MIROMATRIX MEDICAL INC.

Condensed Statements of Shareholders’ Equity

(Unaudited)

Additional

Total

Common Stock

Pain- In

Accumulated

Shareholders’


Shares

Amounts

Capital

Deficit

Equity (Deficit)
Balance at March 31, 2021

2,290,822

$
23

$
8,509,143

$
(59,815,500)

$
(51,306,334)
Stock-based compensation expense

—

—

105,879

—

105,879
Exercise of stock options

58,750

1

5,874

—

5,875
Exercise of stock warrants

65,909

—

6,250

—

6,250
Conversion of preferred stock to common stock

11,092,314

111

66,553,049

—

66,553,160
Note payable and accrued interest converted to common stock

996,757

10

7,152,389

—

7,152,399
Sales of common stock, net of expenses

5,520,000

55

44,593,631

—

44,593,686
Net loss

—

—

—

(3,702,834)

(3,702,834)
Balance at June 30, 2021

20,024,552

$
200

$
126,926,215

$
(63,518,334)

$
63,408,081

Balance at March 31, 2020

2,183,322

$
22

$
7,858,087

$
(52,027,823)

$
(44,169,714)
Stock-based compensation expense

—

—

157,398

—

157,398
Net loss

—

—

—

(3,273,079)

(3,273,079)
Balance at June 30, 2020

2,183,322

$
22

$
8,015,485

$
(55,300,902)

$
(47,285,395)


				Additional				Total
	Common Stock			Paid-In		Accumulated		Shareholders’
	Shares	Amount		Capital		Deficit		Equity
Balance at December 31, 2022	20,944,109	$	209	$	130,119,106	$	(104,011,911)	$	26,107,404
Stock-based compensation expense	—		—		331,959		—		331,959
Issuance of restricted shares	45,829		—		—		—		—
Sale of common stock, net of expenses	6,250,000		63		8,855,374		—		8,855,437
Tax withholdings related to net share settlements of stock-based compensation awards	—		—		(14,629)		—		(14,629)
Net loss	—		—		—		(7,480,152)		(7,480,152)
Balance at March 31, 2023	27,239,938	$	272	$	139,291,810	$	(111,492,063)	$	27,800,019

Additional

Total

Common Stock

Pain- In

Accumulated

Shareholders’


Shares

Amounts

Capital

Deficit

Equity (Deficit)
Balance at December 31, 2020

2,185,822

$
22

$
8,346,943

$
(59,381,158)

$
(51,034,193)
Stock-based compensation expense

—

—

239,330

—

239,330
Exercise of stock options

163,750

2

34,623

—

34,625
Exercise of stock warrants

65,909

—

6,250

—

6,250
Conversion of preferred stock to common stock

11,092,314

111

66,553,049

—

66,553,160
Note payable and accrued interest converted to common stock

996,757

10

7,152,389

—

7,152,399
Sales of common stock, net of expenses

5,520,000

55

44,593,631

—

44,593,686
Net loss

—

—

—

(4,137,176)

(4,137,176)
Balance at June 30, 2021

20,024,552

$
200

$
126,926,215

$
(63,518,334)

$
63,408,081

Balance at December 31, 2019

2,075,822

$
21

$
7,638,190

$
(49,071,590)

$
(41,433,379)
Stock-based compensation expense

—

—

314,796

—

314,796
Exercise of stock options

62,500

1

6,249

—

6,250
Exercise of stock warrants

45,000

—

56,250

—

56,250
Net loss

—

—

—

(6,229,312)

(6,229,312)
Balance at June 30, 2020

2,183,322

$
22

$
8,015,485

$
(55,300,902)

$
(47,285,395)


				Additional				Total
	Common Stock			Paid-In		Accumulated		Shareholders’
	Shares	Amount		Capital		Deficit		Equity
Balance at December 31, 2021	20,385,645	$	204	$	128,177,594	$	(74,051,914)	$	54,125,884
Stock-based compensation expense	—		—		333,981		—		333,981
Exercise of stock options	160,938		2		201,171		—		201,173
Net loss	—		—		—		(7,203,749)		(7,203,749)
Balance at March 31, 2022	20,546,583	$	206	$	128,712,746	$	(81,255,663)	$	47,457,289

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

~~Table of Contents~~

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

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

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

The Company determined that a promissory note issued in March 2020 (“March 2020 Note”) contained a change in control provision which is a level 3 embedded derivative and is required to be bifurcated. In accordance with ASC 815, ~~Derivatives and Hedging~~~~, the Company determined~~ the fair value of the ~~derivative liability~~assets or liabilities.

The Company classifies cash and ~~recorded it on the balance sheet. At inception,~~cash equivalents, as well as restricted cash, as Level 1 in the fair value ~~of the derivative liability was $195,516.~~hierarchy.

The ~~table below discloses changes~~Company classifies its investments in U.S. Treasury notes as Level 1 in the fair value ofhierarchy. While the ~~Company’s embedded derivative liabilities discussed above.~~


~~Derivative liability balance at December 31, 2019~~	$	—
~~Derivative instrument related to March 2020 Note~~		~~195,516~~
~~Gain/Loss recognized to revalue derivative instrument at fair value~~		~~51,446~~
~~Derivative liability balance at December 31, 2020~~		~~246,962~~
~~Gain/Loss recognized to revalue derivative instrument at fair value (unaudited)~~		~~(246,962)~~
~~Derivative liability balance at June 30, 2021 (unaudited)~~	$	—

market for these securities are highly liquid and active, quoted prices for these securities may at times be derived from pricing models which use observable inputs such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and other reference data including market research publications.

~~NOTE 7 — DEBT AND CAPITAL LEASE OBLIGATION~~

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

In January 2012, the Company signed a promissory note with the Regents of the University of Minnesota (the University”) for $405,559. Commencing on January 1, 2016 the promissory note bears interest at 3% per annum, compounded monthly. On or before January 31, 2018, the Company is required to make monthly principal and interest payments of $7,737 until the note is paid in full. The note has a maturity date of December 31, 2022 and is unsecured. In association with the promissory note, the Company issued the University warrants to purchase 80,000 shares of the Company’s common stock at an exercise price of $1.69. As of June 30, 2021 and December 31, 2020, the principal outstanding on this loan was $128,623 and $172,731,respectively.

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

In October 2018, the Company signed a lease agreement for a piece of equipment that is being accounted for as a capitalized lease. The total cost of the equipment was $102,026. The lease bears interest at 7.2% and the Company will make 60 payments of $2,003 until the lease is paid in full. As of June 30, 2021 and December 31, 2020, the amount outstanding on the lease was $47,868 and $57,127, respectively. The lease is secured by the piece of equipment.8

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NOTE 3 — INVESTMENTS

The Company currently invests its excess cash in U.S. Treasury securities. The Company intends and has the ability to hold these investments to maturity. Securities with original maturity dates of more than three months are reported as held-to-maturity investments and are recorded at amortized cost, which approximates fair value due to the negligible risk of changes in value due to interest rates. All investments held on March 31, 2023 had contractual maturities of less than one year.

The amortized cost and estimated fair values of the Company’s investments as of March 31, 2023 are as follows:


	Amortized		Unrealized		Unrealized		Fair
	Cost		Holding Gains		Holding Losses		Value
Short-term:
U.S. Treasury notes	$	11,984,842	$	—	$	86,842	$	11,898,000
Total	$	11,984,842	$	—	$	86,842	$	11,898,000

NOTE 4 — PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of:


	March 31,		December 31,
	2023		2022
Lab equipment	$	1,992,976	$	1,977,436
Leasehold improvements		3,392,220		3,392,220
Furniture, fixtures and computers		2,022,894		2,022,894
		7,408,090		7,392,550
Less accumulated depreciation and amortization		(2,136,784)		(1,846,856)
	$	5,271,306	$	5,545,694

Depreciation and amortization expense was $289,928 and $262,897 for the three months ended March 31, 2023 and 2022, respectively.

NOTE 5 — ACCRUED EXPENSES

Accrued expenses consisted of the following as of:


	March 31,		December 31,
	2023		2022
Wages	$	757,721	$	1,434,675
Legal		181,516		80,794
Taxes		37,500		112,974
Key opinion leader compensation		10,000		18,700
Pre-clinical study costs		—		200,000
Royalties		—		3,422
Other		118,321		97,811
Accrued expenses	$	1,105,058	$	1,948,376

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NOTE 6 — DEBT

In January 2019, the Company issued the Regents of the University of Minnesota (the “University”) a promissory note in the amount of $385,997 in satisfaction of the Company’s minimum royalty obligation for the year ended December 31, 2018. The note bears interest at 6%6.0% per annum, compounded annually, and is due on January 31, 2025. As of both March 31, 2023 and December 31, 2022, the balance outstanding on this loan was $385,997. In addition, the Company issued the University a 10-year warrant to purchase 20,587 shares of the Company’s common stock at an exercise price of $3.75 per ~~share.~~share, which remained outstanding through March 31, 2023.

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

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

~~Principal maturities~~ were as ~~follows as of the periods indicated:~~follows:

As of December 31,

Debt

Capital Lease

Total
2021

$
6,481,774

$
18,855

$
6,500,629
2022

504,354

20,261

524,615
2023

—

18,011

18,011
2024

—

—

—
2025

385,997

—

385,997
Totals

7,372,125

57,127

7,429,252
Less current portion

(6,481,774)

(18,855)

(6,500,629)
Long-term portion

$
890,351

$
38,272

$
928,623

As of June 30,

Debt

Capital Lease

Total
(unaudited)






2022

$
382,479

$
17,862

$
400,341
2023

46,021

20,877

66,898
2024

—

9,129

9,129
2025

385,997

—

385,997
Totals

814,497

47,868

862,365
Less current portion

(382,479)

(17,862)

(400,341)
Long-term portion

$
432,018

$
30,006

$
462,024


Amounts Due in the Twelve Months Ending March 31,
2024	$	—
2025		385,997
Total future maturities payments		385,997
Less current portion		—
Long-term debt	$	385,997

~~Table of Contents~~

NOTE 87 — ~~CAPITAL STOCK~~

~~Convertible Preferred Stock~~

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

Aggregate


Shares

Shares

Liquidation

Authorized

Outstanding

Preference

Convertible Preferred Stock - Series C

6,100,000

3,671,554

$ 27,536,655
Convertible Preferred Stock - Series B-2

2,500,000

2,095,874

15,719,055
Convertible Preferred Stock - Series B

4,000,000

3,218,282

24,137,115
Convertible Preferred Stock - Series A

3,300,000

3,000,380

7,500,950

15,900,000

11,986,090

$ 74,893,775

Upon the closing of the IPO, all shares of convertible preferred stock then outstanding were automatically converted into an aggregate of 12,139,071 shares of common stock, resulting in the reclassification of the related convertible preferred stock into $121 of common stock and $73.7 million into additional paid-in capital.

