iSpecimen (ISPC) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides iSpecimen Inc.'s unaudited condensed financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the quarter and nine months ended September 30, 2021 ITEM 1. Financial Statements This section presents iSpecimen Inc.'s unaudited condensed financial statements for the quarter and nine months ended September 30, 2021, including balance sheets, statements of operations, changes in equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, and significant financial events like its IPO, debt conversions, and the impact of COVID-19 Condensed Balance Sheets This section presents iSpecimen Inc.'s financial position, detailing assets, liabilities, and equity at September 30, 2021, and December 31, 2020 | ASSETS (Unaudited) | Sep 30, 2021 | Dec 31, 2020 | | :------------------- | :----------- | :----------- | | Current assets: | | | | Cash | $9,790,732 | $695,909 | | Accounts receivable – unbilled | $1,750,744 | $652,761 | | Accounts receivable, net | $2,718,682 | $1,526,392 | | Total current assets | $14,898,855 | $3,472,367 | | Property and equipment, net | $44,749 | $75,589 | | Internally developed software, net | $2,650,867 | $2,634,139 | | Total assets | $17,622,072 | $6,209,696 | | LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) | | | | Current liabilities: | | | | Accounts payable | $351,424 | $1,792,432 | | Accrued expenses | $1,025,136 | $810,910 | | Accrued interest | $7,510 | $3,696,944 | | Convertible notes payable, related parties, net | — | $5,490,811 | | Derivative liability for embedded conversion features | — | $2,373,000 | | Bridge notes payable, net | — | $4,589,228 | | Total current liabilities | $2,102,793 | $22,135,688 | | Term loan | $3,428,380 | — | | Total liabilities | $5,531,173 | $22,314,587 | | Total convertible preferred stock | — | $11,173,076 | | Total stockholders' equity (deficit) | $12,090,899 | $(27,277,967) | | Total liabilities, convertible preferred stock and stockholders' equity (deficit) | $17,622,072 | $6,209,696 | - Total assets increased significantly from $6.21 million at December 31, 2020, to $17.62 million at September 30, 2021, primarily driven by a substantial increase in cash and accounts receivable[10] - Total liabilities decreased from $22.31 million to $5.53 million, largely due to the conversion and extinguishment of convertible notes and bridge notes, and the introduction of a term loan[10] - Stockholders' equity shifted from a deficit of $(27.28) million to a positive $12.09 million, reflecting the impact of the IPO and debt conversions[10] Unaudited Condensed Statements of Operations This section outlines iSpecimen Inc.'s revenues, expenses, and net loss for the three and nine months ended September 30, 2021 and 2020 | (Unaudited) | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $2,718,534 | $2,250,147 | $8,586,217 | $5,466,375 | | Total operating expenses | $4,177,607 | $2,973,226 | $12,516,465 | $6,938,305 | | Loss from operations | $(1,459,073) | $(723,079) | $(3,930,248) | $(1,471,930) | | Other expense, net | $(93,950) | $(523,390) | $(2,981,180) | $(1,586,610) | | Net loss | $(1,553,023) | $(1,246,469) | $(6,911,428) | $(3,058,540) | | Net loss per share (Basic and diluted) | $(0.22) | $(1.33) | $(2.17) | $(3.27) | - Revenue increased by 21% for the three months ended September 30, 2021, and by 57% for the nine months ended September 30, 2021, compared to the respective prior periods[13] - Net loss increased for both the three-month (25%) and nine-month (126%) periods, driven by higher operating expenses and other expenses, including significant losses on debt extinguishment[13] - Basic and diluted net loss per share improved from $(1.33) to $(0.22) for the three-month period and from $(3.27) to $(2.17) for the nine-month period, despite increased net loss, due to a higher weighted average common shares outstanding[13] Unaudited Condensed Statements of Changes in Convertible Preferred Stock and Stockholders' Equity (Deficit) This section details the changes in iSpecimen Inc.'s equity, including the impact of the IPO, debt conversions, and net losses for the nine months ended September 30, 2021 - The company's total stockholders' equity (deficit) significantly improved from $(27.28) million at December 31, 2020, to $12.09 million at September 30, 2021[10] - This improvement was primarily driven by the conversion of all redeemable convertible preferred stock into common stock upon the IPO, the conversion