FEMASYS INC - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________to____________

Commission file number: 001-40492

	Femasys Inc.
	(Exact Name of Registrant as Specified in its Charter)

Delaware		11-3713499
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

3950 Johns Creek Court, Suite 100
Suwanee, GA 30024		(770) 500-3910
(Address of principal executive offices, including zip code)		(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☑	Smaller reporting company ☑
Emerging growth company ☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

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

	Title of each class		Trading symbol		Name of each exchange on which registered
	Common stock, $0.001 par value		FEMY		The Nasdaq Capital Market

The Registrant had 11,813,610 shares of common stock, $0.001 par value, outstanding as of November 8, 2022.

TABLE OF CONENTS

		Page

Part I. Financial Information
Item 1	Financial Statements	4
	Balance Sheets as of September 30, 2022 and December 31, 2021 (unaudited)	4
	Statements of Comprehensive Loss for the Three Months and Nine Months Ended September 30, 2022 and 2021 (unaudited)	6
	Statements of Stockholders’ Equity for the Three Months and Nine Months Ended September 30, 2022 (unaudited)	7
	Statements of Stockholders’ Equity (Deficit) for the Three Months and Nine Months Ended September 30, 2021 (unaudited)	8
	Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (unaudited)	9
	Notes to Financial Statements (unaudited)	10
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4	Controls and Procedures	20

Part II. Other Information
Item 1	Legal Proceedings	21
Item 1A	Risk Factors	21
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3	Defaults Upon Senior Securities	21
Item 4	Mine Safety Disclosures	21
Item 5	Other Information	21
Item 6	Exhibits	22
SIGNATURES		23

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

•

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

•

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

•

estimates regarding the total addressable market for our product candidates;

•

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

•

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

•

competitive companies and technologies in our industry;

•

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

•

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

•

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

•

commercial success and market acceptance of our product candidates;

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

the volatility of the trading price of our common stock; and

•

our expectations about market trends.

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

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PART I. FINANCIAL INFORMATION

ITEM I.

Financial Statements

FEMASYS INC.

Balance Sheets

(unaudited)

Assets	September 30, 2022			December 31, 2021
Current assets:
Cash and cash equivalents	$	16,005,650			24,783,029
Accounts receivable, net		183,130			84,258
Inventory, net		343,136			208,270
Other current assets		760,573			555,853
Total current assets		17,292,489			25,631,410
Property and equipment, at cost:
Leasehold improvements		1,195,637			1,155,332
Office equipment		99,344			99,344
Furniture and fixtures		424,947			424,947
Machinery and equipment		2,434,524			2,261,793
Construction in progress		503,312			379,713
		4,657,764			4,321,129
Less accumulated depreciation		(3,115,551	)		(2,722,117	)
Net property and equipment		1,542,213			1,599,012
Long-term assets:
Lease right-of-use assets, net		402,063			665,747
Intangible assets, net of accumulated amortization		5,759			25,093
Other long-term assets		789,616			655,418
Total long-term assets		1,197,438			1,346,258

Total assets	$	20,032,140			28,576,680

(continued)

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FEMASYS INC.

Balance Sheets

(unaudited)

Liabilities and Stockholders’ Equity	September 30, 2022			December 31, 2021
Current liabilities:
Accounts payable	$	419,110			445,522
Accrued expenses		649,615			603,787
Clinical holdback - current portion		36,238			18,947
Note payable		280,577			181,123
Lease liabilities – current portion		386,139			406,674
Other		36,037			36,037
Total current liabilities		1,807,716			1,692,090
Long-term liabilities:
Clinical holdback - long-term portion		101,804			149,791
Lease liabilities – long-term portion		115,773			402,417
Total long-term liabilities		217,577			552,208
Total liabilities		2,025,293			2,244,298
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.001 par, 200,000,000 authorized, 11,930,833 shares issued and 11,813,610 outstanding as of September 30,2022; and 11,921,388 shares issued 11,804,165 outstanding as of December 31, 2021		11,931			11,921
Treasury stock, 117,223 shares		(60,000	)		(60,000	)
Warrants		567,972			702,492
Additional paid-in-capital		108,727,253			108,418,304
Accumulated deficit		(91,240,309	)		(82,740,335	)
Total stockholders’ equity		18,006,847			26,332,382

Total liabilities and stockholders’ equity	$	20,032,140			28,576,680

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

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FEMASYS INC.

Statements of Comprehensive Loss

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Sales	$	347,456			269,581			971,974			925,362
Cost of sales		131,451			105,403			356,479			306,072
Gross margin		216,005			164,178			615,495			619,290
Operating expenses:
Research and development		1,648,160			1,140,577			4,542,147			3,030,467
Sales and marketing		90,374			43,284			222,414			87,931
General and administrative		1,395,063			1,087,363			4,024,356			3,030,749
Depreciation and amortization		139,597			144,399			426,480			449,211
Total operating expenses		3,273,194			2,415,623			9,215,397			6,598,358
Loss from operations		(3,057,189	)		(2,251,445	)		(8,599,902	)		(5,979,068	)
Other income (expense):
Interest income, net		80,373			1,649			109,572			1,957
Other income		—			—			—			821,515
Interest expense		(6,005	)		(7,055	)		(9,622	)		(14,546	)
Other expense		(22	)		(2,850	)		(22	)		(2,850	)
Other income (expense), net		74,346			(8,256	)		99,928			806,076

Net loss	$	(2,982,843	)		(2,259,701	)		(8,499,974	)		(5,172,992	)

Net loss attributable to common stockholders, basic and diluted	$	(2,982,843	)		(2,259,701	)		(8,499,974	)		(5,172,992	)

Net loss per share attributable to common stockholders, basic and diluted	$	(0.25	)		(0.19	)		(0.72	)		(1.04	)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted		11,813,610			11,799,720			11,810,289			4,996,680

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

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FEMASYS INC.

