SkyAI, Inc 10-Q for FY2023 Q2
SkyAI, Inc. (SKYA)
About this 10-Q
SkyAI, Inc filed this 10-Q on August 14, 2023, covering the quarter ended June 30, 2023 (FY2023 Q2).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $2.61M
- compared with net income of $477.75K a year earlier
- Diluted EPS
- -$0.22
- compared with $0.06 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
or
For the transition period from _______ to _______
Commission
file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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 ☐
| * | The registrant became subject to the requirement to file reports on April 13, 2022 and has filed all reports required since April 13, 2022. |
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).
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 | ☐ |
| ☒ | 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 ☐
As of August 14, 2023, the issuer had shares of common stock, par value $0.0001 per share, outstanding.
SHARPS TECHNOLOGY, INC.
TABLE OF CONTENTS
| Page No. | ||
| PART I FINANCIAL INFORMATION | ||
| ITEM 1. | FINANCIAL STATEMENTS (Unaudited) | |
| Condensed Consolidated Balance Sheets | 1 | |
| Condensed Consolidated Statements of Operations | 2 | |
| Condensed Consolidated Statement of Comprehensive Loss | 3 | |
| Condensed Consolidated Statements of Stockholders’ Equity | 4 | |
| Condensed Consolidated Statements of Cash Flows | 5 | |
| Notes to the Condensed Consolidated Financial Statements | 6 | |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 22 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 32 |
| ITEM 4. | CONTROLS AND PROCEDURES | 32 |
| PART II OTHER INFORMATION | 33 | |
| ITEM 1. | LEGAL PROCEEDINGS | 33 |
| ITEM 1A. | RISK FACTORS | 33 |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 33 |
| ITEM 6. | EXHIBITS | 34 |
| SIGNATURES | 35 | |
i
SHARPS TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | (Audited) | |||||||
| Assets: | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other current assets | ||||||||
| Inventories (Note 3) | ||||||||
| Current Assets | ||||||||
| Fixed Assets, net of accumulated depreciation (Notes 4 and 5) | ||||||||
| Other Assets (Notes 5 and 6) | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| Liabilities: | ||||||||
| Current Liabilities | ||||||||
| Accounts payable (Note 4) | $ | $ | ||||||
| Accrued and other current liabilities (Note 15) | ||||||||
| Warrant liability (Notes 8 and 10) | ||||||||
| Total Current Liabilities | ||||||||
| Deferred Tax Liability | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 15) | ||||||||
| Subsequent Events (Note 16) | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $ par value; shares authorized; share issued and outstanding | ||||||||
| Common stock, $ par value; , shares authorized; shares issued and outstanding (2022: ) | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
1
SHARPS TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE
(UNAUDITED)
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
THREE MONTHS ENDED JUNE 30, | SIX MONTHS ENDED JUNE 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue, net | $ | $ | ||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development (Note 5) | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest income (expense) | ( | ) | ( | ) | ||||||||||||
| FMV adjustment on contingent stock & warrants | ( | ) | ||||||||||||||
| Foreign currency and other | ( | ) | ( | ) | ||||||||||||
| Total Other Income (Expense) | ( | ) | ||||||||||||||
| Net (loss) / Gain | $ | ( | ) | $ | ( | ) | ( | ) | ||||||||
| Net loss per share, basic and diluted | $ | ) | $ | ) | ) | |||||||||||
| Weighted average shares used to compute net loss per share, basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these financial statements.
2
SHARPS TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30
(UNAUDITED)
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
THREE MONTHS ENDED JUNE 30, | SIX MONTHS ENDED JUNE 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ( | ) | ||||||||
| Other comprehensive income: | ||||||||||||||||
| Foreign currency translation adjustments gain/(loss) | ||||||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ( | ) | ||||||||
The accompanying notes are an integral part of these financial statements.
3
SHARPS TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023
(Unaudited)
| Preferred Stock | Common Stock | Common Stock Subscription | Additional Paid in | Accumulated Other Comprehensive | Accumulated | Total Stockholders | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Receivable | Capital | Income | Deficit | Equity | ||||||||||||||||||||||||||||
| Balance -December 31, 2022 | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2023 | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Shares issued in Offering | ||||||||||||||||||||||||||||||||||||
| Share-based compensation charges | - | - | ||||||||||||||||||||||||||||||||||
| Foreign Currency Translation | - | |||||||||||||||||||||||||||||||||||
| Balance - March 31, 2023 | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2023 | - | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Share-based compensation charges | - | - | ||||||||||||||||||||||||||||||||||
| Foreign Currency Translation | - | - | - | |||||||||||||||||||||||||||||||||
| Balance - June 30, 2023 | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||||||
SHARPS TECHNOLOGY, INC.
CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
(Unaudited)
| Shares | Amount | Shares | Amount | Receivable | Capital | Deficit | Equity | |||||||||||||||||||||||||
| Preferred Stock | Common Stock | Common Stock Subscription | Additional Paid in | Accumulated | Total Stockholder’s | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Receivable | Capital | Deficit | Equity | |||||||||||||||||||||||||
| Balance -December 31, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||
| Beginning balance | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||
| Net loss for the three months ended March 31, 2022 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Share-based compensation charges | - | - | ||||||||||||||||||||||||||||||
| Collections of common stock subscriptions | - | |||||||||||||||||||||||||||||||
| Balance - March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Beginning balance | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Net income for the three months ended June 30, 2022 | - | - | ||||||||||||||||||||||||||||||
| Net income (loss) | - | - | ||||||||||||||||||||||||||||||
| Shares issued in Initial Public Offering | - | |||||||||||||||||||||||||||||||
| Issuance of shares for contingent stock liability | - | |||||||||||||||||||||||||||||||
| Fractional share adjustment | - | |||||||||||||||||||||||||||||||
| Share-based compensation charges | - | - | ||||||||||||||||||||||||||||||
| Shares issued for services | - | |||||||||||||||||||||||||||||||
| Balance – June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Ending balance | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
4
SHARPS TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30
(UNAUDITED)
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Accretion of debt discount | ||||||||
| FMV adjustment for Contingent Stock | ( | ) | ||||||
| FMV adjustment for Warrants | ( | ) | ( | ) | ||||
| IPO Issuance costs relating to Warrants | ||||||||
| Foreign exchange gain | ||||||||
| Changes in operating assets: | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Other assets | ||||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Acquistion of fixed assets or deposits paid | ( | ) | ( | ) | ||||
| Other assets – escrow and other | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net proceeds from Initial Public Offering and additional offering | ||||||||
| Repayment of Note Payable | ( | ) | ||||||
| Proceeds from subscriptions receivable | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| NET INCREASE (DECREASE) IN CASH | ( | ) | ||||||
| CASH — BEGINNING OF YEAR | ||||||||
| CASH — END OF PPERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Non-cash investing and financing activity: | ||||||||
| FMV for Common Stock Issued for Contingent Shares | ||||||||
| Common stock issued and vested stock options for fixed assets acquired | $ | $ | ||||||
| Common stock issued and vested stock options issued as consideration for acquisition | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
5
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022
Note 1. Description of Business
Nature of Business
Sharps Technology, Inc. (“Sharps” or the “Company”) is a pre-revenue medical device company that has designed and patented various safety syringes and is seeking commercialization by manufacturing and distribution of its products.