~~As of June 30, 2021, there were 0 shares of convertible preferred stock outstanding.~~EQUITY

Common Stock

~~All of the shares sold by the Company in the IPO were common stock.~~ The Company is authorized to issue 190,000,000 shares of common stock, with a par value of ~~$0.00001 and each outstanding share of common stock is entitled to 1 vote, as provided in the Post-IPO Certificate.~~

In 2020, the Company issued 64,000 and 1,000 shares of common stock in connection with the exercise of stock option agreements at exercise prices of $0.10 and $1.25 per share, respectively. The Company also issued 45,000 shares of common stock in connection with the exercise of stock warrant agreements at an exercise price of $1.25 per share.

~~In 2019, the Company issued 50,000 shares of common stock in connection with the exercise of stock option agreements at exercise price of $1.25 per share.~~

$0.00001. Holders of common stock are entitled to 1one vote for each share held on all matters submitted to a vote of common ~~shareholders.~~stockholders. Subject to preferences that may be applicable to any outstanding preferred shares, each share of common ~~share~~stock is entitled to share pro rata in any distributions. In any distribution of capital assets, holders of ~~the~~ common stock are entitled to receive pro rata the assets remaining after payment of liabilities and liquidation preferences ofon any outstanding preferred stock.

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

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

As of March 31, 2023 and December 31, ~~2020,~~2022, there were ~~2,185,822~~27,239,938 and 20,944,109 shares of common stock issued and outstanding,~~. At June 30, 2021, there were 20,024,552 shares of common stock issued and~~ ~~outstanding~~. respectively.

Preferred Stock

The Company is authorized to issue 10,000,000 shares of preferred stock, with a par value of ~~$0.00001, as provided in the Post-IPO Certificate.~~$0.00001. As of ~~June 30, 2021,~~March 31, 2023 and December 31, 2022, there were 0no shares of preferred stock issued and ~~outstanding~~.outstanding.

The Company previously classified its Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series B-2 Convertible Preferred Stock and Series C Convertible Preferred Stock as mezzanine equity due to their liquidation provisions under a change in control.

~~Table of Contents~~

~~Series C Convertible Preferred Stock~~Equity Incentive Plans

In May ~~2021, the Company entered into 2 stock purchase agreements under which it sold an aggregate of 2,666,667 shares of Series C preferred stock at $7.50 per share for gross proceeds of $20,000,003.~~

In June 2021, the $6,000,000 promissory note issue by the Company in March 2020 (See Note 7) and all accrued interest was converted into 956,887 shares of Series C preferred stock. On the same date, the warrant issued in connection with the promissory note was converted into 48,000 shares of Series C preferred stock via a cashless exercise.

~~The Series C preferred stock converted into common stock at a 20% discount to the price to the public in the IPO.~~

~~As of June 30, 2021, all 3,671,554 shares of the Series C preferred stock had been converted into common stock and NaN remained outstanding.~~

~~Stock Options~~

In February 2010, the Company adopted a stock option plan (the “2010 Plan”) which authorized options to acquire 375,000 shares of the Company’s stock. On June 20, 2011, the number of shares authorized to be issued as options under the 2010 Plan was increased to 600,000. On September 30, 2013, the number of shares authorized to be issued as options under the 2010 Plan was increased to 1,300,000. On March 1, 2014, the number of shares authorized to be issued as options under the 2010 Plan was increased to 1,700,000. On July 31, 2015 the number of shares authorized to be issued as options under the 2010 Plan was increased to 2,500,000 shares. On August 12, 2016 the number of shares authorized to be issued as options under the 2010 Plan was increased to 3,250,000 shares. On December 13, 2017 the number of shares authorized to be issued as options under the 2010 Plan was increased to 3,850,000 shares. At June 30, 2021, there were 3,048,255 options outstanding under the 2010 Plan and 0 options available for grant. At December 31, 2020, there were 3,287,230 options outstanding under the 2010 Plan and 0 options available for grant. The Company Ceased making awards under the 2010 Plan upon approval of the 2019 Plan.

In July 2019, the Company adopted a stock option plan (the “2019 Plan”) which authorized options to acquire 1,000,000 shares of the Company’s stock. At June 30, 2021, there were 428,500 options outstanding under the 2019 Plan and 0 options available for grant. At December 31, 2020, there were 481,500 options outstanding under the 2019 Plan and 518,500 options available for grant. The Company ceased making awards under the 2019 Plan upon stockholder approval of the 2021 Plan.

~~On May 20,~~ 2021, the Company’s stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the issuance of stock options, restricted stock units and other awards to employees, directors and consultants of the Company. The number of shares of common stock that may be the subject of awards issued under the 2021 plan is 1,000,000. In addition, shares of common stock that would have otherwise been available under our 2019 Plan will increase the number of shares of common stock available for issuance under our 2021 plan. Shares of common stock ~~subject to~~underlying outstanding awards under the 2019 Plan (defined below) and the 2021 Plan that ~~would otherwise return to the share reserve of the 2019 plan upon expiration, forfeiture, retention~~expire, are forfeited, are retained by the Company to satisfy any exercise price or any tax withholding, ~~repurchase~~repurchased by the Company at their original purchase price or ~~settlement~~settled in cash ~~of awards outstanding under the 2019 Plan~~ may be added to the number of shares of common stock available for issuance under the 2021 Plan. The number of shares ~~of common stock~~ reserved for issuance under ~~our~~the 2021 Plan

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will automatically increase on the first day of each fiscal year, beginning on January 1, 2022, in the amount equal to the lesser of (a) 4.5% of the total number of shares of common stock outstanding onas of December 31 of the immediately preceding calendar year, (b) 600,000 shares of common stock, or (c) such lesser number of shares as determined by the ~~board. At June 30,~~Board of Directors. On January 1, 2023, the number of shares reserved for issuance under the 2021 Plan automatically increased by 600,000 shares of common stock.

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

As of March 31, 2023, there were ~~186,831 awards~~options to purchase 2,329,853 and 267,000 shares of common stock were outstanding under the 2010 Plan and ~~1,379,669 awards~~2019 Plan, respectively.

As of March 31, 2023, there were options to purchase 1,548,333 shares of common stock and restricted stock units eligible to vest and settle into 298,881 shares of common stock outstanding under the 2021 Plan.

As of March 31, 2023, there were 947,415 shares of common stock available for ~~grant.~~issuance under future awards granted under the 2021 Plan.

Stock Options

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

Stock option activity was as follows:


		Weighted
		Average
		Exercise
	Shares	Price
Options outstanding at December 31, 2022	3,831,686	$	4.12
Granted	403,000	$	3.23
Exercised	—	$	—
Canceled or expired	(89,500)	$	4.24
Options outstanding at March 31, 2023	4,145,186	$	4.03
Options exercisable at March 31, 2023	2,933,811	$	3.86

Stock-based compensation expense related to stock options was $182,207 and $190,816 for the three months ended March 31, 2023 and 2022, respectively.

Included in the stock-based compensation expense numbers above are stock options the Company has granted to key opinion leaders which are marked to market at each reporting period with the change in the accrued balance expensed through research and development operating expenses. Stock-based compensation related to the key opinion leaders decreased by $8,700 and $12,875 for the three months ended March 31, 2023 and 2022, respectively.

The weighted average fair value of options granted during the three months ended March 31, 2023 and 2022 was $2.36 and $1.48 per share, respectively.

Restricted Stock Units

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

1511

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~~The following is a summary of options to purchase common stock during the six months ended June 30 (unaudited):~~RSU activity was as follows:


	Six months ended				Weighted
	June 30, 2021				Average Grant
		Weighted			Date Fair
		Average		Shares	Value
		Exercise
	Share	Price
Options outstanding at beginning of the period	3,768,730	$	3.15
Unvested at December 31, 2022				239,198	$	4.20
Granted	153,500	$	9.00	110,000	$	3.26
Exercised	(163,750)	$	0.21
Canceled or expired	(128,225)	$	2.79
Options outstanding at end of the period	3,630,255	$	3.54
Options Exercisable	3,267,769	$	3.30
Vested				(45,829)	$	4.58
Canceled				(4,488)	$	4.20
Unvested at March 31, 2023				298,881	$	3.80

~~The weighted average fair value of options granted for the thee and six months ended June 30, 2021 and 2020 was $3.84 and $2.03 per share, respectively.~~

~~As of June 30, 2021, there were 3,630,255 common stock options outstanding with a weighted average remaining contractual life of~~ ~~4.98years.~~ ~~As of December 31, 2020, there were 3,768,730 common stock options outstanding with a weighted average remaining contractual life of 5.08 years~~.

~~As of June 30, 2021 there were 3,267,769 common stock options exercisable with a weighted average remaining contractual life of~~ ~~4.53years.~~ ~~As of December 31, 2020, there were 3,426,440 common stock options exercisable with a weighted average remaining contractual life of 4.74 years.~~

The intrinsic value of the outstanding options as of June 30, 2021 and December 31, 2020 was $29,521,965 and $1,906,200, respectively. The intrinsic value of the exercisable options as of June 30, 2021 and December 31, 2020 was $27,385,450 and $1,906,200, respectively. The intrinsic value of options exercised was $183,888 and $496,888 for the three and six months ended June 30, 2021, respectively.