of convertible notes and bridge notes into common stock, and the issuance of common stock in connection with the public offering, totaling over $45 million in additional paid-in capital[16][29][171] - Accumulated deficit increased from $(29.06) million to $(35.97) million during the nine months ended September 30, 2021, reflecting the net losses incurred[10] Unaudited Condensed Statements of Cash Flows This section summarizes iSpecimen Inc.'s cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2021 and 2020 | CASH FLOWS (Nine months ended Sep 30) | 2021 | 2020 | | :------------------------------------- | :------------ | :------------ | | Net cash used in operating activities | $(9,348,701) | $(263,728) | | Net cash used in investing activities | $(733,722) | $(865,927) | | Net cash provided by financing activities | $19,177,246 | $2,033,008 | | Net increase in cash | $9,094,823 | $903,353 | | Cash at end of period | $9,790,732 | $957,246 | - Net cash used in operating activities significantly increased to $9.35 million in 2021 from $0.26 million in 2020, primarily due to higher net loss and changes in working capital[22][218] - Net cash provided by financing activities surged to $19.18 million in 2021 from $2.03 million in 2020, driven by proceeds from the IPO, issuance of a term loan, and exercise of stock options and warrants[22][221] - The company reported a net increase in cash of $9.09 million in 2021, resulting in a cash balance of $9.79 million at period-end, compared to a $0.90 million increase and $0.96 million cash balance in 2020[22] Notes to Unaudited Condensed Financial Statements This section provides detailed explanations of iSpecimen Inc.'s business, significant accounting policies, and key financial events impacting the condensed financial statements 1. Nature of Business and Basis of Presentation This note describes iSpecimen Inc.'s online marketplace, its IPO, debt conversions, and the impact of the COVID-19 pandemic on its operations - iSpecimen Inc. operates a proprietary online marketplace platform connecting medical researchers with biospecimens (human biofluids, tissues, living cells) and associated data from healthcare providers[25] - The company completed its Initial Public Offering (IPO) on June 21, 2021, issuing 2,250,000 shares at $8.00/share, raising $18 million gross proceeds, with net proceeds of $15.7 million. An additional 337,500 shares were sold on July 1, 2021, for $2.7 million gross, bringing total net proceeds to approximately $18.2 million[28] - Upon IPO closing, all outstanding redeemable convertible preferred stock, convertible notes ($5.5 million principal + $1.3 million interest), and bridge notes ($4 million principal + $0.7 million interest) were converted into common stock[29][31][32] - The company secured a $3.5 million Term Loan on August 13, 2021, used to pay off the remaining $3.0 million balance on Bridge Notes, alleviating prior substantial doubt about its ability to continue operations for at least the next 12 months[34][35] - COVID-19 impacted operations, leading to measures like adding COVID-19 samples to its product line and implementing mobile phlebotomy. Specimen requests for COVID-19 samples are declining in 2021 compared to 2020[38] 2. Summary of Significant Accounting Policies This note outlines iSpecimen Inc.'s critical accounting policies, including revenue recognition, fair value measurements, and the impact of being an emerging growth company - The company's financial statements are prepared in accordance with GAAP for interim financial information, and management makes estimates for fair value measurements, revenue recognition, share-based compensation, and derivative liabilities[26][42] - Concentration of credit risk: For the three months ended September 30, 2021, one customer accounted for 16% of revenue. For the nine months ended September 30, 2021, one customer accounted for 10% of revenue. As of September 30, 2021, three customers each represented 12% of accounts receivable[44][45] - Revenue is recognized over time as the company procures specimens meeting customer specifications, with performance obligations satisfied when specimens are 'accessioned' (registered and assigned to an order). The company acts as a principal in these arrangements[58][60][61] Revenue Type (Unaudited) | Revenue Type (Unaudited) | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :----------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Specimens – contracts with customers | $2,671,655 | $2,223,057 | $8,448,164 | $5,408,012 | | Shipping and other | $46,879 | $27,090 | $138,053 | $58,363 | | Total Revenue | $2,718,534 | $2,250,147 | $8,586,217 | $5,466,375 | - The company has elected not to 'opt out' of the extended transition period for complying with new or revised accounting standards as an 'emerging growth company' under the JOBS Act[75] 3. Factoring of Accounts Receivable This note details iSpecimen Inc.'s factoring agreement for accounts receivable, its termination, and associated fees - On January 1, 2021, the company entered into a factoring agreement to sell a minimum of $1.2 million of accounts receivable without recourse. Net receivables sold under this agreement totaled approximately $3.4 million during the nine months ended September 30, 2021[76][77] - The factoring agreement was terminated on June 30, 2021, with the company paying $139,374 in settlement. Factoring fees of $214,497 for the three months and $471,396 for the nine months ended September 30, 2021, were recorded as general and administrative expenses[76][78] 4. Property and Equipment, Net This note presents the carrying value of iSpecimen Inc.'s property and equipment, along with related depreciation expenses Property and Equipment, Net | Property and Equipment, Net | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Total property and equipment | $340,083 | $337,533 | | Accumulated depreciation | $(295,334) | $(261,944) | | Total property and equipment, net | $44,749 | $75,589 | - Net property and equipment decreased from $75,589 at December 31, 2020, to $44,749 at September 30, 2021[81] - Depreciation expense was $11,130 for the three months and $33,390 for the nine months ended September 30, 2021[81] 5. Internally Developed Software, Net This note describes iSpecimen Inc.'s capitalized costs for internally developed software and its amortization expenses - The company capitalized $731,172 in internally developed software costs during the nine months ended September 30, 2021, for platform development and enhancements[82] - Amortization expense for internally developed software was $242,860 for the three months and $714,444 for the nine months ended September 30, 2021[82] 6. Debt This note provides details on iSpecimen Inc.'s various debt instruments, including the PPP loan, convertible notes, bridge notes, and a new term loan - The $783,008 Paycheck Protection Program (PPP) Loan, received in May 2020, was fully forgiven as of January 13, 2021, resulting in a net gain on extinguishment of $788,156[83][85] - Related Party Convertible Notes Payable totaling $5.5 million were converted into 1,206,614 shares of common stock at $5.60 per share on June 21, 2021, upon the IPO, leading to a $260,000 loss on conversion[86][93] - Bridge Notes, including Related Party Bridge Notes, totaling $6.5 million (plus $0.5 million in 2021) were amended multiple times, increasing interest rates and extending maturity dates. Upon IPO, $4 million principal and $0.7 million accrued interest were converted into 842,429 shares of common stock[94][95][98][113] - The amendment of Bridge Notes on March 15, 2021, was accounted for as a debt extinguishment, resulting in a loss of $2,740,425[109][110] - A Term Loan of $3.5 million was secured on August 13, 2021, with Western Alliance Bank, bearing interest at 0.75% above the Prime Rate (4.00% as of Sep 30, 2021). This funding was used to pay off the remaining $3.0 million balance on the Bridge Notes[116] 7. Fair Value of Derivative Liabilities This note explains the valuation and extinguishment of iSpecimen Inc.'s derivative liabilities associated with convertible and bridge notes Derivative Liabilities (Level 3) | Derivative Liabilities (Level 3) | 2021 | 2020 | | :------------------------------- | :------------ | :------------ | | Balance, beginning of period | $2,373,000 | $2,214,000 | | Derivative liability on bridge notes payable and bridge notes payable, related parties | $3,614,000 | — | | (Gain) loss included in earnings | $(1,311,700) | $76,000 | | Write off of derivative liabilities in connection with debt conversion | $(4,675,300) | — | | Balance, end of period (unaudited) | — | $2,290,000 | - Derivative liabilities for embedded conversion features on convertible notes and bridge notes were measured at fair value using a scenario-based analysis (Level 3 inputs)[123][127] - Upon conversion of Convertible Notes and Amended Bridge Notes to common stock in connection with the IPO on June 21, 2021, the derivative