The accompanying condensed consolidated financial statements include the accounts of Sharps Technology, Inc. and its wholly owned subsidiary, Safegard Medical, Inc. collectively referred to as the “Company.” The condensed consolidated balance sheet as of June 30, 2023 and the condensed consolidated statements of operations, statements of comprehensive loss and statements of stockholders’ equity s for the three and six months ended June 30, 2023 and 2022 and the statements of cash flow for the six months ended June 30, 2023 (the “interim statements”) are unaudited. All intercompany transactions and balances have been eliminated. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position and operating results for the interim periods have been made. Certain information and footnote disclosure, normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted. The interim statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2022 and notes thereto contained in the Company’s Form 10-K filed with the Securities and Exchange Commission. The condensed consolidated balance sheet at December 31, 2022 has been derived from the audited financial statements at that date. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023.
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has not
generated revenue or cash flow from operations since inception. As of June 30, 2023, the Company had a working capital of $
The Company’s fiscal year ends on December 31.
On
April 13, 2022, the Company’s Initial Public Offering was deemed effective with trading commencing on April 14, 2022. The Company
received net proceeds of $
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) and are expressed in U.S. dollars.
6
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022
Note 2. Summary of Significant Accounting Policies (continued)
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 periods. Actual results could differ from those estimates. As of June 30, 2023, the most significant estimates relate to derivative liabilities and stock-based compensation.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are maintained with various financial institutions.
Inventories
The Company values inventory at the lower of cost (average cost) or net realizable value. Work-in-process and finished goods inventories consist of material, labor, and manufacturing overhead. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. A reserve is established for any excess or obsolete inventories or they may be written off. At June 30, 2023 and December 31, 2022, inventory is comprised of raw materials, including packaging, work in process (components) and finished goods.
Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures, require an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value.
The Company’s outstanding warrants are fair valued on a recurring basis with the trading price which could cause fluctuations in operating results at the reporting periods.
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Valuations are based on quoted prices that are readily and regularly available in an active market and do not entail a significant degree of judgment.
Level 2
Level 2 applied to assets or liabilities for which there are other than Level 1 observable inputs such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
7
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022
Note 2. Summary of Significant Accounting Policies (continued)
Level 2 instruments require more management judgment and subjectivity as compared to Level 1 instruments. For instance: determining which instruments are most similar to the instrument being priced requires management to identify a sample of similar securities based on the coupon rates, maturity, issuer credit rating and instrument type, and subjectively select an individual security or multiple securities that are deemed most similar to the security being priced; and determining whether a market is considered active requires management judgment.
Level 3
Level 3 applied to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The determination for Level 3 instruments requires the most management judgment and subjectivity.
Fixed Assets
Fixed
assets are stated at cost. Expenditures for maintenance and repairs are charged to operations as incurred. The Company’s fixed
assets consist of land, building, machinery and equipment, molds and website. Depreciation is calculated using the straight-line method
commencing on the date the asset is operating in the way intended by management over the following useful lives: Building –
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount of an asset group to the future net undiscounted cash flows that the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the asset.
There
were
Purchased Identified Intangible Assets
The Company’s identified intangible assets are amortized on a straight-line basis over their estimated useful lives of 5 years. The Company makes judgments about the recoverability of finite-lived intangible assets whenever facts and circumstances indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, the Company assesses recoverability by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is shorter than originally estimated, the Company would accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life. The Company evaluates the carrying value of indefinite-lived intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and an impairment charge would be recognized to the extent that the carrying amount of such assets exceeds their estimated fair value.
8
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022
Note 2. Summary of Significant Accounting Policies (continued)
Stock-based Compensation Expense
The Company measures its stock-based awards made to employees based on the estimated fair values of the awards as of the grant date. For stock option awards, the Company uses the Black-Scholes option-pricing model. For restricted stock awards, the estimated fair value is generally the fair market value of the underlying stock on the grant date. Stock-based compensation expense is recognized over the requisite service period and is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. The Company recognizes forfeitures of stock-based awards as they occur on a prospective basis.
Stock-based compensation expense for awards granted to non-employees as consideration for services received is measured on the date of performance at the fair value of the consideration received or the fair value of the equity instruments issued, whichever can be more reliably measured.
Derivative Instruments
The Company accounts for common stock warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC 480”), Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own stock and whether the holders of the warrants could potentially require net cash settlement in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
At their issuance date and as of June 30, 2023, the warrants (see Notes 8 and 10) were accounted for as liabilities as these instruments did not meet all of the requirements for equity classification under ASC 815-40 based on the terms of the aforementioned warrants. The resulting warrant liabilities are re-measured at each balance sheet date until their exercise or expiration, and any change in fair value is recognized in the Company’s condensed consolidated statements of operations and comprehensive loss.
Foreign Currency Translation/Transactions
The Company has determined that the functional currency for its foreign subsidiary is the local currency. For financial reporting purposes, assets and liabilities denominated in foreign currencies are translated at current exchange rates and profit and loss accounts are translated at weighted average exchange rates. Resulting translation gains and losses are included as a separate component of stockholders’ equity as accumulated other comprehensive income or loss. Gains or losses resulting from transactions entered into in other than the functional currency are recorded as foreign exchange gains and losses in the consolidated statements of operations and comprehensive loss.
Comprehensive income (loss)
Comprehensive income (loss) consists of the Company’s consolidated net loss and foreign currency translation adjustments related to its subsidiary. Foreign currency translation adjustments included in comprehensive loss were not tax effected as the Company has a full valuation allowance at June 30, 2023 and December 31, 2022. Accumulated other comprehensive income (loss) is a separate component of stockholders’ equity and consists of the cumulative foreign currency translation adjustments.
9
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022
Note 2. Summary of Significant Accounting Policies (continued)
The Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the consolidated statement of operations and comprehensive loss. Basic EPS is computed by dividing net income (loss) available to common stockholders (numerator) by the weighted average number of shares outstanding (denominator) during the year. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of June 30, 2023, there were stock options and warrants that could potentially dilute basic EPS in the future that were not included in the computation of diluted EPS because to do so would have been antidilutive for the periods presented.
Income Taxes
The Company must make certain estimates and judgments in determining income tax expenses for financial statement purposes. These estimates and judgments are used in the calculation of tax credits, tax benefits, tax deductions, and in the calculation of certain deferred taxes and tax liabilities. Significant changes to these estimates may result in an increase or decrease to the Company’s tax provision in a subsequent period.
The provision for income taxes was comprised of the Company’s current tax liability and changes in deferred income tax assets and liabilities. The calculation of the current tax liability involves dealing with uncertainties in the application of complex tax laws and regulations and in determining the liability for tax positions, if any, taken on the Company’s tax returns in accordance with authoritative guidance on accounting for uncertainty in income taxes. Deferred income taxes are determined based on the differences between the financial reporting and tax basis of assets and liabilities. The Company must assess the likelihood that it will be able to recover the Company’s deferred tax assets. If recovery is not likely on a more-likely-than-not basis, the Company must increase its provision for income taxes by recording a valuation allowance against the deferred tax assets that it estimates will not ultimately be recoverable. However, should there be a change in the Company’s ability to recover its deferred tax assets, the provision for income taxes would fluctuate in the period of such change.
Research and Development Costs
Research and development costs are expensed as incurred.
Advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts are recognized as an expense as the related goods are delivered or the services are performed.
Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigations, fines and penalties and other sources are recognized when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. Gain contingencies are evaluated and not recognized until the gain is realizable or realized.
10
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022
Note 2. Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements
In March 2020, the FASB issued ASC Topic 848, Reference Rate Reform. ASC Topic 848 provides relief for impacted areas as it relates to impending reference rate reform. ASC Topic 848 contains optional expedients and exceptions for applying GAAP to debt arrangements, contracts, hedging relationships, and other areas or transactions that are impacted by reference rate reform. This guidance is effective upon issuance for all entities and elections of certain optional expedients are required to apply the provisions of the guidance.
