femasys(FEMY) - 2023 Q2 - Quarterly Report

FORM 10-Q Filing Information Details the company's quarterly report filing, including registrant information, filer status, and securities outstanding - Registrant: Femasys Inc., incorporated in Delaware, headquartered in Suwanee, GA[2][3] - Filing Type: Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the period ended June 30, 2023[2] - Filer Status: Non-accelerated filer, Smaller reporting company, Emerging growth company[3][4] Securities Registered | Title of each class | Trading symbol | Name of each exchange on which registered | |---|---|---| | Common stock, $0.001 par value | FEMY | The Nasdaq Capital Market | - Shares Outstanding: 15,073,153 shares of common stock as of August 9, 2023[4] Special Note Regarding Forward-Looking Statements This section cautions readers about forward-looking statements, highlighting inherent risks and the company's policy against public updates - Forward-looking statements are identified by terms such as 'may,' 'will,' 'should,' 'expect,' 'plan,' 'anticipate,' 'could,' 'intend,' 'target,' 'project,' 'contemplate,' 'believe,' 'estimate,' 'predict,' 'potential' or 'continue' or similar expressions[9] - Key areas covered by forward-looking statements include product development, clinical trials, regulatory approvals (FDA), financing, market competition, commercialization, reimbursement, manufacturing, and intellectual property[10] - Readers are cautioned that these statements are predictions based on current expectations and are subject to risks and uncertainties, including those detailed in 'Risk Factors' and 'Management's Discussion and Analysis of Financial Condition and Results of Operations'[11] - The company does not plan to publicly update or revise any forward-looking statements, and they are excluded from the safe harbor protection of the Private Securities Litigation Reform Act of 1995[11] Part I. Financial Information This part presents the company's unaudited interim financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements This section presents the unaudited interim financial statements of Femasys Inc. for the periods ended June 30, 2023, and December 31, 2022, including Balance Sheets, Statements of Comprehensive Loss, Stockholders' Equity, and Cash Flows, along with detailed accompanying notes. These statements provide a snapshot of the company's financial position, performance, and cash flows, highlighting ongoing losses and liquidity challenges Balance Sheets Presents the company's financial position, detailing assets, liabilities, and equity for the reported periods Key Balance Sheet Data | Metric | June 30, 2023 | December 31, 2022 | |---|---|---| | Cash and cash equivalents | $10,705,017 | $12,961,936 | | Total current assets | $12,030,065 | $14,131,491 | | Total assets | $14,313,961 | $16,895,570 | | Total current liabilities | $1,381,543 | $1,527,809 | | Total liabilities | $1,437,788 | $1,653,051 | | Total stockholders' equity | $12,876,173 | $15,242,519 | | Accumulated deficit | $(99,974,270) | $(94,134,505) | - Cash and cash equivalents decreased by $2,256,919 from December 31, 2022, to June 30, 2023[15] - Total assets decreased by $2,581,609, and total stockholders' equity decreased by $2,366,346 during the six-month period[15][17] - Accumulated deficit increased by $5,839,765, reflecting the net loss for the period[17] Statements of Comprehensive Loss Details the company's revenues, expenses, and net loss for the three and six months ended June 30 Comprehensive Loss (Three Months Ended June 30) | Metric | 2023 | 2022 | Change | % Change | |---|---|---|---|---| | Sales | $320,514 | $303,113 | $17,401 | 5.7% | | Gross margin | $210,045 | $200,760 | $9,285 | 4.6% | | Total operating expenses | $3,146,007 | $2,860,723 | $285,284 | 10.0% | | Net loss | $(2,893,508) | $(2,634,101) | $(259,407) | 9.8% | | Net loss per share (basic & diluted) | $(0.22) | $(0.22) | $0.00 | 0.0% | Comprehensive Loss (Six Months Ended June 30) | Metric | 2023 | 2022 | Change | % Change | |---|---|---|---|---| | Sales | $614,498 | $624,518 | $(10,020) | -1.6% | | Gross margin | $398,909 | $399,490 | $(581) | -0.1% | | Total operating expenses | $6,376,545 | $5,942,203 | $434,342 | 7.3% | | Net loss | $(5,839,765) | $(5,517,131) | $(322,634) | 5.8% | | Net loss per share (basic & diluted) | $(0.47) | $(0.47) | $0.00 | 0.0% | - Sales and marketing expenses significantly increased by 104% for the three months and 183.1% for the six months ended June 30, 2023, reflecting increased commercial efforts[20] - Interest income saw a substantial increase, rising by 59.5% for the three months and 378.6% for the six months ended June 30, 2023[20] Statements of Stockholders' Equity Outlines changes in stockholders' equity, including net loss, stock issuances, and share-based compensation, for the reported periods Stockholders' Equity Changes (Six Months Ended June 30, 2023) | Item | Amount | |---|---| | Balance at December 31, 2022 | $15,242,519 | | Issuance of common stock and warrants (April 2023 Financing) | $3,345,996 | | Exercise of pre-funded warrants | $188 | | Share-based compensation expense | $122,170 | | Net loss | $(5,839,765) | | Balance at June 30, 2023 | $12,876,173 | - Total stockholders' equity decreased from $15,242,519 at December 31, 2022, to $12,876,173 at June 30, 2023[23] - The April 2023 Financing resulted in the issuance of 1,318,000 shares of common stock and warrants, contributing $3,345,996 to equity[23] - Accumulated deficit increased by $5,839,765 due to the net loss for the six months ended June 30, 2023[23] Statements of Cash Flows Summarizes cash flows from operating, investing, and financing activities for the six months ended June 30 Cash Flow Summary (Six Months Ended June 30) | Activity | 2023 | 2022 | |---|---|---| | Net cash used in operating activities | $(5,388,824) | $(5,133,896) | | Net cash used in investing activities | $(71,849) | $(295,058) | | 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, end of period | $10,705,017 | $19,116,419 | - Cash used in operating activities increased to $5,388,824 in 2023 from $5,133,896 in 2022, mainly due to the net loss[29] - Financing activities provided $3,203,754 in 2023, a significant improvement from cash used of $237,656 in 2022, primarily due to proceeds from the April 2023 financing ($3,899,813 gross)[29] - Purchases of property and equipment decreased significantly from $295,058 in 2022 to $71,849 in 2023[29] Notes to Financial Statements Provides detailed explanations and additional information supporting the unaudited interim financial statements Note 1: Organization, Nature of Business, and Liquidity Describes Femasys Inc.'s business, product candidates, and assesses its liquidity and going concern status - Femasys is a biomedical company focused on women's reproductive health, developing minimally invasive, in-office technologies for permanent birth control (FemBloc) and infertility (FemaSeed)[32][33] - Key product candidates include FemBloc (FDA IDE approved for pivotal trial in June 2023), FemaSeed (FDA IDE approved, trial ongoing, approved for sale in Canada), FemVue (approved in U.S., Japan, Canada), FemChec, FemCath (approved in U.S., Canada), and FemCerv (approved in U.S., Canada)[33] - The company had $10,705,017 in cash and cash equivalents as of June 30, 2023, and an accumulated deficit of $99,974,270[37][41] - Femasys expects to incur additional losses and negative operating cash flows for at least the next twelve months, leading to substantial doubt about its ability to continue as a going concern[38][41] - The company plans to finance operations through existing cash, additional equity/debt financing, and revenue from FemVue sales, but there's no assurance of obtaining sufficient funds[37] Note 2: Cash and Cash Equivalents Details the composition of cash and cash equivalents, primarily money market funds, and their fair value classification Money Market Funds in Cash and Cash Equivalents | Date | Amount | |---|---| | June 30, 2023 | $10,038,944 | | December 31, 2022 | $12,553,557 | - Money market funds represent Level 1 within the fair value hierarchy, indicating quoted prices in active markets for identical assets[44] Note 3: Inventories Provides a breakdown of inventory components and the reserve for slow-moving or obsolete items Inventory Composition (Net of Reserve) | Category | June 30, 2023 | December 31, 2022 | |---|---|---| | Materials | $356,274 | $244,498 | | Work in progress | $71,081 | $100,453 | | Finished goods | $154,119 | $91,772 | | Total Inventory, net | $581,474 | $436,723 | - The reserve for slow-moving, obsolete, or unusable FemVue inventories increased from $2,103 at December 31, 2022, to $3,091 at June 30, 2023[45] Note 4: Accrued Expenses Details the composition of accrued expenses, including clinical trial costs, compensation, and director fees Accrued Expenses Composition | Category | June 30, 2023 | December 31, 2022 | |---|---|---| | Clinical trial costs | $295,582 | $333,440 | | Compensation costs | $129,323 | $85,191 | | Director fees | $90,424 | $0 | | Total Accrued expenses | $536,830 | $456,714 | - Director fees accrued significantly increased from $0 to $90,424[46] Note 5: Clinical Holdback Outlines the activity and classification of the clinical holdback liability Clinical Holdback Liability Activity | Item | Amount | |---|---| | Balance at December 31, 2022 | $141,864 | | Clinical holdback retained | $3,447 | | Clinical holdback paid | $(328) | | Balance at June 30, 2023 | $144,983 | | Current portion | $(88,738) | | Long-term portion | $56,245 | Note 6: Revenue Recognition Explains the company's revenue recognition policies and presents sales data by geographic region - Revenue is recognized upon shipment of goods, with standard payment terms of 30 to 60 days, and no revenue is recognized over time[49] - The company has not had a history of significant returns[50] Sales by Geographic Region (Three Months Ended June 