UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
(Amendment No. 2)

(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2022

OR

☐
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)

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

Title of each class
  
Trading Symbol(s)
  
Name of each exchange on which registered
Common stock, par value $0.001
  
FEMY
  
NASDAQ Capital Market

Securities Registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒

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 (§ 232.405 of this chapter) 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2022 was $23,117,474.

As of July 20, 2023, there were 15,073,153 shares of the registrant’s $0.001 par value common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

EXPLANATORY NOTE

Femasys Inc. (the “Company”) is filing this Amendment No. 2 on Form 10-K/A (the “Second Amendment”) to its Annual Report for the fiscal year ended December 31, 2022, which was filed with the Securities and Exchange Commission on March 30, 2023 (the “Original Form 10-K”), as amended by Amendment No. 1 on Form 10-K/A on April 28, 2023 (the “First Amendment”) to include a revised audit opinion of KPMG LLP to include a statement that KPMG LLP was not required to express an opinion over the Company’s internal control over financial reporting and to correct the opinion date which was erroneously dated March 30, 2022.

In accordance with Rule 12b-15 (“Rule 12b-15”) under the Securities Exchange Act of 1934, as amended, the Company has included the entire text of Part II, Item 8 “Financial Statements” in this Second Amendment. However, there have been no changes made to the text of such item other than the correction stated in the immediately preceding paragraph. In addition, the Company is including in this Second Amendment new certifications of its (i) Chief Executive Officer and (ii) Chief Financial Officer, as required by Rule 12b-15, as Exhibits 31.3, 31.4, 32.3 and 32.4, respectively, and a currently dated consent from its independent registered public accounting firm as Exhibit 23.2.

Except as expressly set forth above, this Second Amendment speaks as of the filing date of the Original Form 10-K, and does not reflect events that may have occurred subsequent to that date, nor does it modify or update in any way disclosure made in the Original Form 10-K.

FEMASYS INC.
FORM 10-K

TABLE OF CONTENTS

PART II

Item 8.
 1
PART IV
35
Item 15.
35
Item 16.
36

37

Item 8.
Financial Statements.
 
Financial Statements
 
Table of Contents
 
 
Page
2
   
3-4
   
5
   
6
   
7
   
8-34

1
Table of Contents
Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Femasys Inc.:
          
Opinion on the Financial Statements

We have audited the accompanying balance sheets of Femasys Inc. (the Company) as of December 31, 2022 and 2021, the related statements of comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
        
Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses and negative cash flows from operations and has a net accumulated deficit that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
 
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
 

 /s/ KPMG LLP

We have served as the Company’s auditor since 2016.

Atlanta, Georgia
March 30, 2023

2
Table of Contents
FEMASYS INC.
Balance Sheets
 
Assets
  
December 31,
2022
    
December 31,
2021
  
Current assets:
            
Cash and cash equivalents
  
$
12,961,936
      
24,783,029
  
Accounts receivable, net
    
77,470
      
84,258
  
Inventory, net
    
436,723
      
208,270
  
Other current assets
    
655,362
      
555,853
  
Total current assets
    
14,131,491
      
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
    
419,303
      
424,947
  
Machinery and equipment
    
2,572,243
      
2,261,793
  
Construction in progress
    
413,843
      
379,713
  
     
4,700,370
      
4,321,129
  
Less accumulated depreciation
    
(3,217,319
)
    
(2,722,117
)
Net property and equipment
    
1,483,051
      
1,599,012
  
Long-term assets:
                
Lease right-of-use assets, net
    
319,557
      
665,747
  
Intangible assets, net of accumulated amortization
    
3,294
      
25,093
  
Other long-term assets
    
958,177
      
655,418
  
Total long-term assets
    
1,281,028
      
1,346,258
  
                 
Total assets
  
$
16,895,570
      
28,576,680
  
 
(continued)

3
Table of Contents
FEMASYS INC.
Balance Sheets
 
Liabilities and Stockholders’ Equity
  
December 31,
2022
    
December 31,
2021
  
Current liabilities:
            
Accounts payable
  
$
510,758
      
445,522
  
Accrued expenses
    
456,714
      
603,787
  
Clinical holdback - current portion
    
45,206
      
18,947
  
Note payable – current portion
    
141,298
      
181,123
  
Lease liabilities – current portion
    
373,833
      
406,674
  
Other – current
    
—
      
36,037
  
Total current liabilities
    
1,527,809
      
1,692,090
  
Long-term liabilities:
                
Clinical holdback - long-term portion
    
96,658
      
149,791
  
Lease liabilities – long-term portion
    
28,584
      
402,417
  
Total long-term liabilities
    
125,242
      
552,208
  
Total liabilities
    
1,653,051
      
2,244,298
  
Commitments and contingencies
      
       
 
Stockholders’ equity:
                
Common stock, $0.001 par, 200,000,000 authorized,11,986,927 shares issued and 11,869,704 outstanding as of December 31, 2022; and 11,921,388 shares issued and 11,804,165 outstanding as of December 31, 2021
    
11,987
      
11,921
  
Treasury stock, 117,223 shares
    
(60,000
)
    
(60,000
)
Warrants
    
567,972
      
702,492
  
Additional paid-in-capital
    
108,857,065
      
108,418,304
  
Accumulated deficit
    
(94,134,505
)
    
(82,740,335
)
Total stockholders’ equity
    
15,242,519
      
26,332,382
  
                 
Total liabilities and stockholders’ equity
  
$
16,895,570
      
28,576,680
  
 
See accompanying notes to financial statements.
 
