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, 2023

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: 001-40492


Femasys Inc.


(Exact Name of Registrant as Specified in its Charter)

 
Delaware

11-3713499
(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)
 
 
3950 Johns Creek Court, Suite 100

 
Suwanee, GA  30024

(770) 500-3910
(Address of principal executive offices, including zip code)

(Registrant’s telephone number, including area code)

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 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, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “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 ☑

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

 
Title of each class

Trading symbol

Name of each exchange on which
registered
 
Common stock, $0.001 par value

FEMY

The Nasdaq Capital Market

The Registrant had 15,073,153 shares of common stock, $0.001 par value, outstanding as of August 9, 2023.
 


 
TABLE OF CONENTS
 
 
 
Page
 
 
 
Part I. Financial Information
Item 1
5
 
5
 
7
 
8
 
10
 
11
Item 2
17
Item 3
22
Item 4
22
 
Part II. Other Information
Item 1
23
Item 1A
23
Item 2
23
Item 3
24
Item 4
24
Item 5
24
Item 6
24
25

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. Forward-looking statements include, but are not limited to, statements concerning:


our ability to develop and advance our current product candidates and programs into, and successfully initiate and complete, clinical trials;
 

the ability of our clinical trials to demonstrate safety and effectiveness of our product candidates and other positive results;
 

our ability to enroll subjects in the clinical trials for our product candidates in order to advance the development thereof on a timely basis;
 

our ability to obtain additional financing to fund the clinical development of our products and fund operations;
 

estimates regarding the total addressable market for our product candidates;
 

competitive companies and technologies in our industry;
 

our ability to obtain U.S. Food and Drug Administration (FDA) approval for our permanent birth control system, ability to gain FDA grant of a de novo classification request for our intrauterine artificial insemination product, expand sales of our women-specific medical products and develop and commercialize additional products;
 

our ability to commercialize or obtain regulatory approvals, grants of de novo classification requests or 510(k) clearance for our product candidates, or the effect of delays in commercializing or obtaining regulatory authorizations;
 

our business model and strategic plans for our products, technologies and business, including our implementation thereof;
 

commercial success and market acceptance of our product candidates;
 

our ability to achieve and maintain adequate levels of coverage or reimbursement for our FemBloc system or any future products we may seek to commercialize;
 

our ability to manufacture our products and product candidates in compliance with applicable laws, regulations and requirements and to oversee third-party suppliers, service providers and vendors in the performance of any contracted activities in accordance with applicable laws, regulations and requirements;
 

adverse developments affecting the financial services industry;
 

the impact of the COVID-19 pandemic on our business, financial condition, results of operations, and prospects;
 

our ability to accurately forecast customer demand for our product candidates, and manage our inventory;
 

our ability to build, manage and maintain our direct sales and marketing organization, and to market and sell our permanent birth control system, artificial insemination product and women-specific medical product solutions in markets in and outside of the United States;
 

our ability to hire and retain our senior management and other highly qualified personnel;
 

FDA or other U.S. or foreign regulatory actions affecting us or the healthcare industry generally, including healthcare reform measures in the United States and international markets;
 

the timing or likelihood of regulatory filings and approvals or clearances;
 

our ability to establish and maintain intellectual property protection for our product candidates and our ability to avoid claims of infringement;
 

the volatility of the trading price of our common stock;
 

our ability to maintain compliance with Nasdaq’s continued listing requirements; and
 

our expectations about market trends.
The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of known and unknown risks, uncertainties and assumptions, including those described under the sections in this Quarterly Report on Form 10-Q entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the Securities and Exchange Commission as exhibits hereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. The forward-looking statements contained in this Quarterly Report on 10-Q are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended.

