Miromatrix Medical (MIRO) 10-Q 2022 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

or

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

EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-40518

Miromatrix Medical Inc.

(Exact name of registrant as specified in its charter)

Delaware	27-1285782
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification Number)

6455 Flying Cloud Drive, Suite 107

Eden Prairie, MN 55344

(Address of principal executive offices, including zip code)

(952) 942-6000

(Registrant’s telephone number, including area code)

Not Applicable

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

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

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

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒	Emerging growth company	☒

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

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

As of August 10, 2022, there were 20,899,172 shares of the registrant’s common stock outstanding.

TABLE OF CONTENTS

		Page
Part I	Financial Information
Item 1.	Financial Statements (Unaudited)	3
	Condensed Balance Sheets (Unaudited)	3
	Condensed Statements of Operations (Unaudited)	4
	Condensed Statements of Changes in Shareholders’ Equity (Deficit) (Unaudited)	5
	Condensed Statements of Cash Flows (Unaudited)	6
	Notes to Condensed Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26
Item 4.	Controls and Procedures	26
Part II	Other Information
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	28
Item 6.	Exhibits	29
Signatures

2

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

MIROMATRIX MEDICAL INC.

Condensed Balance Sheets

	June 30,		December 31,
	2022		2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	12,593,315	$	52,811,531
Restricted cash		800,100		800,100
Short-term investments		20,080,428		—
Receivable from Reprise Biomedical, Inc.		3,952		17,819
Interest receivable		116,933		—
Tenant improvement allowance receivable		—		1,256,950
Prepaid expenses and other current assets		364,649		450,873
Total current assets		33,959,377		55,337,273
Investments		5,938,963		—
Deferred offering costs		191,233		—
Right of use asset		1,772,441		—
Property and equipment, net		5,792,166		5,591,726
Total assets	$	47,654,180	$	60,928,999
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt	$	38,399	$	333,849
Current portion of deferred royalties		735,688		488,368
Accounts payable		1,078,690		2,094,854
Current portion of financing lease obligations		57,848		58,037
Current portion of lease liability		374,280		—
Current portion of tenant improvement obligation		—		160,462
Accrued expenses		1,450,934		1,428,622
Total current liabilities		3,735,839		4,564,192
Deferred royalties, net		491,733		491,733
Long-term debt		385,997		385,997
Deferred rent		—		207,204
Financing lease obligations, net		26,469		52,768
Lease liability, net		2,917,628		—
Tenant improvement obligation, net		—		1,029,629
Accrued interest		85,216		71,592
Total liabilities		7,642,882		6,803,115
Commitments and contingencies
Shareholders’ equity:
Common stock, par value $0.00001; 190,000,000 shares authorized; 20,813,741 issued and outstanding as of June 30, 2022 and 20,385,645 issued and outstanding as of December 31, 2021		208		204
Additional paid-in capital		129,448,942		128,177,594
Accumulated deficit		(89,437,852)		(74,051,914)
Total shareholders’ equity		40,011,298		54,125,884
Total Liabilities and Shareholders’ Equity	$	47,654,180	$	60,928,999

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

3

MIROMATRIX MEDICAL INC.

Condensed Statements of Operations

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Licensing revenue	$	3,952	$	9,139	$	10,720	$	15,247
Cost of goods sold		125,000		125,000		250,000		250,000
Gross loss		(121,048)		(115,861)		(239,280)		(234,753)
Operating expenses:
Research and development		4,988,233		2,480,887		8,994,141		4,348,888
Regulatory and clinical		419,394		103,256		774,632		186,961
Quality		517,333		86,257		958,268		172,044
General and administration		2,188,460		786,322		4,461,775		1,349,196
Total operating expenses		8,113,420		3,456,722		15,188,816		6,057,089
Operating loss		(8,234,468)		(3,572,583)		(15,428,096)		(6,291,842)
Interest income		61,078		45		61,848		85
Interest expense		(8,799)		(280,663)		(19,690)		(586,037)
Amortization of discount on note		—		(30,052)		—		(62,638)
Change in fair value of derivative		—		52,991		—		246,962
Research grants		—		127,428		—		277,965
Equity loss in affiliate		—		—		—		(223,633)
Gain on sale of equity investment		—		—		—		1,983,912
Gain on debt extinguishment		—		—		—		518,050
Net loss	$	(8,182,189)	$	(3,702,834)	$	(15,385,938)	$	(4,137,176)
Net loss per share, basic and diluted	$	(0.40)	$	(1.27)	$	(0.75)	$	(1.60)
Weighted average shares used in computing net loss per share, basic and diluted		20,615,218		2,913,938		20,547,070		2,586,477

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

4

MIROMATRIX MEDICAL INC.

Condensed Statements of Shareholders’ Equity (Deficit)

(Unaudited)

				Additional				Total
	Common Stock			Paid-In		Accumulated		Shareholders’
	Shares	Amount		Capital		Deficit		Equity (Deficit)
Balance at March 31, 2022	20,546,583	$	206	$	128,712,746	$	(81,255,663)	$	47,457,289
Stock-based compensation expense	—		—		266,390		—		266,390
Exercise of stock options	44,569		—		55,710		—		55,710
Exercise of stock warrants	191,559		2		414,096		—		414,098
Issuance of restricted shares	31,030		—		—		—		—
Net loss	—		—		—		(8,182,189)		(8,182,189)
Balance at June 30, 2022	20,813,741	$	208	$	129,448,942	$	(89,437,852)	$	40,011,298
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

				Additional				Total
	Common Stock			Paid-In		Accumulated		Shareholders’
	Shares	Amount		Capital		Deficit		Equity (Deficit)
Balance at December 31, 2021	20,385,645	$	204	$	128,177,594	$	(74,051,914)	$	54,125,884
Stock-based compensation expense	—		—		600,371		—		600,371
Exercise of stock options	205,507		2		256,881		—		256,883
Exercise of stock warrants	191,559		2		414,096		—		414,098
Issuance of restricted shares	31,030		—		—		—		—
Net loss	—		—		—		(15,385,938)		(15,385,938)
Balance at June 30, 2022	20,813,741	$	208	$	129,448,942	$	(89,437,852)	$	40,011,298
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

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

5

MIROMATRIX MEDICAL INC.

