femasys(FEMY) - 2023 Q3 - Quarterly Report

FORM 10-Q Filing Information Registrant Information Femasys Inc. filed its Quarterly Report on Form 10-Q for the period ended September 30, 2023, is incorporated in Delaware, trades on Nasdaq under FEMY, and had 21,649,623 shares outstanding as of November 13, 2023 - Femasys Inc. filed its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023[2] - The registrant is a non-accelerated filer, a smaller reporting company, and an emerging growth company, electing not to use the extended transition period for new or revised financial accounting standards[3][4] Registrant Key Information | Metric | Value | | :--- | :--- | | Commission file number | 001-40492 | | State of incorporation | Delaware | | Trading symbol | FEMY | | Exchange | The Nasdaq Capital Market | | Common stock outstanding (as of Nov 13, 2023) | 21,649,623 shares | SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Forward-Looking Statements Disclaimer This quarterly report contains forward-looking statements based on current expectations and projections, which are subject to risks and uncertainties that may cause actual results to differ materially, and the company does not plan to update them publicly - This report contains forward-looking statements, identifiable by words like “may,” “will,” “expect,” “plan,” “believe,” “estimate,” and are based on the company's current expectations and projections regarding future events and financial trends[9][11] - Forward-looking statements are inherently subject to known and unknown risks, uncertainties, and assumptions, including those described in “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations,” where actual results may differ materially from projections[11] - The company does not plan to publicly update or revise any forward-looking statements, and these statements do not enjoy the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933[11] PART I. FINANCIAL INFORMATION ITEM I. Financial Statements This section presents Femasys Inc.'s unaudited consolidated financial statements, including balance sheets, statements of comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining the company's organization, business, accounting policies, and specific financial items - The financial statements are unaudited and prepared in accordance with SEC rules and U.S. GAAP, with certain information and note disclosures condensed or omitted as permitted by these rules and regulations[32][33] Balance Sheets As of September 30, 2023, Femasys Inc.'s total assets decreased by 12.1% to $14.85 million from $16.90 million at December 31, 2022, primarily due to reduced cash and cash equivalents, while total liabilities significantly increased by 166.8% to $4.41 million, and stockholders' equity declined by 31.5% to $10.44 million Key Balance Sheet Data (as of September 30) | Metric | 2023 | 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Total assets | $14,853,537 | $16,895,570 | $(2,042,033) | -12.1% | | Total liabilities | $4,409,935 | $1,653,051 | $2,756,884 | 166.8% | | Total stockholders' equity | $10,443,602 | $15,242,519 | $(4,798,917) | -31.5% | | Cash and cash equivalents | $8,692,435 | $12,961,936 | $(4,269,501) | -32.9% | | Total current assets | $10,225,032 | $14,131,491 | $(3,906,459) | -27.6% | | Total current liabilities | $2,186,947 | $1,527,809 | $659,138 | 43.1% | | Long-term lease liabilities | $2,168,969 | $28,584 | $2,140,385 | 7488.8% | Statements of Comprehensive Loss For the three months ended September 30, 2023, Femasys Inc. reported a net loss of $4.00 million, a 34.0% increase year-over-year, driven by a 29.7% sales decrease and a 29.5% rise in total operating expenses, while the nine-month net loss increased by 15.7% to $9.84 million due to similar operational expense growth Key Statements of Comprehensive Loss Data For the Three Months Ended September 30: | Metric | 2023 | 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Sales | $244,361 | $347,456 | $(103,095) | -29.7% | | Gross profit | $158,175 | $216,005 | $(57,830) | -26.8% | | R&D expenses | $2,072,830 | $1,648,160 | $424,670 | 25.8% | | Sales and marketing expenses | $70,883 | $90,374 | $(19,491) | -21.6% | | General and administrative expenses | $1,970,408 | $1,395,063 | $575,345 | 41.2% | | Total operating expenses | $4,239,439 | $3,273,194 | $966,245 | 29.5% | | Net loss | $(3,996,905) | $(2,982,843) | $(1,014,062) | 34.0% | | Net loss per share (basic and diluted) | $(0.26) | $(0.25) | $(0.01) | 4.0% | For the Nine Months Ended September 30: | Metric | 2023 | 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Sales | $858,859 | $971,974 | $(113,115) | -11.6% | | Gross profit | $557,084 | $615,495 | $(58,411) | -9.5% | | R&D expenses | $5,137,441 | $4,542,147 | $595,294 | 13.1% | | Sales and marketing expenses | $444,678 | $222,414 | $222,264 | 99.9% | | General and administrative expenses | $4,642,182 | $4,024,356 | $617,826 | 15.4% | | Total operating expenses | $10,615,984 | $9,215,397 | $1,400,587 | 15.2% | | Net loss | $(9,836,670) | $(8,499,974) | $(1,336,696) | 15.7% | | Net loss per share (basic and diluted) | $(0.74) | $(0.72) | $(0.02) | 2.8% | Statements of Stockholders' Equity As of September 30, 2023, total stockholders' equity was $10.44 million, a decrease from $15.24 million at December 31, 2022, primarily due to a $9.84 million net loss, partially offset by $3.35 million net proceeds from April 2023 financing, warrant exercises, and stock-based compensation Changes in Stockholders' Equity (Nine Months Ended September 30) | Item | Amount | | :--- | :--- | | Balance at December 31, 2022 | $15,242,519 | | Issuance of common stock and warrants from April 2023 financing (net of issuance costs) | $3,345,996 | | Exercise of prepaid warrants | $188 | | Exercise of common warrants | $1,059,975 | | Stock-based compensation expense | $626,529 | | Net loss | $(9,836,670) | | Balance at September 30, 2023 | $10,443,602 | Statements of Cash Flows For the nine months ended September 30, 2023, Femasys Inc.'s cash and cash equivalents decreased by $4.27 million, compared to an $8.78 million decrease in the prior year, with $8.24 million net cash used in operating activities, $99 thousand in investing activities, and $4.07 million net cash provided by financing activities, mainly from April 2023 equity financing and warrant exercises - In the first nine months of 2023, cash provided by financing activities primarily stemmed from $4.97 million in proceeds from the April 2023 issuance of common stock and warrants, along with proceeds from the exercise of prepaid and common warrants[115] Key Cash Flow Data (Nine Months Ended September 30) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(8,244,566) | $(7,864,086) | | Net cash used in investing activities | $(99,018) | $(313,598) | | Net cash provided by/(used in) financing activities | $4,074,083 | $(599,695) | | Net change in cash and cash equivalents | $(4,269,501) | $(8,777,379) | | Cash and cash equivalents at end of period | $8,692,435 | $16,005,650 | Notes to Financial Statements The notes provide detailed information on the company's organization, liquidity, accounting policies, inventory, accrued expenses, clinical holdback, revenue recognition, commitments, notes payable, leases, stockholders' equity, equity incentive plans, and net loss per share, highlighting the impact of April 2023 equity financing and subsequent warrant exercises on liquidity and equity - Femasys Inc. is a biomedical company focused on women's reproductive health, possessing an extensive intellectual property portfolio and in-house manufacturing capabilities, with key products including FemBloc® (permanent contraception) and FemaSeed® (intrauterine insemination)[30][31] - As of September 30, 2023, the company had $8.69 million in cash and cash equivalents, with existing cash and recent financing proceeds expected to support operations for at least the next 12 months, though additional funding is required to advance FemBloc's clinical development and commercialization[35][38][107][108] - In April 2023, the company completed an equity financing through a registered direct offering and concurrent private placement, generating $3.90 million in gross proceeds and $3.35 million net proceeds, followed by significant cash inflows from common warrant exercises in September and October 2023[56][67][72][74][106] (1) Organization, Nature of Business, and Liquidity Femasys Inc. is a biomedical company focused on women's reproductive health, offering permanent contraception and infertility solutions with extensive IP and internal manufacturing, and while $8.69 million in cash as of September 30, 2023, is expected to fund operations for at least 12 months, additional financing is needed for FemBloc's clinical development and commercialization - Femasys Inc. is a biomedical company focused on women's reproductive health, offering solutions including FemBloc® (permanent contraception) and FemaSeed® (intrauterine insemination)[30][31] - The company holds an extensive intellectual property portfolio, including design