30) | Region | 2023 | 2022 | |---|---|---| | U.S. | $262,469 | $303,113 | | International | $58,045 | $0 | | Total | $320,514 | $303,113 | Sales by Geographic Region (Six Months Ended June 30) | Region | 2023 | 2022 | |---|---|---| | U.S. | $556,453 | $566,473 | | International | $58,045 | $58,045 | | Total | $614,498 | $624,518 | Note 7: Commitments and Contingencies Addresses potential legal contingencies and indemnification obligations for officers and directors - No material legal contingencies required accrual or disclosure for the periods presented[52] - The company indemnifies its officers and directors, with the maximum potential future indemnification being unlimited, but exposure is limited by director and officer insurance[53] Note 8: Notes Payable Details the principal balance and interest expense related to AFCO promissory notes AFCO Promissory Notes Principal Balance | Date | Principal Balance | |---|---| | June 30, 2023 | $0 | | December 31, 2022 | $141,298 | Interest Expense on AFCO Notes | Period | 2023 | 2022 | |---|---|---| | Three Months Ended June 30 | $1,319 | $86 | | Six Months Ended June 30 | $1,319 | $1,882 | Note 9: Stockholders' Equity Describes significant changes in stockholders' equity, including recent financing activities and outstanding shares - In April 2023, the company completed a registered direct offering and concurrent private placement, selling 1,318,000 shares of common stock and pre-funded warrants for 1,878,722 shares, along with common warrants for 3,196,722 shares[58] - The April 2023 Financing generated gross proceeds of $3,899,813, with net proceeds of $3,352,049 after fees and expenses[58] - The at-the-market facility with Piper Sandler & Co. was suspended in April 2023, after selling 2,869 shares for the six months ended June 30, 2023[57] - As of June 30, 2023, 15,073,153 shares of common stock were outstanding, and no dividends have been declared or paid[59] Note 10: Equity Incentive Plans and Warrants Provides details on stock option activity, share-based compensation, and outstanding warrants Stock Option Activity (Six Months Ended June 30, 2023) | Item | Number of options | Weighted average exercise price | |---|---|---| | Outstanding at December 31, 2022 | 931,550 | $3.97 | | Granted | 158,200 | $0.80 (avg) | | Forfeited | (70,079) | $2.40 (avg) | | Outstanding at June 30, 2023 | 1,019,671 | $3.57 | | Vested and exercisable at June 30, 2023 | 511,472 | $3.09 | Share-Based Compensation Expense (Six Months Ended June 30) | Category | 2023 | 2022 | |---|---|---| | Research and development | $52,251 | $62,575 | | Sales and marketing | $(1,942) | $2,342 | | General and administrative | $71,861 | $41,609 | | Total share-based compensation expense | $122,170 | $106,526 | - All pre-funded warrants issued in the April 2023 financing were exercised for common stock in June 2023[70] - As of June 30, 2023, common warrants and placement agent warrants from the April 2023 financing remained outstanding[70] Note 11: Net Loss per Share Attributable to Common Stockholders Presents basic and diluted net loss per share and weighted average shares outstanding for the reported periods Net Loss per Share (Basic & Diluted) | Period | 2023 | 2022 | |---|---|---| | Three Months Ended June 30 | $(0.22) | $(0.22) | | Six Months Ended June 30 | $(0.47) | $(0.47) | Weighted Average Shares Outstanding | Period | 2023 | 2022 | |---|---|---| | Three Months Ended June 30 | 13,107,590 | 11,812,988 | | Six Months Ended June 30 | 12,493,334 | 11,808,601 | - Potentially dilutive securities, including options and warrants, were excluded from diluted EPS calculations because they were anti-dilutive[73] Note 12: Subsequent Events Reports significant events occurring after the balance sheet date, including new financing and lease extensions - On July 11, 2023, the company executed a promissory note with AFCO for $420,618 to finance insurance premiums[74] - On July 17, 2023, the operating lease for facilities in Suwanee, GA, was extended for an additional 63 months through April 2029, obligating the company to $3,321,025 in payments[75] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Femasys Inc.'s financial condition, results of operations, and liquidity for the periods presented. It highlights product development progress, recent corporate and clinical updates, and a detailed analysis of revenue, expenses, and cash flows, emphasizing the company's ongoing net losses and need for additional financing to support its biomedical product pipeline Overview Provides a high-level introduction to Femasys Inc.'s business, product development, and intellectual property portfolio - Femasys is a biomedical company developing minimally invasive, in-office technologies for reproductive health, with an expansive intellectual property portfolio of over 150 global patents[78] - The company's lead product candidates are FemBloc for permanent birth control and FemaSeed for artificial insemination infertility treatment, targeting