Statements of Stockholders’ Equity

(unaudited)

																		Total
	Common stock				Treasury stock								Additional		Accumulated			stockholders’
	Shares		Amount		Shares		Amount			Warrants			paid-in capital		deficit			Equity
THREE MONTHS ENDED SEPTEMBER 30, 2022

Balance at June 30, 2022		11,930,833	$	11,931		117,223	$	(60,000	)	$	567,972		$	108,675,491	$	(88,257,466	)	$	20,937,928

Share-based compensation expense		—		—		—		—			—			51,762		—			51,762
Net loss		—		—		—		—			—			—		(2,982,843	)		(2,982,843	)

Balance at September 30, 2022		11,930,833	$	11,931		117,223	$	(60,000	)	$	567,972		$	108,727,253	$	(91,240,309	)	$	18,006,847

NINE MONTHS ENDED SEPTEMBER 30, 2022

Balance at December 31, 2021		11,921,388	$	11,921		117,223	$	(60,000	)	$	702,492		$	108,418,304	$	(82,740,335	)	$	26,332,382

Expiration of warrant		—		—		—		—			(134,520	)		134,520		—			—
Issuance of common stock for cash upon exercise of options		9,445		10		—		—			—			16,141		—			16,151
Share-based compensation expense		—		—		—		—			—			158,288		—			158,288
Net loss		—		—		—		—			—			—		(8,499,974	)		(8,499,974	)

Balance at September 30, 2022		11,930,833	$	11,931		117,223	$	(60,000	)	$	567,972		$	108,727,253	$	(91,240,309	)	$	18,006,847

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

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FEMASYS INC.

Statements of Stockholders’ Equity (Deficit)

(unaudited)

	Series B and Series C Redeemable Convertible																												Total
	Preferred stock						Common stock				Treasury stock					Preferred stock								Additional		Accumulated			stockholders’
	Shares			Amount			Shares		Amount		Shares		Amount			Shares			Amount			Warrants		paid-in capital		deficit			Equity (Deficit)
THREE MONTHS ENDED SEPTEMBER 30, 2021

Balance at June 30, 2021		—		$	—			11,916,943	$	11,916		117,223	$	(60,000	)		—		$	—		$	702,492	$	108,341,078	$	(78,115,781	)	$	30,879,705

Share-based compensation expense		—			—			—		—		—		—			—			—			—		33,388		—			33,388
Net loss		—			—			—		—		—		—			—			—			—		—		(2,259,701	)		(2,259,701	)

Balance at September 30, 2021		—		$	—			11,916,943	$	11,916		117,223	$	(60,000	)		—		$	—		$	702,492	$	108,374,466	$	(80,375,482	)	$	28,653,392

NINE MONTHS ENDED SEPTEMBER 30, 2021

Balance at December 31, 2020		55,835,833		$	55,343,686			1,110,347	$	1,110		117,223	$	(60,000	)		17,210,609		$	17,211		$	702,492	$	22,725,949	$	(75,202,490	)	$	(51,815,728	)

Issuance of common stock for cash upon exercise of options		—			—			40,253		40		—		—			—			—			—		112,105		—			112,145
Issuance of common stock in connection with IPO, net		—			—			2,650,000		2,650		—		—			—			—			—		30,019,707		—			30,022,357
Automatic conversion of preferred stock in connection with IPO		(55,835,833	)		(55,343,686	)		8,116,343		8,116		—		—			(17,210,609	)		(17,211	)		—		55,352,781		—			55,343,686
Share-based compensation expense		—			—			—		—		—		—			—			—			—		163,924		—			163,924
Net loss		—			—			—		—		—		—			—			—			—		—		(5,172,992	)		(5,172,992	)

Balance at September 30, 2021		—		$	—			11,916,943	$	11,916		117,223	$	(60,000	)		—		$	—		$	702,492	$	108,374,466	$	(80,375,482	)	$	28,653,392

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

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FEMASYS INC.

Statements of Cash Flows

(unaudited)

	Nine Months Ended September 30,
	2022			2021
Cash flows from operating activities:
Net loss	$	(8,499,974	)		(5,172,992	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		407,146			417,188
Amortization		19,334			32,023
Amortization of right-of-use assets		249,972			284,519
Share-based compensation expense		158,288			163,924
Loan and accrued interest forgiveness on note payable		—			(821,515	)
Inventory reserve		3,800			—
Loss on disposal of fixed asset		—			2,850
Changes in operating assets and liabilities:
Accounts receivable		(98,872	)		(17,669	)
Inventory		(138,666	)		(18,958	)
Other assets		359,307			498,878
Accounts payable		(49,449	)		(237,443	)
Accrued expenses		45,828			(510,730	)
Lease liabilites		(290,104	)		(312,893	)
Other liabilities		(30,696	)		9,935

Net cash used in operating activities		(7,864,086	)		(5,682,883	)
Cash flows from investing activities:
Purchases of property and equipment		(313,598	)		(188,245	)

Net cash used in investing activities		(313,598	)		(188,245	)
Cash flows from financing activities:
Proceeds from issuance of common stock		16,151			31,725,645
Payments of deferred offering costs		(232,845	)		(1,578,643	)
Repayment of note payable		(365,926	)		(302,343	)
Payments under lease obligations		(17,075	)		(15,448	)

Net cash (used in) provided by in financing activities		(599,695	)		29,829,211

Net change in cash and cash equivalents		(8,777,379	)		23,958,083
Cash and cash equivalents:
Beginning of period		24,783,029			3,322,226

End of period	$	16,005,650			27,280,309

Supplemental cash flow information
Cash paid for:
Interest	$	9,622			11,155
Income taxes	$	5,050			800
Non-cash investing and financing activities:
Property and equipment costs included in accounts payable	$	23,037			—
Prepaid insurance financed with promissory notes	$	280,577			320,866
Conversion of convertible preferred stock to common stock	$	—			55,360,897

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

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FEMASYS INC.

