FEMASYS INC - Quarter Report: 2023 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2023

OR

 

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.

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:

The Registrant had 13,190,573 shares of common stock, $0.001 par value, outstanding as of May 9, 2023.

 

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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” 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:

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

 

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

 

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

 

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

 

•

estimates regarding the total addressable market for our product candidates;

 

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competitive companies and technologies in our industry;

 

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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 artificial insemination product, expand sales of our women-specific medical products and develop and commercialize additional products;

 

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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;

 

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

 

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commercial success and market acceptance of our product candidates;

 

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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;

 

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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;

 

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adverse developments affecting the financial services industry;

 

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

 

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

 

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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 product and women-specific medical product solutions in markets in and outside of the United States;

 

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

 

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

 

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

 

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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

 

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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.

FEMASYS INC.

Statements of Comprehensive Loss

(unaudited)

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

FEMASYS INC.

Statements of Stockholders’ Equity

(unaudited)

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 we recently completed a validation study under an approved Investigational Device Exemption (IDE) from the U.S. Food and Drug Administration (FDA) and plan to use the study data to support which of the two confirmation tests (ultrasound or radiology) should be studied in a new pivotal trial to support a potential future application for PMA for FemBloc. Results of the small study along with the trial design for the pivotal clinical trial was submitted to the FDA in the first quarter of 2023. 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 IDE and the clinical study was initiated in July 2021. An updated study design received approval in October 2022 from the FDA. FemaSeed is approved for sale in Canada. 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). 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.

The financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred net operating losses in every year since inception and has an accumulated deficit as of March 31, 2023 of $97,080,762 and expects to incur additional losses and negative operating cash flows for at least the next twelve months. The Company’s ability to meet its obligations is dependent upon its ability to generate sufficient cash flows from operations and future financing transactions (see Note 12). Although management expects the Company will continue as a going concern, there is no assurance that management’s plans will be successful since the availability and amount of such funding is not certain. Accordingly, substantial doubt exists about the Company’s ability to continue as a going concern for at least one year from the issuance of these financial statements. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.

(4)	Accrued Expenses

 

Accrued expenses consisted of the following:

(5)	Clinical Holdback

 

The following table shows the activity within the clinical holdback liability accounts for the three months ended March 31, 2023:

 

(10)	Equity Incentive Plans

Stock-Based Awards

(a)

Stock Option Plans

 

Activity under the Company’s stock option plans for the three months ended March 31, 2023 was as follows:

		Number of				Weighted Average
		Options				Exercise Price
Outstanding at December 31, 2022			931,550			$	3.97
Granted			5,000				1.18
Forfeited			(50,055	)			1.87
Outstanding at March 31, 2023			886,495			$	4.07
Vested and exercisable at March 31, 2023			479,296			$	3.30

The 5,000 options granted under our 2021 Stock Option Plan for the three months ended March 31, 2023 was to a nonemployee with a fair value of $0.62 using the Black-Scholes assumptions as follows:

 

For the three months ended March 31, 2023, no inducement awards were granted. As of March 31, 2023, 150,000 shares were outstanding with a weighted average exercise price of $2.42, and 25,000 shares were vested and exercisable with a weighted average exercise price of $2.97.

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 March 31,
		2023				2022
Research and development		$	25,059				29,139
Sales and marketing			(2,544	)			1,126
General and administrative			34,439				14,094
Total share-based compensation expense		$	56,954				44,359

As March 31, 2023, the remaining share-based compensation expense that is expected to be recognized in future periods for employees and nonemployees is $926,280, which includes $463,311 of compensation expense to be recognized upon achieving certain performance conditions. For service-based awards, the $462,969 of unrecognized expense is expected to be recognized over a weighted average period of 2.7 years.

 

 

For the three months ended March 31, 2023, no shares have been issued under the Company’s ESPP Plan. As of March 31, 2023, the total number of shares of common stock reserved for future awards under the ESPP Plan was 398,561.

(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:

		March 31, 2023				March 31, 2022
Options to purchase common stock			1,036,495				1,055,997
Warrants to purchase to common stock			233,460				244,572
Total potential shares			1,269,955				1,300,569

(12)	Subsequent Events

Effective April 18, 2023, the Company suspended its “at-the-market” facility with the Sales Agent pursuant to that certain prospectus supplement dated July 12, 2022 and Equity Distribution Agreement, dated July 1, 2022 and terminated the continuous offering under such prospectus. The Company will not make any sales of its Common Stock pursuant to the Equity Distribution Agreement unless and until a new prospectus supplement is filed with the Securities and Exchange Commission; however, the Equity Distribution Agreement remains in full force and effect.