and utility patents in the U.S. and key overseas markets, and possesses in-house research, development, and manufacturing capabilities[31] - The company anticipates increased losses in the coming years until FemBloc receives FDA approval and market launch, planning to support operations and R&D through existing cash, equity/debt financing, and sales revenue from FemVue and FemaSeed[35][36] Liquidity Overview | Metric | September 30, 2023 | | :--- | :--- | | Cash and cash equivalents | $8,692,435 | | Net loss for the nine months ended September 30, 2023 | $(9,836,670) | | Estimated future operating capital sufficiency | At least 12 months | (2) Cash and Cash Equivalents As of September 30, 2023, the company's money market funds within cash and cash equivalents totaled $7.33 million, a decrease from $12.55 million at December 31, 2022 Money Market Funds | Date | Amount | | :--- | :--- | | September 30, 2023 | $7,330,371 | | December 31, 2022 | $12,553,557 | | Change | $(5,223,186) | | Change % | -41.6% | (3) Inventories As of September 30, 2023, the company's net inventory increased to $602.7 thousand from $436.7 thousand at December 31, 2022, with growth in raw materials and finished goods offsetting a decline in work-in-process, and a reserve for slow-moving, obsolete, or unusable FemVue products was recorded - The reserve for slow-moving, obsolete, or unusable FemVue products increased from $2,103 at December 31, 2022, to $3,560 at September 30, 2023[42] Inventory Composition (Net) | Inventory Category | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Raw materials | $361,569 | $244,498 | | Work-in-process | $51,358 | $100,453 | | Finished goods | $189,741 | $91,772 | | Total net inventory | $602,668 | $436,723 | (4) Accrued Expenses As of September 30, 2023, total accrued expenses increased to $569.4 thousand from $456.7 thousand at December 31, 2022, primarily due to significant increases in compensation costs and director fees, partially offset by decreases in clinical trial costs and franchise taxes Accrued Expenses Composition | Accrued Expense Category | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Clinical trial costs | $313,029 | $333,440 | | Compensation costs | $155,192 | $85,191 | | Franchise taxes | $0 | $26,886 | | Director fees | $90,000 | $0 | | Other | $11,221 | $11,197 | | Total accrued expenses | $569,442 | $456,714 | (5) Clinical Holdback As of September 30, 2023, the clinical holdback liability balance was $126.1 thousand, with $72.1 thousand classified as current and $54.0 thousand as long-term, reflecting $4,529 in new holdbacks and $20,299 in payments during the period Changes in Clinical Holdback Liability (Nine Months Ended September 30) | Item | Amount | | :--- | :--- | | Balance at December 31, 2022 | $141,864 | | Clinical holdback retained | $4,529 | | Clinical holdback paid | $(20,299) | | Balance at September 30, 2023 | $126,094 | | Less: Current portion | $(72,075) | | Long-term portion | $54,019 | (6) Revenue Recognition The company primarily recognizes revenue from FemVue product sales at the point of shipment with standard 30-to-60-day payment terms, reporting $800.8 thousand in U.S. sales and $58.0 thousand in international sales for the first nine months of 2023, totaling $858.9 thousand, a decrease from the prior year, with no significant history of returns - The company recognizes revenue at the point of shipment based on contract pricing and standard 30-to-60-day payment terms, with all revenue recognized at a point in time and no over-time recognition[46][119] - Products are shipped to U.S. customers via common carrier, with customers assuming freight costs and FOB shipping point control, while international distributors typically have EX-Works shipping terms, and the company has no significant history of returns[47][120] Sales by Geographic Region (Primarily from FemVue) For the Three Months Ended September 30: | Market | 2023 | 2022 | | :--- | :--- | :--- | | U.S. | $244,361 | $289,642 | | International | $0 | $57,814 | | Total | $244,361 | $347,456 | For the Nine Months Ended September 30: | Market | 2023 | 2022 | | :--- | :--- | :--- | | U.S. | $800,814 | $856,115 | | International | $58,045 | $115,859 | | Total | $858,859 | $971,974 | (7) Commitments and Contingencies The company may be involved in legal claims or litigation but, as of September 30, 2023, and December 31, 2022, there were no material legal contingencies requiring accrual or disclosure, and the company indemnifies directors and officers under Delaware law and its