On August 5, 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. ASU 2020-06 simplifies the guidance in U.S. GAAP on the issuer’s accounting for convertible debt instruments, requires entities to provide expanded disclosures about “the terms and features of convertible instruments” and how the instruments have been reported in the entity’s financial statements. It also removes from ASC 815-40-25-10 certain conditions for equity classification and amends certain guidance in ASC 260, Earnings per Share, on the computation of EPS for convertible instruments and contracts on an entity’s own equity. An entity can use either a full or modified retrospective approach to adopt the ASU’s guidance. The ASU’s amendments are effective for smaller public business entities fiscal years beginning after December 15, 2023. The Company continues to assess all potential impact of the standard and will disclose the nature and reason for any elections that the Company makes.
In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”, intended to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendment also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. ASU No. 2022-03 is effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. For all other entities, it is effective for fiscal years, including interim periods within those fiscal years beginning after December 15, 2024. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company is evaluating the adoption of the amendments and the potential impact it may have, if any, on its financial statements.
The Company does not expect the adoption of any accounting pronouncements to have a material impact on the condensed consolidated financial statements.
We reviewed all other recently issued accounting pronouncements and have concluded they are not applicable or not expected to be significant to the accounting for our operations.
Note 3. Inventories
Inventories, net consisted of the following at:
Schedule of Inventories
| June 30, 2023 | December 31, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
11
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022
Note 4. Fixed Assets
Fixed asset, net, is summarized as follows as of:
Schedule of Property, Plant and Equipment
| June 30, 2023 | December 31, 2022 | |||||||
| Land | $ | $ | ||||||
| Building | ||||||||
| Machinery and Equipment | ||||||||
| Website | ||||||||
| Fixed asset, gross | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Fixed asset, net | $ | $ | ||||||
Depreciation
expense of fixed assets for the six months ended June 30, 2023 and 2022 was $
During
the six months ended June 30, 2022 , the Company recorded $
Note 5. Asset Acquisition
In June 2020, the Company entered into a Share Purchase Agreement (“Agreement”) with Safegard Medical (“Safegard”) and amendments to the Agreement, collectively, the Agreements, to purchase either the stock or certain assets of a manufacturing facility for $M in cash, plus additional consideration of shares of common stock with an estimated fair market value of $, stock options with an exercise price of $ and stock options with an exercise price of $. The purchase price includes the fair market value of the common stock of $ and the vested options of $. The Agreements provided the Company various periods for due diligence and post due diligence, requirements for escrow payments through the closing date (“Closing Date”).
Through the Closing Date, the Agreements provided the Company with the exclusive use of the facility in exchange for payment of the facility’s operating costs. The monthly fee (“Operating Costs”), which primarily covered the facility’s operating costs, was mainly comprised of the seller’s workforce costs, materials and other recurring monthly operating cost.
During the three and six months ended June 30, 2022, the Company had remitted $ and $, respectively for the forementioned Operating Costs. The remittance of operating costs was discontinued after the Closing Date. These costs were included in research and development expense in the condensed consolidated statement of operations as the activities at the facility in 2022 were related to design and testing of the Company’s products.
The
acquisition of Safegard, which closed on July 6, 2022, did not meet the definition of a business pursuant to ASC 805-10, and accordingly
was accounted for as an asset acquisition in accordance with ASC 805-50. The cost of the acquisition was $
12
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022
Note 5. Asset Acquisition (continued)
The relative fair value of the assets acquired and related deferred tax liability is as follows:
Schedule of Fair Value of the Assets Acquisition
| Land | $ | |||
| Building and affixed assets | ||||
| Machinery | ||||
| Inventory | ||||
| Intangibles | ||||
| Deferred tax liability | ( | ) | ||
| Total | $ |
The
useful lives for the acquired assets is Building -
Note 6. Other Assets
Other assets as of June 30, 2023 and December 31, 2022 are summarized as follows:
Schedule of Other Assets
| 2023 | 2022 | |||||||
| Intangibles, net | ||||||||
| Deposits or advance payments on machinery, molds, components or technology (see Note 15) | ||||||||
| Other | ||||||||
| Other assets | $ | $ | ||||||
Intangibles
are related to the Asset Acquisition (see Note 5) and consist of an acquired workforce and permits. Amortization for the six months ended
June 30, 2023 and 2022 was
Note 7. Note Purchase Agreement
On December 14, 2021, the Company entered into a Note Purchase Agreement (“NPA”) with three unrelated third-party purchasers (“Purchasers”). The Purchasers provided financing to the Company in the form of bridge financing, aggregating principal of $ (the “Notes”). The principal under the Notes shall be payable on the earlier of (i) December 14, 2022, and (ii) the date on which the Company consummates an initial public offering (“IPO”), herein referred to as the “Maturity Date”. The Notes bore interest at % with interest payments due monthly. The Company and the Purchasers had entered into a Security Agreement whereby the Notes were collateralized by substantially all the assets of the Company, both tangible and intangible both currently owned with stated exclusions, as defined, and any future acquired with stated exclusions, as defined.
The NPA provided for covenants that until all of the Notes have been converted, exchanged, redeemed or otherwise satisfied in accordance with their terms, the Company shall not, and the Company shall not permit any of its subsidiaries without the prior written consent of the Purchasers: a) incur or guarantee any new debt, b) issue any securities that would cause a breach or default under the NPA, c) incur any liens other than permitted, d) redeem or repurchase shares, e) declare or pay any cash dividend or distribution, e) sell, lease or dispose of assets other than in the ordinary course of business, or f) engage in different line of business.
13
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022
Note 7. Note Purchase Agreement (continued)
.
For both the Contingent Stock and the Contingent Warrants, the number of shares and warrants that each Purchaser will be issued was unknown at the time of the NPA and was determined based on a formula of 50% of the original principal amount divided by a “Subsequent Offering Price” based on the valuation in a future offering of Common stock or other equity interest in the Company (such offering referred to as a “Consummated Offering”) during the period beginning on December 14, 2021 through and including the date the Company consummates an initial public offering (“IPO”) (such period referred to as the “Subsequent Offering Period”).
In
accordance with ASC 480-10-25-14, a fixed monetary amount exists at inception for the total value of Contingent Stock that may be issued
to each Purchaser. The Contingent Stock is not considered outstanding at inception, as it will only be issued upon the consummation of
a Consummated Offering, and accordingly, is a conditional obligation. As such the fair market value (“FMV”) of the Contingent
Stock at inception was $
The Contingent Stock and Contingent Warrant liabilities were measured at FMV on the date of issuance (based on the Black-Scholes valuation model).
At
inception, the Notes were recorded at the net amount of approximately $
The
value of the Contingent Stock and Contingent Warrants was required to be re-measured at FMV at each reporting date, using either the
Black-Scholes valuation model or other valuation method, if deemed more appropriate, with recognition of the changes in fair value to
other income or expense in the consolidated statement of operations in accordance with ASC 480, Debt and Equity. For the three months
ended March 31, 2022, the Company recorded a $
14
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022
Note 7. Note Purchase Agreement (continued)
In
connection with the closing of the IPO,
Note 8. Stockholders’ Equity
Capital Structure
On December 11, 2017, the Company was incorporated in Wyoming with shares of common stock authorized with a $ par value. Effective, April 18, 2019, the Company’s authorized common stock was increased to shares of common stock. The articles of incorporation also authorized preferred shares with a $ par value.
Effective
March 22, 2022, the Company completed a plan and agreement of merger with Sharps Technology, Inc., a Nevada corporation (“Sharps
Nevada”).
