SkyAI, Inc 10-Q for FY2022 Q2
SkyAI, Inc. (SKYA)
About this 10-Q
SkyAI, Inc filed this 10-Q on August 15, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).
Headline figures
Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net income
- $477.75K
- compared with a net loss of $810.65K 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 ☐
| * |
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
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As of August 15, 2022, the issuer had shares of common stock, par value $0.0001 per share, outstanding.
SHARPS TECHNOLOGY, INC.
TABLE OF CONTENTS
| i |
PART 1 — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SHARPS TECHNOLOGY, INC.
CONDENSED BALANCE SHEETS
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | (Audited) | |||||||
| Assets: | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Inventory | ||||||||
| Current Assets | ||||||||
| Fixed Assets, net of accumulated depreciation | ||||||||
| Other Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| Liabilities: | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Notes payable, net of discount | ||||||||
| Contingent stock liability | ||||||||
| Warrant liability | ||||||||
| Total Current Liabilities | ||||||||
| Commitments and Contingencies (Notes 5 and 14) | ||||||||
| Subsequent Events (Note 15) | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $ par value; shares authorized; share issued and outstanding | ||||||||
| Common stock, $ par value; shares authorized; shares issued and outstanding at June 30, 2022 ( shares issued and outstanding December 31, 2021) | ||||||||
| Common stock subscription receivable | ( | ) | ||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
| 1 |
SHARPS TECHNOLOGY, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
(Unaudited)
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
THREE MONTHS ENDED JUNE 30, | SIX MONTHS ENDED JUNE 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue, net | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest income (expense) | ( | ) | ( | ) | ||||||||||||
| FMV income (expense) adjustment for Contingent Stock and Warrants | ||||||||||||||||
| Total Other Income (Expense) | ||||||||||||||||
| Net income (loss) and comprehensive income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Net earnings (loss) per share, basic and diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average shares used to compute net earnings (loss) per share, basic and diluted | ||||||||||||||||
| 2 |
SHARPS TECHNOLOGY, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2021
(Unaudited)
| Shares | Amount | Shares | Amount | Amount | Capital | Deficit | Equity | |||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Amount | Capital | Deficit | Equity | |||||||||||||||||||||||||
| Balance – December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | | ||||||||||||||||||||||||
| Net loss for the three months ended March 31, 2021 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Share-based payments | - | - | ||||||||||||||||||||||||||||||
| Issuance of common stock for equipment order | - | |||||||||||||||||||||||||||||||
| Balance - March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Net loss for the three months ended June 30, 2021 | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Share-based payments | - | - | ||||||||||||||||||||||||||||||
| Issuance of common stock from subscriptions | - | |||||||||||||||||||||||||||||||
| Issuance
of common stock for equipment order | - | |||||||||||||||||||||||||||||||
| Balance – June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| 3 |
SHARPS TECHNOLOGY, INC.
CONDENSED STATEMENT OF STOCKHOLDER’S EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
(Unaudited)
| 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 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| 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 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| 4 |
SHARPS TECHNOLOGY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30
| 2022 | 2021 | |||||||
| 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 | ||||||||
| Common stock issued for services | ||||||||
| Accretion of debt discount | ||||||||
| FMV adjustment for Contingent Stock | ( | ) | ||||||
| FMV adjustment for Warrants | ( | ) | ||||||
| IPO Issuance costs relating to Warrants | ||||||||
| Changes in operating assets | ||||||||
| Prepaid expenses and other | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Acquisition of machinery and equipment | ( | ) | ( | ) | ||||
| Other assets – escrow and other | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net Proceeds from Initial Public Offering Units | ||||||||
| Repayment of note payable | ( | ) | ||||||
| Proceeds from subscriptions and subscriptions receivable | ||||||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE (DECREASE) IN CASH | ( | ) | ||||||
| CASH — BEGINNING OF PERIOD | ||||||||
| CASH — END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Non-cash investing and financing activity: | ||||||||
| FMV for Common stock issued for contingent shares | $ | |||||||
| Vested stock options and common stock for fixed assets acquired | $ | $ | ||||||
| Vested stock options issued as consideration for acquisition | $ | $ | ||||||
| 5 |
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
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 Company’s fiscal year ends on December 31.
On
April 13, 2022, the Company 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 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 amounts reported in the financial statements and accompanying notes. The accounting estimates and assumptions that require management’s most significant, difficult, and subjective judgment include the valuation and recognition of stock-based compensation expense, contingent stock liability, contingent warrant liability, inventory obsolescence provision, depreciation of fixed assets and deferred tax asset valuation. Actual results experienced by the Company may differ from management’s 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, 2022 and December 31, 2021, inventory is comprised of raw materials.
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 with the trading price which could cause fluctuations in operating results at the reporting periods.
| 6 |
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
Note 2. Summary of Significant Accounting Policies (continued)
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 machinery, 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: Machinery and Equipment –
Impairment of Long-Lived Assets
Long-lived assets are reviewed annually 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
| 7 |
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
Note 2. Summary of Significant Accounting Policies (continued)
Goodwill and Purchased Identified Intangible Assets
Goodwill
When applicable, goodwill will be recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and identified intangible assets acquired under a business combination. Goodwill also includes acquired assembled workforce, which does not qualify as an identifiable intangible asset. The Company reviews impairment of goodwill annually in the third quarter, or more frequently if events or circumstances indicate that the goodwill might be impaired. The Company first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If, after assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative goodwill impairment test is unnecessary. If, based on the qualitative assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company proceeds to perform the quantitative goodwill impairment test. The Company first determines the fair value of a reporting unit using weighted results derived from an income approach and a market approach. The income approach is estimated through the discounted cash flow method based on assumptions about future conditions such as future revenue growth rates, new product and technology introductions, gross margins, operating expenses, discount rates, future economic and market conditions, and other assumptions. The market approach estimates the fair value of the Company’s equity by utilizing the market comparable method which is based on revenue multiples from comparable companies in similar lines of business. The Company then compares the derived fair value of a reporting unit with its carrying amount. If the carrying value of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
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 on an annual basis, 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. 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, 2022, the warrants (see Note 7) 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 statement of operations and comprehensive loss.
