femasys(FEMY) - 2022 Q4 - Annual Report

Forward-Looking Statements This section outlines that the Annual Report on Form 10-K contains forward-looking statements, subject to risks and uncertainties, and the company does not plan to update them Special Note Regarding Forward-Looking Statements The Annual Report on Form 10-K includes forward-looking statements based on current expectations, which are subject to risks and uncertainties, and actual results may differ materially - The report contains forward-looking statements, which are predictions based on current expectations and projections about future events and financial trends[12][14] - These statements are subject to known and unknown risks, uncertainties, and assumptions, including those described under 'Risk Factors' and 'Management's Discussion and Analysis of Financial Condition and Results of Operations'[14] - Actual results could differ materially from those projected, and the company does not plan to publicly update or revise any forward-looking statements, which are excluded from safe harbor protection[14] PART I This part provides a comprehensive overview of Femasys Inc.'s business, including its product candidates, strategy, market landscape, intellectual property, regulatory environment, and associated risks Item 1. Business Femasys Inc. is a biomedical company focused on transforming women's healthcare through novel, minimally-invasive, non-surgical product technologies, with lead candidates FemBloc and FemaSeed - Femasys Inc. is a biomedical company dedicated to transforming women's healthcare with minimally-invasive, non-surgical product technologies[21] - The company's lead product candidates are FemBloc for permanent birth control and FemaSeed for artificial insemination, addressing multi-billion dollar global market segments[21] - Femasys possesses an expansive, internally created intellectual property portfolio with over 150 global patents and in-house manufacturing capabilities[21][31][32] Business Overview Femasys is a woman-founded biomedical company developing minimally-invasive, non-surgical solutions for women's reproductive health, including FemBloc for permanent birth control and FemaSeed for artificial insemination - Femasys is a woman-founded and led biomedical company focused on minimally-invasive, non-surgical solutions for women's healthcare[21] - FemBloc is a permanent birth control solution in development, designed as the first non-surgical, non-implant option, using a degradable biopolymer to close fallopian tubes in a physician's office[22] - FemaSeed is an artificial insemination solution in development, offering selective delivery of sperm directly to the fallopian tube, aiming to be a first-line treatment for infertility, especially male factor infertility[26] Our Team Femasys is led by an experienced team of biotechnology and medical device developers who have raised over $100 million since inception to advance women's health - Femasys is a woman-founded, woman-led biomedical company with an experienced leadership team[30] - The team has raised over $100 million since inception from institutional and strategic investors, including Medtronic and an IPO in June 2021[30] Our Intellectual Property and Production Capabilities Femasys protects its women's health solutions with a robust intellectual property portfolio of 40 U.S. and 122 foreign patents and maintains in-house manufacturing capabilities compliant with FDA and ISO standards - Femasys protects its proprietary methods with patents, know-how, and trade secrets[31] Intellectual Property Portfolio (as of December 31, 2022) | Category | Number | | :--------------------------------- | :----- | | Issued U.S. Patents | 40 | | Issued Foreign Patents | 122 | | Pending U.S. Patent Applications | 13 | | Pending Foreign Patent Applications | 17 | | Expected Expiration (without extensions) | 2023-2046 | - All products are manufactured or assembled at the company's facility, ensuring compliance with FDA and good manufacturing practices (QSR) and ISO 13485:2016[32][63] Our Strategy Femasys aims to be a global leader in women's health by addressing unmet clinical needs, executing clinical programs for FDA approvals, continuously innovating, and building a specialized sales and marketing team - Strategy includes addressing unmet clinical needs in large women's health markets, particularly reproductive health (permanent birth control and infertility)[33][34] - Execute clinical programs to achieve FDA approval for FemBloc (PMA) and de novo classification for FemaSeed, with submissions planned for Q1 2023 and Q2 2023, respectively[35][36] - Continuously innovate and introduce additional women-specific medical products, such as the recently introduced FemCerv and the developing FemEMB, and build a specialized direct sales and marketing team[38][40] The Current Market Landscape The current markets for permanent birth control and artificial insemination are characterized by invasive, costly, or low-efficacy options, which Femasys aims to disrupt with its non-surgical and localized solutions - Existing permanent birth control options are surgical tubal ligation (invasive, risks) or temporary methods (hormonal, implants, health risks)[42] - Current artificial insemination options include IUI (low success rate, undirected) and IVF/ICSI (high cost, invasive, physical/emotional demands)[44] - Femasys's FemBloc aims to be the first non-surgical, non-implant permanent birth control, and FemaSeed aims to be the first localized, directional sperm delivery for artificial insemination[42][44] The Reproductive Health Opportunity Femasys targets a multi-billion dollar reproductive health market where many women seek to prevent or achieve pregnancy but are dissatisfied with existing options due to invasiveness, cost, or limited success - The U.S. market for permanent birth control could exceed $20 billion