On April 18, 2023, the Company entered into a definitive agreement for the issuance and sale of an aggregate of 3,196,722 of its shares of common stock (or common stock equivalents) at a purchase price of $1.22 per share (or common stock equivalent) in a registered direct offering priced at-the-market under Nasdaq rules. In a concurrent private placement, the Company has also agreed to issue and sell unregistered warrants to purchase up to an aggregate of 3,196,722 shares of common stock. The gross proceeds from this offering was $3,900,000. The net proceeds to the Company from this offering was approximately $3,400,000, after deducing placement agent fees expenses and estimated offering expenses payable by the Company. The Company intends to use the net proceeds from this offering for general corporate purposes. The offering closed on April 20, 2023.

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 30, 2023. 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” 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 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.

Corporate Update

On April 18, 2023, we announced that Health Canada, the Public Health Agency of Canada, has granted product approval of FemaSeed, the first-ever infertility solution designed to deliver sperm directly to where contraception occurs. FemaSeed is Femasys’ localized artificial insemination option that is designed to be less invasive and more affordable than assisted reproduction, such as in vitro fertilization (IVF) or intracytoplasmic sperm injection (ICSI).

Effective April 18, 2023, we suspended our “at-the-market” facility with the Sales Agent pursuant to a certain prospectus supplement dated July 12, 2022 and Equity Distribution Agreement, dated July 1, 2022 and terminated the continuous offering under such prospectus. The Company will not make any sales of its Common Stock pursuant to the Equity Distribution Agreement unless and until a new prospectus supplement is filed with the Securities and Exchange Commission; however, the Equity Distribution Agreement remains in full force and effect.

On April 18, 2023, we entered into a definitive agreement for the issuance and sale of an aggregate of 3,196,722 of its shares of common stock (or common stock equivalents) at a purchase price of $1.22 per share (or common stock equivalent) in a registered direct offering priced at-the-market under Nasdaq rules. In a concurrent private placement, we also issued and sold unregistered warrants to purchase up to an aggregate of 3,196,722 shares of common stock.  The gross proceeds from this offering was $3,900,000. The net proceeds to us from this offering was approximately $3,400,000, after deducing placement agent fees expenses and estimated offering expenses payable by us. We intend to use the net proceeds from this offering for general corporate purposes. The offering closed on April 20, 2023.

Results of Operations

Comparison of the Three Months Ended March 31, 2023 and 2022

The following table shows our results of operations for the three months ended March 31, 2023 and 2022:

Sales

Sales decreased by $27,421, or 8.5%, to $293,984 for the three months ended March 31, 2023 from $321,405 for the three months ended March 31, 2022. U.S. sales increased by $30,624, or 11.6%, for the three months ended March 31, 2023 as compared to the same period last year; however, there were no international sales for the three months ended March 31, 2023 as compared to $58,045 reported for the same period last year resulting in a net decrease of $27,421 in sales. U.S. units sold increased by 7.1% for the three months ended March 31, 2023 as compared to the same period last year.

Cost of sales and gross margin percentage

Cost of sales decreased by $17,555, or 14.3%, to $105,120 for the three months ended March 31, 2023 from $122,675 for the three months ended March 31, 2022 mainly due to the decrease in sales, sales mix, and certain manufacturing efficiencies.  Gross margin percentage was 64.2% for the three months ended March 31, 2023 as compared to 61.8% for the three months ended March 31, 2022.Gross margins improved due to higher U.S. sales which have lower cost of sales than international sales.

 

Research and development

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

R&D expenses increased by $116,376 or 8.2%, to $1,537,439 for the three months ended March 31, 2023 from $1,421,063 for the three months ended March 31, 2022. The net increase of $116,376 mainly consists of the $135,496 increase in compensation and related personnel costs primarily due to increasing costs associated with hiring and retaining personnel to support our clinical trial costs.

Sales and marketing

Sales and marketing expenses increased by $176,033 or 255.6%, to $244,896 for the three months ended March 31, 2023 from $68,863 for the three months ended March 31, 2022 largely due to an increase in compensation and related personnel costs due to an increase in headcount and marketing costs to promote our commercial efforts.

General and administrative

General and administrative expenses decreased by $132,218, or 9.1%, to $1,315,137 for the three months ended March 31, 2023 from $1,447,355 for the three months ended March 31, 2022. The decrease was largely due to a decrease in salaries and related personnel costs, a decrease in facility and other overhead costs mainly for directors & officers insurance, and a decrease in legal and certain professional costs.

Depreciation and amortization

Depreciation and amortization expenses decreased by $11,133, or 7.7%, to $133,066 for the three months ended March 31, 2023 from $144,199 for the three months ended March 31, 2022 due to reduction of depreciation expense associated with our fixed assets and a reduction in amortization expense associated with our intangible assets.

Other income (expense)

Other income (expense), net increased by $95,697, or 34177.5%, to $95,417 for the three months ended March 31, 2023 from $(280) for the three months ended March 31, 2022 mainly due to an increase in interest income.