| 8 |
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
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 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, 2022, 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 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 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
From time to time, the Company may be involved in legal and administrative proceedings and claims of various types. The Company records a liability in its financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. Management reviews these estimates in each accounting period as additional information becomes known and adjusts the loss provision when appropriate. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in the consolidated financial statements. If a loss is probable but the amount of loss cannot be reasonably estimated, the Company discloses the loss contingency and an estimate of possible loss or range of loss (unless such an estimate cannot be made). The Company does not recognize gain contingencies until they are realized. Legal costs incurred in connection with loss contingencies are expensed as incurred.
| 9 |
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
Note 3. 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.
The Company does not expect the adoption of any accounting pronouncements to have a material impact on the financial statements.
Note 4. Fixed Assets
Fixed asset, net, as of June 30, 2022 and December 31, 2021, are summarized as follows:
Schedule of Machinery and Equipment
| June 30, 2022 | December 31, 2021 | |||||||
| Website | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Fixed asset, gross | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Fixed asset, net | $ | $ | ||||||
Depreciation
expense of fixed assets for the six months ended June 30, 2022 and 2021 was $
During
the six months ended June 30, 2022, the Company recorded $
| 10 |
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
Note 5. Other Assets
Other assets as of June 30, 2022 and December 31, 2021 are summarized as follows:
Schedule of Other Assets
| 2022 | 2021 | |||||||
| Acquisition (see below) | $ | $ | ||||||
| Other | ||||||||
| Other assets | $ | $ | ||||||
Acquisition Agreement
In
June 2020, the Company entered into a Share Purchase Agreement (“Agreement”) and amendments to the Agreement through June
30, 2022, 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 $ and stock options
with an exercise price of $. At March 31, 2022, the fair market value of the common stock of $ and the vested options of $
is included in Other Assets, The Agreements provided the Company various periods for due diligence and post due diligence, requirements
for escrow payments of $ and a closing date was expected by June 30, 2022 (“Closing Date”). Due to delayed approvals
and registrations by the Hungarian government, the Company agreed to increase the escrow balance an additional $
As
of June 30, 2022, the Company has paid $
Through the Closing Date, the Agreements provide 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 covers the facility’s operating costs, is mainly comprised of the seller’s workforce costs, materials and other recurring monthly operating cost.
The payment of the Operating Costs does not provide the Company with rights associated with a rent agreement. As a result, the payment of operating costs was concluded not to be in substance a lease agreement, and therefore no right-of-use asset or lease liability were recognized. During the three and six months ended June 30, 2022, the Company had remitted $ (2021 - $) and $ (2021 - $), respectively for the aforementioned Operating Costs. These costs were included in research and development expense in the statement of operations and comprehensive loss as the activities at the facility in 2022 and 2021 were related to design and testing of the Company’s products.
| 11 |
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
Note 6. 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 bear interest at % with interest payments due monthly. The Company and the Purchasers have entered into a Security Agreement whereby the Notes are 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 provides 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.
.
For both the Contingent Stock and the Contingent Warrants, the number of shares and warrants that each Purchaser will be issued is unknown at the time of the NPA and will be 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”).
| 12 |
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
Note 6. Note Purchase Agreement (continued)
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 Contingent Stock and Contingent Warrant liabilities were measured at FMV on the date of issuance using the Black-Scholes valuation model.
The value of the Contingent Stock and Contingent Warrants is required to be re-measured at FMV at each reporting date, using either the Black-Scholes valuation model or other valuation method, with recognition of the changes in fair value to other income or expense in the statement of operations in accordance with ASC 480, Debt and Equity. On April 19, 2022, the Company issued shares of Common Stock to settle the Contingent Stock liability, re-measured the liability at its estimated FMV based on the stock’s trading price and reclassified $ to Common Stock Par Value and Additional Paid in Capital.
In
connection with the closing of the IPO,
| 13 |
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
Note 7. 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
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 and
a term of
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 $
During
the six months ended June 30, 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 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 $ |
| b) | 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 $ and a term of five years. (See Note 6) |
| c) | The
underwriter received |
| 14 |
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
Note 8. 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
Note 9. 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 balance sheet. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within the statement of operations and comprehensive income (loss). (See Note 6 and 7)
The Warrant liability at June 30, 2022 was as follows:
Schedule of Warrant Liability
| Note Warrants (b) | $ | |||
| Trading and Overallotment Warrants (a) | ||||
| Total | $ |
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:
Schedule of Changes in the Warrant Liability
| Total | ||||
| FMV of Note Warrants | $ | |||
| FMV of Trading and Overallotment Warrants | ||||
| Change in fair value of warrant liability | ( | ) | ||
| Fair Value at June 30. 2022 | $ | |||
| 15 |
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
Schedule of Stock Options Granted and Outstanding
| June 30, 2022 | ||||||||
| Shares | Weighted Average Exercise Price | |||||||
| Outstanding at beginning of period | $ | |||||||
| Options granted | ||||||||
| Outstanding at end of period | $ | |||||||
| Exercisable at end of period | $ | |||||||
During the six months ended June 30 2022, the Company issued stock options. As of June 30, 2022 there was $ of unrecognized stock-based compensation related to unvested stock options, which is expected to be recognized over a weighted-average period of months.