bylaws, backed by D&O liability insurance - The company may be involved in legal claims or litigation, but as of September 30, 2023, and December 31, 2022, there were no material legal contingencies requiring accrual or disclosure[49] - The company indemnifies its directors and officers under Delaware law and its bylaws, and has purchased Directors and Officers liability insurance to limit potential unlimited indemnification amounts[50] (8) Notes Payable In July 2023, the company entered into a $469.0 thousand promissory note with AFCO Credit Corporation at an 8.587% annual interest rate to finance insurance premiums, resulting in an AFCO note principal balance of $283.3 thousand as of September 30, 2023, an increase from $141.3 thousand at December 31, 2022 - In July 2023, the company entered into a promissory note with AFCO Credit Corporation to finance $469,042 in insurance premiums at an 8.587% annual interest rate[51] AFCO Notes Payable Principal Balance | Date | Amount | | :--- | :--- | | September 30, 2023 | $283,334 | | December 31, 2022 | $141,298 | | Change | $142,036 | | Change % | 100.5% | AFCO Notes Payable Interest Expense For the Three Months Ended September 30: | Year | Amount | | :--- | :--- | | 2023 | $7,998 | | 2022 | $5,352 | For the Nine Months Ended September 30: | Year | Amount | | :--- | :--- | | 2023 | $9,317 | | 2022 | $7,235 | (9) Leases In July 2023, the company extended its operating lease agreement for its Suwanee, Georgia office facility, incurring $3.32 million in future payments over 63 months, which led to a $2.50 million increase in right-of-use assets and lease liabilities - In July 2023, the company extended its operating lease agreement, requiring $3,321,025 in future payments over 63 months[54] - The lease extension resulted in a $2,496,968 increase in right-of-use assets and lease liabilities[54] (10) Stockholders' Equity As of September 30, 2023, the company had 15,992,869 shares of common stock outstanding with no dividends declared or paid, having completed an April 2023 equity financing that issued 1,318,000 common shares and warrants to purchase 3,196,722 common shares, generating $3.90 million gross and $3.35 million net proceeds, and also re-established an 'at-the-market' offering facility in October 2023 - In April 2023, the company completed an equity financing through a registered direct offering and concurrent private placement, issuing 1,318,000 shares of common stock and prepaid and common warrants to purchase 3,196,722 shares of common stock, generating $3,899,813 in gross proceeds and $3,352,049 in net proceeds[56][106] - The company established an 'at-the-market' offering facility in July 2022 with Piper Sandler & Co., allowing for the issuance of up to $8.80 million in common stock, which was suspended in April 2023 and reinstated in October 2023, authorizing sales of up to $16.70 million in shares[55][105] Common Stock Outstanding | Date | Shares Outstanding | | :--- | :--- | | September 30, 2023 | 15,992,869 | | November 13, 2023 | 21,649,623 | (11) Equity Incentive Plans and Warrants As of September 30, 2023, the company had 2,079,271 stock options outstanding with a weighted-average exercise price of $2.00, having granted 1,150,000 employee options and 73,000 non-employee options in the first nine months of 2023, while prepaid warrants from the April 2023 financing were fully exercised by June 2023, and some common and placement agent warrants were exercised in September 2023, generating $1.06 million in cash, leaving 2,400,000 common warrants and 68,809 placement agent warrants unexercised - Prepaid warrants issued in the April 2023 financing were fully exercised by June 2023, and in September 2023, 796,722 common warrants and 122,994 placement agent warrants were exercised, generating $1,059,975 in cash proceeds[72] - As of September 30, 2023, 2,400,000 common warrants and 68,809 placement agent warrants remained unexercised[72] Stock Option Activity (Nine Months Ended September 30) | Metric | Number of Stock Options | Weighted-Average Exercise Price | | :--- | :--- | :--- | | Outstanding at December 31, 2022 | 931,550 | $3.97 | | Granted | 1,223,000 | $0.50 (weighted average) | | Forfeited | (75,279) | $2.09 (weighted average) | | Outstanding at September 30, 2023 | 2,079,271 | $2.00 | | Vested and exercisable at September 30, 2023 | 1,217,298 | $2.62 | Stock-Based Compensation Expense For the Three Months Ended September 30: | Category | 2023 | 2022 | | :--- | :--- | :--- | | Research and development | $79,561 | $10,820 | | Sales