liabilities were written off, totaling $(4.68) million for the nine months ended September 30, 2021[122][124][128] 8. Commitments and Contingencies This note outlines iSpecimen Inc.'s operating lease obligations and confirms the absence of material litigation Operating Leases | Year Ending December 31, | Operating Leases | | :----------------------- | :--------------- | | 2021 (remaining) | $40,353 | | 2022 | $163,158 | | 2023 | $165,254 | | 2024 | $27,601 | | Total | $396,366 | - The company leases its office space under a non-cancelable operating lease expiring on February 28, 2024, with total remaining commitments of $396,366[129][130] - Rent expense was $46,261 for the three months and $113,341 for the nine months ended September 30, 2021[130] - As of September 30, 2021, there was no material litigation against the company[131] 9. Convertible Preferred Stock and Stockholders' Deficit This note details changes in iSpecimen Inc.'s capital structure, including the conversion of preferred stock and issuance of warrants post-IPO - Following the IPO, the company's authorized capital is 250 million shares (200 million common stock, 50 million preferred stock)[134] - All 1,291,012 shares of outstanding preferred stock automatically converted into common stock upon the IPO, leaving no preferred stock outstanding as of September 30, 2021[135] - The company issued 2,250,000 common shares in the IPO, an additional 337,500 shares from the overallotment option, 1,206,614 shares from convertible notes conversion, and 842,429 shares from bridge notes conversion[136][137] - An Underwriter Warrant to purchase 90,000 common shares at $10.00/share was issued, exercisable from December 16, 2021, to June 15, 2026. A Lender Warrant to purchase 12,500 common shares at $8.00/share was issued in connection with the Term Loan[139][141] 10. Share-Based Compensation This note describes iSpecimen Inc.'s stock option activity, share-based compensation expense, and equity awards granted under incentive plans Stock Option Activity (Nine months ended Sep 30, 2021) | Stock Option Activity (Nine months ended Sep 30, 2021) | Options Outstanding | Weighted Average Exercise Price | | :----------------------------------------------------- | :------------------ | :------------------------------ | | Balance at December 31, 2020 | 251,847 | $1.00 | | Granted | 70,164 | $5.74 | | Exercised | (44,222) | $1.00 | | Cancelled/forfeited | (8,019) | $1.00 | | Balance at September 30, 2021 | 269,770 | $2.27 | - Share-based compensation expense was $399,821 for the three months and $450,231 for the nine months ended September 30, 2021[148] - The 2021 Stock Incentive Plan was adopted on June 16, 2021, authorizing up to 608,000 shares. During the three months ended September 30, 2021, 419,545 equity awards were issued from this plan[149] - Restricted Stock Units (RSUs) totaling 120,250 were granted to employees (one-year cliff vesting, then quarterly over three years), 189,396 to executive team members (20% immediate, then annually over four years), and 12,500 to board directors (quarterly over one year)[150][151][154] - 47,349 Performance Stock Units (PSUs) were issued to executive team members, subject to revenue and cost of revenue metrics. No compensation expense was recognized for PSUs as achievement of targets was not probable as of September 30, 2021[156] 11. Income Taxes This note details iSpecimen Inc.'s net operating loss carryforwards, tax credits, and the valuation allowance against deferred tax assets - As of September 30, 2021, the company had federal net operating loss (NOL) carryforwards of approximately $28.4 million ($13 million expiring through 2037, $15.4 million carried forward indefinitely) and state NOLs of approximately $21.3 million (expiring through 2041)[157] - Federal and state tax credits of approximately $800,000 were available, expiring through 2041. A full valuation allowance was recorded against net deferred income tax assets due to a history of losses[157] 12. Subsequent Events This note reports on significant events that occurred after September 30, 2021, including additional restricted stock unit grants - In October 2021, the company granted 12,000 restricted stock units to employees under the 2021 Plan, with a vesting schedule of 25% after one year, then quarterly over the subsequent three years[158] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on iSpecimen Inc.'s financial condition and results of operations, highlighting the company's