Schedule of Options Outstanding
Exercise Prices | Shares Outstanding | Weighted Average Remaining Contractual Life | Shares Exercisable | |||||||||||
| $ | ||||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
For the three months ended June 30, 2022 and 2021, the Company recognized stock-based compensation expense of $, of which $ and $ was recorded in general and administrative and research and development expenses, respectively and $ in 2021, of which $ and $ was recorded in general and administrative and research and development expenses, respectively.
For
the six months ended June 30, 2022 and 2021, the Company recognized stock-based compensation expense of $, of which $ and
$ was recorded in general and administrative and research and development expenses, respectively and $ in 2021, of which
$ and $ was recorded in general and administrative and research and development expenses, respectively. Further, for the
six months ended June 30, 2022, the Company recorded stock-based charges relating to consideration for purchase of machinery of $
| 16 |
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
Note 11. 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, 2022 was
Note 12. Related Party Transactions and Balances
As
of June 30, 2022 and December 31, 2021, accounts payable and accrued liabilities include $
Note 13. Fair Value Measurements
The Company’s financial instruments consisted of cash, accounts payable, notes payable, contingent stock liability and contingent warrant liability. Cash, contingent stock liability and contingent stock 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.
As of June 30, 2022, the following financial assets and liabilities were measured at fair value on a recurring basis presented on the Company’s balance sheet:
Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis
| Level 1 | Level 2 | Level 3 | June 30, 2022 | |||||||||||||
| Fair Value Measurements Using | Balance as at | |||||||||||||||
| Level 1 | Level 2 | Level 3 | June 30, 2022 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Assets | ||||||||||||||||
| Cash | ||||||||||||||||
| - | - | |||||||||||||||
| Total assets measured at fair value | ||||||||||||||||
| Liabilities | ||||||||||||||||
| Warrants liability | ||||||||||||||||
| Total liabilities measured at fair value | ||||||||||||||||
Note 14. Commitments and Contingencies
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 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 (
| 17 |
SHARPS TECHNOLOGY, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
Note 14. Commitments and Contingencies (continued)
In
September 2018, the Royalty Agreement was amended to reduce the royalty to
Engagement Agreement
On
October 2, 2021, the Company entered into an engagement agreement with Aegis Capital Corp. (“Aegis”), and on January 21,
2022, the engagement agreement was amended. Pursuant to the engagement agreement as amended, the Company engaged Aegis to act as underwriter
in connection with a proposed public offering of common stock and warrants by the Company. The agreement contemplates that (subject to
execution of an underwriting agreement for the offering) Aegis would be entitled to an
Note 15. Subsequent Events
Acquisition
The
Company closed on the Acquisition for the shares of Safegard Medical (see Note 5) on July 8, 2022 and released $
Employment Agreement
Subsequent
to June 30, 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 $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 and our final prospectus or the Prospectus, filed with the Securities and Exchange Commission or the SEC, pursuant to Rule 424(b) under the Securities Act of 1933, as amended or the Securities Act), on April 15, 2022. 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 other filings with the SEC, including the Prospectus. 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.
Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us,” and “our” refer to Sharps Technology, Inc.
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, 2022, we had an accumulated deficit of $ 12,059,672. Our net income (loss) was $477,754 and $(1,391,967) for the three and six months ended June 30, 2022. Substantially all of our net loss resulted from costs incurred in connection with our research and development efforts, payroll and consulting fees, stock compensation, general and administrative costs associated with our operations, including costs incurred for being a public company since April 14, 2022. See below Initial Public Offering, Liquidity and Capital Resources and Notes to Unaudited Condensed Financial Statements.
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 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 8, 2022, 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. During the quarter ended June 30, 2022, we transferred an additional $2,350,000 to an Escrow Account for a total of $2,500,000 in advance of final government approval of the Acquistion.
In order to compete in the market, we must build inventory. Commercial quantities of inventory are required 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 and stock compensation expense for our Chief Technology Officer; | |
| ● | Operating costs paid to Safegard, including among others, for use of Safegard’s work force, utilities and other services, relating to the facility being utilized and materials purchased on our behalf; and | |
| ● | Third-party costs, including engineering incurred for development and design. |
| 19 |
Substantially all of our research and development expenses to date have been incurred in connection with our syringe products. We expect our research and development expenses to increase for the foreseeable future as we continue to enhance our product to meet the market requirements for our Sharps Provensa 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 initial public offering (“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.
Critical Accounting Policies and Estimates and Recent Accounting Standards
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.
Results of Operations – three months ended June 30, 2022
Three Months Ended | ||||||||||||||||
| June 30, 2022 | June 30, 2021 | Change | Change % | |||||||||||||
| $ | $ | $ | % | |||||||||||||
| Research and development | $ | 556,868 | $ | 375,511 | $ | 181,357 | 48 | % | ||||||||
| General and administrative | 2,230,801 | 435,376 | 1,795,425 | 412 | % | |||||||||||
| Interest expense (income) | 1,100,507 | (240 | ) | 1,100,747 | 100 | % | ||||||||||
FMV (income) expense adjustment for Contingent Stock & Warrants | (4,365,930 | ) | (4,365,930 | ) | 100 | % | ||||||||||
| Net income (loss) | $ | 477,754 | (810,647 | ) | 1,288,401 | 158 | % | |||||||||
Revenue
The Company has not generated any revenue to date.
