SkyAI, Inc.: Form 10-Q for the period ended Mar 31, 2025

The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our Company as of and for the periods presented below. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us,” and “our” refer to Sharps Technology, Inc.

Forward-Looking Statements

The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in our filings with the SEC. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.

Overview

Since our inception in 2017 and through the fourth quarter of 2022, we have devoted substantially all of our resources to the research and development of our safety syringe products Commencing in the fourth quarter of 2022 we started building inventory of syringe products. To date, we have generated no revenue. We have reported net income of $1,982,834 and incurred a net loss of $(982,386) for the period three months ended March 31, 2025 and 2024, respectively. Substantially all of our net operating losses and cash used in operations resulted from costs incurred in connection with our research and development efforts, payroll and consulting fees, stock compensation and general and administrative costs associated with our operations, including costs incurred for being a public company since April 14, 2022. See Liquidity and Capital Resources and Notes to Consolidated Financial Statements.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has not generated any significant revenue from the sale of syringe products or cash flow from operations since inception. As of March 31, 2025, the Company had working capital of $5,598,222 which is not expected to be sufficient to fund the Company’s planned operations for the next 12 months. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to commercialize its products into a profitable business or raise sufficient financing. The Company intends to finance its commercialization activities and its working capital needs largely from the sale of equity securities and/or with additional funding from other traditional financing sources until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. As of the close of the January 2025 Offering and concurrent repayment of an outstanding Note, the Company is debt free.

We classify our operating expenses as research and development, and general and administrative expenses. We maintain a corporate office located in Melville, New York, but employees and consultants in the US work remotely and will continue to do so indefinitely. In June 2020, in connection with the agreement to acquire Safegard, a syringe manufacturing facility in Hungary, which was completed on July 6, 2022, we were contractually provided the exclusive use of the facility for research and development and testing in exchange for payment of the seller’s operating costs, including among others, use of Safegard’s work force, utility costs and other services.

To remain competitive, we have built inventory since to secure orders we require commercial quantities of inventory with delivery expected shortly after orders are placed.

Products, Marketing and Sales

We continue to be in discussions with healthcare companies and distributors for sales of our disposable syringe and prefillable syringe products. We intend to market these products to the U.S. and foreign governments. We will also look to sell our disposable syringe products to hospitals and healthcare groups as opportunities present themselves. We have received an initial purchase order under a supply agreement (See Supply Agreement in Recent Developments).

The Sharps Securegard and Sologard product lines continues to represent our disposable syringe platform to be commercially available to the market.. These platforms have advanced features and benefits to support the needs of the market along with a high level of readiness for manufacturing and the ability to provide large commercial quantities for customers.

As previously disclosed, there continues to be delays in the commercialization of the Sharps Provensa product line. The product’s specialized technology requires further design and assembly optimization as identified in our previous commercialization efforts. This on-going product refinement process is typical of the development of new technology for the healthcare market to ensure the products are safe and effective for use every time. At this time Sharps is not able to determine a timeline for final commercialization of the Provensa product.

Research and Development

Research and development expense consists of expenses incurred while performing research and development activities for our various syringe products. We recognize research and development expenses as they are incurred Substantially all of our research and development expenses to date have been incurred in connection with our syringe products. We expect our research and development expenses to increase for the foreseeable future as we continue to enhance our products to meet the market requirements for our Sharps syringe product line for its various intended uses throughout the world.

Recent Developments

January 2025 Offering

On January 29, 2025, the Company closed on an offering (the “2025 Offering”) and received gross proceeds of approximately $20.0 million, before deducting underwriting fees and other offering expenses payable by the Company. The net proceeds were approximately $18.2M, of which $4.2M was used to repay the outstanding Notes (see Note 7).