~~The Company recognized $105,879 and $157,398 of stock-based~~Stock-based compensation expense related to ~~option grants during~~RSUs was $141,052 and $130,290 for the three months ended ~~June 30, 2021 and 2020, respectively, and $239,330 and $314,796 of stock-based compensation related to option grants during the six months ended June 30, 2021 and 2020, respectively. As of December~~March 31, 2020, there was $562,456 of unrecognized compensation costs related to stock option grants of which $280,269, $182,465, $61,890 and $37,832 is expected to be recognized during the years ending December 31, 2021, 2022, 2023 and ~~2024,~~2022, respectively. As of June 30, 2021, there was $872,353 of unrecognized compensation costs related to stock option grants of which $156,943, $308,954, $192,622, $173,796 and $40,038 is expected to be recognized during the years ending December 31, 2021, 2022, 2023, 2024 and 2025 respectively. The Company issues new common shares for options exercised.

~~Black Scholes Assumptions~~

~~The Company uses the Black Scholes option pricing model to estimate the fair value of stock option grants with the following weighted average assumptions:~~

Six months ended

June 30,

2021

2020

(unaudited)

(unaudited)

Expected life in years

5.88

5.14

Risk-free interest rate

1.17
%
1.24
%
Expected dividend yield

—

—

Expected volatility

44.02
%
35.00
%

~~Table of Contents~~

~~Restricted Stock Units~~

During the six months ended June 30, 2021, the Company granted directors restricted stock unit (“RSU”) awards totaling 33,331 shares of common stock under the 2021 Plan in accordance with the Company’s non-employee director compensation policy. Each RSU is eligible to vest and settle into one newly issued share of Company common stock. The weighted average fair value of $9.00 per unit was calculated based upon the IPO stock price.

~~2021~~ Employee Stock Purchase Plan

~~On May 20, 2021, the~~The Company ~~stockholders adopted the~~accounts for employee stock purchases made under its 2021 Employee Stock Purchase Plan (“~~2021~~ ESPP”)~~, which became effective in connection with~~ using the ~~Company’s IPO. The 2021 ESPP allows eligible employees to purchase shares of the Company’s common stock in an offering on each purchase~~estimated grant date no less than 85% of the lower of (i) the closing market price per share of common stock on the first day of the applicable purchase period or (ii) the closing market price per share of common stock on the purchase date at the end of the applicable six-month purchase period. No participant will have the right to purchase shares in an amount that has a fair value ~~of more than $25,000 determined as of~~in accordance with Accounting Standards Codification, Topic 718, Stock Compensation. The Company values ESPP shares using the ~~first day of the applicable purchase period, for each calendar year, nor purchase more than 5,000 shares of common stock on any one purchase date.~~

Black-Scholes model.

There were 300,000 shares of common stock initially reserved for issuance under the ~~2021~~ ESPP. In addition, the ~~2021~~ ESPP contains a provision which provides for an automatic annual share increase on January 1 of each year, in an amount equal to the lesser of (i) 1% of the total number of shares outstanding as of December 31 of the immediately preceding calendar year, or (ii) 200,000 shares or (iii) such number of shares as determined by the Board.

~~The Company accounts~~ As of December 31, 2022, there were 500,000 shares of common stock available for ~~employee stock purchases made~~issuance under ~~its 2021~~the ESPP. On January 1, 2023, the number of shares reserved for issuance under the ESPP ~~using the estimate grant date fair value~~automatically increased by 200,000 shares of ~~accounting in accordance with ASC 718,~~ ~~Stock Compensation~~~~. The Company values ESPP shares using the Black-Scholes model.~~

common stock.

There were 0no shares issued under the ~~2021~~ ESPP during the three ~~and six~~ months ended ~~June 30, 2021.~~March 31, 2023.

Stock Warrants

Stock warrant activity was as follows:


		Shares
Warrants outstanding December 31, 2022		599,191
Granted		—
Exercised		—
Expired		(2,604)
Warrants outstanding March 31, 2023		596,587

NOTE 8 — SIGNIFICANT CUSTOMERS

The Company had one customer that accounted for 100% of total revenue for the three months ended March 31, 2023 and 2022. The current receivable for this customer is included in Receivable from Reprise Biomedical, Inc. (“Reprise”) on the condensed balance sheets. The Company received $7,981 and $6,768 for the three months ended March 31, 2023 and 2022, respectively, as royalties related from the spin-out of the Acellular Business to Reprise. As of March 31, 2023 and December 31, 2022, the Company had receivables related to the minimum royalties of $583,953 and $466,934, respectively, from Reprise, but due to the uncertainty regarding collectability the Company fully reserved against the receivable.

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NOTE 9 — COMMITMENTS AND CONTINGENCIES

Patent License Agreement

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

~~Stock Warrants~~NOTE 10 — LEASES

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

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

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

Series A Preferred

warrants

Common warrants
Warrants outstanding December 31, 2018

40,000

732,082
Granted

—

20,587
Exercised

—

—
Terminated

—

—
Warrants outstanding December 31, 2019

40,000

752,669
Granted

—

—
Exercised

—

(45,000)
Terminated

(40,000)

—
Warrants outstanding December 31, 2020

—

707,669
Granted

—

276,000
Exercised

—

(18,050)
Terminated

—

—
Warrants outstanding June 30, 2021 (unaudited)

—

965,619

Weighted average exercise price:

June 30, 2021 (unaudited)

$
—

$
4.50
December 31, 2020

—

2.34
December 31, 2019

2.88

2.27

Weighted average remaining contractual life in years:

June 30, 2021 (unaudited)

—

2.78
December 31, 2020

—

2.32
December 31, 2019

0.83

3.23


Leases	Classification	March 31, 2023
Assets
Operating lease assets	Right of use asset	$	1,622,706
Financing lease assets	Property and equipment, net of accumulated depreciation	$	71,846

Liabilities
Current
Operating	Current portion of lease liability	$	397,566
Financing	Current portion of financing lease obligations	$	33,413
Noncurrent
Operating	Lease liability, net	$	2,616,963
Financing	Financing lease obligations, net	$	7,860

~~NOTE 9 — EMPLOYEE BENEFIT PLANS~~

~~The~~Information on the Company’s employees are eligible to participate in a defined contribution benefit plan. Employees may contribute a percentage of their wages, subject to limits established by the Internal Revenue Code. The Company may elect to make discretionary contributions to the plan. There were 0 discretionary contributions during the three and six months ended June 30, 2021 and 2020.

~~NOTE 10 — SIGNIFICANT CUSTOMERS~~

~~The Company had 1 customer that accounted for 100% of total revenue for the three and six months ended June 30, 2021 and 2020. The current receivable for this customer~~lease costs is included in Receivable From Reprise Biomedical, Inc. The long-term receivable related to minimum royalties from this customer has been completely reserved against due to uncertainty regarding collectability.

~~NOTE 11 — COMMITMENTS AND CONTINGENCIES~~

~~Patent License Agreement~~

Under an Exclusive Patent License Agreement between the Company and the University of Minnesota (the “Agreement”) the Company is required to make minimum royalty payments to the University of Minnesota of $500,000 per year. Under the Patent and Know-How License Agreement with Reprise Biomedical, Inc. (“Reprise”), Reprise has minimum royalty obligations to the Company of $500,000 per year. (See Note 12.)

~~Table of Contents~~

~~Leases~~

In February 2015, the Company executed a lease for a facility in Eden Prairie, Minnesota. The Company had leased this facility through March 31, 2020 at a rate of $13,100 per month with yearly rent increases of approximately 3% per year. In November 2019, the lease for the facility was extended to December 31, 2020 at a rate of $15,100 per month starting April 1, 2020. In August 2020, the lease for this facility was extended to December 31, 2021 at a rate of $16,600 per month starting in January 2021.

In May 2020, the Company executed a lease for a second facility in the same Eden Prairie, Minnesota office park as it’s other facility. The Company leased this space through December 31, 2020 at a rate of $2,500 per month starting in May 2020. In August 2020, the lease for this facility was extended to December 31, 2021 at a rate of $3,400 per month starting in January 2021.

~~On August 2, 2021, the Company entered into a lease for a new facility commencing December 31, 2021. (See Note14)~~

Total rent expense under operating leases was $58,280 and $54,261 for the three months ended June 30, 2021 and 2020, respectively, and $123,293 and $95,560 for the six months ended June 30, 2021 and 2020, respectively. The Company has future minimum non-cancelable lease commitments as follows:


		At June 30, 2021		Three Months Ended
2021	$	120,192
Total	$	120,192
Lease cost			Classification	March 31, 2023
Operating lease cost			Operating expenses: General and administrative	$	82,886
Financing lease cost
Amortization of leased assets			Depreciation and amortization	$	9,480
Interest on lease liabilities			Interest expense	$	850
Variable lease cost⁽¹⁾			Operating expenses: General and administrative	$	40,100

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

~~License Contract~~

On December 1, 2014, the Company entered into a research and development contract with an outside developer. The term of the contract was set to expire on December 31, 2016, but in September 2016 the expiration date was extended to December 31, 2017 and in January 2018 the expiration date was extended to June 30, 2019, in May 2019 it was extended to March 30, 2020 and in February 2020 it was extended to February 28, 2021. In February 2021 the contract was extended to December 31, 2021. As partial consideration for the developer’s services, on January 1, 2015, the Company issued 26,667 shares of Series B preferred stock at a fair value of $7.50 per share. The value of these shares was charged to research & development expenses in the statements of operations.

~~NOTE 12 — RELATED PARTY TRANSACTIONS~~

A corporation owned by a director of the Company that resigned as a director in June 2021 received payments for providing a consultant to the Company of $2,233 and $1,620 for the three months ended June 30, 2021 and 2020, respectively, and $3,851 and $3,047 for the six months ended June 30, 2021 and 2020, respectively.