Condensed Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
	2022		2021
Cash flows from operating activities:
Net loss	$	(15,385,938)	$	(4,137,176)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization		536,507		59,174
Stock-based compensation		600,371		239,330
Loss on disposal of property and equipment		758		—
Non-cash interest income		(116,933)		—
Amortization of premium/discount on investments		6,734		—
Amortization of discount on note		—		62,638
Change in fair value of derivative		—		(246,962)
Gain on debt extinguishment		—		(518,050)
Equity loss in affiliate		—		223,633
Gain on sale of equity investment		—		(1,983,912)
Changes in operating assets and liabilities:
Receivable from Reprise Biomedical, Inc.		13,867		6,064
Grant receivable		—		(20,000)
Prepaid expenses		86,224		15,371
Operating lease right of use asset		(3,169,736)		—
Tenant improvement receivable reimbursement		1,256,950		—
Accounts payable and accrued expenses		(925,314)		327,276
Accrued interest		13,624		581,799
Operating lease liability		3,291,908		—
Net cash used in operating activities		(13,790,978)		(5,390,815)
Cash flows from investing activities:
Purchase of investments		(26,026,125)		—
Proceeds from sale of equity-method investment		—		2,000,000
Purchases of property and equipment		(731,616)		(86,112)
Net cash (used in) provided by investing activities		(26,757,741)		1,913,888
Cash flows from financing activities:
Payments on long-term debt		(295,450)		(44,109)
Payments on financing lease obligations		(26,488)		(9,258)
Payments on offering costs		(18,540)		—
Proceeds from sale of common stock, net		—		45,679,111
Proceeds from sale of preferred stock, net		—		19,891,670
Proceeds from stock warrant exercises		414,098		6,250
Proceeds from stock option exercises		256,883		34,625
Net cash provided by financing activities		330,503		65,558,289
Net (decrease) increase in cash and cash equivalents		(40,218,216)		62,081,362
Cash, cash equivalents and restricted cash at beginning of period		53,611,631		4,444,395
Cash, cash equivalents and restricted cash at end of period	$	13,393,415	$	66,525,757
Cash and cash equivalents	$	12,593,315	$	66,525,757
Restricted cash		800,100		—
Cash, cash equivalents and restricted cash at end of period	$	13,393,415	$	66,525,757
Supplemental disclosure of cash flow information:
Interest paid	$	6,066	$	8,768
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment in accounts payable and accrued expenses	$	6,089	$	33,636
Accrued expenses related to deferred offering costs and financing	$	172,693	$	1,085,425

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

6

MIROMATRIX MEDICAL INC.

Notes to Condensed Financial Statements

(Unaudited)

NOTE 1 — DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

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

Basis of Preparation

The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission applicable to interim reports of companies filing as a smaller reporting company. These condensed financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. 

In the opinion of management, the accompanying condensed financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, stockholders' equity and cash flows for the interim periods but are not necessarily indicative of the results of operations or cash flows to be anticipated for the full year 2022 or any future period. The Company has evaluated subsequent events occurring after the date of the condensed financial statements for events requiring recording or disclosure in the condensed financial statements.

Use of Estimates

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

Investments

The Company invests its excess cash in United States (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.

7

Deferred Offering Costs

Deferred offering costs are expenses directly related to the Shelf Registration Statement on Form S-3 filed with the Securities Exchange Commission (“SEC”) on July 1, 2022 and declared effective on July 11, 2022 (the “Shelf Registration”). These costs consist of legal, accounting, printing and filing fees that the Company has capitalized, including fees incurred by the independent registered public accounting firm directly related to the Shelf Registration. Deferred costs associated with the Shelf Registration will be reclassified to additional paid-in capital on a pro-rata basis when the Company completes offerings under the Shelf Registration. Any remaining deferred offering costs will be charged to the statement of operations at the earlier of when it becomes probable that the offering will not result in the receipt of proceeds from the issuance of securities or at the end of the three-year life of the Shelf Registration.

Emerging Growth Company Status

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

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”), which requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. The standard also requires expanded disclosures to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. The Company adopted the new standard effective January 1, 2022 using the modified retrospective approach.

The Company determines if an arrangement is a lease at inception. Operating leases are included in right of use assets and lease liabilities on the condensed balance sheets. The right of use assets and lease liabilities are recognized as the present value of the future minimum lease payments over the lease term at commencement date. The right of use asset is also adjusted for any lease payments made and excludes lease incentives and initial direct costs incurred. As most leases do not provide an implicit rate, and the Company does not have a readily available incremental borrowing rate, the Company uses the interest rate available for the lowest-grade debt in the marketplace based on the information available at commencement date in determining the present value of future payments.

The standard provides a number of optional practical expedients in transition. The Company elected to exercise the package of practical expedients which, among other things, allows the Company to carryforward the determining lease classification and lease term.