multi-billion dollar markets with little prior advancement[78] Corporate Update Highlights recent corporate milestones, including product approvals and patent allowances - April 18, 2023: Health Canada granted product approval for FemaSeed, an artificial insemination solution[79] - May 3, 2023: Health Canada granted product approval for FemCerv, an endocervical tissue sampler[80] - June 8, 2023: Health Canada granted product approval for FemCath, an intrauterine catheter[81] - June 26, 2023: FDA approved the Investigational Device Exemption (IDE) for FemBloc's pivotal clinical trial for permanent birth control[81] - July 27, 2023: Notice of allowance for a new U.S. patent application covering FemBloc for female permanent birth control[82] - August 3, 2023: Initiation of enrollment in FemBloc's pivotal trial[83] Clinical Update Details the progress and design of key clinical trials for FemaSeed and FemBloc - FemaSeed pivotal trial: Updated design focuses on male factor infertility to accelerate enrollment, with completion expected in Q4 2023 and FDA submission planned thereafter[84] - FemaSeed enrollment slowdowns are attributed to consolidation activities, staffing shortages at clinical trial sites, and uncertainty surrounding abortion policy proposals affecting reproductive medicine[84] - FemBloc pivotal FINALE trial: FDA IDE approval received in June 2023, and enrollment initiated in August 2023[86] - FemBloc trial design: Prospective, multi-center, open-label, single-arm study with pregnancy rate as the primary endpoint, targeting 401 women for one year of use, with an interim analysis planned after 300 women[86] - A new U.S. patent for FemBloc, expected to expire in 2039, received a notice of allowance in July 2023[86] Results of Operations - Three Months Ended June 30, 2023 and 2022 Compares the company's financial performance, including sales, expenses, and net loss, for the three months ended June 30 Financial Performance (Three Months Ended June 30) | Metric | 2023 | 2022 | Change | % Change | |---|---|---|---|---| | Sales | $320,514 | $303,113 | $17,401 | 5.7% | | Cost of sales | $110,469 | $102,353 | $8,116 | 7.9% | | Gross margin | $210,045 | $200,760 | $9,285 | 4.6% | | Total operating expenses | $3,146,007 | $2,860,723 | $285,284 | 10.0% | | Net loss | $(2,893,508) | $(2,634,101) | $(259,407) | 9.8% | - Sales increase was primarily due to $58,045 in international sales in 2023, with no international sales in the prior year, while U.S. sales decreased by 13.4%[87] - Sales and marketing expenses more than doubled, increasing by 104% to $128,899, reflecting increased commercial efforts[90] - Research and development expenses increased by 3.7% to $1,527,172, mainly due to higher compensation and professional costs[89] Results of Operations - Six Months Ended June 30, 2023 and 2022 Compares the company's financial performance, including sales, expenses, and net loss, for the six months ended June 30 Financial Performance (Six Months Ended June 30) | Metric | 2023 | 2022 | Change | % Change | |---|---|---|---|---| | Sales | $614,498 | $624,518 | $(10,020) | -1.6% | | Cost of sales | $215,589 | $225,028 | $(9,439) | -4.2% | | Gross margin | $398,909 | $399,490 | $(581) | -0.1% | | Total operating expenses | $6,376,545 | $5,942,203 | $434,342 | 7.3% | | Net loss | $(5,839,765) | $(5,517,131) | $(322,634) | 5.8% | - Sales decrease was entirely attributable to U.S. sales, with international sales remaining consistent[95] - Gross margin percentage improved to 64.9% from 64.0% due to manufacturing efficiencies[96] - Sales and marketing expenses surged by 183.1% to $373,795, primarily due to increased compensation and marketing costs[98] - Interest income increased significantly by 378.6% to $139,741[101] Liquidity and Capital Resources Assesses the company's cash position, funding needs, and ability to continue as a going concern - As of June 30, 2023, the company had $10,705,017 in cash and cash equivalents and an accumulated deficit of $99,974,270[103] - Existing cash and net proceeds from the April 2023 financing ($3,352,049) are expected to fund operations into the second quarter of 2024[105][106] - Substantial doubt exists about the company's ability to continue as a going concern for at least twelve months from the financial statement date[106] - Additional capital is required to complete development and commercialization of product candidates, with no assurance of securing funds on acceptable terms[107] Cash Flows Analyzes cash flows from operating, investing, and financing activities for the six months ended June 30 Cash Flow Summary (Six Months Ended June 30) | Activity | 2023 | 2022 | |---|---|---| | Net cash used in operating activities | $(5,388,824) | $(5,133,896) | | Net cash used in investing activities | $(71,849) | $(295,058) | | 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) | - Operating activities used $5,388,824 in cash, mainly due to the net loss, partially offset by non-cash charges like