Common Stock
On
February 3, 2023, the Company completed a securities purchase agreement (“Offering”) with institutional investors and received
net proceeds from the Offering were approximately $
On
April 13, 2022, the Company’s initial public offering (“IPO”) was declared effective by the SEC pursuant to which the
Company issued and sold an aggregate of units (“Units”), each consisting of one share of common stock and two warrants,
to purchase one share of common stock for each whole warrant, with an initial exercise price of $ per share, adjusted to $1.56 at
February 3, 2023 based on the warrant terms, and a term of years. In addition, the Company granted Aegis Capital Corp., as underwriter
a 45-day over-allotment option to purchase up to 15% of the number of shares included in the units sold in the offering, and/or additional
warrants equal to 15% of the number of Warrants included in the units sold in the offering, in each case solely to cover over-allotments,
which the Aegis Capital Corp. partially exercised with respect to
The
Company’s common stock and warrants began trading on the Nasdaq Capital Market or Nasdaq on April 14, 2022. The net proceeds from
the IPO, prior to payments of certain listing and professional fees were approximately $
15
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022
Note 8. Stockholders’ Equity (continued)
During
the period April 1, 2022 through December 31, 2022, the Company issued shares of common stock at the trading stock price in connection
with services provided to the Company and recorded a charge of $
Warrants
| a) | In
connection with an advisory services arrangement entered into in April 2023, the Company issued warrants during the three
months ended June 30, 2023 at an exercise price of $ | |
| (b) | In
connection with the Offering in February 2023, the Company issued non-trading warrants Offering Warrants as a component
of the Unit as noted in Common Stock above. The Offering Warrants were recorded at the FMV, computed using the Black Sholes valuation
method with the following assumptions: volatility of %, five-year term, risk free interest rate % and % dividend rate.
The Offering Warrant’s liability requires remeasurement at each reporting period. The Offering Warrants are classified as a
liability based on ASC 815. At the issuance date the liability was $ | |
| (c) | In
connection with the IPO in April 2022, the Company issued warrants (Trading Warrants) as a component of the Units and
warrants to the underwriter (Overallotment Warrants), as noted in Common Stock above. The Trading and Overallotment Warrants were
recorded at the FMV, being the trading price of the warrants, on the IPO effective date and the Warrants are classified as a Liability
based on ASC 815. The Warrant liability requires remeasurement at each reporting period. At the IPO, the liability was $ | |
| (d) | The
Company has issued Warrants (“Note Warrants”) to the Purchasers of the Notes on April 19, 2022. The Note Warrants
have an exercise price of $
| |
| (e) | The
underwriter received |
Note 9. Preferred Stock
In
February 2018, the Company Board of Directors issued one share of Series A Preferred Stock to Alan Blackman, the Company’s co-founder
and Director. The Series A Preferred Stock entitles the holder to vote on any matters related to the election of directors and was reduced
from
16
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022
Note 10. Warrant Liability
The Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented as a Warrant liability in the accompanying condensed consolidated balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within the condensed consolidated statements of operations. (See Notes 7 and 8)
The Warrant liability at June 30, 2023 was as follows:
Schedule of Warrant Liability
| Trading and Overallotment Warrants | $ | |||
| Note Warrants | ||||
| Offering Warrants | ||||
| Total | $ | |||
| Warrant liability | $ |
The Warrants outstanding at June 30, 2023 are as follows:
Schedule of Warrant Outstanding
| Trading and Overallotment Warrants | ||||
| Note warrants | ||||
| Offering Warrants | ||||
Warrants issued for services arrangement | ||||
| Total | ||||
| Warrant outstanding |
The following table presents the changes in the Warrant liability of the Level 1 warrants issued on April 14, 2022, the effective date of the IPO measured at fair value from December 31, 2022 and the changes in the Offering Warrants liability of the Level 2 warrants issued on February 6, 2023 through June 30, 2023.
Schedule of Changes in the Warrant Liability
| Total | ||||
| FMV of Note Warrants | $ | |||
| FMV of Trading and Overallotment Warrants | ||||
| FMV of Offering Warrants, at issuance | ||||
| Change in fair value of warrant liability for the six months ended June 30,2023 | ( | ) | ||
| Fair Value at June 30, 2023 | $ | |||
17
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022
Schedule of Stock Options Granted and Outstanding
| June 30, 2023 | ||||||||
| Options | Weighted Average Weighted | |||||||
| Outstanding at Beginning of year | $ | |||||||
| Granted | ||||||||
| Forfeited | ( | ) | ||||||
| Outstanding at end of period | $ | |||||||
| Exercisable at end of period | $ | |||||||
During the six months ended June 30, 2023 , the Company granted -year options (the “Options”) to purchase a total of shares of the Company’s common stock, par value $ per share (the “Common Stock”) to its directors, executive officers, employees and consultants pursuant to the Company’s. 2022 and 2023 Equity Incentive Plans. The Options are exercisable at $ per share which was the closing price on January 25, 2023. Of the Options granted, Options to purchase an aggregate of shares of Common Stock were issued to executive officers Options to purchase an aggregate of shares of Common Stock were issued to directors and Options to purchase an aggregate of shares of Common Stock to employees and a consultant. In connection with an employment agreement the Company granted -year options to purchase shares of common stock in February 2023 under the 2022 Equity Incentive Plan. (See Note 15).
On January 25, 2023, the Company’s Board of Directors adopted the 2023 Equity Incentive Plan (the “2023 Plan”). The 2023 Plan provides for the issuance of up to options and/or shares of restricted stock to be available for issuance to officers, directors, employees and consultants. The 2023 Plan is subject to shareholder approval at the annual meeting.
As of June 30, 2023, there was $ in unrecognized stock-based compensation related to unvested stock options, which is expected to be recognized over a weighted average period of forty months.
Schedule of Information about Options Outstanding
| Exercise Prices | Shares Outstanding | Weighted Average Remaining Contractual Life | Shares Exercisable | |||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
18
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022
Note 11. Stock Options (continued)
For
the three and six months ended June 30, 2023, the Company recognized stock-based compensation expense of $ and $
respectively, recorded in general and administrative. For the three and six months ended June 30, 2022, the recognized stock-based compensation
expense of $ and $ respectively, of which $ and $ was recorded in general and administrative and research and
development expenses, respectively. Further, for the three months ended March 31, 2022, the Company recorded stock-based charges relating
to consideration for purchase of machinery of $
Schedule of Fair Value of Stock Option Awards
| Expected term (years) | to | |||
| Expected volatility | % to | % | ||
| Risk-free interest rate | % to | % | ||
| Dividend rate | % | |||
Note 12. Income Taxes
At
the end of each interim reporting period, the Company estimates its effective tax rate expected to be applied for the full year. This
estimate is used to determine the income tax provision or benefit on a year-to-date basis and may change in subsequent interim periods.
Accordingly, the Company’s effective tax rate for the three and six months ended , June 30, 2023 was
Note 13. Related Party Transactions and Balances
As
of June 30, 2023 and December 31, 2022, accounts payable and accrued liabilities include $
Note 14. Fair Value Measurements
The Company’s financial instruments include cash, accounts payable, notes payable, contingent stock and warrant liability and warrant liability. Cash, contingent stock liability, contingent warrant liability and warrant liability are measured at fair value. Accounts payable and notes payable are measured at amortized cost and approximates fair value due to their short duration and market rate for similar instruments, respectively.
19
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022
Note 14. Fair Value Measurements (continued)
As of June 30, 2023, the following financial assets and liabilities were measured at fair value on a recurring basis presented on the Company’s consolidated balance sheet:
Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Cash | $ | $ | ||||||||||||||
| - | - | - | ||||||||||||||
| Total assets measured at fair value | $ | $ | ||||||||||||||
| Liabilities | ||||||||||||||||
| Warrant liability | $ | $ | ||||||||||||||
| Total liabilities measured at fair value | $ | $ | ||||||||||||||
Note 15. Commitments and Contingencies
Fixed Assets and Other
At
June 30, 2023, the Company has outstanding orders to purchase equipment, mold and component parts for research and development of $
Contingencies
At each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company is currently not involved in any material litigation or other loss contingencies.