As a result of adopting the new standard, the Company recognized right of use assets of $1,882,696 and lease liabilities of $2,020,839 as of January 1, 2022. Certain amounts in the prior year financial statements have been reclassified for comparative purposes to conform to the presentation for the three and six months ended June 30, 2022. Specifically, prior to the adoption of ASC 842, the Company presented capital leases together with long-term debt on the balance sheets. Financing leases (previously capital leases) is now presented separately on the balance sheets. In addition, prior to the adoption of ASC 842, the Company presented the non-cash change in deferred rent as deferred rent within the operating section of the statement of cash flows. This balance is now presented on the operating lease right of use asset line within the operating section of the statement of cash flows. The adoption of this standard did not have a material impact on income or cash flows. See Note 11 for further details.

8

Accounting Pronouncements Not Yet Adopted

The FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments and an updated ASU 2018-19 that clarifies the scope of the standard in the amendments in ASU 2016-13. This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. Financial instruments impacted are trade and other receivables, held-to-maturity debt securities, loans and other instruments. There are various transition methods available upon adoption. As an emerging growth company, the Company is permitted to defer adoption until the private company adoption date of annual periods started after December 15, 2022. The Company is currently evaluating the impact of adoption on its financial statements.

NOTE 2 — 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.

The amortized cost and estimated fair values of the Company’s investments as of June 30, 2022 are as follows:

	Amortized		Unrealized		Unrealized		Fair
	Cost		Holding Gains		Holding Losses		Value
Short-term:
U.S. treasury notes	$	20,080,428	$	—	$	112,408	$	19,968,020
Long-term:
U.S. treasury notes		5,938,963		—		46,783		5,892,180
Total	$	26,019,391	$	—	$	159,191	$	25,860,200

The maturity dates of the Company’s investments are as follows:

	June 30, 2022
Less than one year	$	20,080,428
1-2 years		5,938,963
Total	$	26,019,391

NOTE 3 — PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of:

	June 30,		December 31,
	2022		2021
Lab equipment	$	1,706,468	$	1,549,416
Leasehold improvements		3,366,458		3,239,307
Furniture, fixtures and computers		1,994,172		1,671,793
		7,067,098		6,460,516
Less accumulated depreciation and amortization		(1,274,932)		(868,790)
	$	5,792,166	$	5,591,726

Depreciation and amortization expense was $273,610 and $29,145 for the three months ended June 30, 2022 and 2021, respectively, and $536,507 and $59,174 for the six months ended June 30, 2022 and 2021, respectively.

9

NOTE 4 — EQUITY METHOD INVESTMENT

The Company previously manufactured and sold acellular medical devices in the hernia mesh and wound care markets through a separately identifiable business unit (the “Acellular Business”). On June 30, 2019, the Acellular Business was spun-out to Reprise Biomedical, Inc. (“Reprise”). At the time of the spin-out and until November 15, 2020, the Company owned 4,500,000 shares of common stock of Reprise, which represented 45% ownership in Reprise. In November 2020, the Company sold 2,700,000 shares of common stock of Reprise for $3,000,000 and retained an 18% ownership interest in Reprise. The Company sold its remaining 1,800,000 shares of Reprise in March 2021 for $2,000,000.

The Company recorded its equity method share of losses from January 1, 2021 to March 15, 2021 in the condensed statements of operations. Financial information from the financial statements of Reprise is summarized as follows:

	Period Ended
	March 15,
	2021
Net sales	$	93,985
Gross margin	$	47,708
Net loss	$	(1,376,522)
Miromatrix Medical Inc. share of net loss	$	(223,633)

NOTE 5 — ACCRUED EXPENSES

Accrued expenses consisted of the following as of:

	June 30,		December 31,
	2022		2021
Wages	$	923,423	$	704,502
Legal		145,191		37,000
Taxes		56,163		101,221
Insurance		25,540		—
Key opinion leader compensation		14,025		25,500
Royalties		988		2,000
Facility costs		—		242,892
Supplies		—		127,505
Other		285,604		188,002
Accrued expenses	$	1,450,934	$	1,428,622

NOTE 6 — FAIR VALUE MEASUREMENT

The fair value of the Company’s financial instruments reflects the amount that the Company estimates that it would receive in connection with the sale of an asset or paid in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). The Company uses a three-tier valuation hierarchy based upon observable and non-observable inputs to measure fair value:

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

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

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

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

10

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

NOTE 7 — DEBT

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. 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, which were exercised in the second quarter of 2022. As of June 30, 2022 and December 31, 2021, the principal outstanding on this loan was $38,399 and $83,849, 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 did not bear interest, was due in a lump sum payment on April 1, 2022 and was uncollateralized. As of June 30, 2022 and December 31, 2021, the balance outstanding on this loan was $0 and $250,000, respectively.

In January 2019, the Company issued the University a promissory note in the amount of $385,997 in satisfaction of the Company’s minimum royalty obligation for the year ended December 31, 2018. The note bears interest at 6% per annum, compounded annually, and is due on January 31, 2025. In addition, the Company issued the University a 10-year warrant to purchase 20,587 shares of the Company’s common stock at an exercise price of $3.75 per share, which have not been exercised as of June 30, 2022. As of both June 30, 2022 and December 31, 2021, the balance outstanding on this loan was $385,997.

Future principal maturities for debt were as follows:

Amounts Due in the Twelve Months Ended June 30,
2023	$	38,399
2024		—
2025		385,997
Total future maturities payments		424,396
Less current portion		(38,399)
Long-term debt	$	385,997

NOTE 8 — EQUITY

Common Stock

The Company is authorized to issue 190,000,000 shares of common stock, with a par value of $0.00001. Holders of common stock are entitled to 1 vote for each share held on all matters submitted to a vote of common shareholders. Subject to preferences that may be applicable to any outstanding preferred shares, each share of common stock is entitled to share pro rata in any distributions. In any distribution of capital assets, holders of common stock are entitled to receive pro rata the assets remaining after payment of liabilities and liquidation preferences on any outstanding preferred stock.

