation to sell any such shares under the Equity Distribution Agreement. The sale of the shares of our common stock by Piper Sandler, if any, will be effected pursuant to the Registration Statement. We did not issue any shares under the Equity Distribution Agreement in the nine months ended September 30, 2023.

Public Offering

In March 2023, we completed a public offering pursuant to which we sold an aggregate of 6,250,000 shares of our common stock at a public offering price of $1.60 per share. The offering closed on March 10, 2023, resulting in net proceeds of approximately $8.8 million, after deducting underwriting discounts and commissions and other offering expenses.

Employee Retention Credit

On July 31, 2023, we received cash payments totaling $457,143 of the $527,143 employee retention receivable.

Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented:

Nine Months Ended

September 30, 

    

2023

    

2022

Net cash (used in) provided by:

Operating activities

$

(18,255,540)

$

(20,627,352)

Investing activities

10,224,731

(26,882,187)

Financing activities

 

8,938,888

 

235,826

Net increase (decrease) in cash and cash equivalents

$

908,079

$

(47,273,713)

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Operating Activities

Net cash used in operating activities consisted of net losses adjusted for certain non-cash items and changes in operating assets and liabilities.

During the nine months ended September 30, 2023, net cash used in operating activities was $18,255,540 and reflected (i) the net loss of $20,464,263, (ii) net non-cash usage items of $1,837,078, including stock-based compensation of $933,422, depreciation and amortization expense of $867,466, deferred offering costs write-off of $221,254, and non-cash interest income of $98,428, which was partially offset by amortization of premium/discount on investments of $213,492 and employee retention credit of $70,000, and (iii) a net cash outflow from changes in balances of operating assets and liabilities of $275,352. The most significant items comprising the changes in balances of operating assets and liabilities were a cash inflow of the receivable from Reprise Biomedical, Inc. of $919,179 and a cash outflow of accounts payable and accrued expenses of $469,201.

During the nine months ended September 30, 2022, net cash used in operating activities was $20,627,352 and reflected (i) the net loss of $23,013,992, (ii) net non-cash usage items of $1,573,431, including $853,130 of stock-based compensation, $817,792 of depreciation and amortization expense, amortization of premium/discount on investments of $23,038 and $758 of loss on disposal of property and equipment, partially offset by non-cash interest income of $121,287, and (iii) a net cash outflow from changes in balances of operating assets and liabilities of $813,209.

Investing Activities

During the nine months ended September 30, 2023, net cash provided by investing activities was $10,224,731, driven by proceeds from the maturity of investments of $20,000,000, partially offset by the purchase of investments of $9,742,734 and property and equipment purchase of $32,535.

During the nine months ended September 30, 2022, net cash used in investing activities was $26,882,187 and reflected purchase of investments of $26,026,125 and property and equipment purchases of $856,062.

Financing Activities

During the nine months ended September 30, 2023, net cash provided by financing activities was $8,938,888 and was primarily the result of proceeds from the sale of common stock of $8,867,082, proceeds from stock warrant exercises of $62,500 and proceeds from stock option exercises of $62,500, partially offset by payments on financing lease obligations of $38,565 and payments on employee taxes for shares withheld of $14,629.

During the nine months ended September 30, 2022, net cash provided by financing activities was $235,826 and was primarily the result of proceeds from stock warrant exercises of $414,098 and proceeds from stock option exercises of $363,671, partially offset by payments on long-term debt of $318,432, payments on offering costs of $182,899 and payments on financing lease obligations of $40,612.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

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Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended September 30, 2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2023 because of our previously reported material weaknesses in our internal control over financial reporting, which we describe in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2022.

Management is committed to remediating its material weaknesses as promptly as possible and is in the process of implementing its remediation plan. We are in the process of designing, implementing, documenting and testing the effectiveness of our processes, procedures and internal controls over financial reporting. The material weakness cannot be considered completely remediated until the applicable internal controls over financial reporting have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We cannot reasonably assure we will be able to remediate the material weaknesses we have identified or avoid potential future material weaknesses.

Changes in Internal Control over Financial Reporting

As outlined above, due to the identification of the material weaknesses, we continued to design, implement, document and test the effectiveness of our processes, procedures and internal controls over financial reporting. We made no other changes in our internal control over financial reporting that occurred during the fiscal quarter of 2023 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

We are not presently a party to any litigation the outcome of which, we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition.

Item 1A. Risk Factors

This Quarterly Report on Form 10-Q should be read in conjunction with the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on March 31, 2023. Other than as set forth below, there have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

As a result of our limited financial liquidity, we have expressed substantial doubt regarding our ability to continue as a “going concern.”  