with a safe and effective in-office option, as 12 million women use non-permanent methods[46] - The U.S. market for assisted reproduction could exceed $2 billion with a novel first-line approach, addressing over 10 million infertile women[47] - Current options for permanent birth control (surgical) and infertility (IUI, IVF) have limitations in terms of invasiveness, cost, and success rates, creating significant unmet needs[46][47] Clinical Development Femasys is actively developing clinical evidence for FemBloc and FemaSeed, with preclinical studies showing efficacy and clinical trials progressing despite past challenges, while FemCerv has demonstrated high adequacy rates - FemBloc preclinical studies demonstrated 0% fertility rate in treated animals and complete tissue occlusion over time[50] - FemBloc clinical trials in 228 subjects reported no serious adverse events, with 91% of events being mild and occurring within seven days of the procedure[52] - The FemaSeed pivotal trial, focusing on male factor infertility, is expected to complete enrollment in Q2 2023, with results to support a de novo classification request[26][61] - FemCerv, an FDA-cleared endocervical tissue sampler, showed 94% sample adequacy and 95% mild or no discomfort in a post-market study[62] Manufacturing Femasys manufactures all products in-house under strict quality standards, with sufficient capacity for current needs, while managing supply chain risks from limited third-party suppliers - All products and product candidates are manufactured or assembled in-house, adhering to FDA QSR, MDSAP, and ISO 13485:2016 standards[63][66] - The company has sufficient manufacturing capacity for current clinical and preliminary FemaSeed launch demands, with plans to scale up and consider outsourcing sub-assemblies for commercial growth[63] - Femasys relies on a limited number of third-party suppliers for components and contract sterilizers, managing supply chain risk through supplier management programs and inventory[67][68][69] Competition Femasys operates in a highly competitive biomedical industry, with FemBloc and FemaSeed having no direct non-surgical or localized delivery competitors, but facing competition from established methods and companies with greater resources - The biomedical industry is highly competitive with rapid technological change[70] - FemBloc (permanent birth control) has no direct non-surgical, non-implant competitors, but competes with surgical tubal ligation, vasectomies, and temporary birth control methods[71] - FemaSeed (artificial insemination) has no direct localized directional delivery competitors but competes with IUI, IVF/ICSI, and fertility-enhancing pharmaceuticals[72] - Many competitors possess greater resources, longer operating histories, and more established products[74] Sales & Marketing Femasys plans to build direct sales forces in the U.S. for FemaSeed and FemBloc, targeting specialists and gynecologists, with minimal training requirements and awareness campaigns for product benefits - Femasys plans to recruit and train a direct sales force for FemaSeed in the U.S., targeting approximately 1,300 reproductive endocrinologists at 450 practices, prioritizing existing FemVue customers and high-volume states[75][76] - For FemBloc, if approved, a gynecologist-focused sales force will target approximately 41,000 gynecologists, prioritizing 13 states with high reproductive-aged women populations[78] - Physicians experienced in intrauterine procedures will require minimal training for FemBloc and FemaSeed, with additional sonographic training for confirmation tests expected to be largely online[79] Reimbursement Femasys anticipates revenue from FemaSeed and FemBloc sales through established CPT codes and third-party payors, with FemBloc expected to be covered under the Affordable Care Act - FemaSeed revenue is expected from fertility practices billing patients or third-party payors, utilizing established CPT codes for intrauterine insemination[81] - FemBloc revenue is expected from gynecology offices billing third-party payors, currently using CPT Category III codes, with plans to seek Category I codes requiring clinical efficacy documentation[83][84] - The FemBloc procedure is expected to map to APC level 4 gynecologic procedures with a payment of $2,498 (tubal ligation) and is anticipated to be covered under the Affordable Care Act (ACA)[84][85] Intellectual Property Femasys protects its proprietary technology through a portfolio of 40 U.S. and 122 foreign patents, trademarks, and trade secrets, with specific patent families covering key products - Femasys protects its proprietary technology through patents, trademarks, trade secrets, and other intellectual property rights[87] Intellectual Property Portfolio (as of December 31, 2022) | Category | Number | | :--------------------------------- | :----- | | Issued U.S. Patents | 40 | | Issued Foreign Patents | 122 | | Pending U.S. Patent Applications | 13 | | Pending Foreign Patent Applications | 17 | | Expected Expiration (without extensions) | 2023-2046 | - Specific patent families cover key products like FemBloc (protection until at least 2025/2030), FemVue (2026/2028), FemChec (2026/2028/2029/2032), FemaSeed (2025/2026), FemCerv (2027/2032/2033), and FemEMB (2033)[91] Government Regulation Femasys's medical devices are subject to extensive U.S. and international regulations covering all stages from design to post-market surveillance, along with healthcare fraud, abuse, and data privacy laws, with non-compliance carrying substantial penalties - Medical devices are subject to extensive regulation by the FDA in the U.S. and international authorities, covering all stages from design to post-market surveillance[93] - U.S. pre-market review pathways include 510(k) clearance (Class I/II), de novo classification (novel low/moderate risk Class III to Class I/II), and