and marketing | $623 | $1,515 | | General and administrative | $424,175 | $39,427 | | Total | $504,359 | $51,762 | For the Nine Months Ended September 30: | Category | 2023 | 2022 | | :--- | :--- | :--- | | Research and development | $131,812 | $73,395 | | Sales and marketing | $(1,319) | $3,857 | | General and administrative | $496,036 | $81,036 | | Total | $626,529 | $158,288 | (12) Net Loss per Share Attributable to Common Stockholders For the three and nine months ended September 30, 2023, basic and diluted net loss per share attributable to common stockholders was $0.26 and $0.74, respectively, with all potentially dilutive securities, including stock options and warrants, excluded from diluted net loss per share calculations due to their anti-dilutive effect given the company's net loss position - Due to the company's net loss position, potentially dilutive securities such as stock options and warrants are excluded from diluted net loss per share calculations as they are anti-dilutive[73] Net Loss per Share Attributable to Common Stockholders For the Three Months Ended September 30: | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net loss attributable to common stockholders (basic and diluted) | $(3,996,905) | $(2,982,843) | | Weighted-average shares used in computing net loss per share (basic and diluted) | 15,093,147 | 11,813,610 | | Net loss per share (basic and diluted) | $(0.26) | $(0.25) | For the Nine Months Ended September 30: | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net loss attributable to common stockholders (basic and diluted) | $(9,836,670) | $(8,499,974) | | Weighted-average shares used in computing net loss per share (basic and diluted) | 13,369,462 | 11,810,289 | | Net loss per share (basic and diluted) | $(0.74) | $(0.72) | (13) Subsequent Events In October 2023, 2,400,000 common warrants were exercised, generating $2.63 million in cash proceeds, and the company reactivated its 'at-the-market' offering agreement, selling 3,256,754 shares through this facility for $7.66 million in gross cash proceeds - In October 2023, 2,400,000 common warrants were exercised, generating $2,628,000 in cash proceeds[74] - In October 2023, the company reactivated its 'at-the-market' offering agreement and sold 3,256,754 shares, generating $7,661,587 in gross cash proceeds[74] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses Femasys Inc.'s financial condition and operating results for the period ended September 30, 2023, covering company overview, recent corporate and clinical developments, operational performance, liquidity, capital resources, and critical accounting estimates, as the company advanced its reproductive health product pipeline and conducted financing activities - Femasys Inc. is a biomedical company focused on women's reproductive health, possessing an extensive intellectual property portfolio and in-house manufacturing capabilities, with key products including FemBloc (permanent contraception) and FemaSeed (intrauterine insemination)[77] - The company achieved several corporate and clinical milestones during the reporting period, including product approvals and FDA 510(k) clearance for FemaSeed in Canada, and FDA approval and enrollment initiation for FemBloc's pivotal clinical trial[78][80][82][85][86] - The company secured additional liquidity through equity financing and warrant exercises to support operations and product development, but still anticipates needing more capital to complete clinical development and commercialization of its primary product candidates[103][105][106][108] Overview Femasys Inc. is a women-founded and led biomedical company dedicated to providing office-accessible solutions for women globally, leveraging its extensive IP portfolio and internal manufacturing capabilities, primarily focusing on reproductive health with FemBloc for permanent contraception and FemaSeed for intrauterine insemination, the latter receiving FDA 510(k) clearance in September 2023 - Femasys is a women-founded and led biomedical company focused on addressing unmet needs for women globally, offering a wide range of office-accessible solutions[77] - The company holds an intellectual property portfolio of over 150 global patents and possesses in-house chemistry, manufacturing, and control (CMC) as well as device manufacturing capabilities[77] - The company primarily focuses on reproductive health, with key product candidates including FemBloc for permanent contraception and FemaSeed for intrauterine insemination, which received FDA 510(k) clearance