As a result of our current limited financial liquidity, the notes accompanying our unaudited interim condensed financial statements, which are included as part of this report, contain a statement concerning our ability to continue as a “going concern.” Our limited liquidity could make it more difficult for us to secure additional financing or enter into strategic relationships on terms acceptable to us, if at all, and may materially and adversely affect the terms of any financing that we may obtain and our public stock price generally.

We have incurred losses since inception, negative cash flows from operations, and had an accumulated deficit of approximately $124.5 million as of September 30, 2023. The Company does not have adequate liquidity to fund its operations for at least twelve months from the issuance of these financial statements without raising additional capital and such actions are not solely within the control of the Company. If the Company is unable to raise additional capital, management believes planned expenditures may need to be reduced in order to extend the time period that existing resources can fund the Company’s operations. To date, the Company has funded its operations through the issuance of

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equity and debt securities, and the receipt of grants. The Company intends to fund ongoing operations by utilizing its current cash, cash equivalents and short-term investments on hand, and by exploring various dilutive and non-dilutive sources of funding, including equity financings, debt financings, strategic partnerships and collaborations, as well as other sources. If the Company is unable to obtain additional capital on commercially reasonable terms, or at all, it would have a material adverse effect on the operations of the Company and the development of its technology, and the Company may have to cease operations altogether. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

Risks Relating to the Tender Offer and Merger

The following risk factors relate to our pending strategic business combination with United Therapeutics Corporation, a Delaware corporation (“Parent”), including the tender offer and merger (the “Transactions”) contemplated under the Agreement and Plan of Merger, dated October 29, 2023 (the “Merger Agreement”), that we entered into with Parent and Morpheus Subsidiary Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Purchaser”).

The tender offer is subject to a number of conditions, some of which are beyond our control.

The Merger Agreement contains a number of conditions that apply to Purchaser’s obligation to accept for payment and pay for all of the issued and outstanding shares of common stock, par value $0.00001 per share, of the Company (“Common Stock” or the “Shares”), including the following conditions:

that there have been validly tendered in the tender offer and not validly withdrawn a number of Shares that, together with all other Shares, if any, owned by Purchaser and its affiliates (as defined in Section 251(h)(6)(a) of the Delaware General Corporation Law, as amended), represent at least a majority of the Shares outstanding at the expiration of the tender offer;
the accuracy of the representations and warranties of the Company contained in the Merger Agreement, subject to customary thresholds and exceptions;
the Company’s compliance with, and performance of, in all material respects, all of its covenants and agreements contained in the Merger Agreement; and
the absence of a Material Adverse Effect (as defined in the Merger Agreement).

There can be no assurance regarding when these conditions will be satisfied, if at all.

The merger is subject to a number of conditions, some of which are beyond our control.

The Merger Agreement contains a number of closing conditions, including the following conditions that apply to the obligations of the Company, Parent and Purchaser:

any waiting period applicable to the completion of the merger under the Hartt-Scott-Rodino Act shall have expired or shall have been earlier terminated;
none of the parties to the Merger Agreement shall be subject to any decree, order or injunction of a U.S. court of competent jurisdiction, nor any law enacted or deemed applicable, that prohibits the consummation of the merger;
the Merger Sub shall have accepted payment for all Shares of the Company; and
the contingent value rights agreement shall have been executed by the parties thereto, and be in full force and effect at the effective time of the merger.

There can be no assurance regarding when these conditions will be satisfied, if at all.

The Company has incurred and will incur significant transaction costs in connection with the Transactions.

Except as otherwise provided in the Merger Agreement, whether or not the Transactions are consummated, all expenses (including those payable to representatives of the parties) incurred by any party or on its behalf in connection with the Merger Agreement and the transactions contemplated by it will be paid by the party incurring those expenses.

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While the Transactions are pending, the Company will be subject to business uncertainties and contractual restrictions that could adversely affect its businesses.

Uncertainty about the effects of the Transactions on employees, vendors and key stakeholders may have an adverse effect on the Company and, consequently, on its business and prospects. These uncertainties may impair the Company’s ability to attract, retain and motivate key personnel until the Transactions are consummated and for a period of time thereafter, and could cause suppliers and others who deal with the Company to seek to change existing business relationships with the Company. Employee retention may be particularly challenging during the pendency of the Transactions merger because employees may experience uncertainty about their future roles with the Company. If, despite the Company’s retention efforts, key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company, the Company’s business could be seriously harmed. In addition, the Merger Agreement restricts the Company, without Parent’s consent and subject to certain exceptions, from making certain acquisitions and taking other specified actions until the merger occurs or the Merger Agreement terminates. These restrictions may prevent the Company from pursuing otherwise attractive business opportunities and making other changes to its business that may arise prior to completion of the Transactions or termination of the Merger Agreement.