Research and Development
For the three months ended June 30, 2022, Research and Development (“R&D”) expenses increased to $556,868 compared to $375,511 for the three months ended June 30 2021. The increase of $181,357 was primarily due to increased R&D costs of approximately $71,000 from $266,000 in 2021 to $337,000 in 2022 paid to Safegard for operating costs to use their facility and the purchase of raw materials. The facility, since June 2020, has been used for further development, production of current prototype samples and related testing. The operating costs primarily related to use of Safegard’s workforce, utility costs incurred and other services. In addition, we had increases in depreciation related to R&D equipment of $81,000 and that commenced in the quarters in 2021. We had an approximate $29,000 increase in stock compensation as grants fully vested.
| 20 |
General and Administrative
For the three months ended June 30, 2022, General and Administrative (“G&A”) expenses were $2,230,801 as compared to $435,376 for the three months ended June 30, 2021. The increase of $1,795,425 was primarily attributable to increases in: i) payroll and consulting fees of $314,000 from $202,000 in 2021 to $516,000 in 2022, primarily due to increased amounts of payroll and increased staffing, ii) increases in stock compensation expense, due to new option awards and increases in vesting of previously issued options, of approximately $231,000 from $94,000 in 2021 to $326,000 in 2022, relating to employees and consultants. We had an average of two employees in 2021 and through September 2021 which increased to four in the last quarter of 2021. We engaged an average of 3 consultants in 2022 and 2021, for varying amounts of services. In addition, we had increases in G&A in the three months ended June 30, 2022 of approximately $1,250,000, principally from increased marketing and promotion ($67,000), professional fees ($82,000), travel ($81,000), board fees ($83,000), insurance ($154,000), public company and investor relations related ($211,000), issuance costs relating to warrants ($550,000) and other expenses ($22,000).
Interest expense (income)
Interest expense, net of interest income of $1,061 was $1,100,507 for the three months ended June 30, 2022, compared to interest income of $240 for the three months ended June 30, 2021. Interest expense increased, by $1,100,747 due to the financing entered into in December 2021 which resulted in interest payable at the 8% face amount of $8,000 plus accreted interest of $1,092,747 on the $2,000,000 Notes Payable which were repaid with proceeds from IPO.
FMV Adjustment for Contingent Stock and Warrants
The value of the Contingent Stock and Contingent Warrants (“Note Warrants”) required 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 statement of operations and comprehensive income (loss). For the three months ended June 30, 2022, the Company recorded a $351,000, fair market fair (FMV) benefit to reflect the decrease in the Contingent Stock through the date the shares were issued. For the three months ended June 30, 2022, the Company recorded a $4,014,000 FMV income to reflect the decrease in the Note Warrants and Warrants issued with the IPO. (See Note 6, 7 and 9 to the Unaudited Condensed Financial Statements)
Results of Operations – six months ended June 30, 2022
| Six Months Ended | ||||||||||||||||
| June 30, 2022 | June 30, 2021 | Change | Change % | |||||||||||||
| $ | $ | $ | % | |||||||||||||
| Research and development | $ | 1,063,243 | 843,075 | 220,168 | 26 | % | ||||||||||
| General and administrative | 3,061,710 | 882,953 | 2,178,757 | 247 | % | |||||||||||
| Interest expense / (income) | 1,345,944 | (692 | ) | 1,346,636 | 100 | % | ||||||||||
| FMV (income) expense adjustment for Contingent Stock & Warrants | (4,078,930 | ) | 0 | (4,078,930 | ) | 100 | % | |||||||||
| Net loss | $ | 1,391,967 | 1,725,336 | (333,369 | ) | (19 | )% | |||||||||
| 21 |
Revenue
The Company has not generated any revenue to date.
Research and Development
For the six months ended June 30, 2022, Research and Development (“R&D”) expenses increased to $1,063,243 compared to $843,075 for the six months ended June 30, 2021. The increase of $220,168 was primarily due to increased R&D costs of approximately $80,000 from $691,000 in 2021 to $771,000 in 2022 paid to Safegard for operating costs to use their facility and the purchase of R&D materials. The facility, since June 2020, has been used for further development, production of current prototype samples and related testing. The operating costs primarily related to use of Safegard’s workforce, utility costs incurred and other services. In addition, we had increases in depreciation related to R&D equipment of $152,000 that commenced in the later quarters in 2021. We had decreases in stock compensation expense of approximately $12,000 from $62,000 for the first six months ended June 30, 2021 to $50,000 for the six months ended June 30, 2022. The decline was primarily due to the timing of vested awards.
General and Administrative
For the six months ended June 30, 2022, General and Administrative (“G&A”) expenses were $3,061,710 as compared to $882,953 for the six months ended June 30, 2021. The increase of $2,178,757 was primarily attributable to increases in: i) payroll and consulting fees of $400,000 from $382,000 in 2021 to $782,000 in 2022, primarily due to increased amounts of payroll and fees paid and additional employees on staff, ii) increases in stock compensation expense, due to new option awards and increases in vesting of previously issued options, of approximately $307,000 from $232,000 in 2021 to $539,000 in 2022, relating to employees and consultants. We had an average of two employees in 2021 and through September 2021 which increased to four in the last quarter of 2021. We engaged an average of 3 consultants in 2022 and 2021, for varying amounts of services. In addition, we had increases in G&A in the six months ended June 30, 2022 of approximately $1,471,1,000, principally from increased marketing and promotion ($103,000), patent fees and registrations ($20,000), professional fees ($159,000), travel ($109,000), board fees ($98,000), insurance ($165,000), public company related expenses and investor relations ($218,000), issuance costs relating to the warrants ($550,000), rent expense ($19,000) and other expenses ($30,000).
Interest expense (income)
Interest expense, net of interest income of $1,152, was $1,345,944 for the six months ended June 30, 2022, compared to interest income of $692 for the six months ended June 30, 2021. Interest expense increased by $1,346,636 due to the financing entered into in December 2021 which resulted in interest payable at the 8% face amount of $47,111 plus accreted interest of $1,299,985 on the $2,000,000 Note Payable which was repaid at the IPO closing with net proceeds.