Liquidity and Capital Resources

Sources of liquidity

Since our inception through March 31, 2023, 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 March 31, 2023, we had $10,161,338 of cash and cash equivalents and an accumulated deficit of $97,080,762.

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 March 31, 2023, 54,120 shares of our common stock had been sold under the Equity Distribution Agreement.

On April 18, 2023, we entered into a definitive agreement for the issuance and sale of an aggregate of 3,196,722 of its shares of common stock (or common stock equivalents) at a purchase price of $1.22 per share (or common stock equivalent) in a registered direct offering priced at-the-market under Nasdaq rules. In a concurrent private placement, we have also agreed to issue and sell unregistered warrants to purchase up to an aggregate of 3,196,722 shares of common stock.  The gross proceeds from this offering was $3,900,000. The net proceeds to us from this offering was approximately $3,400,000, after deducing placement agent fees expenses and estimated offering expenses payable by us. We intend to use the net proceeds from this offering for general corporate purposes. The offering closed on April 20, 2023.

Funding requirements

Based on our current operating plan, our current cash and cash equivalents, along with the net proceeds from our recent financing are expected to be sufficient to fund our ongoing operations into the second quarter of 2024. Our estimate as to how long we expect 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. We do not expect liquidity to be sufficient for twelve months from the date of these financial statements. As a result of our current limited financial liquidity, we have concluded that substantial doubt exists about our ability to continue as a going concern.

Our cash and cash equivalents as of March 31, 2023 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 Three Months Ended March 31, 2023 and 2022

The following table summarizes our cash flows for the three months ended March 31, 2023 and 2022:

Operating activities

For the three months ended March 31, 2023, cash used in operating activities was $2,647,637, attributable to a net loss of $2,946,257, offset by a net change in our net operating assets and liabilities of $32,666 and non-cash charges of $265,954. Non-cash charges largely consisted of $133,066 in depreciation and amortization, $75,635 in right-of-use amortization, and $56,954 in stock-based compensation.  The change in our net operating assets and liabilities was primarily due to changes of $46,485 in accounts receivable, $64,318 in inventory and $91,211 in lease liabilities, which were offset by changes in accounts payable and accrued expenses of $81,719 and $150,654 in other assets.

For the three months ended March 31, 2022, cash used in operating activities was $2,754,021, attributable to a net loss of $2,883,030, a net change in our net operating assets and liabilities of $148,482 and offset partially by non-cash charges of $277,491. Non-cash charges largely consisted of $144,199 in depreciation and amortization, $86,233 in right-of-use amortization, and $44,359 in stock-based compensation.  The change in our net operating assets and liabilities was primarily due to changes of $86,044 in accounts receivable and $97,851 in lease liabilities, which were offset partially by changes in accounts payable and accrued expenses of $64,296.

Investing activities

For the three months ended March 31, 2023, cash used in investing activities for the purchase of property and equipment was $8,901.

For the three months ended March 31, 2022, cash used in investing activities for the purchase of property and equipment was $120,368.

Financing activities

For the three months ended March 31, 2023, cash used in financing activities was $144,060, attributable to repayments on a note payable of $141,298, payments under lease obligations of $6,135, and offset by proceeds from issuance of common stock of $3,373.

For the three months ended March 31, 2022, cash used in financing activities was $141,006, attributable to repayments on a note payable of $135,457 and payments under lease obligations of $5,549.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

While our significant accounting policies are more fully described in Note 2 to our financial statements appearing the Annual Report on Form 10-K for the year ended December 31, 2022 as filed on March 30, 2023, we believe the following discussion addresses our most critical accounting policies, which are those that are most important to our financial condition and results of operations and require our most difficult, subjective and complex judgments.

Revenue recognition

Our policy is to recognize revenue when a customer obtains control of the promised goods under Accounting Standards Codification 606-Revenue from Contracts with Customers (Topic 606), which we adopted effective January 1, 2018. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods, and we have elected to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price. We do not have multiple performance obligations in our customer orders, so 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.

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. As of March 31, 2023, we have not had a history of significant returns.

Accrued expenses

We accrue expenses for estimated costs of R&D activities conducted by our third-party service providers, which include the conduct of preclinical studies and clinical trials. We record the estimated costs of R&D activities based upon the estimated amount of services provided but not yet invoiced. These costs, at times, may be a significant component of the research and development expenses and the Company makes estimates in determining the accrued expense each period. As actual costs become known, the Company adjusts its accrual. These accrued R&D costs are included in accrued expenses on the balance sheet and within R&D expense on the statement of comprehensive loss.

Not applicable.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including to our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. 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 effective at a reasonable assurance level as of March 31, 2023.

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 quarter ended March 31, 2023 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.

PART II OTHER INFORMATION

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.

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 30, 2023.

None.

Not applicable.

Not applicable.

Not applicable.

Item 6.

Exhibits

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 11 day of May 2023.

FEMASYS INC.