As of June 30, 2022 and December 31, 2021, there were 20,813,741 and 20,385,645 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 of June 30, 2022 and December 31, 2021, there were 0 shares of preferred stock issued and outstanding.

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Equity Incentive Plans

In February 2010, the Company adopted a stock option plan (the “2010 Plan”). In July 2019, the Company adopted a stock option plan (the “2019 Plan”), which served as the successor to the 2010 Plan. The 2019 Plan provided for granting of stock options to employees, directors and consultants of the Company. The Company ceased making awards under the 2019 Plan upon stockholder approval of the 2021 Plan.

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

As of June 30, 2022, there were 2,525,548 and 354,000 stock options outstanding under the 2010 Plan and 2019 Plan, respectively. As of June 30, 2022, there were 1,075,208 stock options and 192,535 restricted stock units outstanding under the 2021 Plan.

As of June 30, 2022, there were 923,257 shares of common stock available for issuance 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 for the six months ended June 30, 2022 was as follows:

		Weighted
		Average
		Exercise
	Shares	Price
Options outstanding at beginning of the period	3,526,138	$	3.99
Granted	754,000	$	4.05
Exercised	(205,507)	$	1.25
Canceled or expired	(119,875)	$	6.98
Options outstanding at end of the period	3,954,756	$	4.03
Options exercisable	2,869,631	$	3.61

Stock-based compensation expense related to stock options was $141,773 and $105,879 for the three months ended June 30, 2022 and 2021, respectively. Stock-based compensation expense related to stock options was $332,589 and $239,330 for the six months ended June 30, 2022 and 2021, respectively.

The Company has granted stock options 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 was expense of $1,400 and income of $11,475 for the three and six months ended June 30, 2022, respectively. Stock-based compensation expense related to the key opinion leaders was $43,500 for both the three and six months ended June 30, 2021.

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The weighted average fair value of options granted during the six months ended June 30, 2022 and 2021 was $1.48 and $3.84 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 1 newly issued share of Company common stock.

RSU activity for the six months ended June 30, 2022 was as follows:

		Weighted
		Average Grant
		Date Fair
	Shares	Value
Unvested at beginning of the period	51,331	$	8.29
Granted	172,234	$	4.42
Vested	(31,030)	$	7.38
Canceled	—	$	—
Unvested at end of the period	192,535	$	4.78

Stock-based compensation expense related to RSUs was $126,017 and $256,307 for the three and six months ended June 30, 2022, respectively. There was 0 stock-based compensation expense related to RSUs recorded for the three and six months ended June 30, 2021.

Employee Stock Purchase Plan

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

There were 0 shares issued under the 2021 ESPP during the six months ended June 30, 2022.

Stock Warrants

Stock warrant activity for the six months ended June 30, 2022 was as follows:

	Common warrants
Warrants outstanding at beginning of the period		795,379
Granted		—
Exercised		(191,559)
Expired		(4,629)
Warrants outstanding at end of period		599,191

NOTE 9 — SIGNIFICANT CUSTOMERS

The Company had 1 customer that accounted for 100% of total revenue for the three and six months ended June 30, 2022 and 2021. The current receivable for this customer is included in Receivable from Reprise on the condensed balance sheets. The long-term receivable related to minimum royalties from this customer has been completely reserved against due to uncertainty regarding collectability. See Note 12 for further details.

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NOTE 10 — COMMITMENTS AND CONTINGENCIES

Patent License Agreement

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

NOTE 11 — LEASES

The Company leases its corporate headquarters, which houses its research and development operations and office space. The lease term began in August 2021 and is scheduled to terminate in May 2029. The Company has 1 option to extend the term for a period of five years. The depreciable life of assets and leasehold improvements is limited by the expected lease term. The lease provided a tenant improvement allowance of $1,256,950, which was received by the Company during the three months ended March 31, 2022. The tenant improvement allowance is included in the calculation of the 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:

Leases	Classification	June 30, 2022
Assets
Operating lease assets	Right of use asset	$	1,772,441
Financing lease assets	Property and equipment, net of accumulated depreciation	$	100,285
Liabilities
Current
Operating	Current portion of lease liability	$	374,280
Financing	Current portion of financing lease obligations	$	57,848
Noncurrent
Operating	Lease liability, net	$	2,917,628
Financing	Financing lease obligations, net	$	26,469

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

		Three Months Ended		Six Months Ended
Lease cost	Classification	June 30, 2022		June 30, 2022
Operating lease cost	Operating expenses: General and administrative	$	82,885	$	163,569
Financing lease cost
Amortization of leased assets	Depreciation and amortization	$	9,479	$	18,959
Interest on lease liabilities	Interest expense	$	1,228	$	2,943
Variable lease cost(1)	Operating expenses: General and administrative	$	57,090	$	96,319

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

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

Amounts Due in Fiscal Year Ending	Operating Leases		Financing Leases		Total
Remainder of 2022	$	248,383	$	30,847	$	279,230
2023		511,669		46,298		557,967
2024		527,020		12,030		539,050
2025		542,830		—		542,830
2026		559,115		—		559,115
Thereafter		1,423,621		—		1,423,621
Total lease payments		3,812,638		89,175		3,901,813
Less imputed interest		(520,730)		(4,858)		(525,588)
Present value of lease liabilities	$	3,291,908	$	84,317	$	3,376,225

Additional information related to leases is as follows:

Lease term and discount rate	June 30, 2022
Weighted-average remaining term (years)
Operating lease	6.9
Financing leases	1.5
Weighted-average discount rate
Operating lease	4.2	%
Financing leases	6.4	%

Disclosures Related to Periods Prior to Adoption of New Lease Standard

Capital Leases

In October 2018, the Company signed a lease agreement for a piece of equipment that is being accounted for as a capitalized lease. The total cost of the equipment was $102,026. The lease bears interest at 7.2% and the Company will make 60 monthly payments of $1,863 until the lease is paid in full. As of December 31, 2021, the amount outstanding on the lease was $38,271. The lease is secured by the piece of equipment.