The Company received $9,139 and $9,394 for the three months ended June 30, 2021 and 2020, respectively, and $15,247 and $20,482 for the six months ended June 30, 2021 and 2020, respectively, as royalty related to the spin-out of the Acellular Business to Reprise. As of June 30, 2021 and 2020 the Company had long term receivables of $688,223 and $229,518, respectively, but due to the uncertainty regarding collectability the Company fully ~~reserved~~ ~~against the~~ ~~receivables~~. The Company recorded a long-term receivable of $453,470 related to the minimum royalty due from Reprise for the year ended December 31, 2020, but due to the uncertainty regarding collectability the Company fully ~~reserved~~ ~~against the receivable.~~

~~NOTE~~ 13 ~~— NET LOSS PER SHARE~~

Under the two-class method, for periods with net income, basic net income per common share is computed by dividing the net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Net income attributable to common stockholders is computed by subtracting from

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


Amounts Due in Years Ending	Operating Leases		Financing Leases		Total
2023	$	383,752	$	30,873	$	414,625
2024		527,020		12,030		539,050
2025		542,830		—		542,830
2026		559,115		—		559,115
2027		575,889		—		575,889
Thereafter		847,731		—		847,731
Total lease payments		3,436,337		42,903		3,479,240
Less imputed interest		(421,808)		(1,630)		(423,438)
Present value of lease liabilities	$	3,014,529	$	41,273	$	3,055,802

Additional information related to leases is as follows:


Lease term and discount rate	March 31, 2023
Weighted-average remaining term (years)
Operating lease	6.2
Financing leases	1.0
Weighted-average discount rate
Operating lease	4.2	%
Financing leases	6.7	%

NOTE 11 — NET LOSS PER SHARE

Basic net loss per share is calculated by dividing net income by the ~~portion~~weighted average number of ~~current year earnings that participating securities would have been entitled to receive pursuant to their dividend rights had all of~~common shares outstanding during the ~~year’s earnings been distributed. No such adjustment to earnings is made during periods with a net loss as the holders of the participating securities have no obligation to fund losses.~~period. Diluted net loss per common share is ~~computed under the two-class method~~calculated by ~~using~~dividing the weighted average number of common shares ~~of common stock~~ outstanding, ~~plus, for periods with net income attributable to common stockholders, the~~after taking into consideration all dilutive potential ~~dilutive effects of stock options and warrants. In addition, the Company analyzes the potential dilutive effect of the~~shares outstanding participating securities under the if-converted method when calculating diluted earnings per share in which it is assumed that the outstanding participating securities convert into common stock at the beginning of the period. The Company reports the more dilutive of the approaches (two-class or if-converted) as its diluted net income per share during the period. Due to the existence of net losses for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2023 and ~~2020,~~2022, basic and diluted net loss per share were the same, as the effect of potentially dilutive securities would have been anti-dilutive.

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


	Three Months Ended June 30,		Six Months Ended June 30,		Three Months Ended March 31,
	2021	2020	2021	2020	2023	2022
	(unaudited)	(unaudited)	(unaudited)	(unaudited)
Convertible preferred stock outstanding	—	8,314,536	—	8,314,536
Convertible preferred stock warrants	—	—	—	40,000
Common stock options outstanding	3,630,255	3,794,250	3,630,255	3,794,250	4,145,186	4,005,700
Restricted stock units					298,881	223,565
Common stock warrants	965,619	707,669	965,619	707,669	596,587	795,379
	4,595,874	12,816,455	4,595,874	12,856,455
Total common stock equivalents					5,040,654	5,024,644

~~NOTE~~ 14 ~~— SUBSEQUENT EVENTS~~

~~Facility Lease~~

On August 2, 2021, the Company entered into a Multi-Tenant Industrial Triple Net Lease (the “Lease”) with B9 Polar Prairie Oaks Corporate LLC, a Delaware limited liability company (the “Landlord”), for research and development and office space located at 6455 Flying Cloud Drive, Eden Prairie, Minnesota 55344 (the “Building”). Under the terms of the Lease, starting on December 31, 2021 (the “Commencement Date”) the Company will lease approximately 42,278 square feet of the Building (the “Premises”) as the sole tenant at the Premises, which will replace the Company’s current leased premises at 10399 West 70^th ~~Street, Eden Prairie, Minnesota 55344.~~

~~The base rent under the Lease is $41,397.21 per month for the~~ ~~12-month~~ period beginning on the Commencement Date and ending on December 31, 2022, and thereafter is subject to scheduled annual increases of approximately 3% during the term of the Lease. However, under the terms of the Lease, the Company’s monthly base rent will be abated for the period beginning on the Commencement Date and ending on May 31, 2022, provided the Lease is not terminated due to default. In addition to base rent, the Company is obligated under the Lease to pay to the Landlord certain costs, operating expenses and taxes, including approximately 61.08% of the real property taxes of the Building and the land on which it is located and approximately 61.08% of the Landlord’s management fee, which equals an amount of up to 5% of the Landlord’s gross receipts from leases at the Building.

~~The term of the Lease begins on the Commencement Date and ends on May 31, 2029. The Company has 1 option to extend the term for a period of~~ ~~five years beginning on June 1, 2029.~~

The Company plans to deliver a security deposit to the Landlord through an irrevocable, standby letter of credit (“LOC”) issued by Park State Bank in the amount of $800,000.00 (“Security Amount”), which will be retained by the Landlord as security for the Company’s performance and observance of its obligations under the Lease. To secure the LOC, the Company will be required to place the Security Amount in a restricted cash account at Park State Bank, which may be drawn from in limited circumstances.

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

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

Special Note Regarding Forward-Looking Statements

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this ~~Form 10-Q~~report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s ~~Registration Statement~~Annual Report on Form ~~S-1 (File No. 333-256649), as amended,~~10-K for the fiscal year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission ~~(the “SEC”~~(“SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Overview

We are a life sciences company pioneering a novel technology for bioengineering fully transplantable ~~human~~ organs to help save and improve patients’ lives. ~~Organ disease~~Founded in 2009, we are one of a small group of companies at the forefront of developing alternatives to human-donor organ transplants, and within this small group of companies there are important differences between the technologies being developed. Our proprietary technology is a ~~major public health issue. According~~scalable platform that uses a two-step method of decellularization and recellularization designed to remove the ~~American Transplant Foundation, there are an estimated 114,000 people in~~porcine cells from the ~~U.S. waiting for a lifesaving organ transplant,~~organs obtained from pigs and on average 20 people die daily due to lack of available organs. We have developed a proprietary perfusion technology platform for bioengineering organs that we believe will efficiently scale to address the shortage of availablereplace them with unmodified human ~~organs.~~cells. Our initial development focus is on ~~human~~bioengineering livers and kidneys, and ~~we have demonstrated the ability to bioengineer these organs with functional vasculature and important organ function in preclinical studies. In addition, we believe~~ our technology platform ~~will be able~~is also applicable to ~~develop~~bioengineering other organs including hearts, lungs ~~pancreas,~~ and ~~hearts.~~pancreases. We have collaborations with the Mayo Clinic, Baxter, CareDx, Mount Sinai and the Texas Heart Institute, and ~~our~~have received strategic ~~investors include DaVita,~~investments from Baxter, CareDx and ~~CareDx.~~DaVita.

Substantially all of our revenue to date has been generated by sales of and royalties we received from ~~the sale of our~~acellular biologic surgical products, ~~Miromesh and Miroderm~~ which we spun out as Reprise Biomedical, Inc. (“Reprise”) effective June 30, ~~2019 and~~2019. We subsequently divested our minority ownership stake in Reprise in March 2021. We ~~continue~~have continued to receive ~~a royalty~~royalties on the sales of these products by Reprise. ~~This prior acellular business is accounted for as discontinued operations in our financial statements. See “Related Party Transactions — Reprise.”~~

Our revenue for the three months ended ~~June 30, 2021 and 2020~~March 31, 2023 was ~~$9,000 and $9,000, respectively, consisting entirely of licensing revenue. Our revenue for the six months ended June 30, 2021 and 2020 was $15,000 and $20,000, respectively,~~$7,981, consisting entirely of licensing revenue. Our net loss for the ~~three months ended June 30, 2021 and 2020~~same period was ~~$3.7 million and $3.3 million, respectively. Our net loss for the six months ended June 30, 2021 and 2020 was $4.1 million and $6.2 million, respectively.~~$7,480,152. We have not been profitable since inception and as of ~~June 30, 2021,~~March 31, 2023, we had an accumulated deficit of ~~$63.5 million.~~$111,492,063.

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

●

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

●

miroliver, our fully implantable bioengineered liver intended to treat patients with acute and chronic liver failure that we have been developing since 2011 in collaboration with the Mayo Clinic.

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●

mirokidney, our fully implantable bioengineered kidney intended to treat patients with end-stage renal disease that was awarded the Kidney X prize from the Department of Health and Human Services and the American Society of Nephrology in 2019.

Recent Developments

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

Components of Our Results of Operations

Licensing Revenue

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

Cost of Goods Sold

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

Gross ~~Margin~~Loss

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

Research and Development Expenses

Research and development expenses consist primarily of engineering, product development, consulting services, materials, depreciation and other costs associated with products and technologies in development. These expenses include payroll and related expenses, consulting expenses, laboratory supplies, and amounts incurred under certain collaborative agreements. Expenditures for research and development activities are charged to operations as incurred.

We expect research and development expenses ~~in absolute dollars~~ to increase in the future, as we ~~develop~~continue the development of our ~~lead~~current product ~~candidates and expand into other programs. We expect research~~candidates. Research and development expenses ~~as a percentage~~will be dependent upon such factors including the results of ~~revenue to vary over time depending on~~our preclinical and clinical trials, and the ~~level and timing~~number of ~~new~~ product ~~development initiatives.~~candidates under development.

Regulatory and Clinical Expenses

Regulatory and clinical expenses include costs for developing our regulatory and clinical study strategies for our ~~products.~~product candidates. These expenses include payroll and related expenses and consulting expenses.

~~Over time we~~ We expect ~~our~~ regulatory and clinical expenses ~~to increase in absolute dollars as~~will be dependent on the size and duration of any clinical programs that we ~~continue to expand our product offerings and move through various regulatory processes. We expect our regulatory and clinical expenses to decrease as a percentage~~may initiate.