PART I. FINANCIAL INFORMATION

ITEM I. 
Financial Statements

FEMASYS INC.
Balance Sheets
(unaudited)

Assets
 
June 30,
2023
   
December 31,
2022
 
Current assets:
           
Cash and cash equivalents
 
$
10,705,017
     
12,961,936
 
Accounts receivable, net
   
155,746
     
77,470
 
Inventory, net
   
581,474
     
436,723
 
Other current assets
   
587,828
     
655,362
 
Total current assets
   
12,030,065
     
14,131,491
 
Property and equipment, at cost:
               
Leasehold improvements
   
1,195,637
     
1,195,637
 
Office equipment
   
99,344
     
99,344
 
Furniture and fixtures
   
419,303
     
419,303
 
Machinery and equipment
   
2,628,509
     
2,572,243
 
Construction in progress
   
384,888
     
413,843
 
     
4,727,681
     
4,700,370
 
Less accumulated depreciation
   
(3,472,349
)
   
(3,217,319
)
Net property and equipment
   
1,255,332
     
1,483,051
 
Long-term assets:
               
Lease right-of-use assets, net
   
162,006
     
319,557
 
Intangible assets, net of accumulated amortization
   
970
     
3,294
 
Other long-term assets
   
865,588
     
958,177
 
Total long-term assets
   
1,028,564
     
1,281,028
 

               
Total assets
 
$
14,313,961
     
16,895,570
 

(continued)

FEMASYS INC.
Balance Sheets
(unaudited)

Liabilities and Stockholders’ Equity  
June 30,
2023
   
December 31,
2022
 
Current liabilities:
           
Accounts payable
 
$
546,877
     
510,758
 
Accrued expenses
   
536,830
     
456,714
 
Note payable
          141,298  
Clinical holdback - current portion
   
88,738
     
45,206
 
Lease liabilities – current portion
   
209,098
     
373,833
 
Total current liabilities
   
1,381,543
     
1,527,809
 
Long-term liabilities:
               
Clinical holdback - long-term portion
   
56,245
     
96,658
 
Lease liabilities – long-term portion
   
     
28,584
 
Total long-term liabilities
   
56,245
     
125,242
 
Total liabilities
   
1,437,788
     
1,653,051
 
Commitments and contingencies
           
Stockholders’ equity:
               
Common stock, $0.001 par, 200,000,000 authorized, 15,190,376 shares issued and 
15,073,153 outstanding as of June 30,2023; and 11,986,927 shares issued and
11,869,704 outstanding as of December 31, 2022
   
15,190
     
11,987
 
Treasury stock, 117,223 shares
   
(60,000
)
   
(60,000
)
Warrants
   
1,918,103
     
567,972
 
Additional paid-in-capital
   
110,977,150
     
108,857,065
 
Accumulated deficit
   
(99,974,270
)
   
(94,134,505
)
Total stockholders’ equity
   
12,876,173
     
15,242,519
 
                 
Total liabilities and stockholders’ equity
 
$
14,313,961
     
16,895,570
 
 
The accompanying notes are an integral part of these unaudited financial statements.

FEMASYS INC.
Statements of Comprehensive Loss
(unaudited)

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2023
   
2022
   
2023
   
2022
 
Sales
 
$
320,514
     
303,113
     
614,498
     
624,518
 
Cost of sales
   
110,469
     
102,353
     
215,589
     
225,028
 
Gross margin
   
210,045
     
200,760
     
398,909
     
399,490
 
Operating expenses:
                               
Research and development
   
1,527,172
     
1,472,924
     
3,064,611
     
2,893,987
 
Sales and marketing
   
128,899
     
63,177
     
373,795
     
132,040
 
General and administrative
   
1,356,637
     
1,181,938
     
2,671,774
     
2,629,293
 
Depreciation and amortization
   
133,299
     
142,684
     
266,365
     
286,883
 
Total operating expenses
   
3,146,007
     
2,860,723
     
6,376,545
     
5,942,203
 
Loss from operations
   
(2,935,962
)
   
(2,659,963
)
   
(5,977,636
)
   
(5,542,713
)
Other income (expense):
                               
Interest income
   
42,652
     
26,745
     
139,741
     
29,199
 
Interest expense
    (198 )     (883 )     (1,870 )     (3,617 )
Other income (expense), net
    42,454     25,862       137,871       25,582  
                                 