business model, the impact of the COVID-19 pandemic, detailed analysis of revenue and expenses, liquidity, and critical accounting policies. It emphasizes the company's transition to a public entity and its efforts to stabilize revenue and manage costs amidst evolving market conditions Special Note Regarding Forward-Looking Statements This note cautions readers about forward-looking statements and the inherent risks and uncertainties that could affect actual results - The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from expectations[161] - Readers are advised to refer to the Risk Factors section of the company's final prospectus for its IPO filed on June 21, 2021, for important factors that could affect actual results[161] Overview This section describes iSpecimen Inc.'s business model, its iSpecimen Marketplace platform, and key corporate events including its IPO and debt conversions - iSpecimen Inc. operates the iSpecimen Marketplace, a global platform connecting researchers with human biospecimens and associated de-identified data from healthcare providers to accelerate life science research[162][163] - The platform automates specimen search and selection, orchestrates bioprocurement workflow, and supports administrative functions for researchers and suppliers[163][165][166] - The company generates revenue by procuring specimens on a 'just in time' basis, avoiding inventory risks associated with traditional biorepositories[168] - Key corporate events include a 1-for-5.545 reverse stock split on March 30, 2021, an IPO on June 16, 2021, raising $18.2 million net proceeds, and the conversion of all preferred stock, convertible notes, and bridge notes into common stock[169][170][171] Impact of the COVID-19 Pandemic on Our Operations This section discusses the COVID-19 pandemic's effects on iSpecimen Inc.'s supply chain, product offerings, cost-saving measures, and current operational status - COVID-19 significantly impacted the company's supply chain, with over 80% of worldwide supply partially or fully disabled by April 2020, hindering order fulfillment despite increased purchase order value[174] - In response, iSpecimen added COVID-19 samples to its product line and utilized mobile phlebotomy. COVID-19 related purchase orders accounted for 24% and 48% of total purchase orders for the three months ended September 30, 2021 and 2020, respectively, showing a decline in 2021[176] - Cost-saving measures included eliminating non-essential travel, deferring expenditures, and furloughing 7% of employees in August 2020. The company also received a $783,008 PPP loan[175] - As of September 30, 2021, supply sites are mostly operational, leading to an increase in non-COVID-19 specimen collections, though the full financial impact and duration of the pandemic remain uncertain[177] Components of Our Results of Operations This section defines iSpecimen Inc.'s revenue generation, cost of revenue, and various operating expense categories, including technology, sales, supply development, fulfillment, and general and administrative costs - Revenue is generated by procuring specimens for medical research customers using the iSpecimen Marketplace, with performance obligations satisfied when specimens are 'accessioned'. The company acts as a principal and does not charge for software use[178][179] - Cost of revenue includes specimen purchase price, shipping, supply costs, payment processing, and supplier fees. Loss from operations is considered a more meaningful profitability measure than gross profit[180][181] - Technology costs cover payroll for development, software licenses, data center, and data management, expensed as incurred, except for capitalizable software development costs[183][184] - Sales and marketing expenses include payroll, commissions, travel, public relations, website development, advertising, and trade show costs[185] - Supply development costs are for personnel managing the supply network, travel, and regulatory compliance. Fulfillment costs cover operations, customer service, order management, packaging, and laboratory equipment[186][187] - General and administrative expenses include corporate function payroll (HR, legal, finance, executive), software licenses, facilities, legal, insurance, and other overheads[188] Financial Operations Overview and Analysis for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited) This section provides a detailed comparative analysis of iSpecimen Inc.'s financial performance, including