In July 2021, the Company signed a lease agreement for a piece of equipment that is being accounted for as a capitalized lease. The total cost of the equipment was $44,251. The lease bears interest at 5.0% and the Company will make 24 monthly payments of $1,941 until the lease is paid in full. As of December 31, 2021, the amount outstanding on the lease was $33,597. The lease is secured by the piece of equipment.

In September 2021, the Company signed a lease agreement for a piece of equipment that is being accounted for as a capitalized lease. The total cost of the equipment was $43,317. The lease bears interest at 6.8% and the Company will make 36 monthly payments of $1,337 until the lease is paid in full. As of December 31, 2021, the amount outstanding on the lease was $38,937. The lease is secured by the piece of equipment.

Operating Leases

The Company entered into operating leases primarily for its corporate headquarters, which houses its research and development operations and office space. Total expense under operating leases for three and six months ended June 30, 2021 was $58,280 and $123,293, respectively.

NOTE 12 — RELATED PARTY TRANSACTIONS

A corporation owned by a former director of the Company that resigned as a director in June 2021 received payments for providing a consultant to the Company of $0 and $2,233 for the three months ended June 30, 2022 and 2021, respectively, and $768 and $3,851 for the six months ended June 30, 2022 and 2021, respectively.

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The Company received $3,952 and $9,139 for the three months ended June 30, 2022 and 2021, respectively, and $10,720 and $15,247 for the six months ended June 30, 2022 and 2021, respectively, as royalties related to the spin-out of the Acellular Business to Reprise. As of June 30, 2022, the Company had a current portion of deferred royalty liability of $735,688 and long-term deferred royalty liability of $491,733, and as of December 31, 2021, the Company had a current portion of deferred royalty liability of $488,368 and long-term deferred royalty liability of $491,733 that relate to the Company’s minimum royalty obligation to the University.

As of June 30, 2022 and December 31, 2021, the Company had long term receivables of $1,159,684 and $920,404, respectively, but due to the uncertainty regarding collectability the Company fully reserved against the receivables.

NOTE 13 — NET LOSS PER SHARE

Basic net loss per share is calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is calculated by dividing net income by the weighted-average number of common shares outstanding, after taking into consideration all dilutive potential shares outstanding during the period. Due to the existence of net losses for the three and six months ended June 30, 2022 and 2021, basic and diluted net loss per share were the same, as the effect of potentially dilutive securities would have been anti-dilutive.

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

	Three and Six Months Ended June 30,
	2022	2021
Common stock options outstanding	3,954,756	3,630,255
Common stock warrants	599,191	965,619
Restricted stock units	192,535	—
Total common stock equivalents	4,746,482	4,595,874

NOTE 14 — SUBSEQUENT EVENTS

On July 1, 2022, the Company 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, the Company may issue and sell through Piper Sandler, acting as the sales agent, shares of the Company’s common stock, $0.00001 par value per share, having an aggregate offering price of up to $50.0 million. The Company has no obligation to sell any such shares under the Equity Distribution Agreement. The sale of such shares of common stock by Piper Sandler will be effected pursuant to the Shelf Registration. The Company did 0t issue any shares under the Equity Distribution Agreement in the three or six months ended June 30, 2022.

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

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

Special Note Regarding Forward-Looking Statements

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission (“SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Overview

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

Components of Our Results of Operations

Licensing Revenue

For the periods presented, all of our revenue consists of licensing revenue pursuant to our license agreement with Reprise Biomedical, Inc. (“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 the uncertainty regarding the collectability of these minimum royalties from Reprise, the Company has set up an allowance to offset the entire remaining minimum royalty receivable amount.

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Cost of Goods Sold

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

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 our product candidates. We expect research and development expenses as a percentage of revenue to vary over time depending on the level and timing of new product development initiatives.

Regulatory and Clinical Expenses

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

Over time we expect our regulatory and clinical expenses to increase in absolute dollars as we develop our product candidates and move through various regulatory processes. We expect our regulatory and clinical expenses to decrease as a percentage of revenue primarily as, and to the extent, our revenue grows.

Quality Expenses

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

General and Administrative Expenses

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

We expect that our general and administrative expenses in absolute dollars will increase as we expand our headcount to support our growth.

Interest Income

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

Interest Expense

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

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Results of Operations

Three Months Ended June 30, 2022 Compared with Three Months Ended June 30, 2021

	Three Months Ended
	June 30,				Change
	2022		2021		Dollar		Percentage
Licensing revenue	$	3,952	$	9,139	$	(5,187)	(56.8)	%
Cost of goods sold		125,000		125,000		—	—
Gross loss		(121,048)		(115,861)		(5,187)	4.5
Operating expenses:
Research and development		4,988,233		2,480,887		2,507,346	101.1
Regulatory and clinical		419,394		103,256		316,138	306.2
Quality		517,333		86,257		431,076	499.8
General and administrative		2,188,460		786,322		1,402,138	178.3
Total operating expenses		8,113,420		3,456,722		4,656,698	134.7
Operating loss		(8,234,468)		(3,572,583)		(4,661,885)	130.5
Interest income		61,078		45		61,033	135,628.9
Interest expense		(8,799)		(280,663)		271,864	(96.9)
Amortization of discount on note		—		(30,052)		30,052	(100.0)
Change in fair value of derivative		—		52,991		(52,991)	(100.0)
Research grants		—		127,428		(127,428)	(100.0)
Net loss	$	(8,182,189)	$	(3,702,834)	$	(4,479,355)	121.0	%