Royalty Agreement
In
connection with the purchase of certain intellectual property in July 2017, Barry Berler and Alan Blackman entered into a royalty agreement
which provides that Barry Berler will be entitled to a royalty of four percent (
In
September 2018, the Royalty Agreement was amended to reduce the royalty to
20
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 2023 AND 2022
Note 15. Commitments and Contingencies (continued)
Employment Agreements and Other
On
August 1, 2022, the Company cancelled the consulting agreement with Alan Blackman, Co- Chairman and Chief Operating Officer and
entered into an Employment Agreement which provides for annual salary of $
On
September 30, 2022, the Company entered into a formal employment agreement, effective on such date and will continue until terminated
by either party, subject to the terms of the agreement, with Andrew R. Crescenzo who has been serving as the Company’s Chief Financial
Officer on a contract services basis for the last three years. The agreement provided for annual compensation of $
In
October 2022, the Company entered into a service agreement (“Service Agreement”) with an unrelated third-party for marketing
and investor relations services. The Service Agreement, which has a term of one year, has various deliverables and provides payments
to the third party as follows; a) an initial fee of $
On February 09, 2023, the Company, appointed Justin Page, as Vice President of Technical Operations with a start date of February 15, 2023. The agreement provides for annual compensation of $ and options to purchase shares of common stock at the exercise price of $, the closing price on the grant date. During the course of the term, Mr. Paige will be eligible for (i) performance bonuses to be granted at the discretion of the Company’s Compensation Committee and (ii) to participate in the Company’s Equity Incentive Plan. The agreement contains customary employment terms and conditions and provides for severance of six months if a change in control occurs, as defined.
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our Company as of and for the periods presented below. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us,” and “our” refer to Sharps Technology, Inc.
Forward-Looking Statements
The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in our filings with the SEC. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.
Overview
Since our inception in 2017, we have devoted substantially all of our resources to the research and development of our safety syringe products. To date, we have generated no revenue. We have incurred net losses in each year since our inception and, as of June 30, 2023, we had an accumulated deficit of $20,025,021 . Our net loss was $4,717,655 for the six months ended June 30, 2023. Substantially all of our net losses resulted from costs incurred in connection with our research and development efforts, payroll and consulting fees, stock compensation and general and administrative costs associated with our operations, including costs incurred for being a public company since April 14, 2022. See below, Liquidity and Capital Resources and Notes to Consolidated Condensed Financial Statements.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has not generated revenue or cash flow from operations since inception. As at June 30, 2023, the Company had a working capital of $1,197,575 which is not expected to be sufficient to fund the Company’s planned operations for the next 12 months. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to raise sufficient financing to acquire or commercialize its products into a profitable business. The Company intends to finance its commercialization activities and its working capital needs largely from the sale of equity securities and/or with additional funding from other traditional financing sources until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
We
classify our operating expenses as research and development and general and administrative expenses. We maintain a corporate office located
in Melville, New York, but employees and consultants in the US work remotely and will continue to do so indefinitely. In June 2020, in
connection with the agreement to acquire Safegard, a former syringe manufacturing facility in Hungary, which was completed on July 6,
2022. Through the closing, we were contractually provided the exclusive use of the facility for research and development and testing
in exchange for payment of the seller’s operating costs, including among others, use of Safegard’s work force, utility costs
and other services.
22
In order to compete in the market, we must build inventory. Commencing in the 4th Quarter of 2022 we have started building inventory. We require commercial quantities of inventory to secure orders. Delivery is expected shortly after receiving orders.
Research and Development
Research and development expense consists of expenses incurred while performing research and development activities for our various syringe products. We recognize research and development expenses as they are incurred. Our research and development expense primarily consist of:
| ● | Manufacturing and testing costs and related supplies and materials; |
| ● | Consulting fees paid for our Chief Technology Officer; |
| ● | Operating costs paid to Safegard, through the acquisition date for use of Safegard’s workforce, utilities and other services, relating to the facility being utilized; and |
| ● | Third-party costs, including engineering, incurred for development and design. |
Substantially all of our research and development expenses to date have been incurred in connection with our syringe products. We expect to continue to incur research and development expense for the foreseeable future as we continue to enhance our product to meet the market requirements for our Sharps syringe product line for its various intended uses throughout the world.
Initial Public Offering
On April 13, 2022, our registration statement on Form S-1 (File No. 333-263715), as amended, related to our IPO was declared effective by the SEC, and our common stock and warrants began trading on the Nasdaq Capital Market, or Nasdaq, on April 14, 2022. Our IPO closed on April 19, 2022. Net proceeds from the IPO were approximately $14.2 million. In connection with the closing of the IPO, the Company used net proceeds to repay the Note Payable of $2 million.
Recent Development
On September 29, 2022, the Company entered into an agreement (the “NPC Agreement”) with Nephron Pharmaceuticals Corporation (“NPC”) and various affiliates of NPC, including InjectEZ, LLC, that we believe will provide multiple future opportunities for the Company. The NPC Agreement is for a period of four (4) years, expiring on September 28, 2026, and continues thereafter for successive one (1) year periods.
The NPC Agreement is intended to support several areas of the Company’s development and growth. The Company and NPC intend to supplement the NPC Agreement by entering into a manufacturing supply agreement, a sales and distribution agreement and a pharma services program to support growth, and a future agreement to support manufacturing expansion.
The manufacturing and supply agreement will be focused on the development and manufacture of high value pre-fillable syringe systems that can be utilized by Nephron which are highly sought after by the healthcare industry and pharmaceutical markets, with projected product supply beginning in mid-2023. The syringe lines will utilize highly automated equipment and controlled environments established by Nephron. These premium offerings will be made from what we believe are the highest quality raw materials, on the most innovative technology. These products will be compliant with the USP standards required in the United States, as well as the EP and JP international standards, as applicable The products that the Company and Nephron intend to develop and commercialize are designed to provide solutions to support Nephron’s current fill/finish strategies, as well as their pipeline of new drug applications, and sets forward a strategy to support branded pharma and advanced therapies including ophthalmic and biologic applications. Our seasoned understanding of pharma fill/finish processes and equipment and strong connections with preferred component suppliers and large pharmaceutical companies sets the groundwork for an effective market strategy in partnership with Nephron.
23
On December 8, 2022, the Company completed the sales and distribution agreement (the “Distribution Agreement”) portion of the overall agreement with Nephron Pharmaceuticals Corporation and Nephron SC, Inc. (collectively, “Nephron”), pursuant to which the Company appointed Nephron as its exclusive distributor for the sale and distribution of the products subject to the Distribution Agreement in and throughout the United States. Pursuant to the Distribution Agreement, the price of shipping products will be based on the cost of delivery to Nephron’s warehouse and the Company will pay for the cost of delivery to Nephron. The Distribution Agreement has a term of two years and will continue in effect unless either party notifies the other party of its desire to terminate. At any time and for any reason, either party can terminate the Distribution Agreement after thirty (30) days’ notice and in the event of a breach of any of the Distribution Agreement’s terms and provisions, either party can terminate the Distribution Agreement by providing 90 days written notice. The Company has the right to terminate the Distribution Agreement with 60 days written notice in the event that certain conditions are met as set forth in the Distribution Agreement.