Pre-market Approval (PMA) (Class III, highest risk)[94][96][98][101] - Ongoing regulations include Quality System Regulation (QSR), labeling, promotion restrictions, and medical device reporting (MDR) for adverse events[110][112][113][114] - The company is subject to federal and state healthcare fraud and abuse laws (Anti-Kickback, False Claims, HIPAA, Sunshine Act) and patient data privacy laws (HIPAA, HITECH, CCPA, GDPR), with non-compliance carrying significant civil and criminal penalties[123][124][125][126][128][129][130][131][132][288][291][292][297][298][299][300][301] - The Affordable Care Act (ACA) and other healthcare reform measures in the U.S. and EU (Medical Devices Regulation) impact the healthcare industry, potentially affecting reimbursement and regulatory requirements[134][135][136][137][138][139][285][286][287][302][303][304][305][306][307] Employees and Human Capital Resources Femasys employs 34 full-time and two part-time individuals, focusing on attracting and retaining diverse talent through competitive compensation and an inclusive environment to support business objectives Employee Count (as of December 31, 2022) | Category | Number | | :--------- | :----- | | Full-time employees | 34 | | Part-time employees | 2 | | Consultants | 18 | - The company focuses on attracting, motivating, and retaining highly qualified and diverse talent through competitive compensation, benefits, and an inclusive environment[141][142][144] Facilities Femasys operates all its research, development, manufacturing, and office activities from a single 45,000 square foot facility in Suwanee, Georgia - Femasys operates from a single 45,000 square foot facility in Suwanee, Georgia, housing research, development, manufacturing, and office space[145] Legal Proceedings Femasys is not currently involved in any material legal proceedings, but may face future litigation related to intellectual property, which could incur costs and divert management attention - Femasys is not currently a party to any legal proceedings expected to have a material adverse effect on its business[146] - The company may receive allegations of patent or trademark infringement and may participate in litigation, which could divert management time and incur financial costs[146] About Us and Available Information Femasys Inc., incorporated in Delaware in 2004 and headquartered in Suwanee, Georgia, files its public reports with the SEC, which are accessible on the SEC's and the company's websites - Femasys Inc. was incorporated in Delaware on February 19, 2004, and is headquartered in Suwanee, Georgia[147] - The company files reports with the SEC, available on www.sec.gov and its website www.femasys.com, including 10-K, 10-Q, 8-K, and corporate governance documents[147][148] Item 1A. Risk Factors Investing in Femasys common stock involves high risk due to significant operating losses, the need for additional funding, potential clinical and regulatory failures, intense competition, and challenges in managing growth and intellectual property - Femasys has incurred significant operating losses since inception and expects to continue incurring losses, with an accumulated deficit of $94,134,505 as of December 31, 2022[150][151] - There is substantial doubt about the company's ability to continue as a going concern, as current cash and cash equivalents are expected to fund operations only into Q1 2024, necessitating additional funding[151][155][160] - Key risks include delays or failures in clinical trials (e.g., FemBloc, FemaSeed), inability to obtain FDA approvals or market acceptance, intense competition, and challenges in managing organizational growth[165][170][171][174][175][188][190][193][203][244] - The company faces risks related to intellectual property protection, compliance with extensive government regulations (FDA, healthcare fraud, privacy), and adverse global economic conditions[248][249][288][297][314][315][362] Risks Related to Our Financial Position and Need for Additional Capital Femasys has incurred significant operating losses and an accumulated deficit, requiring substantial additional funding to continue operations beyond Q1 2024, raising substantial doubt about its going concern ability Financial Performance and Position (2021-2022) | Metric | 2022 | 2021 | | :----------------------- | :----------- | :----------- | | Net Loss | $(11,394,170) | $(7,537,845) | | Accumulated Deficit (as of Dec 31) | $(94,134,505) | $(82,740,335) | | Cash & Cash Equivalents (as of Dec 31) | $12,961,936 | $24,783,029 | - Current cash and cash equivalents are expected to fund operations only into Q1 2024, indicating a need for substantial additional funding and raising substantial doubt about the company's ability to continue as a going concern[151][155][160][431] - Future funding requirements are dependent on factors such as clinical trial progress, regulatory approvals, market acceptance, and intellectual property costs[158][434] - The company's ability to use net operating losses (NOLs) and R&D credit carryforwards to offset future taxable income may be limited due to past or future ownership changes under Sections 382 and 383 of the Internal Revenue Code[163][573][576] Risks Related to Discovery and Development Femasys faces significant risks in product development, including clinical trial delays, potential FDA non-approval for FemBloc, lengthy and uncertain regulatory processes, and intense competition from better-resourced companies - Enrollment and retention in clinical trials are expensive and time-consuming, potentially delayed by factors like the COVID-19 pandemic and consolidation in the infertility market, which may affect IVF access[165][166][167][169] - The FDA may not allow a pivotal trial for FemBloc PMA approval due to past unintended pregnancies caused by ultrasound misinterpretation, despite a validation study showing no pregnancies with dual