Failure to complete the Transactions could negatively impact the stock price and the future business and financial results of the Company because of, among other things, the disruption that would occur as a result of uncertainties relating to a failure to complete the Transactions.

If the Transactions are not completed for any reason, the Company could be subject to several risks, including the following:

being required to pay Parent a termination fee of $4 million in certain circumstances, as set forth in the Merger Agreement;
having had the focus of management of the Company directed toward post-Transactions planning instead of on the Company’s core business and other opportunities that could have been beneficial to the Company; and
incurring substantial transaction costs related to the Merger Agreement.

If the merger is not completed, the price of the Company’s common stock may decline to the extent that the current market price of that stock reflects a market assumption that the Transactions will be completed and that the related benefits and synergies will be realized, or as a result of the market’s perceptions that the merger was not consummated due to an adverse change in the Company’s business. In addition, the Company’s business may be harmed, and the prices of its stock may decline as a result, to the extent that suppliers and others believe that the Company cannot carry out its business plan as effectively without the Transactions or otherwise remain uncertain about the Company’s future prospects in the absence of the Transactions.

The realization of any of these risks may materially adversely affect the business, financial results, financial condition and stock price of the Company.

The Merger Agreement limits the Company’s ability to pursue an alternative acquisition proposal and requires the Company to pay a termination fee of up to $4 million if it does.

The Merger Agreement prohibits the Company from soliciting, initiating or encouraging alternative merger or acquisition proposals with any third party, subject to certain exceptions. The Merger Agreement also provides for the payment by the Company of a termination fee of $4 million if the Merger Agreement is terminated in certain circumstances in connection with a competing acquisition proposal.

These provisions limit the Company’s ability to pursue offers from third parties that could result in greater value to the Company’s stockholders. The obligation to make the termination fee payment also may discourage a third party from pursuing an alternative acquisition proposal.

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Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

Use of Proceeds

On June 28, 2021, we completed our initial public offering on common stock (the “IPO”) in which we sold 5,520,000 shares of common stock at a public offering price of $9.00 per share. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to the Company’s registration statement on Form S-1 (File No. 333-256649), as amended, which was declared effective on June 23, 2021 pursuant to Rule 462(b) under the Securities Act. Craig-Hallum Capital Group acted as sole managing underwriter for the IPO.

We received net proceeds of approximately $44.5 million from the IPO, after paying $342,500 of fees and expenses of Craig-Hallum. We are using the net proceeds from the IPO as follows:

between approximately $34.8 million to $40.0 million to fund our research and development activities, including, but not limited to, our Phase I trial for the miroliverELAP product and certain pre-clinical trials for our bioengineered organs;
between approximately $3.0 million and $4.0 million to fund the full cost of constructing a new facility; and
the remaining funds for working capital and general corporate purposes.

Pending the uses of proceeds above, we have invested in a variety of capital preservation instruments, including short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the United States government.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the three months ended September 30, 2023, no director or officer of the Company adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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Item 6. Exhibits

Exhibit

No.

Description

2.1

Agreement and Plan of Merger, dated as of October 29, 2023, by and among Miromatrix Medical Inc., United Therapeutics Corporation, and Morpheus Subsidiary Inc.

Incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed October 30, 2023.

3.1

Second Amended and Restated Certificate of Incorporation of Miromatrix Medical Inc.

Incorporated by reference to Exhibit 3.1 of the Company’s Annual Report on Form 10-K, filed March 30, 2022.

3.2

Amended and Restated Bylaws of Miromatrix Medical Inc.

Incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K, filed June 28, 2021.

31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith.

31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith.

32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Furnished herewith.

32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Furnished herewith.

101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

Filed herewith.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

Filed herewith.

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Filed herewith.

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

Filed herewith.

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

Filed herewith.

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith.

104

Cover Page Interactive Data File (embedded within the inline XBRL document)

Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereto, duly authorized.

MIROMATRIX MEDICAL INC.

Dated: November 14, 2023

By:

/s/ Jeffrey Ross

Name:

Jeffrey Ross

Title:

Chief Executive Officer

(on behalf of Registrant)

Dated: November 14, 2023

By:

/s/ James Douglas

Name:

James Douglas

Title:

Chief Financial Officer

(Principal Financial and Accounting Officer)

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