FMV Adjustment for Contingent Stock and Warrants
The value of the Contingent Stock, Note Warrants and other Warrants requires 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) expense in the statement of operations and comprehensive income (loss). For the six months ended June 30, 2022, the Company recorded a $181,000 fair market value (FMV) benefit to reflect the decrease in the Contingent Stock liability through the date the shares were issued. For the six months ended June 30, 2022, the Company recorded a $3,898,000 FMV income adjustment to reflect the decrease in Note Warrants and Warrants issued with the IPO. (See Note 6 and 7 to the Unaudited Condensed Financial Statements)
Liquidity and Capital Resources
On April 13, 2022, the Company completed its initial public offering (“IPO”) which was declared effective by the Security and Exchange Commission (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 $5,779,000 was attributed to the Warrant liability. (See Note 7 and 9 to the Unaudited Condensed Financial Statements)
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At June 30, 2022 and December 31, 2021, we had a cash balance of $7,808,181, and $1,479,166, respectively. The Company has working capital of $4,947,040as of June 30, 2022 vs working capital deficiency of $1,156,998, as of December 31, 2021. The increase in our working capital was primarily related to net proceeds from our initial public offering of approximately $14.2 million prior to the effect of recording the liability attributed to the warrants from the IPO, less use of cash in operations, investing in fixed assets purchased, repayment of the Note Payable of $2.0 million and $2.4 in additional escrow paid relating to the Safegard acquisition agreement.
Cash Flows
Net Cash Used in Operating Activities
The Company used cash of $3,093,105 and $1,412,332 in operating activities for the six months ended June 30, 2022 and 2021, respectively. The increase in cash used was principally due to the Company incurring additional SG&A expenses and R&D activities as described above during six months ended June 30, 2022.
Net Cash Used in Investing Activities
For the six months ended June 30, 2022 and 2021, the Company used cash in investing activities of $2,813,355 and $1,558,512, respectively. In both periods, the cash was used to acquire or pay deposits for machinery and equipment of $463,355 and $1,473,250, respectively. Further, in the six months ended June 30, 2022 and 2021 the Company used $2,350,000 and $75,000, respectively for escrow payments relating to the Safegard acquisition.
Net Cash Provided by Financing Activities
For the six months ended June 30, 2022 and 2021, the Company provided cash from financing activities of $12,235,475 and $1,660,000, respectively. 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. In 2021, the cash provided was from stock subscriptions from a private placement.
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.
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.
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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.
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.
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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 Prospectus for our IPO filed with the SEC on April 15, 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 Prospectus for our IPO filed with the SEC on April 15, 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
No unregistered equity securities were issued during the period ended June 30, 2022 except for the 35,000 shares issued in connection with services provided to the Company. In connection with the completion of the IPO we repaid the $2,000,000 Notes Payable and settled the Contingent Stock liability by issuing 235,295 shares of common stock. Further, the Company issued 235,295 warrants to the Purchasers in connection with the Note Purchase agreement.
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.
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ITEM 6. EXHIBITS
| * | Filed herewith. |
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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 25 day of May, 2022.
| SHARPS TECHNOLOGY, INC. | |
| August 15, 2022 | /s/ Robert M. Hayes |
| Robert M. Hayes | |
Chief Executive Officer and Director (Principal Executive Officer) | |
| August 15, 2022 | /s/ Andrew R. Crescenzo |
| Andrew R. Crescenzo | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
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Exhibit 10.1
Employment Agreement
This Employment Agreement (the “Agreement”) is made and entered into as of August 1, 2022 by and between Alan R. Blackman (the “Executive”) and Sharps Technology, Inc., a Nevada corporation (the “Company”).
WHEREAS, the Company requires the Executive to relocate to the United States:
WHEREAS, the Company has asked the Executive to focus on the following Objectives and Responsibilities:
(i) financing the requirements of the Company
(ii) increasing the enterprise value of the Company
(iii) develop strategic alliances
(iv) direct the efforts of public and investor relations
(v) direct the marketing efforts of the Company
(vi) continue in the role of Co-Chairman of the board, Chief Operating Officer, Chief Investment Officer and Corporate Secretary
(vii) such other responsibilities as decided by the Company
WHEREAS, the Company desires to employ the Executive on the terms and conditions set forth herein; and
WHEREAS, the Company recognizes that relocation to the US means the Executive will not be able to see his family for extended periods of time, and
WHEREAS, the Executive agrees to be employed by the Company on such terms and conditions.
NOW, THEREFORE, in consideration of the mutual covenants, promises, and obligations set forth herein, the parties agree as follows:
1. Term. The Executive’s initial term of employment hereunder shall begin on the date of this Agreement (the “Effective Date”) and continue until twenty-four (24) months from the Effective Date (the “Initial Term”). Thereafter, the Agreement shall be deemed to be automatically extended, upon the same terms and conditions, for successive periods, unless either party provides written notice of its intention not to extend the term at least 30 days prior to the end of the Initial Term or twenty-four (24) month extension thereof. The period during which the Executive is employed by the Company hereunder is hereinafter referred to as the “Employment Term.”
2. Position and Duties.
2.1 Position. During the Employment Term, the Executive shall serve as the Chief Investment Officer, Corporate Secretary and Chief Operating Officer of the Company. In such position, the Executive shall have such duties, authority, and responsibilities as are consistent with the Executive’s position.
2.2 Duties. During the Employment Term, the Executive shall devote substantially all of the Executive’s business time and attention to the performance of the Executive’s duties hereunder and will not engage in any other business, profession, or occupation for compensation or otherwise which would conflict or interfere with the performance of such services either directly or indirectly without the prior written consent of the Board.
2.3 Voting Rights. The Company agrees that they will file an amendment to the Certificate of Designation governing the Company’s Series A Preferred Stock so that it shall entitle the holder (the share is held by the Executive) to 29.5% (raised from the current level of 25%) of the voting power of the Company’s stockholders with respect to the election of directors.