in September 2023[77] Corporate Update Femasys Inc. achieved significant corporate milestones, including Health Canada approval for FemaSeed, FemCerv, and FemCath sales, FDA IDE approval and enrollment initiation for FemBloc's pivotal clinical trial, a new U.S. patent for FemBloc, FDA 510(k) clearance for FemaSeed, a Health Canada medical device establishment license, and regaining Nasdaq minimum bid price compliance - Health Canada approved the sale of FemaSeed, FemCerv, and FemCath in Canada[78][79][80] - The FDA approved the IDE for FemBloc's pivotal clinical trial, with enrollment initiated in August 2023[80][81] - The company received FDA 510(k) clearance for FemaSeed in September 2023 and a Health Canada Medical Device Establishment License in August 2023, enabling direct sales of FemaSeed, FemVue, FemCath, and FemCerv in Canada[82] - The company regained Nasdaq minimum bid price compliance in October 2023[83] Clinical Update Femasys Inc. advanced its clinical development, with FemaSeed's pivotal trial redesigned to focus on male factor infertility patients, expected to complete enrollment in Q4 2023 and receiving FDA 510(k) clearance in September 2023, while FemBloc's FINALE pivotal trial received FDA IDE approval and commenced enrollment to assess safety and efficacy, with pregnancy rate as the primary endpoint, and plans for an interim analysis and five-year follow-up - FemaSeed's pivotal trial design was updated to focus on male factor infertility patients, with enrollment expected to complete in Q4 2023, and received FDA 510(k) clearance in September 2023[85] - FemBloc's FINALE pivotal trial received FDA IDE approval and initiated enrollment, aiming to evaluate its safety and effectiveness, with pregnancy rate as the primary endpoint[86] - The FemBloc trial design includes an initial safety data enrollment of 50 women, a clinical data endpoint interim analysis after 300 women use FemBloc for one year, and planned five-year annual follow-ups[86] Results of Operations For the three and nine months ended September 30, 2023, Femasys Inc. experienced decreased sales but improved gross margins, while increased research and development, sales and marketing, and general and administrative expenses led to expanded operating and net losses, partially offset by significant growth in interest income Operating Results Overview For the Three Months Ended September 30: | Metric | 2023 | 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Sales | $244,361 | $347,456 | $(103,095) | -29.7% | | Gross profit | $158,175 | $216,005 | $(57,830) | -26.8% | | Total operating expenses | $4,239,439 | $3,273,194 | $966,245 | 29.5% | | Operating loss | $(4,081,264) | $(3,057,189) | $(1,024,075) | 33.5% | | Net loss | $(3,996,905) | $(2,982,843) | $(1,014,062) | 34.0% | For the Nine Months Ended September 30: | Metric | 2023 | 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Sales | $858,859 | $971,974 | $(113,115) | -11.6% | | Gross profit | $557,084 | $615,495 | $(58,411) | -9.5% | | Total operating expenses | $10,615,984 | $9,215,397 | $1,400,587 | 15.2% | | Operating loss | $(10,058,900) | $(8,599,902) | $(1,458,998) | 17.0% | | Net loss | $(9,836,670) | $(8,499,974) | $(1,336,696) | 15.7% | Comparison of the Three Months Ended September 30, 2023 and 2022 For the three months ended September 30, 2023, sales decreased by 29.7% to $244.4 thousand, driven by reduced international and U.S. sales, yet gross margin improved from 62.2% to 64.7% due to manufacturing efficiencies, while R&D expenses rose 25.8% to $2.07 million, sales and marketing expenses fell 21.6%, general and administrative expenses increased 41.2%, and net loss expanded by 34.0% to $4.00 million - Net other income (expense) increased by 13.5% to $84.4 thousand, primarily due to higher interest income[94] Operating Results for the Three Months Ended September 30 | Metric | 2023 | 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Sales | $244,361 | $347,456 | $(103,095) | -29.7% | | Cost of sales | $86,186 | $131,451 | $(45,265) | -34.4% | | Gross profit | $158,175 | $216,005 | $(57,830) | -26.8% | | Gross margin percentage | 64.7% | 62.2% | 2.5% | 4.0% | | Research and development expenses | $2,072,830 | $1,648,160 | $424,670 | 25.8% | | Sales and marketing expenses | $70,883 | $90,374 | $(19,491) | -21.6% | | General and administrative expenses | $1,970,408 | $1,395,063 | $575,345 | 41.2% | | Net loss | $(3,996,905) | $(2,982,843) | $(1,014,062) | 34.0% | Comparison of the Nine months ended September 30, 2023 and 2022 For