Licensing Revenue

Licensing revenue was $3,952 for the three months ended June 30, 2022 and $9,139 for the three months ended June 30, 2021, a decrease of $5,187, or 56.8%. The licensing revenue is a result of the license agreement with Reprise. The remainder of minimum royalties due from Reprise for 2020 and 2021 have been deferred to 2022 and 2023, respectively. The remainder of minimum royalties due from Reprise for 2022 are due in January 2023. Due to the uncertainty regarding the collectability of these minimum royalties from Reprise, the Company has set up an allowance to offset the entire remaining minimum royalty receivable amount.

Cost of Goods Sold

Cost of goods sold was $125,000 for both the three months ended June 30, 2022 and 2021. Cost of goods sold relates to the minimum royalty due to the University under our license agreement.

Research and Development

Research and development expenses were $4,988,233 for the three months ended June 30, 2022 and $2,480,887 for the three months ended June 30, 2021, an increase of $2,507,346, or 101.1%. The increase was primarily due to a lab supply increase of $1,154,178, headcount increase which resulted in an increase in payroll expenses of $514,899, contract pre-clinical cost increase of $331,207 and consulting expense increase of $321,820.

Regulatory and Clinical

Regulatory and clinical expenses were $419,394 for the three months ended June 30, 2022 and $103,256 for the three months ended June 30, 2021, an increase of $316,138, or 306.2%. The increase was primarily due to a headcount increase which resulted in an increase in payroll expenses of $191,822, as well as an increase of $66,476 in regulatory consulting and contracting expense.

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Quality

Quality expenses were $517,333 for the three months ended June 30, 2022 and $86,257 for the three months ended June 30, 2021, an increase of $431,076, or 499.8%. The increase was primarily due to a headcount increase which resulted in an increase in payroll expenses of $190,531, lab supplies increase of $123,297 and consulting expense increase of $81,467.

General and Administrative

General and administrative expenses were $2,188,460 for the three months ended June 30, 2022 and $786,322 for the three months ended June 30, 2021, an increase of $1,402,138, or 178.3%. The increase was primarily due to a headcount increase which resulted in an increase in payroll expenses of $670,081, insurance expense increase of $276,623, office expense increase of $190,538, depreciation expense increase of $149,594 and consulting expense increase of $40,759. These increases can primarily be attributed to the cost of being a public company.

Interest Income

Interest income was $61,078 for the three months ended June 30, 2022 and $45 for the three months ended June 30, 2021, an increase of $61,033. 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 (“IPO”).

Interest Expense

Interest expense was $8,799 for the three months ended June 30, 2022 and $280,663 for the three months ended June 30, 2021, a decrease of $271,864, or 96.9%. The decrease was primarily due to the $6,000,000 convertible promissory note issued to Cheshire MD Holdings, LLC (the “Cheshire Note”) being converted to equity in June 2021, and therefore there was no interest expense related to the Cheshire Note in 2022 compared to 2021.

Amortization of Discount on Note

Amortization expense related to the Cheshire Note was $0 for the three months ended June 30, 2022 and $30,052 for the three months ended June 30, 2021. The decrease was due to the Cheshire Note being converted to equity in June 2021, and therefore there was no amortization expense related to the Cheshire Note in 2022 compared to 2021.

Change in Fair Value of Derivative

The fair value of the embedded derivative related to the Cheshire Note was $0 for the three months ended June 30, 2022 and $52,991 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.

Research Grants

Research grants were $0 for the three months ended June 30, 2022 and $127,428 for the three months ended June 30, 2021. The decrease in research grants was primarily due to decreases in pre-clinical contracting, resulting in lower grant funds.

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Six Months Ended June 30, 2022 Compared with Six Months Ended June 30, 2021

	Six Months Ended
	June 30,				Change
	2022		2021		Dollar		Percentage
Licensing revenue	$	10,720	$	15,247	$	(4,527)	(29.7)	%
Cost of goods sold		250,000		250,000		—	—
Gross loss		(239,280)		(234,753)		(4,527)	1.9
Operating expenses:
Research and development		8,994,141		4,348,888		4,645,253	106.8
Regulatory and clinical		774,632		186,961		587,671	314.3
Quality		958,268		172,044		786,224	457.0
General and administrative		4,461,775		1,349,196		3,112,579	230.7
Total operating expenses		15,188,816		6,057,089		9,131,727	150.8
Operating loss		(15,428,096)		(6,291,842)		(9,136,254)	145.2
Interest income		61,848		85		61,763	72,662.4
Interest expense		(19,690)		(586,037)		566,347	(96.6)
Amortization of discount on note		—		(62,638)		62,638	(100.0)
Change in fair value of derivative		—		246,962		(246,962)	(100.0)
Research grants		—		277,965		(277,965)	(100.0)
Equity loss in affiliate		—		(223,633)		223,633	(100.0)
Gain on sale of equity investment		—		1,983,912		(1,983,912)	(100.0)
Gain on debt extinguishment		—		518,050		(518,050)	(100.0)
Net loss	$	(15,385,938)	$	(4,137,176)	$	(11,248,762)	271.9	%

Licensing Revenue

Licensing revenue was $10,720 for the six months ended June 30, 2022 and $15,247 for the six months ended June 30, 2021, a decrease of $4,527, or 29.7%. The licensing revenue is a result of the licensing agreement with Reprise. The remainder of minimum royalties due from Reprise for 2020 and 2021 have been deferred to 2022 and 2023, respectively. The remainder of minimum royalties due from Reprise for 2022 are due in January 2023. Due to the uncertainty regarding the collectability of these minimum royalties from Reprise, the Company has set up an allowance to offset the entire remaining minimum royalty receivable amount.