Table of ~~revenue primarily as, and to the extent, our revenue grows.~~Contents

Quality Expenses

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

General and Administrative Expenses

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

We expect that our general and administrative expenses will increase in absolute dollars as we expand our headcount to support our growth and incur additional expenses related to operating as a public company, including

~~Table of Contents~~

director and officer insurance coverage, legal costs, accounting costs, costs related to exchange listing and costs related to SEC compliance and investor relations. We expect our general and administrative expenses to decrease as a percentage of revenue primarily as, and to the extent, we generate revenue and our revenue grows.

Interest Income

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

Interest Expense

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

Results of Operations

Comparison of Three Months Ended March 31, 2023 to the Three ~~and Six~~ Months Ended ~~June 30, 2021 and 2020~~March 31, 2022


	Three Months Ended								Six Months Ended								Three Months Ended
	June 30,				Change				June 30,				Change				March 31,				Change
	2021		2020		Dollar		Percentage		2021		2020		Dollar		Percentage		2023		2022		Dollar		Percentage
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
(in thousands) Statement of Operations:
Licensing revenue	$	9	$	9	$	—	—	%	$	15	$	20	$	(5)	(25.0)	%	$	7,981	$	6,768	$	1,213	17.9	%
Cost of goods sold		125		125		—	—			250		250		—	—			125,000		125,000		—	—
Gross margin		(116)		(116)		—	—			(235)		(230)		(5)	2.2
Gross loss																		(117,019)		(118,232)		1,213	(1.0)
Operating expenses:
Research and development		2,481		2,079		402	19.3			4,349		3,880		469	12.1			4,392,118		4,006,666		385,452	9.6
Regulatory and clinical		103		71		32	45.1			187		144		43	29.9			406,315		355,238		51,077	14.4
Quality		86		—		86	—			172		—		172	—			583,342		440,935		142,407	32.3
General and administrative		787		605		182	30.1			1,349		1,071		278	26.0			2,600,235		2,272,557		327,678	14.4
Total operating expenses		3,457		2,755		702	25.5			6,057		5,095		962	18.9			7,982,010		7,075,396		906,614	12.8
Operating loss from continuing operations		(3,573)		(2,871)		(702)	24.5			(6,292)		(5,325)		(967)	18.2
Other income (expense):
Operating loss																		(8,099,029)		(7,193,628)		(905,401)	12.6
Other income (expense)
Interest income		—		3		(3)	(100.0)			—		9		(9)	(100.0)			101,977		770		101,207	13,143.8
Interest expense		(281)		(117)		(164)	140.2			(586)		(155)		(431)	278.1			(10,243)		(10,891)		648	(5.9)
Amortization of discount on note		(30)		(33)		3	(9.1)			(63)		(43)		(20)	46.5
Change in fair value of derivative		53		—		53	—			247		—		247	—
Research grants		128		286		(158)	(55.2)			278		466		(188)	(40.3)
Loss from continuing operations		(3,703)		(2,732)		(971)	35.5			(6,416)		(5,048)		(1,368)	27.1
Equity loss in affiliate		—		(541)		541	(100.0)			(223)		(1,181)		958	(81.1)
Gain on sale of equity investment		—		—		—	—			1,984		—		1,984	—
Gain on debt extinguishment		—		—		—	—			518		—		518	—
Employee retention credit																		527,143		—		527,143	100.0
Total other income (expense)																		618,877		(10,121)		628,998	(6,214.8)
Net loss	$	(3,703)	$	(3,273)	$	(430)	13.1	%	$	(4,137)	$	(6,229)	$	2,092	(33.6)	%	$	(7,480,152)	$	(7,203,749)	$	(276,403)	3.8	%

Licensing Revenue

Licensing revenue was ~~$9,000~~$7,981 for ~~both~~ the three months ended ~~June 30, 2020~~March 31, 2023 and $6,768 for the three months ended ~~June 30, 2021.~~March 31, 2022, an increase of $1,213, or 17.9%. The licensing revenue is a result of the ~~licensing~~license agreement with Reprise. The remainder of minimum royalties due from Reprise for ~~2020 and~~2023 are due in January 2024. The remainder of the minimum royalties due from Reprise for 2021 have been deferred to ~~2022 and 2023, respectively.~~2023. Due to the uncertainty regarding the collectability of ~~these~~the 2021 and 2023 minimum royalties from Reprise, we determined the ~~Company has set-up an allowance to offset~~contract did not meet the ~~receivable amount.~~

~~Licensing revenue decreased by $5,000,~~requirements of ASC 606; therefore, we did not record revenues or 25.0%, from $20,000 for the six months ended June 30, 2020, to $15,000 for the six months ended June 30, 2021. The decrease in licensing revenue was due to lower royalties on the licensing agreement with Reprise.a receivable.

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Cost of Goods Sold

Cost of goods sold was $125,000 for both the three months ended ~~June 30, 2020~~March 31, 2023 and ~~2021 and was $250,000 for the six months ended June 30, 2020 and 2021.~~2022. Cost of goods sold relates to the minimum royalty due to the University of Minnesota (the “University”) under our ~~licensing~~license agreement.

Gross Loss

Gross loss was $117,019 for three months ended March 31, 2023 and $118,232 for the three months ended March 31, 2022, a decrease of $1,213, or 1.0%.

Research and Development

Research and development expenses were $4,392,118 for the three months ended March 31, 2023 and $4,006,666 for the three months ended March 31, 2022, an increase of $385,452, or 9.6%. The increase was primarily due to a headcount increase which resulted in an increase in payroll expenses of $549,159, partially offset by lab supply expense decrease of $197,727.

Regulatory and Clinical

Regulatory and clinical expenses were $406,315 for the three months ended March 31, 2023 and $355,238 for the three months ended March 31, 2022, an increase of $51,077, or 14.4%.The increase was primarily due to a headcount increase which resulted in an increase in payroll expenses.

Quality

Quality expenses were $583,342 for the three months ended March 31, 2023 and $440,935 for the three months ended March 31, 2022, an increase of $142,407, or 32.3%. The increase was primarily due to an increase in lab supply expense.

General and Administrative

General and administrative expenses were $2,600,235 for the three months ended March 31, 2023 and $2,272,557 for the three months ended March 31, 2022, an increase of $327,678, or 14.4%. The increase was primarily due to deferred offering costs write-off of $221,254, a headcount increase which resulted in an increase in payroll expenses of $122,068 and legal and accounting expense increase of $77,668. The increase was partially offset by tax and license expense decrease of $76,201, insurance expense decrease of $16,301 and travel and entertainment expense decrease of $25,327.

Interest Income

Interest income was $101,977 for the three months ended March 31, 2023 and $770 for the three months ended March 31, 2022, an increase of $101,207. The increase was primarily due to U.S. Treasury securities purchased during the second quarter of 2022 with cash received from our initial public offering.

Interest Expense

Interest expense was $10,243 for the three months ended March 31, 2023 and $10,891 for the three months ended March 31, 2022, a decrease of $648, or 5.9%.

Employee Retention Credit

Employee retention credit income was $527,143 for the three months ended March 31, 2023. This is a refundable credit against certain employment taxes recognized under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

2318

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~~Gross Margin~~

Gross margin was $(116,000) for both the three months ended June 30, 2020 and the three months ended June 30, 2021. The gross margin was negative for the three months ended June 30, 2021 and 2020 due to the uncertainty of collecting the deferred minimum royalty from Reprise which was fully reserved against.

Gross margin decreased by $5,000 from $(230,000) for the six months ended June 30, 2020, to $(235,000) for the six months ended June 30, 2021. The gross margin was negative for the six months ended June 30, 2021 and 2020 due to the uncertainty of collecting the deferred minimum royalty from Reprise which was fully reserved against.

~~Research and Development~~

Research and development expenses increased by $402,000, or 19.3%, from $2,079,000 for the three months ended June 30, 2020, to $2,481,000 for the three months ended June 30, 2021. The increase in research and development expenses was primarily due to increases in employee costs and lab supplies partially offset by a decrease in contract pre-clinical costs.

Research and development expenses increased by $469,000, or 12.1%, from $3,880,000 for the six months ended June 30, 2020, to $4,349,000 for the six months ended June 30, 2021. The increase in research and development expenses was primarily due to increases in employee costs and lab supplies partially offset by a decrease in contract pre-clinical costs.

~~Regulatory and Clinical~~

Regulatory and clinical expenses increased by $32,000, or 45.1%, from $71,000 for the three months ended June 30, 2020, to $103,000 for the three months ended June 30, 2021. The increase in regulatory and clinical expenses was primarily due to increases in employee costs as well as regulatory consulting expenses.

Regulatory and clinical expenses increased by $43,000, or 29.9%, from $144,000 for the six months ended June 30, 2020, to $187,000 for the six months ended June 30, 2021. The increase in regulatory and clinical expenses was primarily due to increases in employee costs.

~~Quality Expenses~~

Quality expenses were $86,000 for the three months ended June 30, 2021, compared to none for the three months ended June 30, 2020. The introduction of quality expenses in the current period was due to the Company hiring of a Vice President of Quality.

Quality expenses were $172,000 for the six months ended June 30, 2021, compared to none for the six months ended June 30, 2020. The introduction of quality expenses in the current period was due to the Company hiring a Vice President of Quality.

~~General and Administrative~~

General and administrative expenses increased by $182,000, or 30.1%, from $605,000 for the three months ended June 30, 2020, to $787,000 for the three months ended June 30, 2021. The increase in general and administrative expenses was primarily due to increases in board compensation expense and expenses relate to the Company’s audit, partially offset by a decrease in legal expenses.

General and administrative expenses increased by $278,000, or 26.0%, from $1,071,000 for the six months ended June 30, 2020, to $1,349,000 for the six months ended June 30, 2021. The increase in general and administrative expenses was primarily due to increases in board compensation expense and expenses relate to the Company’s audit, partially offset by a decrease in legal expenses.

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~~Interest Income~~

Interest income decreased by $3,000, or 100%, from $3,000 for the three months ended June 30, 2020, to an immaterial amount of $0 for the three months ended June 30, 2021. The decrease in interest income was due to lower interest rates on cash balances in 2021 as compared with 2020.

Interest income decreased by $9,000, or 100%, from $9,000 for the six months ended June 30, 2020, to an immaterial amount of $0 for the six months ended June 30, 2021. The decrease in interest income was due to lower interest rates on cash balances in 2021 as compared with 2020.