The Company’s collaboration will include the creation of a Pharma Services Program (PSP) designed to support Healthcare customers that need innovative solutions and products to support their business. This program will create new business development growth opportunities for both companies. We believe that these opportunities for the Company will include the development and sale of next generation drug delivery systems for Nephron products, the healthcare industry, and pharmaceutical markets. The development of the program will help create new fill/finish project opportunities that will utilize innovative packaging solutions developed by the Company. These new customer projects will help create a future pipeline of growth for both companies working together. Initial, and currently confidential, projects have been identified and will be further developed through the collaboration efforts of Nephron and the Company. The opportunity to create new innovative technologies to support Nephron and the healthcare industry would be transformative for the Company and its future.
The Company will be working with Nephron on plans for future expansion, innovation, collaboration and building for long-term success. To further support the planned growth for the Pharma Services Program, we will be working to expand our U.S. operations in South Carolina with the help of NPC. This expansion may include the construction of an additional manufacturing facility, located on the Nephron campus, that would be focused on the manufacture of specialized drug delivery technologies to support Nephron and the healthcare and pharmaceutical industries. Through this plan of accelerated expansion, we believe that the Company will be able to deliver increased capacity, driving growth and ultimately, profitability for the high value products’ segment of our business.
On February 3, 2023, the Company completed a securities purchase agreement (“Offering”) with institutional investors and received net proceeds from the Offering were approximately $3.2 million, net of $600,000 in fees relating to the placement agent and other offering expenses. The Offering was priced at the market under Nasdaq rules. In connection with the Offering, the Company issued 2,248,521 units at a purchase price of $1.69 per unit. Each unit consists of one share of common stock and one non-tradable warrant exercisable for one share of common stock at a price of $1.56. The warrants have a term of five years from the issuance date.
Critical Accounting Policies and Significant Judgments and Estimates
This management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements, as well as the reported revenues and expenses during the reported periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The FMV adjustments, based on the trading price of outstanding warrants classified as liabilities, could impact the operating results in the reporting periods.
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Nature of Business
Nature of Business
Sharps Technology, Inc. (“Sharps” or the “Company”) is a pre-revenue medical device company that has designed and patented various safety syringes and is seeking commercialization by manufacturing and distribution of its products.
The accompanying consolidated financial statements include the accounts of Sharps Technology, Inc. and its wholly owned subsidiary, Safegard Medical, Inc, collectively referred to as the “Company.” All intercompany transactions and balances have been eliminated.
The Company’s fiscal year ends on December 31.
On April 13, 2022, the Company’s Initial Public Offering was deemed effective with trading commencing on April 14, 2022. The Company received net proceeds of $14.2 million on April 19, 2022. (See Capital Structure and Note 8 to the Condensed Consolidated Financial Statements)
In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak has adversely affected workforces, economies, and financial markets globally leading to an economic downturn in certain industries and countries. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds. Management continues to monitor the situation but has not experienced a significant disruption to its product development efforts.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared by the Company in accordance with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) and are expressed in U.S. dollars.
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 periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are maintained with various financial institutions.
Inventories
The Company values inventory at the lower of cost (average cost) or net realizable value. Work-in-process and finished goods inventories consist of material, labor, and manufacturing overhead. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. A reserve is established for any excess or obsolete inventories or they may be written off. At June 30, 2023 and December 31, 2022, inventory is comprised of raw materials, including packaging, work in process (components) and finished goods.
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Fair Value Measurements
Fair Value Measurements and Disclosures, require an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value.
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Valuations are based on quoted prices that are readily and regularly available in an active market and do no entail a significant degree of judgment.
Level 2
Level 2 applied to assets or liabilities for which there are other than Level 1 observable inputs such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market date.
Level 2 instruments require more management judgment and subjectivity as compared to Level 1 instruments. For instance: determining which instruments are most similar to the instrument being priced requires management to identify a sample of similar securities based on the coupon rates, maturity, issuer credit rating and instrument type, and subjectively select an individual security or multiple securities that are deemed most similar to the security being priced; and determining whether a market is considered active requires management judgment.
Level 3
Level 3 applied to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The determination for Level 3 instruments requires the most management judgment and subjectivity.
Fixed Assets
Fixed assets are stated at cost. Expenditures for maintenance and repairs are charged to operations as incurred. The Company’s fixed assets consist of land, building, machinery and equipment, molds and website. Depreciation is calculated using the straight-line method commencing on the date the asset is operating in the way intended by management over the following useful lives: Building – 20 years, Machinery and Equipment – 3 -10 years and Website – 3 years. The expected life for Molds is based lesser of the number of parts that will be produced based on the expected mold capability or 5 years.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount of an asset group to the future net undiscounted cash flows that the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the asset.
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Purchased Identified Intangible Assets
When applicable, the Company’s identified intangible assets are amortized on a straight-line basis over their estimated useful lives. The Company makes judgments about the recoverability of finite-lived intangible assets whenever facts and circumstances indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, the Company assesses recoverability by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairments, if any, are based on the excess of the carrying amount over the fair value of those assets. If the useful life is shorter than originally estimated, the Company would accelerate the rate of amortization and amortize the remaining carrying value over the new shorter useful life. The Company evaluates the carrying value of indefinite-lived intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and an impairment charge would be recognized to the extent that the carrying amount of such assets exceeds their estimated fair value.
Stock-based Compensation Expense
The Company measures its stock-based awards made to employees based on the estimated fair values of the awards as of the grant date. For stock option awards, the Company uses the Black-Scholes option-pricing model. The stock-based awards are granted at an exercise price that represents the fair market value of the underlying common stock based on the stock price, at which the Company sold stock in private placements completed by the Company, during the period such options were issued. Stock-based compensation expense is recognized over the requisite service period and is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. The Company recognizes forfeitures of stock-based awards as they occur on a prospective basis.
Stock-based compensation expense for awards granted to non-employees as consideration for services received is measured on the date of performance at the fair value of the consideration received or the fair value of the equity instruments issued, whichever can be more reliably measured.
Derivative Instruments
The Company accounts for common stock warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC 480”), Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own stock and whether the holders of the warrants could potentially require net cash settlement in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
At their issuance date and as of June 30, 2023, certain warrants were accounted for as liabilities as these instruments did not meet all of the requirements for equity classification under ASC 815-40 based on the terms of the aforementioned warrants. The resulting warrant liabilities are re-measured at each balance sheet date until their exercise or expiration, and any change in fair value is recognized in the Company’s consolidated condensed statement of operations and comprehensive loss (See Notes 7, 8 and 10 to the Consolidated Condensed Financial Statements).
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Basic and Diluted Loss Per Share
The Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the consolidated statement of operations and comprehensive loss. Basic EPS is computed by dividing net income (loss) available to common stockholders (numerator) by the weighted average number of shares outstanding (denominator) during the year. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As at June 30, 2023 there were 13,788,724 stock options and warrants that could potentially dilute basic EPS in the future that were not included in the computation of diluted EPS because to do so would have been antidilutive for the periods presented.
Income Taxes
The Company must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments are used in the calculation of tax credits, tax benefits, tax deductions, and in the calculation of certain deferred taxes and tax liabilities. Significant changes to these estimates may result in an increase or decrease to the Company’s tax provision in a subsequent period.
The provision for income taxes was composed of the Company’s current tax liability and changes in deferred income tax assets and liabilities. The calculation of the current tax liability involves dealing with uncertainties in the application of complex tax laws and regulations and in determining the liability for tax positions, if any, taken on the Company’s tax returns in accordance with authoritative guidance on accounting for uncertainty in income taxes. Deferred income taxes are determined based on the differences between the financial reporting and tax basis of assets and liabilities. The Company must assess the likelihood that it will be able to recover the Company’s deferred tax assets. If recovery is not likely on a more-likely-than-not basis, the Company must increase its provision for income taxes by recording a valuation allowance against the deferred tax assets that it estimates will not ultimately be recoverable. However, should there be a change in the Company’s ability to recover its deferred tax assets, the provision for income taxes would fluctuate in the period of such change.