depreciation and stock-based compensation[109] - Financing activities provided $3,203,754, primarily from the issuance of common stock and warrants ($3,905,071), offset by offering costs and note repayments[113] - Investing activities used $71,849 for property and equipment purchases, a decrease from $295,058 in the prior year[111][112] Critical Accounting Estimates Explains key accounting policies and estimates, particularly for revenue recognition and accrued expenses - Revenue recognition policy: Revenue is recognized when a customer obtains control of promised goods, typically upon shipment, with no multiple performance obligations or revenue recognized over time[117] - Accrued expenses policy: Estimates are made for R&D activities conducted by third-party service providers, recording costs based on estimated services provided but not yet invoiced, which can be a significant component of R&D expenses[119] - Estimates are based on historical experience and other reasonable factors, but actual results may differ materially[115] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there are no applicable quantitative and qualitative disclosures about market risk for Femasys Inc. for the reported period - The company has no applicable quantitative and qualitative disclosures about market risk[120] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of Femasys Inc.'s disclosure controls and procedures as of June 30, 2023, concluding they were effective at a reasonable assurance level. No material changes in internal control over financial reporting were identified, though inherent limitations on control effectiveness are acknowledged - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of June 30, 2023[121] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2023[122] - Management acknowledges inherent limitations of control systems, stating they provide only reasonable, not absolute, assurance against errors and fraud[123] Part II. Other Information This part contains additional information not covered in the financial statements, including legal proceedings and risk factors Item 1. Legal Proceedings Femasys Inc. may be involved in legal proceedings but believes that the amount of reasonably possible losses in excess of established reserves is not material to its consolidated financial condition or cash flows, although such losses could be material to operating results for a specific future period - The company believes that reasonably possible losses from pending legal actions, in excess of reserves, are not material to its consolidated financial condition or cash flows[125] - Losses from legal proceedings could be material to operating results for any particular future period[125] Item 1A. Risk Factors This section refers readers to the comprehensive risk factors detailed in the company's Annual Report on Form 10-K. A new risk factor highlights Femasys Inc.'s non-compliance with Nasdaq's minimum bid price requirement, which could lead to delisting and negatively impact stock liquidity and future capital raising abilities - Readers are directed to the Annual Report on Form 10-K for a comprehensive review of risk factors[126] - The company received a deficiency letter from Nasdaq on June 1, 2023, for non-compliance with the Minimum Bid Price Requirement ($1.00 per share)[127] - Femasys has until November 28, 2023, to regain compliance, potentially through a reverse stock split, or face delisting, which could reduce stock liquidity and harm capital raising[127][128] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report for Femasys Inc. during the period - No unregistered sales of equity securities or use of proceeds to report[129] Item 3. Defaults Upon Senior Securities This section indicates that Femasys Inc. has no defaults upon senior securities to report for the period - No defaults upon senior securities to report[131] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to Femasys Inc - Mine safety disclosures are not applicable[132] Item 5. Other Information This section indicates that there is no other information to report for Femasys Inc. for the period - No other information to report[133] Item 6. Exhibits This section lists all exhibits filed as part of Femasys Inc.'s Form 10-Q, including various warrants, a securities purchase agreement, and certifications from the principal executive and financial officers, providing supporting documentation for the report - Exhibits include Pre-Funded Common Stock Purchase Warrant, Common Stock Purchase Warrant, Placement Agent Common Stock Purchase Warrant, and Securities Purchase Agreement dated April 18, 2023[134] - Certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Act are filed herewith[134] Signatures Confirms the official signing of the Form 10-Q report by the company's principal executive and financial officers - The report is signed by Kathy Lee-Sepsick, Chief Executive Officer and President, and Dov Elefant, Chief Financial Officer, on August 10, 2023[135][137]