Net loss
 
$
(2,893,508
)
   
(2,634,101
)
   
(5,839,765
)
   
(5,517,131
)
                                 
Net loss attributable to common stockholders, basic and diluted
 
$
(2,893,508
)
   
(2,634,101
)
   
(5,839,765
)
   
(5,517,131
)
                                 
Net loss per share attributable to common stockholders, basic and diluted
 
$
(0.22
)
   
(0.22
)
   
(0.47
)
   
(0.47
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
   
13,107,590
     
11,812,988
     
12,493,334
     
11,808,601
 

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

FEMASYS INC.
Statements of Stockholders’ Equity
(unaudited)


                                      Total  
   
Common stock
   
Treasury stock
          Additional     Accumulated     stockholders’  
   
Shares
   
Amount
   
Shares
   
Amount
   
Warrants
   
paid-in capital
   
deficit
   
Equity
 
THREE MONTHS ENDED JUNE 30, 2023
                                               
Balance at March 31, 2023
   
11,989,796
   
$
11,990
     
117,223
   
$
(60,000
)
 
$
567,972
   
$
108,917,384
   
$
(97,080,762
)
 
$
12,356,584
 
                                                                 
Issuance of common stock and warrants in connection with April 2023 Financing, net of issuance costs
   
1,318,000
     
1,318
     
     
     
2,526,664
     
818,014
     
     
3,345,996
 
Issuance of common stock in connection with at-the-market offering, net of issuance costs
   
     
     
     
     
     
     
     
 
Issuance of common stock in connection with ESPP
   
3,858
     
3
     
     
     
     
1,694
     
     
1,697
 
Exercise of pre-funded warrants
   
1,878,722
     
1,879
     
     
     
(1,176,533
)
   
1,174,842
     
     
188
 
Share-based compensation expense
   
     
     
     
     
     
65,216
     
     
65,216
 
Net loss
   
     
     
     
     
     
     
(2,893,508
)
   
(2,893,508
)
 
                                                               
Balance at June 30, 2023
   
15,190,376
   
$
15,190
     
117,223
   
$
(60,000
)
 
$
1,918,103
   
$
110,977,150
   
$
(99,974,270
)
 
$
12,876,173
 
 
                                                               
SIX MONTHS ENDED JUNE 30, 2023
                                                               
Balance at December 31, 2022
   
11,986,927
   
$
11,987
     
117,223
   
$
(60,000
)
 
$
567,972
   
$
108,857,065
   
$
(94,134,505
)
 
$
15,242,519
 
 
                                                               
Issuance of common stock and warrants in connection with April 2023 Financing, net of issuance costs
   
1,318,000
     
1,318
     
     
     
2,526,664
     
818,014
     
     
3,345,996
 
Issuance of common stock in connection with at-the-market offering, net of issuance costs
   
2,869
     
3
     
     
     
     
3,365
     
     
3,368
 
Issuance of common stock in connection with ESPP
   
3,858
     
3
     
     
     
     
1,694
     
     
1,697
 
Exercise of pre-funded warrants
   
1,878,722
     
1,879
     
     
     
(1,176,533
)
   
1,174,842
     
     
188
 
Share-based compensation expense
   
     
     
     
     
     
122,170
     
     
122,170
 
Net loss
   
     
     
     
     
     
     
(5,839,765
)
   
(5,839,765
)
                                                                 
Balance at June 30, 2023
   
15,190,376
   
$
15,190
     
117,223
   
$
(60,000
)
 
$
1,918,103
   
$
110,977,150
   
$
(99,974,270
)
 
$
12,876,173
 

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

FEMASYS INC.
Statements of Stockholders’ Equity
(unaudited)

                                  Total  

 
Common stock
   
Treasury stock
          Additional     Accumulated     stockholders’  
   