Contingencies
Contingencies are evaluated and a liability is recorded when the matter is both probable and reasonably estimable. Gain contingencies are evaluated and not recognized until the gain is realizable or realized.
Off-Balance Sheet Arrangements
During the periods presented, we did not have any off-balance sheet arrangements as defined under Regulation S-K Item 303(a)(4).
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Results of Operations – three months ended June 30, 2023 and 2022.
| 2023 | 2022 | Change | Change % | |||||||||||||
| Research and development | $ | 224,260 | 556,868 | $ | (332,608) | -60 | % | |||||||||
| General and administrative | 2,308,075 | 2,230,801 | 77,274 | 3 | % | |||||||||||
| Interest expense (income) | (40,079) | 1,100,507 | (1,140,586) | -104 | % | |||||||||||
| FMV (gain) loss adjustment for derivatives | 90,108 | (4,365,930) | 4,456,038 | -102 | % | |||||||||||
| Foreign currency loss | 23,461 | 23,461 | - | |||||||||||||
| Net loss (income) | $ | 2,605,825 | $ | (477,754) | $ | 3,083,579 | -645 | % | ||||||||
Revenue
The Company has not generated any revenue to date.
Research and Development
For the three months ended June 30, 2023, Research and Development (“R&D”) expenses decreased to $224,260 compared to $556,868 for the three months ended June 30, 2022. The decrease of $332,608 was primarily due to a shift to both manufacturing and R&D activities. In the 2022 period, prior to the acquisition of Safegard we utilized the facility for R&D efforts and paid all operating costs, including labor, utility costs and other operating costs. These operating costs were $300,000 in 2022 (nil in 2023) as the facility was acquired in July 2022. In addition, other R&D expenses decreased by $61,000 and stock comp declined $28,000. This was partially offset by increased depreciation related to R&D equipment by $61,000.
General and Administrative
For the three months ended June 30, 2023, General and Administrative (“G&A”) expenses were $2,308,075 as compared to $2,230,801 for the three months ended June 30, 2022. The increase of $77,274 was primarily attributable to: i) increases in payroll and consulting fees of $225,000 from $516,000 in 2022 to $741,000 in 2023, due to compensation increases and head count increases, which includes the staff at Safegard not in the 2022 period since not acquired until July 2022, ii) decrease in stock compensation expense, due to the timing of option awards and vesting, of approximately $71,000 from $326,000 in 2022 to $254,000 in 2023. iii) a decrease in public company costs of $638,000 from $761,000 to $123,000 as 2022 costs primarily related to the 2022 IPO. Further, we had increases of $375,000 relating to a contract settlement, $96,000 in depreciation, professional fees ($74,000), rent ($36,000), computer related ($44,000) and other expenses ($132,000) and decreases in by marketing ($41,000), travel ($61,000), Board costs ($40,000), insurance ($41,000) and patent fees of ($13,000)
Interest expense (income)
Interest income, was $40,079 for the three months ended June 30, 2023, compared to interest expense of $1,100,507 for the three months ended June 30, 2022. Interest income was earned from cash balances held in interest bearing accounts that benefited from rate increases in 2023. Interest expense in 2022 was related to the financing entered into in December 2021 which was repaid at the IPO closing with net proceeds.
FMV Adjustment for Derivatives
The Warrants require the Fair Market Value (“FMV”) to be remeasured at each reporting date while outstanding with recognition of the changes in fair value to other income or expense in the consolidated statement of operations. For the three months ended June 30, 2023, the Company recorded a $90,108 FMV loss to reflect adjustments required for outstanding Warrants liabilities. The Company had FMV gain adjustment of $4,365,930 at June 30, 2022. (See Notes 7, 8 and 10 to the Unaudited Condensed Consolidated Financial Statements)
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Results of Operations – six months ended June 30, 2023 and 2022
| June 30, 2023 | June 30, 2022 | Change | Change % | |||||||||||||
| Research and development | $ | 558,148 | $ | 1,063,243 | $ | (505,095 | ) | -48 | % | |||||||
| General and administrative | 4,291,987 | 3,061,710 | 1,230,277 | 40 | % | |||||||||||
| Interest expense /(income) | (76,871 | ) | 1,345,944 | (1,422,815 | ) | -106 | % | |||||||||
| Foreign exchange loss & Other | 38,368 | - | 38,368 | - | ||||||||||||
| FMV (income) expense adjustment for Contingent Stock & Warrants | (93,977 | ) | (4,078,930 | ) | 3,984,953 | 100 | % | |||||||||
| Net loss | $ | 4,717,655 | $ | 1,391,967 | $ | 3,325,688 | 239 | % | ||||||||
Revenue
The Company has not generated any revenue to date.
Research and Development
For the six months ended June 30, 2023, Research and Development (“R&D”) expenses decreased to $558,148 compared to $1,063,243 for the six months ended June 30, 2022. The decrease of $505,095 was primarily due to R&D costs of approximately $575,000 from $575,000 in 2022 to $0 in 2023 paid to Safegard for operating costs to use their facility and the purchase of R&D materials. In the 2022 period, prior to the acquisition date the facility, had been used for further development, production of current prototype samples and related testing. The operating costs are primarily related to the use of Safegard’s workforce, utility costs incurred and other services. We had further decreased in stock compensation expense of approximately $50,000, primarily due to the timing of awards and a decrease of $12,000 in other R&D costs. Partially offsetting the decreases was an increase in depreciation related to R&D equipment of $132,000.
General and Administrative
For the six months ended June 30, 2023, General and Administrative (“G&A”) expenses were $4,291,987 as compared to $3,061,710 for the six months ended June 30, 2022. The increase of $1,230,277 was primarily attributable to increases in: i) payroll and consulting fees of $536,000 from $781,546 in 2022 to $1,217,117 in 2023, primarily due to increases in compensation and consulting fees incurred, and additional headcount increases. ii) increases in stock compensation expense, due to new option awards and timing of award vesting, of approximately $98,000 from $539,000 in 2022 to $637,000 in 2023. Further, we had increases due, relating to a contract settlement during the second quarter of 2023 for $375,000 , marketing ($101,000), professional fees ($74,000), insurance ($157,000), rent ($60,000), computer ($22,000), other operating costs ($186,000) and depreciation ($155,000) partially offset by decreases from patent and registration fees ($43,000), board fees ($26,000), travel ($55,000) and public company related expenses ($410,000). In 2022, public company costs were primarily related to the IPO.
Interest expense (income)
Interest income was $76,871 for the six months ended June 30, 2023, as compared to interest expense, net of interest income, of $1,345,944 for the six months ended June 30, 2022. Interest expense decreased by $1,422,815 due to the financing which was in December 2021 which was repaid at the IPO closing with net proceeds. The interest was payable at an 8% face amount of $47,111 plus accreted interest of $1,299,985 on the $2,000,000 Note Payable.