Notes to Financial Statements

(unaudited)

(1)	Organization, Nature of Business, and Liquidity

Organization and Nature of Business

Femasys Inc. (the Company or Femasys) was incorporated in Delaware on February 19, 2004 and is headquartered in Suwanee, Georgia. The Company is a biomedical company focused on transforming women’s healthcare by developing novel solutions and next-generation advancements providing significant clinical impact to address severely underserved areas. Our mission is to provide women worldwide with superior minimally-invasive, non-surgical product technologies, accessible in the office, improving patient care and overall health economics. The Company currently operates as one segment and is primarily focused on servicing the reproductive health needs for those seeking permanent birth control or solutions for infertility issues.

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

Basis of Presentation

The Company has prepared the accompanying financial statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to these rules and regulations. These financial statements should be read in conjunction with the Company’s audited financial statements and footnotes related thereto for the year ended December 31, 2021 included in our Annual Report on Form 10K filed with the SEC on March 24, 2022 (the Annual Report). There have been no material changes to the Company’s significant accounting policies described in Note 2 to the financial statements included in the Annual Report.

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

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting periods. The most significant estimates used in these financial statements include the valuation of stock options, warrants, useful lives of property and equipment, intangible assets, and the pre-initial public offering (IPO) valuation of our common stock and preferred stock. Estimates for these and other items are subject to change and are reassessed by management in accordance with U.S. GAAP. Actual results could differ from those estimates.

Liquidity

As of September 30, 2022, the Company has cash and cash equivalents of $16,005,650. The Company plans to finance its operations and development needs with its existing cash and cash equivalents, additional equity and/or debt financing arrangements, and revenue largely from the sale of FemVue to support the Company’s research and development activities, largely in connection with FemBloc and FemaSeed. There can be no assurance that the Company will be able to obtain additional financing on terms acceptable to the Company, on a timely basis, or at all. If the Company is not able to obtain sufficient funds on acceptable terms when needed, the Company’s business, results of operations, and financial condition could be materially adversely impacted.

For the nine months ended September 30, 2022, the Company generated a net loss of $8,499,974. The Company expects such losses to increase over the next few years as the Company advances FemBloc and FemaSeed through clinical development until FDA approval is received and the products are available to be marketed.

The Company believes that its cash and cash equivalents as of September 30, 2022 will be sufficient to fund our ongoing operations at least 12 months from the date of filing these financial statements.

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FEMASYS INC.

Notes to Financial Statements

(unaudited)

Recently Issued Accounting Pronouncements – Recently Adopted

On January 1, 2021, the Company adopted Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which the Financial Accounting Standards Board (FASB) issued in December 2019. This guidance eliminates certain exceptions to the general approach to the income tax accounting model and adds new guidance to reduce the complexity in accounting for income taxes. This guidance was effective for annual periods after December 15, 2020, including interim periods within those annual periods. The Company’s adoption of this new guidance did not have a material impact on the Company’s financial statements and footnote disclosures (unaudited).

Recently Issued Accounting Pronouncements – Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard changes the accounting for credit losses for financial assets and certain other instruments, including trade receivables and contract assets, that are not measured at fair value through net income. Under legacy standards, we recognize an impairment of receivables when it was probable that a loss had been incurred. Under the new standard, we are required to recognize estimated credit losses expected to occur over the estimated life or remaining contractual life of an asset (which includes losses that may be incurred in future periods) using a broader range of information including reasonable and supportable forecasts about future economic conditions. The guidance is effective for smaller reporting companies as defined by the SEC for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years with early adoption permitted. We do not expect the adoption of the standard to have a significant impact on our results of operations, financial position, or cash flows as credit losses are not expected to be significant based on historical collection trends, the financial condition of payment partners, and external market factors.

No other new accounting pronouncement issued or effective has had, or is expected to have, a material impact on the Company’s financial statements.

(2)	Cash and Cash Equivalents

As of September 30, 2022 and December 31, 2021, money market funds included in cash and cash equivalents on the balance sheets were $15,750,933 and $24,388,443, respectively, which represent level 1 within the fair value hierarchy where there are quoted prices in active markets for identical assets.

(3)	Inventories

Inventory stated at cost, net of reserve, consisted of the following:

	September 30,		December 31,
	2022		2021
Materials	$	196,508		111,531
Work in progress		78,777		12,795
Finished goods		67,851		83,944
Inventory, net	$	343,136		208,270

The FemVue reserve for slow moving, obsolete, or unusable inventories was $1,803 and $850 as of September 30, 2022 and December 31, 2021, respectively.

(4)	Accrued Expenses

Accrued expenses consisted of the following:

	September 30,		December 31,
	2022		2021
Clinical trial costs	$	401,967		301,730
Compensation costs		143,470		98,272
Franchise taxes		—		103,020
Other		104,178		100,765
Accrued expenses	$	649,615		603,787

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FEMASYS INC.

Notes to Financial Statements

(unaudited)

(5)	Clinical Holdback

The following table shows the activity within the clinical holdback liability accounts for the nine months ended September 30, 2022:

Balance at December 31, 2021	$	168,738
Clinical holdback retained		17,634
Clinical holdback paid		(48,330	)
Balance at September 30, 2022	$	138,042
Less: clinical holdback - current portion		(36,238	)
Clinical holdback - long-term portion	$	101,804

(6)	Revenue Recognition

Revenue is recognized upon shipment of our goods based upon contractually stated pricing at standard payment terms ranging from 30 to 60 days. All revenue is recognized point in time and no revenue is recognized over time. For the three and nine months ended September 30, 2022 and 2021, there was no revenue recognized from performance obligations satisfied or partially satisfied in prior periods, nor were there any unsatisfied performance obligations as of September 30, 2022 or 2021.