Shares
   
Amount
   
Shares
   
Amount
   
Warrants
   
paid-in capital
   
deficit
   
Equity
 
THREE MONTHS ENDED JUNE 30, 2022
                                               
Balance at March 31, 2022
   
11,921,388
   
$
11,921
     
117,223
   
$
(60,000
)
 
$
702,492
   
$
108,462,663
   
$
(85,623,365
)
 
$
23,493,711
 
                                                                 
Expiration of warrant
                                   
(134,520
)
   
134,520
             
 
Issuance of common stock for cash upon exercise of options
   
9,445
     
10
     
     
     
     
16,141
     
     
16,151
 
Share-based compensation expense
   
     
     
     
     
     
62,167
     
     
62,167
 
Net loss
   
     
     
     
     
     
     
(2,634,101
)
   
(2,634,101
)
                                                                 
Balance at June 30, 2022
   
11,930,833
   
$
11,931
     
117,223
   
$
(60,000
)
 
$
567,972
   
$
108,675,491
   
$
(88,257,466
)
 
$
20,937,928
 
                                                                 
SIX MONTHS ENDED JUNE 30, 2022
                                                               
                                                                 
Balance at December 31, 2021
   
11,921,388
   
$
11,921
     
117,223
   
$
(60,000
)
 
$
702,492
   
$
108,418,304
   
$
(82,740,335
)
 
$
26,332,382
 
                                                                 
Expiration of warrant
                                   
(134,520
)
   
134,520
             
 
Issuance of common stock for cash upon exercise of options
   
9,445
     
10
     
     
     
     
16,141
     
     
16,151
 
Share-based compensation expense
   
     
     
     
     
     
106,526
     
     
106,526
 
Net loss
   
     
     
     
     
     
     
(5,517,131
)
   
(5,517,131
)
                                                                 
Balance at June 30, 2022
   
11,930,833
   
$
11,931
     
117,223
   
$
(60,000
)
 
$
567,972
   
$
108,675,491
   
$
(88,257,466
)
 
$
20,937,928
 

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

FEMASYS INC.
Statements of Cash Flows
(unaudited)

   
Six Months Ended June 30,
 
   
2023
   
2022
 
Cash flows from operating activities:
           
Net loss
 
$
(5,839,765
)
   
(5,517,131
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation
   
264,040
     
272,391
 
Amortization
   
2,325
     
14,492
 
Amortization of right-of-use assets
   
148,541
     
169,680
 
Inventory reserve
    1,770       2,900  
Loss on disposal of assets
    44,538        
Share-based compensation expense
   
122,170
     
106,526
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
(78,276
)
   
(29,702
)
Inventory
   
(146,521
)
   
(38,811
)
Other assets
   
154,065
     
255,271
 
Accounts payable
   
36,119
     
(74,957
)
Accrued expenses
   
80,116
     
(76,959
)
Lease liabilites
   
(181,065
)
   
(194,235
)
Other liabilities
   
3,119
     
(23,361
)
                 
Net cash used in operating activities
   
(5,388,824
)
   
(5,133,896
)
Cash flows from investing activities:
               
Purchases of property and equipment
   
(71,849
)
   
(295,058
)
                 
Net cash used in investing activities
   
(71,849
)
   
(295,058
)
Cash flows from financing activities:
               
Proceeds from the issuance of common stock, accompanying warrants and pre-funded warrants in April 2023 Financing
    3,899,813        
Equity issuance costs
    (547,764 )      
Proceeds from exercise of pre-funded warrants
    188        
Proceeds from common stock issued through ESPP and exercised options
    1,697       16,151  
Net proceeds from issuance of common stock in connection with at-the-market sales agreement
    3,373
     
 
Payments of deferred offering costs
          (13,905 )
Repayment of note payable
   
(141,298
)
   
(228,662
)
Payments under lease obligations
   
(12,255
)
   
(11,240
)
                 
Net cash provided by (used in) financing activities
   
3,203,754
     
(237,656
)
 
               
Net change in cash and cash equivalents
   
(2,256,919
)
   
(5,666,610
)
Cash and cash equivalents:
               