Cost of Goods Sold

Cost of goods sold was $250,000 for both the six months ended June 30, 2022 and 2021. Cost of goods sold relates to the minimum royalty due to the University under our license agreement.

Research and Development

Research and development expenses were $8,994,141 for the six months ended June 30, 2022 and $4,348,888 for the six months ended June 30, 2021, an increase of $4,645,253, or 106.8%. The increase was primarily due to lab supplies increase of $2,152,553, headcount increase which resulted in an increase in payroll expenses of $1,213,414, contract pre-clinical cost increase of $632,495, consulting expense increase of $377,826 and depreciation expense increase of $180,645.

Regulatory and Clinical

Regulatory and clinical expenses were $774,632 for the six months ended June 30, 2022 and $186,961 for the six months ended June 30, 2021, an increase of $587,671, or 314.3%. The increase was primarily due to a headcount increase which resulted in an increase in payroll expenses of $375,791, as well as an increase in regulatory consulting and contracting expense of $149,215.

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Quality

Quality expenses were $958,268 for the six months ended June 30, 2022 and $172,044 for the six months ended June 30, 2021, an increase of $786,224, or 457.0%. The increase was primarily due to a headcount increase which resulted in an increase in payroll expenses of $399,756, lab supplies increase of $190,847 and consulting expense increase of $149,317.

General and Administrative

General and administrative expenses were $4,461,775 for the six months ended June 30, 2022 and $1,349,196 for the six months ended June 30, 2021, an increase of $3,112,579, or 230.7%. The increase was primarily due to a headcount increase which resulted in an increase in payroll expenses of $1,378,467, insurance expense increase of $576,081, office expense increase of $349,382, depreciation expense increase of $296,688, legal and accounting expense increase of $148,258, other expense increase of $104,528 and consulting expense increase of $91,025. These increases can primarily be attributed to the cost of being a public company.

Interest Income

Interest income was $61,848 for the six months ended June 30, 2022 and $85 for the six months ended June 30, 2021, an increase of $61,763. The increase was primarily due to U.S. Treasury securities purchased during the second quarter of 2022 with cash received from the IPO.

Interest Expense

Interest expense was $19,690 for the six months ended June 30, 2022 and $586,037 for the six months ended June 30, 2021, a decrease of $566,347, or 96.6%. The decrease was primarily due to the interest expense on the $6,000,000 Cheshire Note being converted to equity in June 2021, and therefore there was no interest expense related to the Cheshire Note in 2022 compared to 2021.

Amortization of Discount on Note

Amortization expense related to the Cheshire Note was $0 for the six months ended June 30, 2022 and $62,638 for the six months ended June 30, 2021. The decrease was due to the Cheshire Note being converted to equity in June 2021, and therefore there was no amortization expense related to the Cheshire Note in 2022 compared to 2021.

Change in Fair Value of Derivative

The fair value of the embedded derivative related to the Cheshire Note was $0 for the six months ended June 30, 2022 and $246,962 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 were $0 for the six months ended June 30, 2022 and $277,965 for the six months ended June 30, 2021. The decrease in research grants was primarily due to decreases in pre-clinical contracting, resulting in lower grant funds.

Equity Loss in Affiliate

Equity loss in affiliate was $0 for the six months ended June 30, 2022 and $223,633 for the six months ended June 30, 2021. The Company sold its remaining ownership interest in Reprise in March 2021, eliminating the need to record any such losses for future periods, including the six months ended June 30, 2022.

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Gain on Sale of Equity Investment

The Company recognized a gain of $1,983,912 related to the sale of its remaining 1,800,000 shares of Reprise in March 2021.

Gain on Debt Extinguishment

The Company recognized a gain on the extinguishment of debt of $518,050 for the six months ended June 30, 2021 related to the forgiveness of our loan under the Small Business Administration’s Paycheck Protection Program.

Liquidity and Capital Resources

We have incurred net losses since our inception. For the three months ended June 30, 2022 and 2021, we incurred net losses of $8,182,189 and $3,702,834, respectively. For the six months ended June 30, 2022 and 2021, we incurred net losses of $15,385,938 and $4,137,176, respectively. As of June 30, 2022, we had an accumulated deficit of $89,437,852.

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 and Mirokidney, 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. We expect to incur additional costs associated with operating as a public company in the United States. The timing and amount of our operating expenditures will depend largely on our ability to, among other things:

● advance clinical development of our product candidates;

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

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

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

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

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

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

Sources of Liquidity

To date, we have primarily financed our operations through equity and debt financings, as well as research grants and our IPO. We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements through 2023. As of June 30, 2022, we had cash and cash equivalents of $12,593,315, short-term investments of $20,080,428 and long-term investments of $5,938,693. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect.

Until such time, if ever, as we can generate substantial revenue from sales of our bioengineered organs, we expect to finance our cash needs through a combination of equity offerings 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 stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Additional capital may not be available when needed, on reasonable terms, or at all, and our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions. If we are unable

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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.

Debt Financing

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, 2022 and December 31, 2021, the principal outstanding on this loan was $38,399 and $83,849, 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 was unsecured and did not bear interest. The loan was due in a lump sum payment on April 1, 2022. As of June 30, 2022 and December 31, 2021, the balance outstanding on this loan was $0 and $250,000.