The majority of products sold directly to U.S customers are shipped via common carrier, and the customer pays for shipping and handling and assumes control Free on Board (FOB) shipping point. Products shipped to our international distributors are in accordance with their respective agreements; however, the shipping terms are generally EX-Works, reflecting that control is assumed by the distributor at the shipping point. Returns are only accepted with prior authorization from the Company. Items to be returned must be in original unopened cartons and are subject to a 30% restocking fee. Throughout the periods presented, the Company has not had a history of significant returns.

The following table summarizes our FemVue sales by geographic region as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
Primary geographical markets	2022		2021		2022		2021
U.S.	$	289,642		211,536		856,115		751,285
International		57,814		58,045		115,859		174,077
Total	$	347,456		269,581		971,974		925,362

(7)	Commitments and Contingencies

Legal Claims

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

The Company, as permitted under Delaware law and in accordance with its bylaws, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity. The Company entered into employment agreements with its officers, which provides for indemnification protection in the executive’s capacity as an officer for actions taken within the scope of employment. The maximum amount of potential future indemnification is unlimited; however, the Company has obtained director and officer insurance that limits its exposure. The Company believes the fair value for these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to these obligations as of September 30, 2022 and December 31, 2021.

(8)	Notes Payable

AFCO Credit Corporation (AFCO)

In June 2022, the Company executed a promissory note with AFCO to finance certain insurance premiums totaling $465,380, requiring the Company to pay $47,539 in a down payment and make monthly installment payments. The annual interest rate is 5.71% and the monthly installment is $47,539, which represents principal and interest.

As of September 30, 2022 and December 31, 2021, the principal balance on the AFCO notes was $280,577 and $181,123, respectively and is included in Notes payable – current portion in the accompanying balance sheets. Interest expense in connection with the AFCO promissory notes was $5,352 and $5,846 for the three months ended September 30, 2022 and 2021, respectively; and interest expense was $7,235 and $7,170 for the nine months ended September 30, 2022 and 2021.

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FEMASYS INC.

Notes to Financial Statements

(unaudited)

(9)	Redeemable Convertible Preferred Stock and Stockholders’ Equity

In June 2021, the Company issued 2,650,000 shares of common stock in connection with the Company’s IPO of its common stock at $13.00 per share. Net proceeds to the Company, after deducting underwriting discounts, commissions, and legal expenses, was $31,613,500. Offering costs incurred by the company were $2,016,143, which include legal expenses incurred and paid by our underwriters of $425,000. Immediately prior to the closing of the IPO, all our shares of our convertible Series A preferred stock and our redeemable convertible Series B and Series C preferred stock automatically converted into 8,116,343 shares of common stock.

The Company filed an eleventh amended and restated certificate of incorporation (the Amended and Restated Certificate) with the Secretary of State of the State of Delaware in connection with the completion of the IPO on June 22, 2021. The Amended and Restated Certificate amends and restates the Company’s existing certificate of incorporation in its entirety to, among other things: (i) authorize 200,000,000 shares of common stock; (ii) eliminate all references to the previously-existing series of preferred stock (Series A, B and C); and (iii) authorize 10,000,000 shares of undesignated preferred stock that may be issued from time to time by the Board in one or more series.

In July 2022, the Company entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Piper Sandler & Co. (“Piper Sandler” or the “Sales Agent”) and filed a related prospectus (the “Prospectus”) establishing an “at-the-market” facility, pursuant to which the Company may offer and sell shares of common stock having an aggregate offering price of up to $8,800,000 from time to time through the Sales Agent pursuant to the Prospectus. As of September 30, 2022, no shares had been sold under the Equity Distribution Agreement.

As of September 30, 2022, no dividends have been declared or paid since inception.

(10)	Equity Incentive Plans

Stock-Based Awards

(a)

Stock Option Plans

In June 2021, in connection with the IPO, our 2021 Equity Incentive Plan (2021 Plan) became effective, which was adopted by our Board of Directors in February 2021 and our stockholders approved the 2021 Plan in March 2021. The 2021 Plan is administered by our compensation committee. Upon the effectiveness of the 2021 Plan, no new grants will be awarded under our 2015 Stock-Based Incentive Compensation Plan.

As of September 30, 2022, the total number of shares of common stock reserved for future awards under the 2021 Plan is 1,292,170.

Activity under the stock option plans was as follows:

						Weighted
						average
				Weighted		remaining
				average		contracted		Aggregate
	Number of			exercise		term in		intrinsic
	options			price		years		value
Outstanding at December 31, 2021		689,995		$	3.58			$	683,531
Granted		270,170			6.71
Expired		(3,334	)		27.00
Forfeited		(834	)		6.12
Outstanding at March 31, 2022		955,997		$	4.38		6.47	$	125,279
Granted		51,000			1.50
Exercised		(9,445	)		1.71
Expired		(278	)		27.00
Forfeited		(46,668	)		3.27
Outstanding at June 30, 2022		950,606		$	4.30		6.55	$	181,745
Granted		34,300			1.68
Forfeited		(13,333	)		5.14
Outstanding at September 30, 2022		971,573		$	4.19		6.42	$	—

Vested and exercisable at September 30, 2022		481,385		$	3.73		4.84	$	—

Options granted under our 2021 Plan for the nine months ended September 30, 2022 to employees and nonemployees were 287,470 and 68,000, respectively, and the weighted average exercise prices were $6.33 and $1.88, respectively. Included in awards granted to employees are 140,000 performance-based options that vest on achieving certain clinical related milestones. The weighted-average fair values of the options granted to employees and nonemployees were $2.23 and $1.55, respectively and were estimated using the following weighted-average assumptions:

	Employee			Nonemployee
Expected term (in years)		6.44			5.63
Risk‑free interest rate		1.93	%		2.67	%
Dividend yield		—	%		—	%
Expected volatility		107.52	%		109.67	%

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FEMASYS INC.