~~Interest Expense~~

Interest expense increased by $164,000, or 140.2%, from $117,000 for the three months ended June 30, 2020, to $281,000 for the three months ended June 30, 2021. The increase was primarily the result of interest expense on the Cheshire Note (as defined below).

Interest expense increased by $431,000, or 278.1%, from $155,000 for the three months ended June 30, 2020, to $586,000 for the three months ended June 30, 2021. The increase was primarily the result of interest expense on the Cheshire Note.

~~Amortization of Discount on Note~~

Amortization expense related to the Cheshire Note decreased by $3,000, or 9.1%, from $33,000 for the three months ended June 30, 2020, to $30,000 for the three months ended June 30, 2021. The decrease in amortization expense was due to the note being converted to equity in June 2021 and therefore there was less amortization expense related to the note in 2021 as compared to 2020.

Amortization expense related to the Cheshire Note increased by $20,000, or 46.5%, from $43,000 for the six months ended June 30, 2020, to $63,000 for the six months ended June 30, 2021. The increase in amortization expense was due to there only being four months of amortization expense in the six months ended June 30, 2020 versus six months in the comparable period in 2021.

~~Change in Fair Value of Derivative~~

The change in fair value of the embedded derivative related to the Cheshire Note decreased by $53,000, or 100%, from $0 for the three months ended June 30, 2020, to $53,000 for the three months ended June 30, 2021. The decrease in the change in fair value of the embedded derivative was due to the Cheshire Note being converted to equity in June 2021.

The change in fair value of the embedded derivative related to the Cheshire Note decreased by $247,000, or 100%, from $0 for the six months ended June 30, 2020, to $247,000 for the six months ended June 30, 2021. The decrease in the change in fair value of the embedded derivative was due to the Cheshire Note being converted to equity in June 2021.

~~Research Grants~~

Research grants decreased by $158,000, or 55.2%, from $286,000 for the three months ended June 30, 2020, to $128,000 for the three months ended June 30, 2021. The decrease in research grants was primarily due to a decrease in the expenditures for pre-clinical contracting, resulting in lower grant funds, during the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Research grants decreased by $188,000, or 40.3%, from $466,000 for the six months ended June 30, 2020, to $278,000 for the six months ended June 30, 2021. The decrease in research grants was primarily due to a decrease in the

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~~expenditures for pre-clinical contracting, resulting in lower grant funds, during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020~~

~~Equity Loss in Affiliate~~

Equity loss in affiliate decreased by $541,000, or 100.0%, from $541,000 for the three months ended June 30, 2020, to $0 for the three months ended June 30, 2021. The decrease in equity loss in affiliate was due to the Company selling all of its ownership in Reprise on March 15, 2021 and therefore not recording any loss for the three months ending June 30, 2021.

Equity loss in affiliate decreased by $958,000, or 81.1%, from $1,181,000 for the six months ended June 30, 2020, to $223,000 for the six months ended June 30, 2021. The decrease in equity loss in affiliate was due to the Company owning a smaller percentage of Reprise in the six months ended June 30, 2021 as compared to the comparable period in the prior year as well as the Company selling all of its ownership in Reprise on March 15, 2021.

~~Gain on Debt Extinguishment~~

During the six months ended June 30, 2021 the Company had a gain on the extinguishment of debt of $518,000 related to the forgiveness of our loan under the Small Business Administration’s Paycheck Protection Program.

~~Gain on Sale of Equity Investment~~

~~For the six months ended June 30, 2021, we recognized a gain of $2.0 million related to the sale of 1.8 million shares in Reprise.~~

Liquidity and Capital Resources

We have incurred net losses since our inception. For the three months ended ~~June 30, 2021~~March 31, 2023 and ~~2020,~~2022, we incurred net losses of ~~$3,703,000~~$7,480,152 and ~~$3,273,000, respectively. For the six months ended June 30, 2021 and 2020, we incurred net losses of $4,137,000 and $6,229,000,~~$7,203,749, respectively. As of ~~June 30, 2021,~~March 31, 2023, we had an accumulated deficit of ~~$63.5 million.~~$111,492,063.

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

●

advance clinical development of our product candidates;

●

manufacture, or have manufactured on our behalf, our preclinical and clinical materials and develop processes for commercial manufacturing of any product candidates that may receive regulatory approval;

●

seek regulatory approvals for any product candidates that successfully complete clinical trials;

●

establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize on our own;

●

establish collaborations to commercialize any product candidates for which we may obtain marketing approval but do not intend to commercialize on our own;

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●

expand our operational, financial and management systems and hire additional personnel, including personnel to support our clinical development, quality control, research and development, manufacturing and commercialization efforts, our general and administrative activities and our operations as a public company; and

●

obtain new intellectual property and maintain, expand and protect our intellectual property portfolio.

Sources of Liquidity

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. To date, we have primarily financed our operations through equity and debt financings, including public offerings of our common stock, as well as research grants. We believe that our existing cash and cash equivalents will enable us to fund our operating expenses through the second quarter of 2024. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital ~~expenditure requirements for at least the next 12 months.~~resources sooner than we currently expect. As of ~~June 30, 2021,~~March 31, 2023, we had cash and cash equivalents of ~~$66.5 million, which includes the net proceeds from our IPO.~~$13,619,898 and short-term investments of $11,984,842.

Until such time, if ever, as we can generate substantial revenue from sales of our bioengineered organs, we expect to finance our cash needs through a combination of ~~securities~~equity offerings and debt financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our ~~shareholders~~stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our ~~shareholders.~~stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Additional capital may not be available when needed, on reasonable terms, or at all, and our ability to raise additional capital may be adversely impacted by potential worsening global economic ~~conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic.~~conditions. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, curtail or discontinue our product development or future commercialization efforts, or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.

In January 2012, we signed a promissory note with the University for $405,559. The promissory note bears interest at 3% per annum, compounded monthly. The note is scheduled to mature on December 31, 2022 and is unsecured. We are required to make monthly principal and interest payments of $7,737 until the note is paid in full. In connection with the promissory note, we issued the University warrants to purchase 80,000 shares of our common stock at an exercise price of $1.69. As of June 30 2021 and December 31, the principal outstanding on this loan was $128,623 and $172,731, respectively.

In May 2015, we entered into a loan agreement with the Minnesota Department of Employment & Economic Development under which we borrowed $250,000. The loan is unsecured and does not bear interest. The loan is due in a lump sum payment on April 1, 2022. As of both June 30, 2021 and December 31, 2020, the balance outstanding on this loan was $250,000.

In October 2018, we entered into a lease agreement for certain lab equipment, which is being accounted for as a capitalized lease. The total cost of the equipment was $102,026. The lease bears interest at 7.2% per annum and we will make 60 payments in total of $2,003 until the lease is paid in full. As of June 30, 2021 and December 31, 2020, the amount outstanding on the lease was $47,868 and $57,127, respectively. The lease is secured by the lab equipment.Debt Financing

In January 2019, we issued the University a promissory note in the amount of $385,997 in satisfaction of our minimum royalty obligation under the license agreement with the University ~~License Agreement~~ for the year ended December 31, 2018. The note bears

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interest at 6% per annum, compounded annually, and is due on January 31, 2025. In addition, we issued the University a 10-year warrant to purchase 20,587 shares of our common stock at an exercise price of $3.75 per share.As of both March 31, 2023 and December 31, 2022, the principal outstanding on this loan was $385,997.

Equity Distribution Agreement

On ~~March 6, 2020,~~July 1, 2022, we entered into an Equity Distribution Agreement with Piper Sandler & Co. (“Piper Sandler”). The Equity Distribution Agreement provides that, upon the terms and subject to the conditions set forth therein, we may issue and sell through Piper Sandler, acting as the sales agent, shares of our common stock having an aggregate offering price of up to $50.0 million. We have no obligation to sell any such shares under the Equity Distribution Agreement. The sale of the shares of our common stock by Piper Sandler, if any, will be effected pursuant to a note and warrant purchase agreement (the “Cheshire Purchase Agreement”) with Cheshire MD Holdings, LLC (“Cheshire”), an affiliate of DaVita Inc., under which we received a bridge financing of $6,000,000. In connectionRegistration Statement on Form S-3, filed with the ~~Cheshire Purchase~~SEC on July 1, 2022 and declared effective on July 11, 2022 (the “Registration Statement”). We did not issue any shares under the Equity Distribution Agreement ~~we issued a $6,000,000 convertible promissory note (the “Cheshire Note”) to Cheshire~~in the three months ended March 31, 2023.

Registration Statement

We filed the Registration Statement with the SEC on July 1, 2022 which was declared effective on July 11, 2022. The Registration Statement registered the offer and ~~issued Cheshire a warrant to purchase up to $750,000~~sale of an indeterminate number of shares of ~~our~~common stock and preferred ~~stock. The Cheshire Note is unsecured~~stock, an indeterminate principal amount of debt securities and ~~had a maturity date~~an indeterminate number of ~~September 6, 2021. The Cheshire Note bore interest at 5% per annum through and until May 1, 2020, at which time the interest rate increased to 7%. The interest rate~~

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increased by an additional 2% on the first day of each subsequent month (beginning on June 1, 2020) prior to the maturity date, provided that the interest rate would not exceed 20%. As of December 1, 2020, the interest rate reached the maximum of 20%. Under the Cheshire Purchase Agreement, as long as the Cheshire Note remains outstanding, the Company is required to issue to Cheshire additional warrants ~~on the first date of each month beginning on May 1, 2020,~~ to purchase upcommon stock, preferred stock, and various series of debt securities and/or warrants to ~~$75,000~~purchase any of such securities, having an aggregate initial offering price of $200.0 million.

Public Offering

In March 2023, we completed a public offering pursuant to which we sold an aggregate of 6,250,000 shares of our ~~preferred stock. In June 2021, the Note~~common stock at a public offering price of $1.60 per share. The offering closed on March 10, 2023, resulting in net proceeds of approximately $8.8 million, after deducting underwriting discounts and ~~all accrued interest was converted into 956,887 shares~~commissions and other offering expenses.