confirmation[170] - Obtaining FDA approval (PMA for FemBloc) or de novo classification (FemaSeed) is lengthy, expensive, and uncertain, with no guarantee of success or broad market acceptance[171][175][177][188][190][193] - The company faces intense competition from established biomedical companies with greater resources and must continuously enhance its products and expand indications for long-term growth[203][204][207] - Inaccurate forecasting of customer demand and inventory management could materially harm operations, and reliance on a limited number of third-party suppliers and sterilizers poses supply chain risks[208][209][212][213][216][217] Risks Related to Managing Growth and Employee Matters Femasys faces risks from health epidemics, IT system vulnerabilities, reliance on a single facility, challenges in attracting and retaining talent, and the complexities of managing organizational expansion and social media use - Health epidemics, such as the COVID-19 pandemic, can significantly disrupt clinical trials, delay regulatory approvals, and adversely affect business operations and financial condition[235][237][401] - Reliance on information technology systems makes the company vulnerable to failures, security breaches, or unauthorized access, potentially leading to operational interruptions, liabilities, and reputational harm[239][240][364][365][366] - The company's single facility in Suwanee, Georgia, creates a risk of business disruption if damaged or rendered inoperable by disasters[241] - Maintaining a competitive position depends on attracting and retaining highly qualified senior management and other personnel, with replacement involving significant time and costs[242] - Future growth will require expanding the organization, which may be difficult to manage effectively, and increasing reliance on independent organizations and consultants[244][245][246] - The increasing use of social media platforms presents new risks and challenges related to regulatory compliance, potential for off-label marketing allegations, and reputational harm[247] Risks Related to Government Regulation Femasys's products are subject to extensive U.S. and international government regulations, including marketing authorizations, manufacturing standards, and fraud and abuse laws, with non-compliance leading to severe penalties and business disruption - Femasys's products and operations are subject to extensive and stringent government regulation by the FDA and foreign counterparts, with non-compliance leading to severe enforcement actions[248][249][251] - Failure to obtain necessary marketing authorizations (PMA for FemBloc, de novo for FemaSeed, 510(k) for others) or timely approval for modifications could adversely affect business growth[252][253][254][255][263][264] - Post-marketing regulatory requirements, including periodic reports and compliance with PMA conditions, are ongoing, and non-compliance could lead to enforcement actions or product withdrawal[265][266][267] - Products must be manufactured in accordance with federal and state Quality System Regulations (QSR), and failure to comply could result in recalls or production termination[270][271] - The company is subject to federal, state, and foreign fraud and abuse laws (Anti-Kickback, False Claims, HIPAA, Sunshine Act) and health information privacy and security laws (HIPAA, HITECH, GDPR, CCPA), with violations leading to substantial penalties and reputational harm[288][291][292][297][300][301] - Inadequate funding for regulatory agencies (FDA, SEC) or changes in healthcare policies (e.g., ACA) could delay product reviews, increase costs, or reduce demand[294][295][302][303][304][305][306][307][308] Risks Related to Intellectual Property Matters Femasys's competitive position depends on protecting its intellectual property, but patents may be challenged or circumvented, and litigation or misuse of confidential information could incur significant costs and harm the business - Commercial success depends on obtaining, maintaining, protecting, and enforcing intellectual property rights, including patents, trademarks, and trade secrets[314][315] - Patents may be challenged, deemed unenforceable, invalidated, or circumvented, and may not provide adequate protection against competitors[317][318][320] - Litigation or third-party claims of intellectual property infringement are costly, time-consuming, and could lead to substantial damages, royalties, or the need to redesign products[324][326] - Obtaining and maintaining patent protection requires compliance with governmental requirements, and recent changes in U.S. patent laws (Leahy-Smith Act) could increase uncertainties and costs[323][334][335] - Inadequate protection of trademarks and trade names could hinder brand recognition, and the company faces risks from employees or consultants misusing confidential information or misappropriating trade secrets[322][328][329][337][339] Risks Related to Our Common Stock Femasys's common stock faces risks from reduced disclosure requirements as an emerging growth company, anti-takeover provisions, significant insider voting power, public company costs, and the absence of anticipated cash dividends - As a "smaller reporting company" and "emerging growth company," Femasys benefits from reduced disclosure requirements, which may make its common stock less attractive to investors[340][341][342][343] - Anti-takeover provisions in charter documents and Delaware law could make an acquisition more difficult and prevent attempts by stockholders to replace management[343][345] - Officers, directors, and principal stockholders collectively control approximately 18.7% of outstanding common stock, potentially influencing matters requiring stockholder approval[346] - The company incurs significant costs as a public company and is obligated to develop and maintain effective internal controls over