Beginning of period
   
12,961,936
     
24,783,029
 
                 
End of period
 
$
10,705,017
     
19,116,419
 
                 
Supplemental cash flow information                
Cash paid for:                
Interest
  $ 1,870       3,617  
Income taxes
  $       800  
Non-cash investing and financing activities:                
Deferred offering costs included in accounts payable and accrued expenses
  $
      82,760  
Commissions and deferred offering costs relating to proceeds from issuance of common stock
  $ 6,163        
Prepaid insurance financed with promissory notes
  $       417,841  

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

FEMASYS INC.
Notes to Financial Statements
(unaudited)

(1)
Organization, Nature of Business, and Liquidity
 
Organization and Nature of Business
 
Femasys Inc. (the Company or Femasys) was incorporated in Delaware on February 19, 2004 and is headquartered in Suwanee, Georgia. The Company is a biomedical company focused on meeting women’s unmet needs worldwide by developing a broad portfolio of innovative product candidates and products that include minimally invasive, in-office technologies for reproductive health. The Company currently operates as one segment with an initial focus on servicing the reproductive health needs for those seeking permanent birth control or solutions for infertility issues.


Femasys has an expansive intellectual property portfolio which covers both design and utility patents in the U.S. and significant ex-U.S. markets for each product initiative. Femasys has taken concepts internally conceived and protected through development, including domestic and foreign regulatory approvals, and production, through in-house manufacturing. FemBloc® (FemBloc), the Company’s solution for permanent birth control, is based on the Company’s non-surgical platform technology. In June 2023, the Company received approval of its Investigational Device Exemption (IDE) from the U.S. Food and Drug Administration (FDA) for the pivotal clinical trial of FemBloc. In July 2023 the Company announced the notice of allowance for a new U.S. patent application covering use of FemBloc for female permanent birth control. FemaSeed® (FemaSeed), a solution which enables directed intrauterine insemination to improve on traditional intrauterine insemination (IUI) and provides a lower cost option to in vitro fertilization methods, received approval in April 2021 from the FDA on its IDE and the clinical trial was initiated in July 2021. An updated trial design received approval in October 2022 from the FDA and the trial enrollment is ongoing. FemaSeed is approved for sale in Canada. FemVue® (FemVue), a solution that enables fallopian tube assessment with ultrasound as an alternative to the radiologic approach (hysterosalpingogram) for the diagnosis of infertility, is approved for sale in the U.S., Japan, and Canada. FemChec® (FemChec), allows for fallopian tube evaluation after a FemBloc procedure to confirm occlusion (or procedure success) and is being studied as part of the FemBloc pivotal trial. FemCath® (FemCath), allows for selective evaluation of an individual fallopian tube as an alternative to the traditional intrauterine catheter that is undirected, is approved for sale in the U.S and Canada. FemCerv® (FemCerv) is a solution for complete tissue sampling with minimal contamination of the endocervical canal as an alternative to the curettage method, and is approved for sale in the U.S and Canada.

Basis of Presentation
 

The Company has prepared the accompanying financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to these rules and regulations. These financial statements should be read in conjunction with the Company’s audited financial statements and footnotes related thereto for the year ended December 31, 2022 included in our Annual Report on Form 10K filed with the SEC on March 30, 2023 (the Annual Report). There have been no material changes to the Company’s significant accounting policies described in Note 2 to the financial statements included in the Annual Report.

 

In the opinion of management, the unaudited financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’s financial position and the results of its operations and cash flows at the dates for periods presented. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires the Company 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 revenue and expense during the reporting periods. The most significant estimates used in these financial statements include the valuation of stock options, warrants, useful lives of property and equipment and intangible assets. Estimates for these and other items are subject to change and are reassessed by management in accordance with U.S. GAAP. Actual results could differ from those estimates.