Notes to Financial Statements

(unaudited)

The intrinsic value of options exercised during the nine months ended September 30, 2022 was $3,306. The intrinsic value represents the dollar value of the exercised stock options whereby the fair market value of the underlying common stock exceeded the exercise price of the stock option as of the exercise date.

(b)

Inducement Grant

On February 28, 2022, the Company awarded, outside the 2021 Plan, our Chief Financial Officer a stock option grant for the right to purchase 100,000 shares of common stock at an exercise price of $2.97 per share (inducement grant), which was approved by the Compensation Committee. The inducement grant will vest in equal installments over four years provided the employee remains employed by the Company on the vesting date. The fair value of the inducement grant was $2.46 and was estimated using the following assumptions:

	Inducement
Expected term (in years)		6.25
Risk‑free interest rate		1.76	%
Dividend yield		—	%
Expected volatility		106.76	%

As of September 30, 2022, 100,000 shares are outstanding, and none are exercisable.

(c)

Share-Based Compensation Expense

The following table shows the share-based compensation expense related to vested stock option grants to employees and nonemployees by financial statement line item on the accompanying statement of comprehensive loss:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Research and development	$	10,820		21,889		73,395		86,591
Sales and marketing		1,515		952		3,857		2,813
General and administrative		39,427		10,547		81,036		74,520
Total share-based compensation expense	$	51,762		33,388		158,288		163,924

As September 30, 2022, the remaining share-based compensation expense that is expected to be recognized in future periods for employees and nonemployees is $1,079,749, which includes $463,311 of compensation expense to be recognized upon achieving certain performance conditions. For service-based awards, the $616,438 of unrecognized expense is expected to be recognized over a weighted average period of 3.0 years.

(d)

Employee Stock Purchase Plan

In June 2021, in connection with the IPO, our Employee Stock Purchase Plan (ESPP) became effective which was adopted by our Board of Directors in February 2021 and our stockholders approved the 2021 ESPP Plan in March 2021. The ESPP is administered by our compensation committee.

As of September 30, 2022, the total number of shares of common stock reserved for future awards under the ESPP Plan is 284,707, and no shares of our common stock have been purchased under the ESPP.

(11)	Net Loss per Share Attributable to Common Stockholders

The following table sets forth the computation of the basic and diluted net loss per share:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021

Net loss attributable to common stockholders, basic & diluted	$	(2,982,843	)		(2,259,701	)		(8,499,974	)		(5,172,992	)

Weighted average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted		11,813,610			11,799,720			11,810,289			4,996,680
Net loss per share attributable to common stockholders, basic and diluted	$	(0.25	)		(0.19	)		(0.72	)		(1.04	)

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FEMASYS INC.

Notes to Financial Statements

(unaudited)

The following potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding because they would be anti-dilutive:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Options to purchase common stock		1,071,573		696,163		1,071,573		696,163
Warrants to purchase to common stock		233,460		244,572		233,460		244,572
Total potential shares		1,305,033		940,735		1,305,033		940,735

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission, or the SEC, on March 24, 2022. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “goal,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” “hope” and similar expressions intended to identify forward-looking statements and reflect our beliefs and opinions on the relevant subject. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. These statements are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

Overview

We are a biomedical company focused on transforming women’s healthcare by developing novel solutions and next-generation advancements providing significant clinical impact to address severely underserved areas. Our mission is to provide women worldwide with superior minimally-invasive, non-surgical product technologies, accessible in the office, improving patient care and overall health economics. We are a woman-founded and led company with an expansive, internally created intellectual property portfolio with over 150 patents globally, in-house chemistry, manufacturing, and controls (CMC) and device manufacturing capabilities and proven ability to develop and commercialize products. Our suite of products and product candidates address what we believe are multi-billion dollar global market segments in which there has been little advancement for many years, helping women avoid pharmaceutical solutions, implants and surgery that can be expensive and expose women to harm. With an initial focus in the area of reproductive health, our two lead product candidates offer solutions for two ends of the spectrum: FemBloc for permanent birth control and FemaSeed as an artificial insemination infertility treatment.

Clinical Update

On October 20, 2022, we announced an updated study design for our FemaSeed pivotal trial, which will now focus on couples experiencing male factor infertility. This update reflects a revised strategy to address this underserved population experiencing infertility with a goal of facilitating accelerated enrollment. The FemaSeed LOCAL de novo clinical trial is a prospective multi-center, unblinded study (NCT04968847) requiring evaluation of up to 214 women undergoing 214 FemaSeed cycles due to male factor infertility. The primary endpoints of the study are to determine the effectiveness (pregnancy rate) and safety over a period of seven weeks post-FemaSeed procedure. Study enrollment is expected to be completed in 2023. FemaSeed features intrauterine directional delivery that deposits sperm locally and directly to the fallopian tube where conception occurs. As the first and only approach, presenting significant advantages over existing artificial insemination solutions, it is intended to become a first-line treatment for infertility.

About Male Factor Infertility

Of all infertility cases, approximately 40–50% is reportedly due to male factor infertility, which represents a dramatic increase in prevalence over the past 40 years. Sperm counts worldwide have declined by over 50% between 1973 and 2011, with an increasing proportion of men having sperm counts below the threshold to be deemed sub-fertile or infertile. Assisted forms of reproductive treatment such as in-vitro fertilization (“IVF”) or intracytoplasmic sperm injection (“ICSI”) are both effective first-line treatments but are associated with significant costs (approximately $30,000), are often not covered by health insurance and may pose clinical risks.