financial reporting, with potential adverse effects on investor confidence if controls are inadequate[347][348][350][351] - The amended and restated certificate of incorporation designates Delaware courts as the exclusive forum for certain disputes, potentially limiting stockholders' choice of judicial forum[352][353] - Femasys does not anticipate paying cash dividends in the foreseeable future, making capital appreciation the sole source of gain for stockholders[354] General Risk Factors Femasys faces general risks including adverse financial industry developments, unfavorable global economic conditions, cybersecurity threats, inaccurate market forecasts, employee misconduct, and stock price volatility - Adverse developments in the financial services industry, including bank failures (e.g., SVB), could significantly impair access to cash and liquidity, impacting business operations and financial condition[356][357][359][360] - Unfavorable global economic conditions can adversely affect demand for products and the ability to raise additional capital[362] - Internal computer systems are vulnerable to cybersecurity attacks and data breaches, potentially leading to operational disruptions, significant liabilities, and reputational harm[364][365][366] - Estimates of market opportunity and growth forecasts may prove inaccurate, and the business may not grow as projected[368] - Misconduct by employees, contractors, or partners, including noncompliance with regulatory standards, could lead to penalties, investigations, and reputational damage[369] - The trading market for common stock may not be sustained, and its price is expected to fluctuate substantially due to various factors, including regulatory approvals, clinical trial results, and market conditions[371][372] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC regarding the company's filings - No unresolved staff comments were reported[377] Item 2. Properties Femasys leases a 45,000 square foot facility in Suwanee, Georgia, for R&D, manufacturing, and office space, with the current lease expiring in January 2024 and an extension process initiated - Femasys leases a 45,000 square foot facility in Suwanee, Georgia, for R&D, manufacturing, and office space[378] - The lease expires in January 2024, with an option for two consecutive five-year extensions, and the company has provided written notice to exercise this option[378][550] Item 3. Legal Proceedings Femasys is not currently involved in any material legal proceedings - No material legal proceedings were reported[379] Item 4. Mine Safety Disclosures This item is not applicable to Femasys Inc - This item is not applicable[379] PART II This part covers Femasys's common stock market, financial condition, results of operations, and critical accounting policies, along with disclosures about market risk and financial statements Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Femasys common stock is listed on NASDAQ under FEMY, with 160 record holders as of March 2023, and the company does not anticipate paying cash dividends, intending to retain earnings for business development - Femasys common stock is listed on the NASDAQ Capital Market under the ticker symbol FEMY[381] - As of March 24, 2023, there were 160 holders of record of common stock[382] - The company has not declared or paid cash dividends and does not anticipate doing so, expecting to retain future earnings for business development[382] - No material change in the planned use of proceeds from the June 2021 IPO[386] Equity Compensation Plan Information (as of December 31, 2022) | Plan Category | Number of shares to be issued upon exercise of outstanding options () | Weighted average exercise price of outstanding options ($) | Number of shares remaining available for future issuance | | :--------------------------------------- | :------------------------------------------------------- | :------------------------------------------------------- | :------------------------------------------------------- | | Equity compensation plans approved by stockholders (2021 Plan) | 357,950 | $5.40 | 1,605,111 | | Equity compensation plans not approved by stockholders (2015 Plan) | 573,600 | $3.07 | n/a | | Inducement Awards | 150,000 | $2.42 | n/a | | Total | 1,081,550 | | 1,605,111 | Item 6. [Reserved] This item is reserved and not applicable - This item is reserved and not applicable[391] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Femasys reported a net loss of $11.4 million in 2022, an increase from 2021, driven by higher R&D and sales & marketing expenses, with current cash sufficient only into Q1 2024, raising going concern doubts - Femasys is a biomedical company focused on women's healthcare, with lead product candidates FemBloc (permanent birth control) and FemaSeed (artificial insemination)[391] - Business operations are significantly affected by clinical trial commencement and conduct, regulatory approvals, clinical results, market acceptance, and competition[400] - The COVID-19 pandemic has caused delays in clinical trial site initiation and subject enrollment, impacting development timelines[401] Key Financial Results (Years Ended December 31) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :-------------------------- | :----------- | :----------- | :----------- | :----------- | | Sales | $1,206,218 | $1,179,689 | $26,529 | 2.2% | | Cost of Sales | $441,938 | $370,384 | $71,554 | 19.3% | | Gross Margin | $764,280 | $809,305 | $(45,025) | -5.6% | | Gross Margin Percentage | 63.4% | 68.6% | -5.2% | | | R&D Expenses | $5,813,755 | $4,084,304 | $1,729,451 | 42.3% | | Sales & Marketing Expenses | $558,852 | $208,735 | $350,117 | 167.7% | | General & Administrative Expenses | $5,430,704 | $4,262,002 | $1,168,702 | 27.4% | | Net Loss | $(11,394,170) | $(7,537,845) | $(3,856,325) | 51.2% | | Cash & Cash Equivalents (as of Dec 31) | $12,961,936 | $24,783,029 | $(11,821,093) | -47.7% | - Current cash and cash equivalents are expected to fund operations only into Q1 2024, leading to substantial doubt about the company's ability to continue as a going concern and necessitating additional capital[431][432] Factors Affecting Our Business Key factors impacting Femasys's business include the commencement and conduct of clinical trials for product candidates (FemBloc, FemaSeed), timely regulatory approvals, clinical results, market acceptance, and intense competition. The COVID-19 pandemic has further complicated clinical trial enrollment and timelines - Business is impacted by clinical trial progress, regulatory approvals, clinical results, market acceptance, and competition[400] - The COVID-19 pandemic has caused delays in site initiation and subject enrollment for clinical trials[401] Components of Our Comprehensive Loss Femasys's comprehensive loss components include sales (primarily FemVue), cost of sales, gross margin, and increasing R&D, sales & marketing, and general & administrative expenses as products develop and commercialize - Sales are primarily from the FemVue product, with control transferred upon shipment[402][404] - Cost of sales includes components, materials, labor, and manufacturing overhead, expected to increase with revenue[405] - R&D expenses, expensed as incurred, include engineering, product development, clinical, and regulatory costs, expected to increase with product candidate development[407][408] - Sales and marketing, and general and administrative expenses are expected to increase in absolute dollars due to commercialization efforts, headcount, and public company costs[409][410] Results of Operations In 2022, Femasys's sales increased by 2.2% to $1.21 million, but a 35.2% surge in operating expenses, particularly R&D and sales & marketing, led to a 51.2% increase in net loss to $11.39 million Sales Performance (Years Ended December 31) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :----------------- | :----------- | :----------- | :----------- | :----------- | | Total Sales | $1,206,218 | $1,179,689 | $26,529 | 2.2% | | U.S. Sales | $1,090,359 | $1,005,612 | $84,747 | 8.4% | | International Sales | $115,859 | $174,077 | $(58,218) | -33.4% | Operating Expenses (Years Ended December 31) | Expense Category | 2022 | 2021 | Change ($) | Change (%) | | :-------------------------- | :----------- | :----------- | :----------- | :----------- | | Research and Development | $5,813,755 | $4,084,304 | $1,729,451 | 42.3% | | Sales and Marketing | $558,852 | $208,735 | $350,117 | 167.7% | | General and Administrative | $5,430,704 | $4,262,002 | $1,168,702 | 27.4% | | Total Operating Expenses | $12,364,544 | $9,146,109 | $3,218,435 | 35.2% | - Net loss increased by 51.2% to $11,394,170 in 2022, primarily due to higher R&D, sales & marketing, and G&A expenses, partially offset by increased interest income[415][423] Liquidity and Capital Resources As of December 31, 2022, Femasys had $13.0 million in cash, expected to fund operations only into Q1 2024, raising substantial doubt about its going concern ability and necessitating additional capital Liquidity Snapshot (as of December 31) | Metric | 2022 | 2021 | | :----------------------- | :----------- | :----------- | | Cash and Cash Equivalents | $12,961,936 | $24,783,029 | | Accumulated Deficit | $(94,134,505) | $(82,740,335) | - Current cash and cash equivalents are expected to fund operations only into Q1 2024, indicating substantial doubt about the company's ability to continue as a going concern and a need for additional capital[431][432] - Future capital requirements are dependent on the cost and timing of clinical trials, regulatory reviews, sales and marketing capabilities, and intellectual property protection[434] - In March 2023, Femasys transferred substantially all cash from Silicon Valley Bank following its closure, without experiencing losses[430] Cash Flows In 2022, net cash used in operating activities increased to $10.7 million, while financing activities shifted from a significant inflow in 2021 (IPO) to an outflow, resulting in an overall cash decrease of $11.8 million Cash Flow Summary (Years Ended December 31) | Cash Flow Activity | 2022 | 2021 | | :-------------------------------------- | :------------- | :------------- | | Net cash used in operating activities | $(10,731,973) | $(7,930,785) | | Net cash used in investing activities | $(407,475) | $(306,868) | | Net cash (used in) provided by financing activities | $(681,645) | $29,698,456 | | Net change in cash and cash equivalents | $(11,821,093) | $21,460,803 | - Operating cash outflow increased in 2022 due to higher net loss and changes in operating assets/liabilities[436] - Financing activities shifted from a significant inflow in 2021 (IPO) to an outflow in 2022, reflecting payments for deferred offering costs, notes, and leases[440][441] Off-Balance Sheet Arrangements Femasys does not have any off-balance sheet arrangements as defined by SEC rules and regulations - Femasys has no off-balance sheet arrangements[442] Critical Accounting Policies and Estimates Femasys's financial statements rely on significant estimates for revenue recognition, accrued expenses (especially R&D), and valuation of financial instruments, with recent accounting standard adoptions having no material impact - Critical accounting policies involve significant estimates and assumptions, including pre-IPO valuation of common stock, stock options, warrants, useful lives of property/equipment, and clinical trial cost accruals[443][488] - Revenue is recognized point-in-time upon shipment when the customer obtains control of goods, with no multiple performance obligations[446][520] - Accrued expenses for R&D activities are estimated based on services provided but not yet invoiced, with adjustments made as actual costs become known[448][513] - The company