the nine months ended September 30, 2023, sales decreased by 11.6% to $858.9 thousand, primarily due to reduced international and U.S. sales, while gross margin improved from 63.3% to 64.9%, R&D expenses increased 13.1% to $5.14 million, sales and marketing expenses surged 99.9% to $444.7 thousand, general and administrative expenses rose 15.4%, and net loss expanded by 15.7% to $9.84 million - Net other income (expense) significantly increased by 122.4% to $222.2 thousand, primarily due to higher interest income[102] Operating Results for the Nine Months Ended September 30 | Metric | 2023 | 2022 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Sales | $858,859 | $971,974 | $(113,115) | -11.6% | | Cost of sales | $301,775 | $356,479 | $(54,704) | -15.3% | | Gross profit | $557,084 | $615,495 | $(58,411) | -9.5% | | Gross margin percentage | 64.9% | 63.3% | 1.6% | 2.5% | | Research and development expenses | $5,137,441 | $4,542,147 | $595,294 | 13.1% | | Sales and marketing expenses | $444,678 | $222,414 | $222,264 | 99.9% | | General and administrative expenses | $4,642,182 | $4,024,356 | $617,826 | 15.4% | | Net loss | $(9,836,670) | $(8,499,974) | $(1,336,696) | 15.7% | Liquidity and Capital Resources As of September 30, 2023, the company held $8.69 million in cash and cash equivalents with an accumulated deficit of $104 million, primarily funding operations through common stock, convertible preferred stock, and debt financing, having recently secured significant cash inflows from its 'at-the-market' facility and April 2023 financing, and expects existing funds to support operations for at least 12 months, though additional financing is required for clinical development and commercialization of key product candidates - The company primarily funds its operations through the sale of common stock, convertible preferred stock, debt, and product revenue[103] - In October 2023, the company sold 3,256,754 shares through its reinstated 'at-the-market' facility, generating $7,661,587 in gross cash proceeds, in addition to $3,352,049 net proceeds from the April 2023 financing and further cash inflows from warrant exercises in September and October 2023[105][106] - The company anticipates needing additional capital to complete clinical development, regulatory approval, development, and commercialization of its primary product candidates, warning that failure to obtain sufficient financing may force termination or delay of product development[108] Liquidity Overview | Metric | September 30, 2023 | | :--- | :--- | | Cash and cash equivalents | $8,692,435 | | Accumulated deficit | $(103,971,175) | | Estimated time existing funds can support operations | At least 12 months | Cash Flows For the nine months ended September 30, 2023, net cash used in operating activities was $8.24 million, primarily due to net loss, partially offset by non-cash expenses and changes in working capital, while net cash used in investing activities was $99 thousand for property and equipment, and net cash provided by financing activities was $4.07 million, mainly from equity issuance and warrant exercises - Net cash used in operating activities for the first nine months of 2023 was primarily attributable to a $9,836,670 net loss, partially offset by non-cash expenses such as depreciation and amortization, right-of-use asset amortization, stock-based compensation expense, and loss on disposal of assets[110] - Net cash provided by financing activities for the first nine months of 2023 primarily resulted from $4,965,021 in proceeds from the issuance of common stock and warrants, partially offset by financing issuance costs, notes payable repayments, and lease obligation payments[115] Cash Flow Overview (Nine Months Ended September 30) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(8,244,566) | $(7,864,086) | | Net cash used in investing activities | $(99,018) | $(313,598) | | Net cash provided by/(used in) financing activities | $4,074,083 | $(599,695) | | Net change in cash and cash equivalents | $(4,269,501) | $(8,777,379) | Critical Accounting Estimates This section discusses critical accounting estimates involved in preparing the company's financial statements, including revenue recognition and accrued expenses, where financial statements are prepared under U.S. GAAP requiring estimates and assumptions for assets, liabilities, revenue, and expenses, with revenue recognized when control of goods transfers and accrued expenses estimated for unbilled third-party R&D services - The company's financial statements are