revenue, expenses, and net loss, for the specified interim periods Comparison of the Three Months Ended September 30, 2021 and 2020 This section analyzes iSpecimen Inc.'s financial results for the three-month periods, highlighting changes in revenue, operating expenses, and net loss | Metric (Three months ended Sep 30) | 2021 | 2020 | Change (Dollars) | Change (Percentage) | | :--------------------------------- | :------------ | :------------ | :--------------- | :------------------ | | Revenue | $2,718,534 | $2,250,147 | $468,387 | 21% | | Cost of Revenue | $913,833 | $903,862 | $9,971 | 1% | | Technology | $543,581 | $413,381 | $130,200 | 31% | | Sales and marketing | $513,107 | $506,641 | $6,466 | 1% | | Supply development | $171,595 | $133,007 | $38,588 | 29% | | Fulfillment | $399,145 | $241,785 | $157,360 | 65% | | General and administrative | $1,636,346 | $774,550 | $861,796 | 111% | | Loss from operations | $(1,459,073) | $(723,079) | $(735,994) | (102)% | | Other expense, net | $(93,950) | $(523,390) | $429,440 | 82% | | Net loss | $(1,553,023) | $(1,246,469) | $(306,554) | (25)% | - Revenue increased by 21% due to a seasoned sales team, continued COVID-19 specimen demand, and increasing non-COVID-19 research demand. COVID-19 related revenue decreased from 63% to 34% of total revenue[191] - Operating expenses increased by 41%, primarily driven by a 111% increase in General and Administrative expenses due to public company costs (legal, accounting, D&O insurance, stock compensation) and a 65% increase in Fulfillment costs due to higher payroll[190][197][198] - Net loss increased by 25% to $(1,553,023), despite an 82% decrease in other expense, net, which was mainly due to a significant reduction in interest expense[190][199] Comparison of the Nine Months Ended September 30, 2021 and 2020 This section analyzes iSpecimen Inc.'s financial results for the nine-month periods, detailing changes in revenue, cost of revenue, operating expenses, and net loss | Metric (Nine months ended Sep 30) | 2021 | 2020 | Change (Dollars) | Change (Percentage) | | :-------------------------------- | :------------ | :------------ | :--------------- | :------------------ | | Revenue | $8,586,217 | $5,466,375 | $3,119,842 | 57% | | Cost of Revenue | $4,026,680 | $2,032,111 | $1,994,569 | 98% | | Technology | $1,315,331 | $1,131,695 | $183,636 | 16% | | Sales and marketing | $1,690,085 | $1,305,897 | $384,188 | 29% | | Supply development | $383,864 | $395,200 | $(11,336) | (3)% | | Fulfillment | $955,516 | $642,140 | $313,376 | 49% | | General and administrative | $4,144,989 | $1,431,262 | $2,713,727 | 190% | | Loss from operations | $(3,930,248) | $(1,471,930) | $(2,458,318) | (167)% | | Other expense, net | $(2,981,180) | $(1,586,610) | $(1,394,570) | (88)% | | Net loss | $(6,911,428) | $(3,058,540) | $(3,852,888) | (126)% | - Revenue increased by 57% to $8.59 million, driven by a change in specimen mix resulting in a 56% increase in average selling price per specimen, despite a 1% decrease in accessioned specimens[202] - Cost of revenue increased by 98% to $4.03 million, primarily due to a 96% increase in average cost per specimen, influenced by specimen mix and a large project in the prior year with lower average costs[203] - General and administrative expenses surged by 190% to $4.14 million, largely due to costs associated with becoming a public company, including legal, accounting, D&O insurance, stock compensation, and a $555,000 IPO bonus to employees[208] - Other expense, net, increased by 88% to $(2.98) million, primarily due to a $2.74 million loss on extinguishment of Bridge Notes and a $0.55 million increase in interest expense, partially offset by a $1.58 million gain from derivative liability changes and a $0.79 million gain from PPP loan forgiveness[209] Liquidity and Capital Resources This section discusses the company's cash position, funding sources, and ability to meet obligations - Cash increased by approximately $9.1 million to $9.79 million as of September 30, 2021, compared to December 31, 2020. Working capital increased by approximately $31.46 million to $12.8 million[210] - The IPO generated approximately $18.2 million in net proceeds, intended for technology development, supply network growth, marketing, sales, and general corporate purposes[210] - A $3.5 million Term Loan was received on August 13, 2021, used to pay off the remaining $3.0 million balance on Bridge Notes[211] - Management believes existing cash and IPO/Term Loan proceeds