3. Place of Performance. The principal place of Executive’s employment shall be the Company’s principal executive office currently located in New York; provided that, the Executive may be required to travel for Company business, which expenses for travel reimbursement shall include the Executive’s spouse, Noelene Blackman. To the extent, necessary for Executive’s personal reasons, the Executive may work remotely so long as doing so does not interfere with the Executive’s responsibilities and that the Executive recognizes that he will be required to spend considerable time near the Company’s executive office.
4. Compensation.
4.1 Base Salary. The Company shall pay the Executive a monthly rate of base salary of $22,000 in accordance with the Company’s customary payroll practices and applicable wage payment laws. The Executive’s base salary, as in effect from time to time, is hereinafter referred to as “Base Salary.” The Base Salary shall not be less than 80% of the salary of the Company’s Chief Executive Officer and shall be adjusted accordingly.
4.2 Termination Without Cause, Change of Control or Death. In the event that any of the following events occur during the Employment Term, the Executive or the Executive’s estate, as applicable, shall be entitled to receive a lump sum payment in an aggregate amount equal to twenty four (24) months of the Base Salary:
(i) The Executive’s death;
(ii) The Executive’s Termination Without cause or
(iii) A change of control in the Company, which shall mean any acquisition of ownership by any entity or person or any change in the ownership of more than fifty percent (50%) of the Company’s common stock.
4.3 Performance Bonus.
(i) The Executive shall be eligible to receive a performance bonus (the “Bonus”). However, the decision to provide such annual Bonus and the amount and terms of the Bonus shall be in the sole and absolute discretion of the Compensation Committee of the Board (the “Compensation Committee”) during the term of this Agreement, based on the criteria set forth in Schedule A hereto.
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4.4 Equity Awards. During the Employment Term, the Executive shall be eligible to participate in the 2022 Equity Incentive Plan or any successor plan, subject to the terms of the 2022 Equity Incentive Plan or successor plan, as determined by the Board or the Compensation Committee, in its discretion.
4.5 Fringe Benefits and Perquisites. During the Employment Term, the Executive shall be entitled to fringe benefits and perquisites consistent with those provided to similarly situated executives of the Company.
4.6 Employee Benefits. During the Employment Term, the Executive shall be entitled to participate in all employee benefit plans, practices, and programs maintained by the Company, as in effect from time to time (collectively, “Employee Benefit Plans”), on a basis which is no less favorable than is provided to other similarly situated executives of the Company, to the extent consistent with applicable law and the terms of the applicable Employee Benefit Plans.
(i) During the Employment Term, the Executive and the Executive’s spouse, shall be entitled to health insurance benefits to the extent consistent with applicable law and the terms of the applicable Employee Benefit Plans.
(ii) During the Employment Period, Executive shall be entitled have the use of a corporate apartment, and an allowance of $2,000 per month to account for the difference in dining and related costs compared with normal expenses when living outside the US., as well as reimbursement for an auto rental, as necessary.
(iii) The Executive shall be entitled to receive compensation for airfare expenses to travel to and from Australia/New Zealand on one (1) occasion during the twelve (12) month period from the date of this Agreement.
4.7 Bonus. The Company acknowledges that the Executive shall be entitled to a $250,000 bonus for work performed in any capacity, in the first half of 2022 up to the date of this Agreement. Such bonus will be paid 50% within 30 days of this Agreement, with the balance of 50% paid prior to the end of 2022. The amount owed shall be accrued on the Company’s books and records and shall be paid accordingly.
4.8 Vacation; Paid Time Off. During the Employment Term, Executive shall be entitled to twenty (20) paid vacation days per calendar year (prorated for partial years) in accordance with the Company’s vacation policies, as in effect from time to time. The Executive shall receive other paid time off in accordance with the Company’s policies as such policies may exist from time to time and as required by applicable law.
4.9 Business Expenses. The Executive shall be entitled to reimbursement for all reasonable and necessary out-of-pocket business, entertainment, and travel expenses incurred by the Executive in connection with the performance of the Executive’s duties hereunder in accordance with the Company’s expense reimbursement policies and procedures. ..
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4.10 Out of Country Tax Deduction. The Executive shall be entitled to reimbursement for loss of Executive’s out-of-country tax deduction equal to $29,000 for 2022 and 2023. Such payment to be made within 30 days of this Agreement.
4.11 Indemnification. The Company shall indemnify and hold the Executive harmless to the fullest extent applicable to any other officer or director of the Company/to the maximum extent permitted under applicable law and the Company’s bylaws for acts and omissions in the Executive’s capacity as an officer, director, or employee of the Company.
4.12 Clawback Provisions. Any amounts payable under this Agreement are subject to any policy (whether in existence as of the Effective Date or later adopted) established by the Company providing for clawback or recovery of amounts that were paid to the Executive. The Company will make any determination for clawback or recovery in its sole discretion and in accordance with any applicable law or regulation.
5. Termination of Employment. The Employment Term and the Executive’s employment hereunder may be terminated by either the Company or the Executive at any time and for any reason or for no particular reason; provided that, unless otherwise provided herein, either party shall be required to give the other party at least 30 days advance written notice of any termination of the Executive’s employment.
5.1 For Cause, or Without Good Reason.
(i) The Executive’s employment hereunder may be terminated by the Company for Cause or by the Executive without Good Reason and the Executive shall be entitled to receive:
(ii) any accrued but unpaid Base Salary which shall be paid on the date of the Executive’s termination within one (1) week following the date of the Executive’s termination on the pay date immediately following the date of the Executive’s termination in accordance with the Company’s customary payroll procedures;
(iii) any earned but unpaid Bonus with respect to any completed calendar year immediately preceding the date of the Executive’s termination, which shall be paid on the otherwise applicable payment date except to the extent payment is otherwise deferred pursuant to any applicable deferred compensation arrangement; provided that, if the Executive’s employment is terminated by the Company for Cause or the Executive resigns without Good Reason, then any such earned but unpaid Bonus shall be forfeited;
(iv) reimbursement for unreimbursed business expenses properly incurred by the Executive, which shall be subject to and paid in accordance with the Company’s expense reimbursement policy; and
(v) such employee benefits (including equity compensation), if any, to which the Executive may be entitled under the Company’s employee benefit plans as of the date of the Executive’s termination; provided that, in no event shall the Executive be entitled to any payments in the nature of severance or termination payments except as specifically provided herein.