We will continue to incur costs of ~~the Company’s Series C Convertible Preferred Stock. As of June 30, 2021~~operating as a public company. Based on our current business plan, we believe that our existing cash resources will be sufficient to meet our capital requirements and ~~December 31, 2020, the balance outstanding on the loan was $0 and $6,000,000, respectively.~~

~~On April 16, 2020, we issued a promissory note for $563,397 under the Paycheck Protection Program (“PPP”)~~fund our operations through the ~~U.S. Small Business Administration (“SBA”), as part~~second quarter of 2024. We will require substantial additional funds to continue the ~~Coronavirus Aid, Relief~~development of our program candidates and ~~Economic Security Act. The promissory note is unsecured~~to fulfill our planned operating goals. We may seek to sell additional common equity or debt securities or enter into a new credit facility. If we raise additional funds by issuing equity securities, our stockholders would experience dilution and ~~is fully guaranteed by the SBA. The promissory note bears interest~~any new equity securities could have rights, preferences and privileges superior to those of holders of our common stock. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. We cannot be assured that additional equity or debt financing will be available on terms favorable to us or our stockholders, or at ~~1% per annum and is due on April 16, 2022. Under the terms of the note, some or all of the debt~~all. If we are unable to obtain adequate financing, we may be ~~forgiven based upon~~required to delay the development, commercialization and marketing of our use of the funds. We received notification from the bank that held the promissory note in March 2021 that $513,520 had been forgiven and we are working to have the remaining amount forgiven. As of June 30, 2021 and December 31, 2020, the balance outstanding on the loan was $49,877 and $563,397, respectively.product candidates.

Cash Flows

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


	Three Months Ended
	March 31,
	2023		2022
Net cash (used in) provided by:
Operating activities	$	(8,616,406)	$	(7,428,039)
Investing activities		7,984,460		(613,641)
Financing activities		9,043,839		(85,174)
Net increase (decrease) in cash and cash equivalents	$	8,411,893	$	(8,126,854)

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Six Months Ended

June 30,
(in thousands)

2021

2020
Net cash provided by (used in):

Operating activities

$
(5,391)

$
(4,054)
Investing activities

1,914

(115)
Financing activities

65,558

6,561
Net increase in cash and cash equivalents

$
62,081

$
2,392

Operating Activities

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

During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2023, net cash used in operating activities was ~~$5,391,000~~$8,616,406 and reflected (i) the net loss of ~~$4,137,000,~~$7,480,152, (ii) net non-cash usage items of ~~$2,164,000,~~$894,396, including a gain on sale of equity investment of $1,984,000, $518,000 related to the forgiveness of the PPP promissory note and $247,000 related to the change in fair value of embedded derivative, partially offset by $239,000$331,959 of stock-based compensation, $289,928 of depreciation and ~~$224,000 in equity loss in affiliate,~~amortization expense, deferred offering costs write-off of $221,254, non-cash interest income of $46,608, and amortization of premium/discount on investments of $4,647, and (iii) a net cash ~~inflow~~outflow from changes in balances of operating assets and liabilities of ~~$911,000.~~$2,030,650. The most significant item comprising the changes in balances of operating assets and liabilities was cash outflow of accounts payable and accrued expenses of $2,316,031.

During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2022, net cash used in operating activities was ~~$4,054,000~~$7,428,039 and reflected (i) the net loss of ~~$6,229,000,~~$7,203,749, (ii) net non-cash usage items of ~~$1,639,000,~~$597,636, including ~~$315,000~~$333,981 of stock-based compensation, $262,897 of depreciation and ~~$1,181,000 in equity~~amortization expense and $758 of loss ~~in an affiliate,~~on disposal of property and equipment, and (iii) a net cash ~~inflows~~outflow from changes in balances of operating assets and liabilities of $536,000. The most significant items comprising the changes in the balance of operating assets and liabilities was a lower balance of receivable from Reprise of $219,000, a lower balance of grant receivable of $257,000 and an increase in accrued interest of $143,000, partially offset by a lower balance of accounts payable and accrued expenses of $135,000.$821,926.

Investing Activities

During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2023, net cash provided by investing activities was ~~$1,914,000 and reflected $2,000,000~~$7,984,460, driven by proceeds from the ~~sale~~maturity of ~~Reprise stock~~investments of $8,000,000, partially offset by property and ~~$86,000 used to~~equipment purchase ~~equipment.~~

~~Table~~ of ~~Contents~~$15,540.

During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2022, net cash used inby investing activities was ~~$115,000 to purchase equipment.~~$613,641 and reflected property and equipment purchases.

Financing Activities

During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2023, net cash provided by financing activities was ~~$65,558,000~~$9,043,839 and was primarily the result of ~~net~~ proceeds from the ~~Company’s IPO~~sale of ~~$45,679,000, net proceeds from sales~~common stock of ~~Series C Preferred Stock of $19,892,000 and $41,000 related to proceeds from stock option and warrant exercises,~~$9,073,041, partially offset by payments on ~~long term-debt~~employee taxes for shares withheld of ~~$53,000.~~$14,629 and payments on financing lease obligations of $14,573.

During the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2022, net cash ~~provided~~used by financing activities was ~~$6,561,000 which~~$85,174 and was primarily ~~related to~~the result of payments on long-term debt of $272,640 and financing lease obligations of $13,707, partially offset by proceeds from ~~a promissory note with one~~stock option exercises of ~~our shareholders.~~

$201,173.

Item 3. Quantitative and Qualitative Disclosures About Market ~~Risk.~~Risk

Not required for smaller reporting companies.

Item 4. Controls and ~~Procedures.~~Procedures

Evaluation of Disclosure Controls and Procedures

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

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended ~~June 30, 2021,~~March 31, 2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective as of ~~June 30, 2021.~~March 31, 2023 because of our previously reported material

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weaknesses in our internal control over financial reporting, which we describe in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2022.

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

Changes in Internal Control over Financial Reporting

~~There was~~As outlined above, due to the identification of the material weaknesses, we continued to design, implement, document and test the effectiveness of our processes, procedures and internal controls over financial reporting. We made no ~~change~~other changes in our internal control over financial reporting that occurred during the fiscal quarter of ~~2021~~2023 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal ~~Proceedings.~~Proceedings

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

~~Table of Contents~~

Item 1A. Risk ~~Factors.~~Factors

This Quarterly Report on Form 10-Q should be read in conjunction with the risk factors included in our ~~final prospectus~~Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC ~~pursuant to Rule 424(b) under the Securities Act of 1933, as amended,~~ on ~~June 23, 2021 (the “Prospectus”).~~March 31, 2023. There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our ~~Prospectus.~~

Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of ~~Proceeds.~~Proceeds

Unregistered Sales of Equity Securities

On May 3, 2021, we entered into a stock purchase agreement with certain investors (together, the “Investors”), under which the Company sold an aggregate of 2,666,667 shares of Series C Convertible Preferred Stock to the Investors, at a price per share of $7.50, for an aggregate purchase price, before fees and expenses, of approximately $20 million (the “Private Placement”). As part of the Private Placement, the Company sold 2,000,000 shares of Series C Preferred Stock to Baxter International Inc., for an aggregate purchase price of $15.0 million, and 666,667 shares of Series C Preferred Stock to CareDx, Inc. for an aggregate purchase price of $5.0 million. The Private Placement closed on May 21, 2021. The shares of Series C Preferred Stock automatically converted to shares of our common stock immediately prior to the completion of the Company’s IPO.

The shares were issued in reliance on an exemption from registration set forth in Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) to an “accredited investor,” as defined in Rule 501 of Regulation D of the SEC, without the use of any general solicitations or advertising to market or otherwise offer the securities for sale. None of the shares or shares of common stock issued upon conversion of the shares of preferred stock have been registered under the Securities Act or applicable state securities laws and none may be offered or sold in the United States absent registration under the Securities Act, or an exemption from such registration requirements.

Immediately prior to the completion of the Company’s IPO, all of the Company’s issued and outstanding shares of preferred stock, including the shares of Series C Preferred Stock, automatically converted into 12,139,071 shares of common stock. Immediately prior to the conversion of the shares of the Company’s preferred stock, the Cheshire Note and all accrued interest converted into 956,887 shares of our Series C Preferred Stock and the Cheshire Warrants were converted into 48,000 shares of Series C Preferred Stock.None.

Use of Proceeds ~~from Initial Public Offering of Common Stock~~

On June 28, 2021, we completed our ~~IPO~~initial public offering on common stock (the “IPO”) in which we sold 5,520,000 shares of common stock at a public offering price of $9.00 per share. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to the Company’s registration statement on Form S-1 (File No. 333-256649), as amended, which was declared effective ~~by the SEC on June 23, 2021, and the Company’s registration statement on Form S-1 (File No. 333-257329) filed~~ on June 23, 2021 pursuant to Rule 462(b) under the Securities Act. Craig-Hallum Capital Group acted as sole managing underwriter for the IPO.

We received net proceeds of approximately ~~$44.6~~$44.5 million from the IPO, after paying $342,500 of fees and expenses of Craig-Hallum. We are using the net proceeds from the IPO as follows:

●

between approximately $34.8 million to $40.0 million to fund our research and development activities, including, but not limited to, our Phase I trial for ~~External Liver Assist Product~~the MiroliverELAP product and certain pre-clinical trials for our bioengineered organs;

●

between approximately $3.0 million toand $4.0 million to fund the full cost of constructing a new facility; and

●

the remaining funds for working capital and general corporate purposes.

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

Item 3. Defaults Upon Senior ~~Securities.~~Securities

None.

Item 4. Mine Safety ~~Disclosures.~~Disclosures

Not applicable.

Item 5. Other ~~Information.~~Information

None.

3123

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Item 6. Exhibits

~~The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.~~


Exhibit No.	Description
3.1	Second Amended and Restated Certificate of Incorporation of Miromatrix Medical Inc. ~~(incorporated herein~~	Incorporated by reference to Exhibit 3.1 of the Company’s ~~Current~~Annual Report on Form ~~8-K~~10-K, filed ~~with the SEC on June 28, 2021)~~March 30, 2022.
3.2
~~3.2~~	Amended and Restated Bylaws of Miromatrix Medical Inc. ~~(incorporated herein~~	Incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K, filed ~~with the SEC on~~ June 28, ~~2021).~~2021.