Liquidity
 
As of June 30, 2023, the Company had cash and cash equivalents of $10,705,017. The Company plans to finance its operations and development needs with its existing cash and cash equivalents, additional equity and/or debt financing arrangements, and revenue primarily from the sale of FemVue to support the Company’s research and development activities, largely in connection with FemBloc and FemaSeed. There can be no assurance that the Company will be able to obtain additional financing on terms acceptable to the Company, on a timely basis, or at all. If the Company is not able to obtain sufficient funds on acceptable terms when needed, the Company’s business, results of operations, and financial condition could be materially adversely impacted.

For the six months ended June 30, 2023, the Company generated a net loss of $5,839,765. The Company expects such losses to increase over the next few years as the Company advances FemBloc and FemaSeed through clinical development until FDA approval is received and the products are available to be marketed.

11

Table of Contents
FEMASYS INC.
Notes to Financial Statements
(unaudited)
The financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred net operating losses in every year since inception and has an accumulated deficit as of June 30, 2023 of $99,974,270 and expects to incur additional losses and negative operating cash flows for at least the next twelve months. The Company’s ability to meet its obligations is dependent upon its ability to generate sufficient cash flows from operations and future financing transactions. Although management expects the Company will continue as a going concern, there is no assurance that management’s plans will be successful since the availability and amount of such funding is not certain. Accordingly, substantial doubt exists about the Company’s ability to continue as a going concern for at least one year from the issuance of these financial statements. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.

Recently Issued Accounting Pronouncements – Recently Adopted

On January 1, 2023, the Company adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which the Financial Accounting Standards Board (FASB) issued in June 2016. The new standard changes the accounting for credit losses for financial assets and certain other instruments, including trade receivables and contract assets, which are not measured at fair value through net income. Under legacy standards, we recognize an impairment of receivables when it was probable that a loss had been incurred. Under the new standard, we are required to recognize estimated credit losses expected to occur over the estimated life or remaining contractual life of an asset (which includes losses that may be incurred in future periods) using a broader range of information including reasonable and supportable forecasts about future economic conditions. The guidance is effective for smaller reporting companies as defined by the SEC for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years with early adoption permitted. The Company’s adoption of this new guidance did not have a material impact on the Company’s financial statements and footnote disclosures (unaudited).
 
Recently Issued Accounting Pronouncements – Not Yet Adopted
 
No other new accounting pronouncement issued or effective has had, or is expected to have, a material impact on the Company’s financial statements.
 
(2)
Cash and Cash Equivalents
 
As of June 30, 2023 and December 31, 2022, money market funds included in cash and cash equivalents on the balance sheets were $10,038,944 and $12,553,557, respectively, which represent level 1 within the fair value hierarchy where there are quoted prices in active markets for identical assets.

(3)
Inventories
 
Inventory stated at cost, net of reserve, consisted of the following:

    June 30,     December 31,  
   
2023
    2022
 
Materials
 
$
356,274
     
244,498
 
Work in progress
   
71,081
     
100,453
 
Finished goods
   
154,119
     
91,772
 
Inventory, net
 
$
581,474
     
436,723
 

The FemVue reserve for slow moving, obsolete, or unusable inventories was $3,091 and $2,103 as of June 30, 2023 and December 31, 2022, respectively.

(4)
Accrued Expenses
 
Accrued expenses consisted of the following:

    June 30,     December 31,  
    2023
    2022
 
Clinical trial costs
 
$
295,582
     
333,440
 
Compensation costs
   
129,323
     
85,191
 
Franchise taxes
          26,886  
Director fees
    90,424        
Other
   
21,501
     
11,197
 
Accrued expenses
 
$
536,830
     
456,714
 

12

Table of Contents
FEMASYS INC.
Notes to Financial Statements
(unaudited)
(5)
Clinical Holdback
 
The following table shows the activity within the clinical holdback liability accounts for the six months ended June 30, 2023:
 
Balance at December 31, 2022
 
$
141,864
 
Clinical holdback retained
   
3,447
 
Clinical holdback paid
   
(328
)
Balance at June 30, 2023
 
$
144,983
 
Less: clinical holdback - current portion
   
(88,738
)
Clinical holdback - long-term portion
 
$
56,245
 

(6)
Revenue Recognition
 
Revenue is recognized upon shipment of our goods based upon contractually stated pricing at standard payment terms ranging from 30 to 60 days. All revenue is recognized point in time and no revenue is recognized over time. For the three and six months ended June 30, 2023 and 2022, there was no revenue recognized from performance obligations satisfied or partially satisfied in prior periods, nor were there any unsatisfied performance obligations as of June 30, 2023 or 2022.
 