In January 2019, we issued the University a promissory note in the amount of $385,997 in satisfaction of our minimum royalty obligation under the license agreement with the University for the year ended December 31, 2018. The note bears interest at 6% per annum, compounded annually, and is due on January 31, 2025. 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 June 30, 2022 and December 31, 2021, the principal outstanding on this loan was $385,997.

Initial Public Offering

In June 2021, we completed our IPO through which we issued and sold 5,520,000 shares of common stock at $9.00 per share. In connection with the IPO, we raised $44,528,060, after deducting the underwriting discount and offering expenses payable by us.

Equity Distribution Agreement

On July 1, 2022, we entered into an Equity Distribution Agreement with Piper Sandler & Co. (“Piper Sandler”). The Equity Distribution Agreement provides that, upon the terms and subject to the conditions set forth therein, we may issue and sell through Piper Sandler, acting as the sales agent, shares of our common stock having an aggregate offering price of up to $50.0 million. We have no obligation to sell any such shares under the Equity Distribution Agreement. The sale of the shares of our common stock by Piper Sandler, if any, will be effected pursuant to a Registration Statement on Form S-3, filed with the 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 in the six months ended June 30, 2022.

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 sale of an indeterminate number of shares of common stock and preferred stock, an indeterminate principal amount of debt securities and an indeterminate number of warrants to purchase common stock, preferred stock, and various series of debt securities and/or warrants to purchase any of such securities, having an aggregate initial offering price of $200.0 million.

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Cash Flows

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

	Six Months Ended
	June 30,
	2022		2021
Net cash (used in) provided by:
Operating activities	$	(13,790,978)	$	(5,390,815)
Investing activities		(26,757,741)		1,913,888
Financing activities		330,503		65,558,289
Net (decrease) increase in cash and cash equivalents	$	(40,218,216)	$	62,081,362

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 months ended June 30, 2022, net cash used in operating activities was $13,790,978 and reflected (i) the net loss of $15,385,938, (ii) net non-cash usage items of $1,027,437, including $600,371 of stock-based compensation, $536,507 of depreciation and amortization expense, amortization of premium/discount on investments of $6,734 and $758 of loss on disposal of property and equipment, partially offset by non-cash interest income of $116,933, and (iii) a net cash outflow from changes in balances of operating assets and liabilities of $567,523.

During the six months ended June 30, 2021, net cash used in operating activities was $5,390,815 and reflected (i) the net loss of $4,137,176, (ii) net non-cash items of $2,164,149, including a gain on sale of equity investment of $1,983,912, paycheck protection program loan forgiveness of $518,050, and the change in fair value of embedded derivative of $246,962, partially offset by stock-based compensation of $239,330, an equity loss in affiliate of $223,633, amortization of discount on note of $62,638 and depreciation and amortization expense of $59,174 and (iii) a net cash inflow from changes in balances of operating assets and liabilities of $910,510.

Investing Activities

During the six months ended June 30, 2022, net cash used by investing activities was $26,757,741 and reflected purchase of investments of $26,026,125 and property and equipment purchases of $731,616.

During the six months ended June 30, 2021, net cash provided by investing activities was $1,913,888 and reflected proceeds from the sale of Reprise stock of $2,000,000, offset by property and equipment purchases of $86,112.

Financing Activities

During the six months ended June 30, 2022, net cash provided by financing activities was $330,503 and was primarily the result of proceeds from stock warrant exercises of $414,098 and proceeds from stock option exercises of $256,883; partially offset by payments on long-term debt of $295,450, payments on financing lease obligations of $26,488 and payments on offering costs of $18,540.

During the six months ended June 30, 2021, net cash provided by financing activities was $65,558,289 and was primarily the result of net proceeds from the IPO of $45,679,111, net proceeds from sales of Series C Preferred Stock of $19,891,670 and proceeds related to stock option and warrant exercises of $40,875, partially offset by payments on long-term debt of $44,109 and payments on financing lease obligations of $9,258.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

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, 2022, 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 effective as of June 30, 2022.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the fiscal quarter of 2022 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

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

Item 1A. Risk Factors

This Quarterly Report on Form 10-Q should be read in conjunction with the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 30, 2022. There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

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

Unregistered Sales of Equity Securities

During the three months ended June 30, 2022, the Company issued 191,559 shares of its common stock related to stock warrant exercises for cash with a weighted average exercise price of $2.16 per share. 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 Securities and Exchange Commission, without the use of any general solicitations or advertising to market or otherwise offer the securities for sale.

Use of Proceeds

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

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

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

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

● the remaining funds for working capital and general corporate purposes.

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

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

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Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit No.	Description
3.1	Second Amended and Restated Certificate of Incorporation of Miromatrix Medical Inc.	Incorporated by reference to Exhibit 3.1 of the Company’s Annual Report on Form 10-K, filed March 30, 2022.
3.2	Amended and Restated Bylaws of Miromatrix Medical Inc.	Incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K, filed June 28, 2021.
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Furnished herewith.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Furnished herewith.
101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document	Filed herewith.
101.SCH	Inline XBRL Taxonomy Extension Schema Document	Filed herewith.
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith.
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith.
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document	Filed herewith.
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith.
104	Cover Page Interactive Data File (embedded within the inline XBRL document)	Filed herewith.

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SIGNATURES

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

	MIROMATRIX MEDICAL INC.
Dated: August 15, 2022	By:	/s/ Jeffrey Ross
	Name:	Jeffrey Ross
	Title:	Chief Executive Officer
		(on behalf of Registrant)
Dated: August 15, 2022	By:	/s/ James Douglas
	Name:	James Douglas
	Title:	Chief Financial Officer
		(Principal Financial and Accounting Officer)

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