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Items 5.1(a)(i) through 5.1(a)(iv) are referred to herein collectively as the “Accrued Amounts.”
For purposes of this Agreement, “Cause” shall mean:
(i) the Executive’s willful failure to perform the Executive’s duties (other than any such failure resulting from incapacity due to physical or mental illness);
(ii) the Executive’s willful failure to comply with any valid and legal directive of the Company;
(iii) the Executive’s willful engagement in dishonesty, illegal conduct, or gross misconduct, which is, in each case, materially injurious to the Company or its affiliates;
(iv) the Executive’s embezzlement, misappropriation, or fraud, whether or not related to the Executive’s employment with the Company;
(v) the Executive’s conviction of or plea of guilty or nolo contendere to a crime that constitutes a felony (or state law equivalent) or a crime that constitutes a misdemeanor involving moral turpitude;
(vi) the Executive’s willful material violation of the Company’s written policies or codes of conduct, including written policies related to discrimination, harassment, performance of illegal or unethical activities, and ethical misconduct;
(vii) the Executive’s willful material breach of any material obligation under this Agreement or any other written agreement between the Executive and the Company; or
(viii) the Executive’s willful engagement in conduct that brings or is reasonably likely to bring the Company negative publicity or into public disgrace, embarrassment, or disrepute.
For purposes of this provision, none of the Executive’s acts or failures to act shall be considered “willful” unless the Executive acts, or fails to act, in bad faith or without reasonable belief that the action or failure to act was in the best interests of the Company. The Executive’s actions, or failures to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the advice of counsel for the Company shall be conclusively presumed to be in good faith and in the best interests of the Company.
Except for a failure, breach, or refusal which, by its nature, cannot reasonably be expected to be cured, the Executive shall have 10 business days from the delivery of written notice by the Company within which to cure any acts constituting Cause.
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In the event that the Executive provides notice to the Company of a disagreement with the termination of this Agreement, the Company shall be obligated to continue all payments under this Agreement until a final determination by a court. Such payments to include legal fee is pursuant to the Indemnification provided for in Section 4.11 of this Agreement.
For purposes of this Agreement, “Good Reason” shall mean the occurrence of any of the following, in each case during the Employment Term without the Executive’s prior written consent:
(ix) a material reduction in the Executive’s Base Salary other than a general reduction in Base Salary that affects all similarly situated executives in substantially the same proportions;
(x) a material reduction in the Executive’s Bonus opportunity;
(xi) any material breach by the Company of any material provision of this Agreement or any material provision of any other agreement between the Executive and the Company;
(xii) the Company’s failure to obtain an agreement from any successor to the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no succession had taken place, except where such assumption occurs by operation of law;
(xiii) the Company’s failure to nominate the Executive for election to the Board and to use its best efforts to have him elected and re-elected, as applicable;
(xiv) a material, adverse change in the Executive’s title, authority, duties, or responsibilities (other than temporarily while the Executive is physically or mentally incapacitated or as required by applicable law); or
(xv) a material adverse change in the reporting structure applicable to the Executive.
To terminate the Executive’s employment for Good Reason, the Executive must provide written notice to the Company of the existence of the circumstances providing grounds for termination for Good Reason within 10 days of the initial existence of such grounds and the Company must have at least 10 days from the date on which such notice is provided to cure such circumstances. If the Executive does not terminate the Executive’s employment for Good Reason within 10 days after the first occurrence of the applicable grounds, then the Executive will be deemed to have waived the Executive’s right to terminate for Good Reason with respect to such grounds.
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5.2 Without Cause or for Good Reason. The Employment Term and the Executive’s employment hereunder may be terminated by the Executive for Good Reason or by the Company without Cause. In the event of such termination, the Executive shall be entitled to receive the Accrued Amounts and the Executive’s execution, within 45 days following receipt, of a release of claims in favor of the Company, its affiliates and their respective officers and directors in a form provided by the Company (the “Release”) (such 45-day period, the “Release Execution Period”), and the Release becoming effective according to its terms, the Executive shall be entitled to receive the following:
(i) a lump sum payment equal to two (2) times the sum of the Executive’s Base Salary for the year in which the date of the Executive’s termination occurs, which shall be paid within 10 days following the date of the Executive’s termination;
(ii) a payment equal to the product of a fraction, the numerator of which is the number of days the Executive was employed by the Company during the year of termination and the denominator of which is the number of days in such year (the “Pro Rata Bonus”). This amount shall be paid on the date that annual bonuses are paid to similarly situated executives;
5.3 Notice of Termination. Any termination of the Executive’s employment hereunder by the Company or by the Executive during the Employment Term shall be communicated by written notice of termination (“Notice of Termination”) to the other party. The Notice of Termination shall specify:
(i) the termination provision of this Agreement relied upon;
(ii) to the extent applicable, the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated; and
(iii) the applicable date of termination, which shall be no less than 30 days following the date on which the Notice of Termination is delivered.
5.4 Resignation of All Other Positions. Upon termination of the Executive’s employment hereunder for any reason, the Executive agrees to resign/shall be deemed to have resigned from all positions that the Executive holds as an officer.