The majority of products sold directly to U.S customers are shipped via common carrier, and the customer pays for shipping and handling and assumes control Free on Board (FOB) shipping point. Products shipped to our international distributors are in accordance with their respective agreements; however, the shipping terms are generally EX-Works, reflecting that control is assumed by the distributor at the shipping point. Returns are only accepted with prior authorization from the Company. Items to be returned must be in original unopened cartons and are subject to a 30% restocking fee. Throughout the periods presented, the Company has not had a history of significant returns.
 
The following table summarizes our sales, primarily from FemVue, by geographic region as follows:

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
Primary geographical markets
 
2023
   
2022
   
2023
   
2022
 
U.S.
 
$
262,469
     
303,113
     
556,453
     
566,473
 
International
   
58,045
     
     
58,045
     
58,045
 
Total
 
$
320,514
     
303,113
     
614,498
     
624,518
 

(7)
Commitments and Contingencies

Legal Claims
 
Occasionally, the Company may be a party to legal claims or proceedings of which the outcomes are subject to significant uncertainty. In accordance with Accounting Standards Codification (ASC) 450, Contingencies, the Company will assess the likelihood of an adverse judgment for any outstanding claim as well as ranges of probable losses. When it has been determined that a loss is probable and the amount can be reasonably estimated, the Company will record a liability. For both periods presented, there were no material legal contingencies requiring accrual or disclosure.

The Company, as permitted under Delaware law and in accordance with its bylaws, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity. The Company entered into employment agreements with its officers, which provides for indemnification protection in the executive’s capacity as an officer for actions taken within the scope of employment. The maximum amount of potential future indemnification is unlimited; however, the Company has obtained director and officer insurance that limits its exposure. The Company believes the fair value for these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to these obligations as of June 30, 2023 and December 31, 2022.

(8)
Notes Payable

AFCO Credit Corporation (AFCO)
 
As of June 30, 2023 and December 31, 2022, the principal balance on the remaining AFCO promissory notes was $0 and $141,298, respectively and is included in Notes payable in the accompanying balance sheets. Interest expense in connection with the AFCO promissory notes was $1,319 and $86 for the three months ended June 30, 2023 and 2022, respectively. Interest expense was $1,319 and $1,882 for the six months ended June 30, 2023 and 2022, respectively.

13

Table of Contents
FEMASYS INC.
Notes to Financial Statements
(unaudited)
(9)
Stockholders’ Equity
  
In July 2022, the Company entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Piper Sandler & Co. (“Piper Sandler” or the “Sales Agent”) and filed a related Prospectus establishing an “at-the-market” facility, pursuant to which the Company may offer and sell shares of common stock having an aggregate offering price of up to $8,800,000 from time to time through the Sales Agent pursuant to the Prospectus. For the six months ended June 30, 2023, 2,869 shares of common stock were sold under the Equity Distribution Agreement. In April 2023, the Company suspended its at-the-market facility with the Sales Agent. The Company will not make any sales of its Common Stock pursuant to the Equity Distribution Agreement unless and until a new prospectus supplement is filed with the Securities and Exchange Commission; however, the Equity Distribution Agreement remains in full force and effect.