adopted ASU 2019-12 (Income Taxes) in 2021 with no material impact and expects no significant impact from ASU 2016-13 (Credit Losses) effective for fiscal years beginning after December 15, 2022[449][540][541] Item 7A. Quantitative and Qualitative Disclosures About Market Risk Femasys faces low interest rate risk, potential foreign currency risk with international expansion, and managed credit concentration risk after transferring funds from Silicon Valley Bank - Cash and cash equivalents are held in bank deposits and money market funds, carrying a low degree of interest rate risk[450] - Currently, all sales are in U.S. dollars, but international expansion could increase exposure to foreign currency exchange risk[451] - Substantially all cash and cash equivalents were held at Silicon Valley Bank (SVB), posing a concentration of credit risk; however, all funds were accessed after SVB's closure in March 2023[452] - Femasys is an emerging growth company and has elected not to use the extended transition period for complying with new or revised financial accounting standards[453] Item 8. Financial Statements This section presents Femasys Inc.'s audited financial statements for 2022 and 2021, including balance sheets, statements of comprehensive loss, stockholders' equity, and cash flows, with an auditor's note on going concern doubt - The financial statements for 2022 and 2021 include Balance Sheets, Statements of Comprehensive Loss, Statements of Stockholders' Equity, and Statements of Cash Flows[456] - KPMG LLP, the independent auditor, issued an opinion that the financial statements are presented fairly, but highlighted substantial doubt about the company's ability to continue as a going concern[459][460] - Notes to the financial statements provide details on organization, accounting policies, fair value, commitments, notes payable, income taxes, stockholders' equity, and equity incentive plans[478][488][543][547][550][563][567][578][598][626][627][628] Report of Independent Registered Public Accounting Firm KPMG LLP audited Femasys's financial statements for 2022 and 2021, affirming fair presentation but highlighting substantial doubt about the company's ability to continue as a going concern - KPMG LLP audited the financial statements for 2022 and 2021, providing an opinion that they are presented fairly[459] - The auditor noted substantial doubt about Femasys's ability to continue as a going concern due to recurring losses and negative cash flows[460] Balance Sheets As of December 31, 2022, Femasys reported total assets of $16.9 million, a decrease from $28.6 million in 2021, primarily due to reduced cash, and an accumulated deficit of $94.1 million Balance Sheet Summary (as of December 31) | Asset/Liability/Equity | 2022 | 2021 | | :--------------------------------- | :----------- | :----------- | | Cash and Cash Equivalents | $12,961,936 | $24,783,029 | | Total Current Assets | $14,131,491 | $25,631,410 | | Net Property and Equipment | $1,483,051 | $1,599,012 | | Total Assets | $16,895,570 | $28,576,680 | | Total Current Liabilities | $1,527,809 | $1,692,090 | | Total Liabilities | $1,653,051 | $2,244,298 | | Total Stockholders' Equity | $15,242,519 | $26,332,382 | | Accumulated Deficit | $(94,134,505) | $(82,740,335) | - Cash and cash equivalents decreased by 47.7% from $24.8 million in 2021 to $13.0 million in 2022[465] - Accumulated deficit increased by 13.8% to $94.1 million in 2022, reflecting ongoing net losses[467] Statements of Comprehensive Loss Femasys reported a net loss of $11.4 million for the year ended December 31, 2022, a 51.2% increase from the $7.5 million net loss in 2021, driven by a 35.2% surge in operating expenses despite a slight increase in sales Statements of Comprehensive Loss (Years Ended December 31) | Metric | 2022 | 2021 | | :-------------------------- | :----------- | :----------- | | Sales | $1,206,218 | $1,179,689 | | Gross Margin | $764,280 | $809,305 | | Total Operating Expenses | $12,364,544 | $9,146,109 | | Loss from Operations | $(11,600,264) | $(8,336,804) | | Total Other Income (Expense) | $212,394 | $802,959 | | Net Loss | $(11,394,170) | $(7,537,845) | | Net Loss Per Share (Basic & Diluted) | $(0.96) | $(1.12) | - Net loss increased by 51.2% in 2022, primarily due to a 35.2% increase in total operating expenses, particularly R&D and sales & marketing[470] - Gross margin decreased by 5.6% in 2022, while sales increased by 2.2%[470] Statements of Stockholders' Equity (Deficit) Total stockholders' equity decreased by 42.1% to $15.2 million in 2022, primarily due to the net loss, with the accumulated deficit growing to $94.1 million Stockholders' Equity (Deficit) Summary (as of December 31) | Metric | 2022 | 2021 | | :--------------------------------- | :----------- | :----------- | | Common Stock Shares Outstanding | 11,869,704 | 11,804,165 | | Common Stock Amount | $11,987 | $11,921 | | Warrants | $567,972 | $702,492 | | Additional Paid-in Capital | $108,857,065 | $108,418,304 | | Accumulated Deficit | $(94,134,505) | $(82,740,335) | | Total Stockholders' Equity (Deficit) | $15,242,519 | $26,332,382 | - Total stockholders' equity decreased by $11,089,863 (42.1%) from 2021 to 2022, primarily due to the net loss[473] - Common stock shares outstanding increased due to option exercises and at-the-market offerings, while warrants decreased due to expiration[473] Statements of Cash Flows In 2022, Femasys experienced increased cash outflow from operations and a shift from cash inflow to outflow in financing activities, resulting in an $11.8 million decrease in cash and cash equivalents Cash Flow Summary (Years Ended December 31) | Cash Flow Activity | 2022 | 2021 | | :-------------------------------------- | :------------- | :------------- | | Net cash used in operating activities | $(10,731,973) | $(7,930,785) | | Net cash used in investing activities | $(407,475) | $(306,868) | | Net