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Results of Operations

Comparison of the Three Months Ended September 30, 2022 and 2021

The following table shows our results of operations for the three months ended September 30, 2022 and 2021:

	Three Months Ended September 30,
	2022			2021			Change			% Change
Sales	$	347,456			269,581			77,875			28.9	%
Cost of sales		131,451			105,403			26,048			24.7	%
Gross margin		216,005			164,178			51,827			31.6	%
Operating expenses:
Research and development		1,648,160			1,140,577			507,583			44.5	%
Sales and marketing		90,374			43,284			47,090			108.8	%
General and administrative		1,395,063			1,087,363			307,700			28.3	%
Depreciation and amortization		139,597			144,399			(4,802	)		-3.3	%
Total operating expenses		3,273,194			2,415,623			857,571			35.5	%
Loss from operations		(3,057,189	)		(2,251,445	)		(805,744	)		35.8	%
Other income (expense):
Interest income		80,373			1,649			78,724			4774.0	%
Interest expense		(6,005	)		(7,055	)		1,050			-14.9	%
Other expense		(22	)		(2,850	)		2,828			-99.2	%
Other income (expense), net		74,346			(8,256	)		82,602			-1000.5	%
Net loss	$	(2,982,843	)		(2,259,701	)		(723,142	)		32.0	%

Sales

Sales increased by $77,875, or 28.9%, to $347,456 for the three months ended September 30, 2022 compared to $269,581 for the three months ended September 30, 2021 due to strong U.S. sales of FemVue. U.S. sales increased by $78,106, or 36.9%, for the three months ended September 30, 2022 compared to the same period last year, and U.S. units of FemVue sold increased by 38.9% for the three months ended September 30, 2022 compared to the same period last year. International sales largely remained the same and were $57,814 and $58,045 for the three months ended September 30, 2022 and 2021, respectively.

Cost of sales and gross margin percentage

Cost of sales increased by $26,048, or 24.7%, to $131,451 for the three months ended September 30, 2022 compared to $105,403 for the three months ended September 30, 2021 which was largely due to our increase in U.S. FemVue sales. Gross margin percentage was 62.2% for the three months ended September 30, 2022 compared to 60.9% for the three months ended September 30, 2021, representing a 1.3% change in our gross margin due to certain improvements we have started implementing in order to improve our manufacturing processes.

Research and development

The following table summarizes our R&D expenses incurred during the periods presented:

	Three Months Ended September 30,
	2022		2021*
Compensation and related personnel costs	$	771,979	643,007
Clinical-related costs		628,046	279,285
Material and development costs		145,692	148,435
Professional and outside consultant costs		87,012	57,595
Other costs		15,431	12,255
Total research and development expenses	$	1,648,160	1,140,577

* Prior period amounts have been reclassified to confirm with current year presentation.

R&D expenses increased by $507,583, or 44.5%, to $1,648,160 for the three months ended September 30, 2022 compared to $1,140,577 for the three months ended September 30, 2021. The net increase of $507,583 consists of an increase of $128,972 in compensation and related personnel costs primarily due to an increase in headcount, an increase of $348,761 in clinical-related costs, and a net increase of $29,850 in all other costs, all to mainly support our clinical trials.

Sales and marketing

Sales and marketing expenses increased by $47,090, or 108.8%, to $90,374 for the three months ended September 30, 2022 compared to $43,284 for the three months ended September 30, 2021. This increase was largely due to an increase in compensation and related personnel costs due to an increase in headcount.

General and administrative

General and administrative expenses increased by $307,700, or 28.3%, to $1,395,063 for the three months ended September 30, 2022 compared to $1,087,363 for the three months ended September 30, 2021. The net increase was largely due to an increase in salaries and related personnel costs, an increase in facility and other allocated overhead costs, and an increase in professional costs for legal and accounting.

Depreciation and amortization

Depreciation and amortization expenses decreased by $4,802, or 3.3%, to $139,597 for the three months ended September 30, 2022 compared to $144,399 for the three months ended September 30, 2021 mainly due to reduction of amortization expense associated with the Company’s intangible assets.

Other income (expense)

Other income, net increased by $82,602, or 1,000.5%, to $74,346 for the three months ended September 30, 2022 compared to $(8,256) for the three months ended September 30, 2021 mainly due to interest income earned on our money market accounts.

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Results of Operations

Comparison of the Nine Months Ended September 30, 2022 and 2021

The following table shows our results of operations for the nine months ended September 30, 2022 and 2021:

	Nine Months Ended September 30,
	2022			2021			Change			% Change
Sales	$	971,974			925,362			46,612			5.0	%
Cost of sales		356,479			306,072			50,407			16.5	%
Gross margin		615,495			619,290			(3,795	)		-0.6	%
Operating expenses:
Research and development		4,542,147			3,030,467			1,511,680			49.9	%
Sales and marketing		222,414			87,931			134,483			152.9	%
General and administrative		4,024,356			3,030,749			993,607			32.8	%
Depreciation and amortization		426,480			449,211			(22,731	)		-5.1	%
Total operating expenses		9,215,397			6,598,358			2,617,039			39.7	%
Loss from operations		(8,599,902	)		(5,979,068	)		(2,620,834	)		43.8	%
Other income (expense):
Interest income		109,572			1,957			107,615			5499.0	%
Other income		—			821,515			(821,515	)		-100.0	%
Interest expense		(9,622	)		(14,546	)		4,924			-33.9	%
Other expense		(22	)		(2,850	)		2,828			-99.2	%
Other income, net		99,928			806,076			(706,148	)		-87.6	%
Net loss	$	(8,499,974	)		(5,172,992	)		(3,326,982	)		64.3	%

Sales

Sales increased by $46,612, or 5.0%, to $971,974 for the nine months ended September 30, 2022 compared to $925,362 for the nine months ended September 30, 2021. The $46,612 net increase was largely attributable to the increase in U.S. FemVue sales of $104,830 for the nine months ended September 30, 2022 compared to the same period last year. This amount was offset by the decrease of $58,218 in international sales for the nine months ended September 30, 2022 compared to the same period last year. U.S. units of FemVue sold increased by 13.8% for the nine months ended September 30, 2022 compared to the same period last year. International sales decreased by 33.4% and were $115,859 and $174,077 for the nine months ended September 30, 2022 and 2021, respectively.