In April 2023, the Company sold an aggregate of (i) 1,318,000 shares of common stock and (ii) pre-funded warrants to purchase up to 1,878,722 shares of common stock in a registered direct offering (“pre-funded warrants”) and, in a a concurrent private placement, warrants to purchase up to 3,196,722 shares of common stock (“common warrants”). Additionally, common warrants were issued to the placement agent to purchase up to 191,803 shares of common stock as compensation for services (“placement agent warrants”), collectively the (“April 2023 Financing”). The purchase price per share for the common stock, pre-funded warrants was $1.22 and $1.2199, respectively. The gross proceeds from the offering were $3,899,813, less placement agent fees and offering expenses of $547,764. The Company intends to use the net proceeds from the offering for general corporate purposes.

As of June 30, 2023, the Company had 15,073,153 shares of common stock outstanding, and no dividends have been declared or paid.

(10)
Equity Incentive Plans and Warrants

Stock-Based Awards


(a)
Stock Option Plans
 
Activity under the Company’s stock option plans for the six months ended June 30, 2023 was as follows:

   
Number of
options
   
Weighted
average
exercise
price
 
Outstanding at December 31, 2022     931,550     $ 3.97  
Granted     5,000       1.18  
Forfeited     (50,055 )     1.87  
Outstanding at March 31, 2023     886,495     $ 4.07  
 Granted
    153,200       0.75  
 Forfeited
    (20,024 )     3.94  
Outstanding at June 30, 2023
    1,019,671     $
3.57  
                 
Vested and exercisable at June 30, 2023     511,472     $ 3.09  

Options granted under our 2021 Stock Option Plan for the six months ended June 30, 2023 to employees and nonemployees were 85,200 and 73,000, respectively and the weighted average exercise prices were $0.87 and $0.64, respectively. The weighted-average fair values of the options granted to employees and nonemployees were $0.74 and $0.51, respectively and were estimated using the following weighted-average Black-Scholes assumptions:

    Employee
     Nonemployee  
Expected term (in years)
   
6.25
      5.49  
Risk‑free interest rate
   
3.55
%
    3.96 %
Dividend yield
   
%
    %
Expected volatility
   
110.43
%
    106.58 %
 
No options were exercised for the six months ended June 30, 2023 under our stock option plans.

As of June 30, 2023, the total number of shares of common stock reserved for future awards under the 2021 Stock Option Plan was 1,711,914.


(b)
Inducement Grants

For the six months ended June 30, 2023, no inducement awards were granted. As of June 30, 2023, 150,000 shares were outstanding with a weighted average exercise price of $2.42, and 25,000 shares were vested and exercisable with a weighted average exercise price of $2.97.

14

Table of Contents
FEMASYS INC.
Notes to Financial Statements
(unaudited)

(c) Share-Based Compensation Expense

The following table shows the share-based compensation expense related to vested stock option grants to employees and nonemployees by financial statement line item on the accompanying statement of comprehensive loss:
 
    Three Months Ended June 30,         Six Months Ended June 30,  
   
2023
   
2022
    2023     2022  
Research and development
 
$
27,192
     
33,436
      52,251       62,575  
Sales and marketing
   
602
     
1,216
      (1,942 )     2,342  
General and administrative
   
37,422
     
27,515
      71,861       41,609  
Total share-based compensation expense
 
$
65,216
     
62,167
      122,170       106,526  

As June 30, 2023, the remaining share-based compensation expense that is expected to be recognized in future periods for employees and nonemployees is $956,653, which includes $463,101 of compensation expense to be recognized upon achieving certain performance conditions. For service-based awards, the $493,552 of unrecognized expense is expected to be recognized over a weighted average period of 2.7 years.
 

(d)
Employee Stock Purchase Plan (ESPP)
 
For the six months ended June 30, 2023, 3,858 shares of common stock were issued under the Company’s ESPP Plan. As of June 30, 2023, the total number of shares of common stock reserved for future awards under the ESPP Plan was 394,704.


(e)
April 2023 Financing

On  April 20, 2023, the Company entered into a securities purchase agreement pursuant to which the Company sold (i) 1,318,000 shares of common stock (see Note 9, Stockholders’ Equity), (ii) pre-funded warrants to purchase 1,878,722 shares of common stock, (iii) common warrants to purchase