cash (used in) provided by financing activities | $(681,645) | $29,698,456 | | Net change in cash and cash equivalents | $(11,821,093) | $21,460,803 | - Net cash used in operating activities increased by 35.3% in 2022, primarily driven by the higher net loss[475] - Financing activities shifted from a significant cash inflow in 2021 (due to IPO) to a cash outflow in 2022, reflecting debt and lease payments, and deferred offering costs[475] Notes to Financial Statements The notes provide detailed disclosures on Femasys's business, liquidity concerns (going concern doubt), significant accounting policies, and financial details including cash, inventory, R&D expenses, and equity - Femasys is a biomedical company focused on women's healthcare, with lead product candidates FemBloc and FemaSeed[479][480] - Substantial doubt exists about the company's ability to continue as a going concern due to recurring net losses and negative operating cash flows, with current cash expected to fund operations only into Q1 2024[483][484] - Key accounting policies include revenue recognition (point-in-time), accrued R&D expenses, and valuation of financial instruments[488][520][513] - As of December 31, 2022, the company had $12,961,936 in cash and cash equivalents, $436,723 in net inventory, and an accumulated deficit of $94,134,505[499][425] - Total R&D expenses were $5,813,755 in 2022, and the company has federal net operating loss carryforwards of $82,500,567 and federal R&E tax credits of $2,838,559[419][573] - As of December 31, 2022, 931,550 stock options and 233,400 warrants were outstanding[605][596] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Femasys Inc. reported no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure were reported[629] Item 9A. Controls and Procedures As of December 31, 2022, Femasys's disclosure controls were ineffective, but internal control over financial reporting was effective after remediating a material weakness through process formalization and personnel hires - Disclosure controls and procedures were not effective as of December 31, 2022[630] - Internal control over financial reporting was assessed as effective as of December 31, 2022[631] - A previously reported material weakness in internal control over financial reporting was remediated by implementing formalized processes and hiring additional accounting personnel[633] - The company acknowledges inherent limitations in control systems, meaning they provide only reasonable, not absolute, assurance against errors or fraud[635] Item 9B. Other Information No other information is required to be reported under this item - No other information was reported[636] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections No disclosures are required regarding foreign jurisdictions that prevent inspections - No disclosures regarding foreign jurisdictions that prevent inspections were reported[637] PART III This part incorporates by reference information on Femasys's directors, executive officers, corporate governance, executive compensation, security ownership, related transactions, and accounting fees from the 2023 proxy statement Item 10. Directors, Executive Officers and Corporate Governance Information regarding Femasys's directors, executive officers, and corporate governance, including the Code of Ethics, is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement[638] - The board of directors has adopted a Code of Ethics applicable to all directors, officers, and employees, available on the company's website[638] Item 11. Executive Compensation Information concerning executive compensation is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders - Executive compensation information is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement[639] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management, as well as equity compensation plans, is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders and Item 5 of this 10-K - Information on security ownership of beneficial owners and management is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement[639] - Equity compensation plan information is incorporated by reference from Item 5 of this annual report on Form 10-K[640] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related-person transactions, and director independence is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information on certain relationships, related-person transactions, and director independence is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement[640] Item 14. Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information on principal accounting fees and services is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement[641] PART IV This part lists all exhibits filed as part of the Form 10-K, including corporate governance documents, equity plans, employment agreements, and officer certifications, and includes the report's signatures Item 15. Exhibits This section lists all exhibits filed as part of the Form 10-K, including corporate governance documents, equity plans, employment agreements, indemnification agreements, and officer certifications - The section lists all exhibits filed with the Form 10-K, including corporate governance documents, equity plans, employment agreements, and officer certifications[642] Item 16. Form 10-K Summary No Form 10-K Summary is provided in this report - No Form 10-K Summary is included in this report[644] Signatures The Form 10-K was signed on March 30, 2023, by Femasys Inc.'s CEO and CFO, along with other directors, and includes a power of attorney for filing amendments - The Form 10-K was signed on March 30, 2023, by Kathy Lee-Sepsick (CEO and President) and Dov Elefant (CFO), along with other directors[647][651] - A power of attorney designates Kathy Lee-Sepsick and Daniel Currie as attorneys-in-fact for filing amendments to the report[650]