FMV Adjustment for Derivatives
The Warrants require the FMV to be remeasured at each reporting date while recognition of the changes in fair value to income or expense in the consolidated statement of operations. For the six months ended June 30, 2023, the Company recorded a $93,977 FMV loss to reflect the increase in the Warrant liability. For the six months ended June 30, 2022, the Company recorded a $4,078,930 FMV gain to reflect the decrease in the Warrant liability. (See Note 7, 8 and 10 to the Unaudited Condensed Consolidated Financial Statements)
Liquidity and Capital Resources
At June 30, 2023 and December 31, 2022, we had a cash balance of $2,924,019 and $4,107,897, respectively. The Company had working capital of $1,197,575 and $2,416,928 as of June 30, 2023 and December 31, 2022, respectively. The decrease in our working capital was primarily by uses of cash in operations for the six month ended June 30, 2023 offset by net proceeds from the Offering in February 2023 which resulted in net proceeds of approximately $3.2M. (See below and Note 8 to the Condensed Consolidated Financial Statements)
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On February 3, 2023, we completed a securities purchase agreement (“Offering”) with institutional investors and received net proceeds from the Offering were approximately $3.2 million, net of $600,000 in fees relating to the placement agent and other offering expenses. The Offering was priced at the market under Nasdaq rules. In connection with the Offering, we issued 2,248,521 units at a purchase price of $1.69 per unit. Each unit consists of one share of common stock and one non-tradable warrant (Offering Warrant) exercisable for one share of common stock at a price of $1.56. The Offering Warrants have a term of five years from the issuance date. (See Notes 8 to the Condensed Consolidated Financial Statements)
On April 13, 2022, we completed its IPO which was declared effective by the SEC, and the Company’s common stock and warrants began trading on the Nasdaq Capital Market or Nasdaq on April 14, 2022 and which closed on April 19, 2022. The net proceeds from the IPO were approximately $14.2 million of which $5,778,750 was attributed to the warrant liability (See Notes 8 and 10 to the Condensed Consolidated Financial Statements).
Cash Flows
Net Cash Used in Operating Activities
The Company used cash of $4,131,000 and $3,093,105 in operating activities for the six months ended June 30, 2023 and 2022, respectively. The increase in cash used of $1,037, 895, was principally due to the Company incurring additional operating expenses during the six months ended June 30, 2023.
Net Cash Used in Investing Activities
For the six months ended June 30, 2023 and 2022, the Company used cash in investing activities of $342,525 and $2,813,355, respectively. In both periods cash was used to acquire or pay deposits for fixed assets equipment of $342,525 and $463,355, respectively. Further, in 2022 the Company used $2,350,000 related to escrow payments for the acquisition of Safegard.
Net Cash Provided by Financing Activities
For the six months ended June 30, 2023 and 2022, the Company provided cash from financing activities of $3,238,711 and $12,235,475, respectively. In the 2023 period, the cash provided from the Offering in February 2023. In the 2022 period, the cash provided was primarily from the IPO net proceeds of $14,202,975, prior to the effect of recording the liability attributed to the warrants from the IPO, less the Notes repayment of $2,000,000.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Regulation S-K Item 303(a)(4).
Emerging Growth Company Status
We are an “emerging-growth company”, as defined in the JOBS Act, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As an emerging growth company, we can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We intend to avail ourselves of these options. Once adopted, we must continue to report on that basis until we no longer qualify as an emerging growth company.
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We will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of the initial public offering; (ii) the first fiscal year after our annual gross revenue are $1.07 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If, as a result of our decision to reduce future disclosure, investors find our common shares less attractive, there may be a less active trading market for our common shares and the price of our common shares may be more volatile.
We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates plus the aggregate amount of gross proceeds to us as a result of the IPO is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time, we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
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
As required by Rule 13a-15(b) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period 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.
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Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been or would be detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings. From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm and other factors.
ITEM 1A. RISK FACTORS
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in the Form 10-K for the year ended December 31, 2022, Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in the Form 10-K for the year ended December 31, 2022. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sale of Unregistered Equity Securities
On February 3, 2023, we completed a securities purchase agreement (“Offering”) with institutional investors and received net proceeds from the Offering were approximately $3.2 million, net of $600,000 in fees relating to the placement agent and other offering expenses. The Offering was priced at the market under Nasdaq rules. In connection with the Offering, we issued 2,248,521 units at a purchase price of $1.69 per unit. Each unit consists of one share of common stock and one non-tradable warrant (Offering Warrant) exercisable for one share of common stock at a price of $1.56. The Offering Warrants have a term of five years from the issuance date. (See Notes 8 to the Condensed Consolidated Financial Statements).
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Use of Proceeds
On April 13, 2022, our Registration Statement on Form S-1 (No. 333-263715) was declared effective by the SEC pursuant to which we issued and sold an aggregate of 3,750,000 units, each consisting of one share of common stock and two warrants, to purchase one share of common stock for each whole warrant, with an initial exercise price of $4.25 per share and a term of five years. In addition, we granted Aegis Capital Corp., as underwriter a 45-day over-allotment option to purchase up to 15% of the number of shares included in the units sold in the offering, and/or additional warrants equal to 15% of the number of Warrants included in the units sold in the offering, in each case solely to cover over-allotments, which the Aegis Capital Corp. partially exercised with respect to 1,125,000 warrants on April 19, 2022. No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities or (iii) any of our affiliates. There has been no material change in the planned use of proceeds from our initial public offering from that described in the Prospectus.
ITEM 6. EXHIBITS
| * | Filed herewith. |
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on this 14th day of August 2023.
| SHARPS TECHNOLOGY, INC. | |
| August 14, 2023 | /s/ Robert M. Hayes |
| Robert M. Hayes | |
Chief Executive Officer and Director (Principal Executive Officer) | |
| August 14, 2023 | /s/ Andrew R. Crescenzo |
| Andrew R. Crescenzo | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
35
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Robert M. Hayes, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Sharps Technology, Inc. (the Registrant); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiary, is made known to me by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| c) | Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
| 5. | The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent function): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
| /s/ Robert M. Hayes | |
| Robert M. Hayes | |
| Chief Executive Officer (Principal Executive Officer) | |
| Date: August 14, 2023 |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Andrew R. Crescenzo, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Sharps Technology, Inc. (the Registrant); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| c) | Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
| 5. | The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent function): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
| /s/ Andrew R. Crescenzo | |
| Andrew R. Crescenzo | |
| Chief Financial Officer (Principal Financial Officer) | |
| Date: August 14, 2023 |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Quarterly Report on Form 10-Q of Sharps Technology, Inc. for the period ended June 30, 2023, I, Robert M. Hayes, Chief Executive Officer of Sharps Technology, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
| (1) | Such Quarterly Report on Form 10-Q of Sharps Technology, Inc. for the period ended March 31, 2023, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in such Quarterly Report on Form 10-Q of Sharps Technology, Inc. for the period ended June 30, 2023, fairly presents, in all material respects, the financial condition and results of operations of Sharps Technology, Inc. |
| /s/ Robert M. Hayes | |
| Robert M. Hayes | |
| Chief Executive Officer (Principal Executive Officer) | |
| Date: August 14, 2023 |
A signed original of the certification required by Section 906 has been provided to Sharps Technology, Inc. and will be retained by Sharps Technology, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Quarterly Report on Form 10-Q of Sharps Technology, Inc. for the period ended June 30, 2023, I, Andrew R. Crescenzo, Chief Financial Officer of Sharps Technology, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
| (1) | Such Quarterly Report on Form 10-Q of Sharps Technology, Inc. for the period ended June 30 2023, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in such Quarterly Report on Form 10-Q of Sharps Technology, Inc. for the period ended March 31, 2023, fairly presents, in all material respects, the financial condition and results of operations of Sharps Technology, Inc. |
| /s/ Andrew R. Crescenzo | |
| Andrew R. Crescenzo | |
| Chief Financial Officer (Principal Financial Officer) | |
| Date: August 14, 2023 |
A signed original of the certification required by Section 906 has been provided to Sharps Technology, Inc. and will be retained by Sharps Technology, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.