The 2025 Offering consisted of 47,619 (pre reverse – 14,285,714) units consisting of 30,089 (pre reverse – 9,029,814) Common Units with gross proceeds of $12.6M and 17,520 (pre reverse – 5,255,900) Pre-Funded Units with gross proceeds of $7.4M. The public offering price per Common Unit was $420 (pre reverse $1.40) or $419.97 (pre reverse $1.3999) for each Pre-Funded Unit, which is equal to the public offering price per Common Unit sold in the offering minus an exercise price of $0.0001 per Pre-Funded Warrant. Each Common Unit consisted of one share of Common Stock and each Pre-Funded Unit consisted of one pre-funded warrant to purchase one share of Common Stock. In addition, each Common Unit and Pre-Funded Unit included: (i) one Series A Registered Common Warrant to purchase one share of Common Stock per warrant at an exercise price of $87.60 (pre reverse - $1.75 and after floor price adjustment upon stockholder approval to $0.292), (“2025 Series A Warrant”) and (ii) one Series B Registered Common Warrant to purchase one share of Common Stock per warrant at an exercise price of $87.60 (pre reverse - $1.75 and after floor price adjustment upon stockholder approval to $0.292) (“2025 Series B Warrant”), collectively, the “2025 Warrants”. The 2025 Series B Warrant provides the holders with an alternative cashless exercise option, which if elected, each holder will receive three shares of Common Stock for each 2025 Series B Warrant cashless exercised. The 2025 Warrants provided for an adjustment of the original exercise price of $525 (pre reverse - $1.75) per warrant, down to an amount no less than a floor price of $87.60 (pre reverse - $0.292) per warrant upon stockholder approval. On March 28, 2025, the stockholders approved a reset and the exercise price of the 2025 Warrants was reduced to $87.60 (pre reverse - $0.292) per warrant and the number of warrants was increased so that the aggregate exercise price payable remains the same as the Offering date.

The Pre-Funded Warrants are immediately exercisable and may be exercised at any time until exercised in full. Immediately after closing 16,603 (pre reverse – 4,980,900) of the Pre-Funded units were exercised and the Company received $498 in proceeds The underwriter, under an over- allotment option, purchased 7,143 (pre reverse- 2,142,857) 2025 Series A Warrants and 7,143 (pre reverse- 2,142,857) 2025 Series B Warrants for $0.0001 per Warrant

The 2025 Offering was made pursuant to an effective registration statement on Form S-1 (No. 333-284237) previously filed with the U.S. Securities and Exchange Commission (SEC) and declared effective by the SEC on January 27, 2025.

Asset Purchase Agreement

On May 20, 2024, the Company entered into an Amendment to the Asset Purchase Agreement dated September 22, 2023, with Nephron and Nephron’s InjectEZ, LLC, (collectively, the “Seller”). The September 22, 2023 agreement superseded the manufacturing and supply agreement entered into in connection with the NPC Agreement on September 29, 2022, and the Nephron Agreement entered into on September 29, 2022. The Amended Asset Purchase Agreement includes the purchase of certain assets. In connection with the Asset Purchase agreement, the Company paid a non-refundable deposit of $1M to be held in escrow as a deposit on the purchase price. The Asset Purchase agreement stipulated that the $1M deposit would be maintained until July 19, 2024, at which date, if the contemplated transaction was not consummated, through no fault of the Seller, the escrow would be released to the Seller by the escrow agent. The escrow deposit of $1M was released to the Seller and recorded in Other Expense as a forfeited agreement cost in the three months ended June 30, 2024. As stated above, The Company and Seller continue to work towards a further amendment of the Asset Purchase Agreement. The closing of the Asset Purchase Agreement is contingent on obtaining further amendments and the necessary financing. There can be no assurance that the closing of the asset sale will occur.

Supply Agreement

On July 24, 2024, the Company entered into a Supply Agreement (the “Agreement”) with Stericare Solutions, LLC, a Texas limited liability company (“Stericare”), pursuant to which Stericare agreed to purchase 520 million units of 10ml polypropylene (“PP”) Sologard syringes from the Company. The specific purchase price is confidential, but revenues are expected to exceed $50 million. Under the terms of the Agreement, Stericare has committed to purchasing 520 million units of 10ml PP Sologard syringes in the following increments: 40 million units in the first year, and 120 million units each year for the remainder of the Agreement’s term. The Agreement has an initial five (5)-year term, targeted to commence in November 2024 (the “Initial Term”). Upon expiration of the Initial Term, the Agreement will automatically renew for successive one (1)-year periods (each, a “Renewal Term”), unless either party provides written notice of termination at least ninety (90) days prior to the end of the Initial Term or any Renewal Term. To date, Sharps has used pilot tooling for initial material qualifications and concept product approvals. As part of the proceeds from the recent $20 million financing, the Company has placed orders for advanced production technology for Sologard and will soon begin installation and operational qualification for the next phase of the project with Stericare. On April 30, 2025, the Company received the initial purchase order under the Agreement for $400,000.

The proceeds from the 2024 fundraising efforts were utilized to further increase production capacity, build inventory, and support working capital requirements. A portion of the proceeds from the January 2025 offering will be allocated to expanding production capacity in Hungary, including the purchase of advanced machinery and other facility upgrades. This expansion will facilitate the fulfillment of Securegard and Sologard orders in connection with recently announced order with Stericare and ongoing activities with other European companies.