will fund operations for at least the next 12 months, alleviating prior going concern doubts, but continued viability beyond August 2022 may depend on raising additional capital[212] - The company terminated its factoring agreement with Versant Funding on June 30, 2021, after selling approximately $2.3 million in net receivables without recourse[213][214] - The Paycheck Protection Program Loan of $788,156 was fully forgiven on January 13, 2021[215] Cash Flows (Nine months ended Sep 30) | Cash Flows (Nine months ended Sep 30) | 2021 | 2020 | Change (Dollars) | Change (Percentage) | | :------------------------------------ | :------------ | :------------ | :--------------- | :------------------ | | Net cash flows used in operating activities | $(9,348,701) | $(263,728) | $(9,084,973) | 3445% | | Net cash flows used in investing activities | $(733,722) | $(865,927) | $132,205 | (15)% | | Net cash flows provided by financing activities | $19,177,246 | $2,033,008 | $17,144,248 | 843% | | Net increase in cash and cash equivalents | $9,094,823 | $903,353 | $8,191,470 | | Non-GAAP Financial Measure This section defines and reconciles Adjusted EBITDA, a non-GAAP metric - The company uses Adjusted EBITDA (net loss, excluding income tax benefit, change in fair value of derivative liabilities, loss/gain on debt extinguishment, interest expense, depreciation and amortization, and share-based compensation) as a non-GAAP measure to evaluate core operating performance[222][223] - Adjusted EBITDA provides insight into underlying business trends by excluding non-cash and non-recurring items, enhancing transparency for investors[224][225] - Limitations of Adjusted EBITDA include the exclusion of significant recurring non-cash charges like depreciation, amortization, and share-based compensation, which are important aspects of the business[226] Adjusted EBITDA Reconciliation | Adjusted EBITDA Reconciliation | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | | :----------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(1,553,023) | $(1,246,469) | $(6,911,428) | $(3,058,540) | | Change in fair value of derivative liability on convertible notes | — | $54,000 | $271,000 | $76,000 | | Change in fair value of derivative liability on bridge notes and related parties | — | — | $(1,582,700) | — | | Loss on extinguishment of bridge notes and related parties | — | — | $2,740,425 | — | | Loss on extinguishment of convertible notes and related parties | — | — | $260,185 | — | | Gain on extinguishment of note payable | — | — | $(788,156) | — | | Interest expense | $75,922 | $469,477 | $2,062,548 | $1,517,697 | | Depreciation & amortization | $253,990 | $184,051 | $747,834 | $632,988 | | Share-based compensation | $399,821 | $29,266 | $450,231 | $80,598 | | Adjusted EBITDA | $(823,290) | $(509,675) | $(2,750,061) | $(751,257) | Critical Accounting Policies This section outlines iSpecimen Inc.'s key accounting policies that require significant management judgment and estimates - Critical accounting policies involve significant judgment and estimates, including revenue recognition (five-step approach, principal vs. agent, over-time recognition based on accession), internally developed software capitalization and amortization, fair value measurement of derivative liabilities using scenario-based analysis, and share-based compensation valuation (Black-Scholes-Merton model for options, grant date fair value for RSUs)[230][231][234][235][239][241][242][243][244][245] - Prior to the IPO, common stock valuations used a hybrid of the Option Pricing Method (OPM) and Probability-Weighted Expected Return Method (PWERM), considering various liquidity outcomes and enterprise value derived from income and market approaches[246][247][248] - Income taxes are accounted for using the asset and liability method, with deferred tax assets and liabilities recognized for temporary differences, and a full valuation allowance recorded against deferred tax assets due to historical losses[250] Recent Accounting Standards This section addresses the potential impact of recently issued accounting standards on iSpecimen Inc.'s financial statements - The company believes that recently issued accounting standards not yet effective will not have a material impact on its financial position or results of operations upon adoption[74] JOBS Act Transition Period This section explains iSpecimen Inc.'s election as an emerging growth company to utilize the extended transition period for new accounting