~~10.1~~	Multi-Tenant Industrial Triple Net Lease, dated August 2, 2021, by and between the Company and B( Polar Prairie Oaks Corporate LLC (incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on August 5, 2021)31.1

~~31.1†~~	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	Filed herewith.
~~31.2†~~31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	Filed herewith.
~~32.1†~~32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	Furnished herewith.
~~32.2†~~32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Furnished herewith.

~~101.INS†~~101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
	Filed herewith.
~~101.SCH†~~101.SCH	Inline XBRL Taxonomy Extension Schema Document
	Filed herewith.
~~101.CAL†~~101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
	Filed herewith.
~~101.DEF†~~101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
	Filed herewith.
~~101.LAB†~~101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
	Filed herewith.
~~101.PRE†~~101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
	Filed herewith.
~~104†~~104	Cover Page Interactive Data File (embedded within the inline XBRL document)

†	Filed herewith.

3224

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SIGNATURES

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


	MIROMATRIX MEDICAL INC.

Dated: ~~August 12, 2021~~May 11, 2023	By:	/s/ ~~Jeff~~Jeffrey Ross
	Name:	~~Jeff~~Jeffrey Ross
	Title:	Chief Executive Officer
		(on behalf of Registrant)

Dated: ~~August 12, 2021~~May 11, 2023	By:	/s/ ~~Brian Niebur~~James Douglas
	Name:	~~Brian Niebur~~James Douglas
	Title:	Chief Financial Officer
		(Principal Financial and Accounting Officer)

3325


Title of each class	Trading symbol	Name of exchange on which registered
Common Stock, par value $0.00001 per share	MIRO	The Nasdaq Stock Market LLC


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒	Emerging growth company	☒

		Page

Part I	Financial Information

Item 1.	Financial Statements	3

	Condensed Balance Sheets ~~as of June 30, 2021 (Unaudited) and December 31, 2020 (Audited)~~	3

	Condensed Statements of Operations ~~for the three and six months ended June 30, 2021 and 2020 (Unaudited)~~	4

	Condensed Statements of Changes in Shareholders’ Equity ~~(Deficit) for the three and six months ended June 30, 2021 and 2020 (Unaudited)~~	5

	Condensed Statements of Cash Flows ~~for the six months ended June 30, 2021 and 2020 (Unaudited)~~	6

	Notes to Condensed Financial Statements ~~(Unaudited)~~	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2115

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2921

Item 4.	Controls and Procedures	2921

Part II	Other Information

Item 1.	Legal Proceedings	2923

Item 1A.	Risk Factors	3023

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3023

Item 3.	Defaults Upon Senior Securities	3123

Item 4.	Mine Safety Disclosures	3123

Item 5.	Other Information	3123

Item 6.	Exhibits	32

~~Exhibit Index~~		24

Signatures


	June 30,		December 31,
	2021		2020

	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	66,525,757	$	4,444,395
Receivable from Reprise Biomedical, Inc.		9,138		15,202
Grant receivable		120,000		100,000
Prepaid expenses and other current assets		115,205		130,576
Total current assets		66,770,100		4,690,173
Lab equipment, furniture and leasehold improvements, net		351,472		324,534
Investment in Reprise Biomedical, Inc		—		239,721
Total assets	$	67,121,572	$	5,254,428
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt	$	400,341	$	6,413,733
Accounts payable		441,582		130,160
Accrued interest expense		536		612,705
Embedded derivative liability		—		246,962
Accrued expenses		1,615,980		760,889
Total current liabilities .		2,458,439		8,164,449
Accrued royalties		734,556		488,368
Long-term debt, less current portion		462,024		928,623
Accrued interest		58,472		45,691
Total liabilities		3,713,491		9,627,131
Commitments and contingencies
Mezzanine equity:
Convertible preferred stock – Series B-2, par value $0.00001; 0 shares authorized, issued and outstanding as of June 30, 2021 and 2,500,000 shares authorized; 2,095,874 issued and outstanding as of December 31, 2020 (Liquidation preference $0 and $15,719,055, respectively)		—		15,670,097
Convertible preferred stock – Series B, par value $0.00001; 0 shares authorized, issued and outstanding as of June 30, 2021and 4,000,000 shares authorized; 3,218,282 issued and outstanding as of December 31, 2020 (Liquidation preference $0 and $24,137,115, respectively)		—		23,865,732
Convertible preferred stock �� Series A, par value $0.00001; 0 shares authorized, issued and outstanding as of June 30, 2021 and 3,300,000 shares authorized; 3,000,380 issued and outstanding as of December 31, 2020 (Liquidation preference $0 and $7,500,950, respectively)		—		7,125,661
Shareholders’ equity (deficit):
Common stock, par value $0.00001; 190,000,000 shares authorized; 20,024,552 issued and outstanding as of June 30, 2021 and 30,000,000 shares authorized; 2,185,822 issued and outstanding as of December 31, 2020		200		22
Additional paid-in capital		126,926,215		8,346,943
Accumulated deficit		(63,518,334)		(59,381,158)
Total shareholders’ equity (deficit)		63,408,081		(51,034,193)
Total Liabilities, Mezzanine Equity and Shareholders’ Equity (Deficit)	$	67,121,572	$	5,254,428


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020

Licensing revenue	$	9,139	$	9,394	$	15,247	$	20,482
Cost of goods sold		125,000		125,000		250,000		250,000
Gross margin		(115,861)		(115,606)		(234,753)		(229,518)
Operating expenses:
Research & development		2,480,887		2,078,903		4,348,888		3,880,281
Regulatory and clinical		103,256		71,087		186,961		144,193
Quality		86,257		—		172,044		—
General & administration		786,322		605,147		1,349,196		1,070,810
Total operating expenses		3,456,722		2,755,137		6,057,089		5,095,284
Operating loss from continuing operations		(3,572,583)		(2,870,743)		(6,291,842)		(5,324,802)
Interest income		45		2,726		85		8,589
Interest expense		(280,663)		(117,343)		(586,037)		(154,518)
Amortization of discount on note		(30,052)		(32,586)		(62,638)		(43,448)
Change in fair value of derivative		52,991		—		246,962		—
Research grants		127,428		285,867		277,965		465,867
Loss from continuing operations		(3,702,834)		(2,732,079)		(6,415,505)		(5,048,312)
Equity loss in affiliate		—		(541,000)		(223,633)		(1,181,000)
Gain on sale of equity investment		—		—		1,983,912		—
Gain on debt extinguishment .		—		—		518,050		—
Net loss	$	(3,702,834)	$	(3,273,079)	$	(4,137,176)	$	(6,229,312)
Net loss per share, basic and diluted	$	(1.27)	$	(1.50)	$	(1.60)	$	(2.90)
Weighted average shares used in computing net loss per share, basic and diluted		2,913,938		2,183,322		2,586,477		2,146,152


	June 30, 2021		December 31, 2020
	(unaudited)
Lab equipment	$	1,567,064	$	1,480,952
Leasehold improvements		310,225		310,225
Furniture and fixtures & computers		112,302		112,302
		1,989,591		1,903,479
Less accumulated depreciation and amortization		(1,638,119)		(1,578,945)
	$	351,472	$	324,534



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Net sales	$	—	$	144,530	$	93,985	$	314,790
Gross margin		—		81,619		47,708		198,076
Net loss		—		(1,112,290)		(1,376,522)		(2,534,855)
Miromatrix Medical Inc. share of net loss		—		(500,685)		(223,633)		(1,140,685)


As of December 31,	Debt		Capital Lease		Total
2021	$	6,481,774	$	18,855	$	6,500,629
2022		504,354		20,261		524,615
2023		—		18,011		18,011
2024		—		—		—
2025		385,997		—		385,997
Totals		7,372,125		57,127		7,429,252
Less current portion		(6,481,774)		(18,855)		(6,500,629)
Long-term portion	$	890,351	$	38,272	$	928,623


As of June 30,	Debt		Capital Lease		Total
(unaudited)
2022	$	382,479	$	17,862	$	400,341
2023		46,021		20,877		66,898
2024		—		9,129		9,129
2025		385,997		—		385,997
Totals		814,497		47,868		862,365
Less current portion		(382,479)		(17,862)		(400,341)
Long-term portion	$	432,018	$	30,006	$	462,024


			Aggregate
	Shares	Shares	Liquidation
	Authorized	Outstanding	Preference

Convertible Preferred Stock - Series C	6,100,000	3,671,554	$ 27,536,655
Convertible Preferred Stock - Series B-2	2,500,000	2,095,874	15,719,055
Convertible Preferred Stock - Series B	4,000,000	3,218,282	24,137,115
Convertible Preferred Stock - Series A	3,300,000	3,000,380	7,500,950
	15,900,000	11,986,090	$ 74,893,775


	Series A Preferred
	warrants		Common warrants
Warrants outstanding December 31, 2018		40,000		732,082
Granted		—		20,587
Exercised		—		—
Terminated		—		—
Warrants outstanding December 31, 2019		40,000		752,669
Granted		—		—
Exercised		—		(45,000)
Terminated		(40,000)		—
Warrants outstanding December 31, 2020		—		707,669
Granted		—		276,000
Exercised		—		(18,050)
Terminated		—		—
Warrants outstanding June 30, 2021 (unaudited)		—		965,619

Weighted average exercise price:
June 30, 2021 (unaudited)	$	—	$	4.50
December 31, 2020		—		2.34
December 31, 2019		2.88		2.27

Weighted average remaining contractual life in years:
June 30, 2021 (unaudited)		—		2.78
December 31, 2020		—		2.32
December 31, 2019		0.83		3.23


	Six Months Ended
	June 30,
(in thousands)	2021		2020
Net cash provided by (used in):
Operating activities	$	(5,391)	$	(4,054)
Investing activities		1,914		(115)
Financing activities		65,558		6,561
Net increase in cash and cash equivalents	$	62,081	$	2,392