Cost of sales and gross margin percentage

Cost of sales increased by $50,407, or 16.5%, to $356,479 for the nine months ended September 30, 2022 compared to $306,072 for the nine months ended September 30, 2021. The increase in cost of sales was mainly due to net increase in sales and increased production personnel labor and overhead costs applied to our cost of sales for the nine months ended September 30, 2022 compared to the same period last year. Gross margin percentage was 63.3% for the nine months ended September 30, 2022 compared to 66.9% for the nine months ended September 30, 2021. We expect to see improvement in our gross margin in the future as we are investing in equipment and tooling which will enable us to reduce labor in certain manufacturing processes and reduce material costs as well.

Research and development

The following table summarizes our R&D expenses incurred during the periods presented:

	Nine Months Ended September 30,
	2022		2021*
Compensation and related personnel costs	$	2,327,063	1,967,702
Clinical-related costs		1,449,074	596,143
Material and development costs		452,669	349,825
Professional and outside consultant costs		272,368	88,479
Other costs		40,973	28,318
Total research and development expenses	$	4,542,147	3,030,467

* Prior period amounts have been reclassified to confirm with current year presentation.

R&D expenses increased by $1,511,680, or 49.9%, to $4,542,147 for the nine months ended September 30, 2022 compared to $3,030,467 for the nine months ended September 30, 2021. The net increase of $1,511,680 largely consists of an increase of $359,361 in compensation and related personnel costs primarily due to an increase in headcount, an increase of $852,931 in clinical-related costs, an increase of $102,844 in material and development costs and an increase of $183,889 in professional and outside consultant costs, all to mainly support our clinical trials.

Sales and marketing

Sales and marketing expenses increased by $134,483, or 152.9%, to $222,414 for the nine months ended September 30, 2022 compared to $87,931 for the nine months ended September 30, 2021. This increase was largely due to an increase in compensation and related personnel costs due to an increase in headcount and additional marketing costs mainly associated with our FemVue social media campaign earlier this year.

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General and administrative

General and administrative expenses increased by $993,607, or 32.8%, to $4,024,356 for the nine months ended September 30, 2022 compared to $3,030,749 for the nine months ended September 30, 2021. The increase was largely due to various additional costs associated with being a public company including an increase in salaries and related personnel and an increase in facility and other allocated overhead costs mainly for additional directors and officers insurance.

Depreciation and amortization

Depreciation and amortization expenses decreased by $22,731, or 5.1%, to $426,480 for the nine months ended September 30, 2022 compared to $449,211 for the nine months ended September 30, 2021 due to reduction of depreciation expense associated with the Company’s fixed assets and amortization expense associated with the Company’s intangible assets.

Other income (expense)

Other income, net decreased by $706,148, or 87.6%, to $99,928 for the nine months ended September 30, 2022 compared to $806,076 for the nine months ended September 30, 2021 mainly due to the Small Business Administration approval of our Paychex Protection Program loan forgiveness in September 2021.

Liquidity and Capital Resources

Sources of liquidity

Since our inception through September 30, 2022, our operations have been financed primarily by net proceeds from the sale of our common stock and convertible preferred stock, indebtedness and, to a lesser extent, product revenue. As of September 30, 2022, we had $16,005,650 of cash and cash equivalents and an accumulated deficit of $91,240,309.

On June 22, 2021, we closed on our IPO in which we issued and sold 2,650,000 shares of our authorized common stock. Net proceeds received, after deducting underwriting discounts, commissions, and legal expenses, were $31,613,500.

On July 1, 2022, we entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Piper Sandler & Co. (“Piper Sandler” or the “Sales Agent”) and filed a related Prospectus establishing an “at-the-market” facility, pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $8,800,000 from time to time through the Sales Agent pursuant to the Prospectus. As of September 30, 2022, no shares had been sold under the Equity Distribution Agreement.

Funding requirements

Based on our current operating plan, our current cash and cash equivalents are expected to be sufficient to fund our ongoing operations at least 12 months from the date of filing these financial statements. Our estimate as to how long we expect the net proceeds from this offering, together with our existing cash and cash equivalents, to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned.

Our cash and cash equivalents as of September 30, 2022 will not be sufficient to fund all of our product candidates through regulatory approval, and we anticipate needing to raise additional capital to complete the development and commercialization of our product candidates. However, we can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds will be available to us, that such additional financing will be sufficient to meet our needs or be on terms acceptable to us. This risk may increase if economic and market conditions deteriorate. If we are unable to obtain additional financing when needed, we may need to terminate, significantly modify, or delay the development of our product candidates, or we may need to obtain funds through collaborations or otherwise on terms that may require us to relinquish rights to our technologies or product candidates that we might otherwise seek to develop or commercialize independently. If we are unable to raise adequate additional capital as and when required in the future, we could be forced to cease development activities and terminate our operations, and you could experience a complete loss of your investment.