standards and other JOBS Act exemptions - As an 'emerging growth company' under the JOBS Act, the company has elected not to 'opt out' of the extended transition period for new or revised accounting standards, adopting them at the same time as private companies[253][254] - The company intends to rely on other JOBS Act exemptions, such as not providing an auditor's attestation report on internal controls (Section 404(b)) and not complying with mandatory audit firm rotation[255] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, iSpecimen Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is exempt from providing market risk disclosures as it qualifies as a smaller reporting company[256] ITEM 4. Controls and Procedures This section details the effectiveness of iSpecimen Inc.'s disclosure controls and procedures and reports on any changes in internal control over financial reporting - As of September 30, 2021, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[258] - There were no changes in internal control over financial reporting during the three months ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[259] PART II – OTHER INFORMATION This section includes iSpecimen Inc.'s disclosures on legal proceedings, unregistered sales of equity, defaults, mine safety, other information, exhibits, and signatures ITEM 1. Legal Proceedings This section states that iSpecimen Inc. has no material legal proceedings - There are no legal proceedings to report[262] ITEM 1A. Risk Factors As a smaller reporting company, iSpecimen Inc. is not required to provide risk factor disclosures in this report - The company is not required to provide risk factor information as it is a smaller reporting company[263] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the issuance of equity securities that were not registered under the Securities Act, primarily related to the IPO, conversion of debt and preferred stock, and compensation-related grants - The IPO on June 21, 2021, involved the sale of 2,250,000 common shares for $18 million gross proceeds, with an additional 337,500 shares sold via overallotment for $2.7 million gross, totaling approximately $18.2 million net proceeds[264] - Outstanding convertible promissory notes ($5.5 million principal and $1.3 million accrued interest) were converted into 1,206,614 common shares at $5.60 per share upon IPO completion[265] - Bridge promissory notes ($4.0 million principal and $0.7 million accrued interest) were converted into 842,429 common shares at $5.60 per share upon IPO completion[266] - All outstanding Series A, A-1, and B Preferred Stock (1,291,012 shares) were converted into common stock in connection with the IPO[268] - A $3.5 million term loan was secured from Bridge Bank on August 13, 2021, accompanied by a Lender Warrant to purchase 12,500 common shares at $8.00 per share[270][271] - The company issued 2,000 common shares to RedChip Companies, Inc. on August 1, 2021, for investor relations services[273] - Restricted Stock Units (RSUs) were granted to employees (aggregate 116,200 shares) and directors/executive officers (aggregate 249,946 RSUs and 47,349 PSUs) under the 2021 and 2013 Stock Incentive Plans[274][275][278][279] ITEM 3. Defaults Upon Senior Securities This section confirms that iSpecimen Inc. has no defaults upon senior securities - There are no defaults upon senior securities to report[281] ITEM 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to iSpecimen Inc - Mine safety disclosures are not applicable to the company[282] ITEM 5. Other Information This section indicates that there is no other information to report - There is no other information to report[283] ITEM 6. Exhibits This section lists the exhibits filed as part of, or incorporated by reference into, the Quarterly Report on Form 10-Q, including corporate documents, loan agreements, and certifications - Exhibits include the Fourth Amended and Restated Certificate of Incorporation, Second Amended and Restated Bylaws, Loan and Security Agreement, Lender Warrant, and various certifications (e.g., 31.1, 31.2, 32.1, 32.2)[285] - Certain exhibits were previously filed with the SEC via Form 8-K on June 22, 2021, and August 16, 2021, and are incorporated by reference[286] SIGNATURES This section contains the authorized signatures for the Quarterly Report on Form 10-Q - The report is signed by Christopher Ianelli, Chief Executive Officer and President, and Tracy Curley, Chief Financial Officer and Treasurer, on November 4, 2021[290]