prepared in accordance with U.S. GAAP, requiring estimates and assumptions for assets, liabilities, revenue, expenses, and related disclosures[117] - Revenue is recognized when customers obtain control of promised goods, with all revenue recognized at a point in time and no over-time recognition, and the company has no multiple performance obligations or significant history of returns[119][120] - Accrued expenses primarily relate to research and development activities by third-party service providers, estimated based on services rendered but not yet invoiced, and are adjusted to actual costs[121] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that quantitative and qualitative disclosures about market risk are not applicable - Quantitative and qualitative disclosures about market risk are not applicable to this section[122] Item 4. Controls and Procedures Company management assessed the effectiveness of disclosure controls and procedures as of September 30, 2023, concluding they were effective at a reasonable assurance level, with no significant changes in internal control over financial reporting during the period, while acknowledging inherent limitations of control systems in preventing all errors and fraud - Company management, including the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of disclosure controls and procedures as of September 30, 2023, concluding they were effective at a reasonable assurance level[123] - No significant changes in internal control over financial reporting occurred during the quarter ended September 30, 2023[124] - Management acknowledges that all control systems have inherent limitations, providing reasonable rather than absolute assurance, and cannot prevent all errors and fraud[125] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company may be involved in legal proceedings, but currently believes the aggregate reasonably possible losses beyond established reserves will not materially impact consolidated financial condition or cash flows, though losses could significantly affect operating results in any specific future period - The company may be involved in legal proceedings from time to time, but currently believes the aggregate reasonably possible losses beyond established reserves will not materially impact consolidated financial condition or cash flows[127] - Nevertheless, losses could materially affect operating results for any particular future period, depending on the level of income for that period[127] Item 1A. Risk Factors As of the report date, there have been no material changes to the risk factors disclosed in the company's Form 10-K annual report filed on December 31, 2022 - As of the date of this report, there have been no material changes to the risk factors disclosed in the company's Form 10-K annual report filed on December 31, 2022[128] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the reporting period, the company had no unregistered sales of equity securities or use of proceeds - During the reporting period, the company had no unregistered sales of equity securities or use of proceeds[129] Item 3. Defaults Upon Senior Securities During the reporting period, the company had no defaults upon senior securities - During the reporting period, the company had no defaults upon senior securities[130] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable - Mine safety disclosures are not applicable to this section[131] Item 5. Other Information During the quarter, no directors or officers adopted or terminated Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements - During the quarter covered by this report, no directors or officers adopted or terminated Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements[132] Item 6. Exhibits This section lists the exhibits filed with this quarterly report, including articles of incorporation, certification documents, and XBRL data files - Exhibits include articles of incorporation, amended bylaws, certifications of the Chief Executive Officer and Chief Financial Officer (pursuant to Exchange Act Rule 13a-14(a) and 18 U.S.C. Section 1350), and Inline XBRL instance and taxonomy extension files[134] SIGNATURES This quarterly report was formally signed on November 14, 2023, by Kathy Lee-Sepsick, Chief Executive Officer and President, and Dov Elefant, Chief Financial Officer, of Femasys Inc. - This registration statement was signed on November 14, 2023, by Kathy Lee-Sepsick, Chief Executive Officer and President, and Dov Elefant, Chief Financial Officer, of Femasys Inc.[135][136]