The Company is committed to driving revenue growth from both the Securegard and Sologard projects in 2025, as well as securing manufacturing capacity for the Company’s next generation polymer-based prefillable syringes. With the recent financing secured, the Company believes that it is positioned to advance its growth strategy by utilizing it’s working capital to support essential operating expenses. Production is currently on track, with the Company preparing for a transition to revenue in the second half of 2025, subject to the successful execution of its plans.

Nasdaq Compliance

On March 12, 2025, Sharps Technology, Inc. (the “Company”), was notified by the staff (the “Staff”) of The Nasdaq Stock Market, LLC (“Nasdaq”) that it was not in compliance with the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market as the bid price of its securities had closed at less than $1.00 per share over the previous 30 consecutive business days. Normally, a company would be afforded a 180-calendar day period to demonstrate compliance with the rule. However, pursuant to Nasdaq Listing Rule 5810(c)(3)(A)(iv), the Company is not eligible for any compliance period due to the fact that the Company has effected a reverse stock split over the prior one-year period or has effected one or more reverse stock splits over the prior two-year period with a cumulative ratio of 250 shares or more to one. Further, on April 3, 2025, the Company”), was notified by the Staff of The Nasdaq that it was not in compliance with the $2,500,000 stockholders’ equity requirement for continued listing (the “Rule’) on The Nasdaq Capital Market. As reported in our Form 10-K for the fiscal year ended December 31, 2024, we reported stockholders’ equity of $1,996,129, at such time and the Company does not meet the alternatives of market value of listed securities or net income from continuing operations.

The Company presented its plan to regain compliance with the minimum bid price requirement and the net worth requirements at the Hearing on April 29. 2025. In the interim, the Company’s common stock and warrants will remain listed on Nasdaq under its existing symbols, “STSS” and “STSSW” while it awaits the hearing and Panel decision.

On March 31, 2025, the Company’s reported stockholders’ equity is $10,135,328 and meets the continued listing requirement of $2,500,000.

Critical Accounting Policies and Significant Judgments and Estimates

This management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements, as well as the reported revenues and expenses during the reported periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The FMV adjustments, based on either the trading price or FMV of outstanding warrants classified as liabilities, could impact the operating results in the reporting periods.

Nature of Business

Sharps Technology, Inc. (“Sharps” or the “Company”) is a medical device and pharmaceutical packaging company that has designed and patented various safety syringes and has safety syringe products that were acquired and is seeking commercialization by manufacturing and distribution of its products. See Recent Developments for initial order received that will transition the Company to revenue.

The accompanying consolidated financial statements include the accounts of Sharps Technology, Inc. and its wholly owned subsidiary, Safegard Medical, Inc, collectively referred to as the “Company.” All intercompany transactions and balances have been eliminated.

The Company’s fiscal year ends on December 31.

On April 13, 2022, the Company’s Initial Public Offering was deemed effective with trading commencing on April 14, 2022. The Company received net proceeds of $14.2 million on April 19, 2022. (See Capital Structure and Note 8 to the Consolidated Financial Statements)

Summary of Significant Accounting Policies

Our significant accounting policies are described in Note 2 of the accompanying condensed consolidated financial statements and further discussed in our annual financial statements included in our annual report on Form 10-K for the year ended December 31, 2024.

Results of Operations

Comparison of the Three Months Ended March 31, 2025 and 2024.

Revenue

The Company has not generated any revenue to date.

Research and Development

For the three months ended March 31, 2025, Research and Development (“R&D”) expenses decreased to $82,016 compared to $197,439 for the three months ended March 31, 2024. The decrease of $115,423 was due to a) lower depreciation expense of $63,000 from the 2024 impairment of certain fixed assets used in R&D and b) lower R&D labor and consulting of $52,400 given the shift from R&D activities to manufacturing.

General and Administrative

For the three months ended March 31, 2025, General and Administrative (“G&A”) expenses were $1,939,753 as compared to $1,646,613 for the three months ended March 31, 2024. The increase of $293,140 was primarily attributable to an increase of $53,000 in payroll and related costs of: i) higher payroll by $131,700 from $850,745 in 2024 to $982,442 in 2025, primarily due to CEO bonus, attributed to the completion of the January 2025 equity offering, partially offset by headcount adjustments and labor cost allocation offset by ii) a decrease in stock compensation expense, due to timing of option awards and vesting, of approximately $78,700 from $123,000 in 2024 to $44,300 in 2025. All other G&A expenses increased $240,100 primarily due to higher; professional & legal fees ($153,700), public company and investor relation costs ($119,300), computer costs ($18,100), general operating costs ($11,200) and rent ($15,700), partially offset by lower; marketing costs ($3,000), travel ($1,400), insurance costs ($60,800), and patent fees ($11,300).