6. Governing Law, Jurisdiction, and Venue. This Agreement, for all purposes, shall be construed in accordance with the laws of New York without regard to conflicts of law principles. Any action or proceeding by either of the parties to enforce this Agreement shall be brought only in a state or federal court located in the state of New York. The parties hereby irrevocably submit to the exclusive jurisdiction of such courts and waive the defense of inconvenient forum to the maintenance of any such action or proceeding in such venue.
7. Entire Agreement. Unless specifically provided herein, this Agreement, contains all of the understandings and representations between the Executive and the Company pertaining to the subject matter hereof and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter.
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8. Modification and Waiver. No provision of this Agreement may be amended or modified unless such amendment or modification is agreed to in writing and signed by the Executive and by the Chief Executive Officer of the Company. No waiver by either of the parties of any breach by the other party hereto of any condition or provision of this Agreement to be performed by the other party hereto shall be deemed a waiver of any similar or dissimilar provision or condition at the same or any prior or subsequent time.
9. Severability. Should any provisions of this Agreement be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions hereof, and if such provision or provisions are not modified as provided above, this Agreement shall be construed as if such invalid, illegal, or unenforceable provisions had not been set forth herein.
10. Captions. Captions and headings of the sections and paragraphs of this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the caption or heading of any section or paragraph.
11. Counterparts. This Agreement may be executed in separate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.
12. Section 409A.
12.1 General Compliance. This Agreement is intended to comply with Section 409A or an exemption thereunder and shall be construed and administered in accordance with such intent. Notwithstanding any other provision of this Agreement, payments provided under this Agreement may only be made upon an event and in a manner that complies with Section 409A or an applicable exemption. Any nonqualified deferred compensation payments under this Agreement that may be excluded from Section 409A either as separation pay due to an involuntary separation from service or as a short-term deferral shall be excluded from Section 409A to the maximum extent possible. For purposes of Section 409A, each installment payment provided under this Agreement shall be treated as a separate payment. Any payments to be made under this Agreement upon a termination of employment shall only be made upon a “separation from service” under Section 409A. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under this Agreement comply with Section 409A, and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest, or other expenses that may be incurred by the Executive on account of non-compliance with Section 409A.
12.2 Specified Employees. Notwithstanding any other provision of this Agreement, if any payment or benefit provided to the Executive in connection with the Executive’s termination of employment is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A and the Executive is determined to be a “specified employee” as defined in Section 409A(a)(2)(b)(i), then such payment or benefit shall not be paid until the first payroll date to occur following the six-month anniversary of the date of the Executive’s termination (the “Specified Employee Payment Date”). The aggregate of any payments that would otherwise have been paid before the Specified Employee Payment Date shall be paid to the Executive in a lump sum on the Specified Employee Payment Date and thereafter, any remaining payments shall be paid without delay in accordance with their original schedule.
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12.3 Reimbursements. To the extent required by Section 409A, each reimbursement or in-kind benefit provided under this Agreement shall be provided in accordance with the following:
(i) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during each calendar year cannot affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year;
(ii) any reimbursement of an eligible expense shall be paid to the Executive on or before the last day of the calendar year following the calendar year in which the expense was incurred; and
(iii) any right to reimbursements or in-kind benefits under this Agreement shall not be subject to liquidation or exchange for another benefit.
13. Successors and Assigns. This Agreement is personal to the Executive and shall not be assigned by the Executive. Any purported assignment by the Executive shall be null and void from the initial date of the purported assignment. The Company may assign this Agreement to any successor or assign (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business or assets of the Company. This Agreement shall inure to the benefit of the Company and permitted successors and assigns.
14. Representations of the Executive. The Executive represents and warrants to the Company that:
The Executive’s acceptance of employment with the Company and the performance of the Executive’s duties hereunder will not conflict with or result in a violation of, a breach of, or a default under any contract, agreement, or understanding to which the Executive is a party or is otherwise bound.
The Executive’s acceptance of employment with the Company and the performance of the Executive’s duties hereunder will not violate any non-solicitation, non-competition, or other similar covenant or agreement of a prior employer or third-party.
15. Withholding. The Company shall have the right to withhold from any amount payable hereunder any Federal, state, and local taxes in order for the Company to satisfy any withholding tax obligation it may have under any applicable law or regulation.
16. Survival. Upon the expiration or other termination of this Agreement, the respective rights and obligations of the parties hereto shall survive such expiration or other termination to the extent necessary to carry out the intentions of the parties under this Agreement.
17. Acknowledgement of Full Understanding. THE EXECUTIVE ACKNOWLEDGES AND AGREES THAT THE EXECUTIVE HAS FULLY READ, UNDERSTANDS AND VOLUNTARILY ENTERS INTO THIS AGREEMENT. THE EXECUTIVE ACKNOWLEDGES AND AGREES THAT THE EXECUTIVE HAS HAD AN OPPORTUNITY TO ASK QUESTIONS AND CONSULT WITH AN ATTORNEY OF THE EXECUTIVE’S CHOICE BEFORE SIGNING THIS AGREEMENT.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
| SHARPS TECHNOLOGY, INC. | ||
|
By: | /s/ Soren Christiansen |
| Name: | Soren Christiansen | |
| Title: | Co-Chairman | |
| ALAN R. BLACKMAN | ||
| Signature: | /s/ Alan R. Blackman | |
| Print Name: | Alan R. Blackman | |
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SCHEDULE A—CRITERIA to DETERMINE BONUS
The Company completes a financing resulting in gross proceeds of at least $20.0 Million.
The Company increases its market capitalization to at least 5 times its current level with a goal of 10 times based on its current value.
The Company completes a strategic alliance with a major health company which results in significant benefits to the Company.
The Company is acquired or is the acquirer in a significant transaction.
| 11 |
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 15, 2022 |
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 15, 2022 |
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, 2022, 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 June 30, 2022, 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, 2022, 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 15, 2022 |
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, 2022, 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, 2022, 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, 2022, 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 15, 2022 |
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.