Cash Flows

Comparison of the Nine Months Ended September 30, 2022 and 2021

The following table summarizes our cash flows for the nine months ended September 30, 2022 and 2021:

	Nine Months Ended September 30,
	2022			2021
Net cash used in operating activities	$	(7,864,086	)		(5,682,883	)
Net cash used in investing activities		(313,598	)		(188,245	)
Net cash (used in) provided by financing activities		(599,695	)		29,829,211
Net change in cash and cash equivalents	$	(8,777,379	)		23,958,083

Operating activities

For the nine months ended September 30, 2022, cash used in operating activities was $7,864,086, attributable to a net loss of $8,499,974, a net change in our net operating assets and liabilities of $202,652 and offset by non-cash charges of $838,540. Non-cash charges largely consisted of $426,480 in depreciation and amortization, $249,972 in right-of-use amortization, and $158,288 in stock-based compensation. The change in our net operating assets and liabilities was primarily due to an increase in accounts receivables of $98,872, an increase in inventory of $138,666 and a decrease of $290,104 in lease liabilities, which were offset partially by a decrease in other assets of $359,307.

For the nine months ending September 30, 2021, cash used in operating activities was $5,682,883, attributable to a net loss of $5,172,992, a net change in our net operating assets and liabilities of $588,880, and non-cash charges of $78,989. Net non-cash charges largely consisted of $821,515 in PPP loan forgiveness offset by $163,924 in stock-based compensation, $449,211 in depreciation and amortization, and $284,519 in right-of-use amortization. The change in our net operating assets and liabilities was primarily due to a net decrease in accounts payable and accrued expenses of $748,173, a decrease of $312,893 in lease liabilities, and offset by a decrease in other assets of $498,878.

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Investing activities

For the nine months ended September 30, 2022, cash used in investing activities for the purchase of property and equipment was $313,598 largely for machinery and equipment.

For the nine months ended September 30, 2021, cash used in investing activities for the purchase of property and equipment was $188,245.

Financing activities

For the nine months ended September 30, 2022, cash used in financing activities was $599,695, attributable to repayments on notes payable of $365,926, payments under lease obligations of $17,075, a deferred offering cost payments of $232,845, and offset by proceeds from the exercise of a stock option of $16,151.

For the nine months ended September 30, 2021, cash provided by financing activities was $29,829,211, attributable to net proceeds from our IPO of $30,034,857, exercise of stock options totaling $112,145, and offset by repayments on notes payable of $302,343 and payments under lease obligations of $15,448.

Government Regulation

De Novo Classification

Medical device types that the FDA has not previously classified as Class I, II or III are automatically classified into Class III regardless of the level of risk they pose. The Food and Drug Administration Modernization Act of 1997 established a new route to market for low to moderate risk medical devices that are automatically placed into Class III due to the absence of a predicate device, called the “Request for Evaluation of Automatic Class III Designation,” or the de novo classification procedure. This procedure allows a manufacturer whose novel device is automatically classified into Class III to request de novo classification of its medical device into Class I or Class II on the basis that the device presents low or moderate risk, and that general controls alone, or general and special controls, provide reasonable assurance of safety and effectiveness for the intended use and that the probable benefits of the device outweigh the probable risks.

FDA has issued several guidance documents addressing the de novo classification process and the contents of de novo classification requests and, on October 5, 2021, the FDA published a final rule to establish regulations for the de novo classification process. The regulation defines the requirements for the de novo classification process, including requirements related to the format and content of de novo requests, as well as processes and criteria for accepting, granting, declining and withdrawing de novo requests.

Under the Food and Drug Administration Safety and Innovation Act (FDASIA) and the final rule, the FDA is required to issue an order classifying the device within 120 days following receipt of the de novo request or receipt of additional information that results in the de novo request being accepted, but in practice the time for FDA review of de novo classification requests has historically been significantly longer. Under the Food and Drug Administration Reauthorization Act (FDARA), Congress implemented user fees for de novo classification requests and FDA committed to performance goals for their review.

If the manufacturer seeks de novo classification into Class II, the manufacturer must include, among other information, a draft proposal for special controls that are necessary to provide a reasonable assurance of the safety and effectiveness of the medical device. In addition, the FDA may decline the de novo classification request if it identifies a legally marketed predicate device or otherwise determines the device has already been classified, or determines that general controls or general and special controls are insufficient to provide reasonable assurance of safety and effectiveness of the device, among other reasons for declining a de novo request listed in the final rule. Devices that are classified into class I or class II in response to a de novo classification request may be marketed and used as predicates for future premarket notification 510(k) submissions.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our management has concluded that our disclosure controls and procedures were not effective at a reasonable assurance level as of September 30, 2022 due to the material weakness as disclosed in our Annual Report on Form 10-K, under Part II, Item 9A. Controls and Procedures, filed with the SEC on March 24, 2022.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three and nine months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer (Principal Financial and Accounting Officer), does not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within a company are detected. The inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

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PART II OTHER INFORMATION

Item 1.

Legal Proceedings

From time to time we may be involved in legal proceedings arising in connection with our business. Based on information currently available, we believe that the amount, or range, of reasonably possible losses in connection with any pending actions against us in excess of established reserves, in the aggregate, is not material to our consolidated financial condition or cash flows. However, losses may be material to our operating results for any particular future period, depending on the level of income for such period.

Item 1A.

Risk Factors

You should carefully review and consider the information regarding certain risks and uncertainties facing us that could have a material adverse effect on our business prospects, financial condition, results of operations, liquidity and available capital resources set forth in Part I, Item 1A. Risk Factors, of the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2022.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

Not applicable.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

Not applicable.

Item 6.

Exhibits

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				Incorporated by Reference
Exhibit				File
Number		Description of Document	Schedule/Form	Number	Exhibit	Filing Date

31.1*		Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRl Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

	*	Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Suwanee, State of Georgia, on this 10th day of November 2022.

FEMASYS INC.

Dated: November 10, 2022	By: /s/ Kathy Lee-Sepsick
	Kathy Lee-Sepsick
	Chief Executive Officer and President

	By: /s/ Dov Elefant
	Dov Elefant
	Chief Financial Officer
	(Principal financial and accounting officer)