Net Interest expense (income)

Net Interest expense, was $626,991 for the three months ended March 31, 2025, compared to interest income of $19,023 for the three months ended March 31, 2024. Net interest changed, by $646,014 due to a) interest earned on invested cash in 2025 of $81,399 as compared to $19,023 in 2024 b) interest expense of $708,390 for the accreted interest on the debt financing that originated in the third quarter of 2024 as compared to no interest expense during first quarter of 2024 (see Note 7 to the Consolidated Financial Statements).

FMV Adjustment for Derivatives

The value of the Note Warrants requires the Fair Market Value (“FMV”) to be recorded at the date warrants are issued and then be remeasured at each reporting date while outstanding with recognition of the changes in fair value to other income or expense in the Consolidated Statement of Operations. For the three months ended March 31, 2025, and 2024 the Company recorded a FMV gain adjustment of $4,618,889 to reflect the i) the net effect for the FMV loss on the January 2025 Offering date and remeasurement adjustments based on the change in FMV as of March 31, 2025 offset by ii) decrease in the Warrants liabilities outstanding as of December 31, 2024 due to change in FMV. At March 31, 2024, the FMV Gain was due to the change in FMV for the three months then ended (See Notes 7, 8 and 10 to the Consolidated Financial Statements).

Liquidity and Capital Resources

At March 31, 2025, and December 31, 2024, we had a cash balance of $11,894,937 and $864,041, respectively. The Company had working capital of $5,598,222 at March 31, 2025 as compared to a working capital deficiency of 2,011,679 as of December 31, 2024. The increase in our working capital of $7,609,901, after net proceeds from offerings in 2025 of $18.2M, was primarily related to the use of cash of $2,450,564 in operations, investing in fixed assets purchased or payments made under orders placed of $473,658 and cash used to repay the short-term Note of $4.2M. The Company intends to finance its future development and commercialization activities and its working capital needs with the recent offering proceeds and further with the sale of equity securities and/or with additional funding from other traditional financing sources until such time that funds provided by operations are sufficient to fund working capital requirements. The Company is debt free (See Note 7 and 8 to the Consolidated Financial Statements).

In 2024, the Company completed various offerings and private placements. (“Financings”) The proceeds from such Financings were used to fund working capital to build inventory, fund capital expenditure and operating costs.

Cash Flows

Net Cash Used in Operating Activities

The Company used cash of $2,450,564 and $1,889,315 in operating activities for the three months ended March 31, 2025 and 2024, respectively. The change in cash used was principally due to the Company incurring higher G&A expenses, increase in inventory partially offset by lower R&D activities, excluding non-cash items, as described above during the three months ended March 31, 2025.

Net Cash Used in Investing Activities

For the three months ended March 31, 2025 and 2024, the Company used cash in investing activities of $473,658 and $2,852, respectively. In both periods cash was used to acquire or pay deposits for fixed assets. In 2025, the increase is directly attributed to the aforementioned capital requirements for fulfillment under the Stericare customer order and other future business opportunities.

Net Cash Provided by Financing Activities

For the three months ended March 31, 2025 and 2024, the Company provided cash from financing activities of $13,953,031 and $396 respectively. In the 2025 period, the cash provided was from the $18.2M in net proceeds from the Offerings in January 2025 offset by the debt repayment of $4.2M. In the 2024 period, the cash provided was from exercise of warrants.

Off-Balance Sheet Arrangements

During the periods presented, we did not have any off-balance sheet arrangements as defined under Regulation S-K Item 303(a)(4).

Emerging Growth Company Status

We are an “emerging-growth company”, as defined in the JOBS Act, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including, but not limited to, not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As an emerging growth company, we can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We intend to avail ourselves of these options. Once adopted, we must continue to report on that basis until we no longer qualify as an emerging growth company.

We will cease to be an emerging growth company upon the earliest of: (i) the end of the fiscal year following the fifth anniversary of the initial public offering; (ii) the first fiscal year after our annual gross revenue are $1.07 billion or more; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities; or (iv) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million as of the end of the second quarter of that fiscal year. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If, as a result of our decision to reduce future disclosure, investors find our common shares less attractive, there may be a less active trading market for our common shares and the price of our common shares may be more volatile.

We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates plus the aggregate amount of gross proceeds to us as a result of the IPO is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time, we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation of internal controls that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in the Form 10-K for the year ended December 31, 2024, any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in the Form 10-K for the year ended December 31, 2024. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.