4
Table of Contents
FEMASYS INC.
Statements of Comprehensive Loss
Years ended December 31, 2022 and 2021

   
December 31,
2022
    
December 31,
2021
  
Sales
  
$
1,206,218
      
1,179,689
  
Cost of sales
    
441,938
      
370,384
  
Gross margin
    
764,280
      
809,305
  
Operating expenses:
                
Research and development
    
5,813,755
      
4,084,304
  
Sales and marketing
    
558,852
      
208,735
  
General and administrative
    
5,430,704
      
4,262,002
  
Depreciation and amortization
    
561,233
      
591,068
  
Total operating expenses
    
12,364,544
      
9,146,109
  
Loss from operations
    
(11,600,264
)
    
(8,336,804
)
Other income (expense):
                
Interest income, net
    
228,164
      
3,768
  
Other income
    
—
      
821,515
  
Interest expense
    
(13,464
)
    
(19,226
)
Other expense
    
(2,306
)
    
(3,098
)
Total other income
    
212,394
      
802,959
  
Loss before income taxes
    
(11,387,870
)
    
(7,533,845
)
Income tax expense
    
6,300
      
4,000
  
                 
Net loss
  
$
(11,394,170
)
    
(7,537,845
)
                 
Net loss attributable to common stockholders, basic and diluted
  
$
(11,394,170
)
    
(7,537,845
)
                 
Net loss per share attributable to common stockholders, basic and diluted
  
$
(0.96
)
    
(1.12
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
    
11,815,019
      
6,712,028
  

See accompanying notes to financial statements.
 
5
Table of Contents
FEMASYS INC.
Statements of Stockholders’ Equity (Deficit)
 
   
Series B and Series C
Redeemable Convertible
                                  
Accumulated
other
           Total
 
   
Preferred stock
    
Common stock
    
Treasury stock
    
Preferred stock
    
   
Additional
    
comprehensive
    
Accumulated
    
stockholders’
  
   
Shares
    
Amount
    
Shares
    
Amount
    
Shares
    
Amount
    
Shares
    
Amount
    
Warrants
    
paid-in capital
    
loss, net of tax
    
deficit
    
Equity (Deficit)
  
                                                                               
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
    
—
      
—
      
44,698
      
45
      
—
      
—
      
—
      
—
      
—
      
126,501
      
—
      
—
      
126,546
  
Issuance of common stock in connection with IPO
    
—
      
—
      
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
    
—
      
—
      
—
      
—
      
—
      
—
      
—
      
—
      
—
      
193,366
      
—
      
—
      
193,366
  
Net loss
    
—
      
—
      
—
      
—
      
—
      
—
      
—
      
—
      
—
      
—
      
—
      
(7,537,845
)
    
(7,537,845
)
                                                                                                         
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
  
                                                                                                         
Issuance of common stock for cash upon exercise of options
    
—
      
—
      
9,445
      
10
      
—
      
—
      
—
      
—
      
—
      
16,141
      
—
      
—
      
16,151
  
Issuance of common stock in connection with Employee Stock Purchase Plan
    —       —       4,843       5       —       —       —       —       —       3,724       —       —       3,729  
Issuance of common stock in connection with At-The-Market offering, net of issuance costs of $95
    —       —       51,251       51       —       —       —       —       —       59,437       —       —       59,488  
Share-based compensation expense
    
—
      
—
      
—
      
—
      
—
      
—
      
—
      
—
      
—
      
224,939
      
—
      
—
      
224,939
  
Expiration of warrant
    —       —       —       —       —       —       —       —       (134,520 )     134,520       —       —       —  
Net loss
    
—
      
—
      
—
      
—
      
—
      
—
      
—
      
—
      
—
      
—
      
—
      
(11,394,170
)
    
(11,394,170
)
                                                                                                         
Balance at December 31, 2022
    
—
    
$
—
      
11,986,927
    
$
11,987
      
117,223
    
$
(60,000
)
    
—
    
$
—
    
$
567,972
    
$
108,857,065
    
$
—
    
$
(94,134,505
)
  
$
15,242,519
  

See accompanying notes to financial statements.
 
6
Table of Contents
FEMASYS INC.
Statements of Cash Flows
Years ended December 31, 2022 and 2021
 
   
Years ended December 31
  
   
2022
    
2021
  
Cash flows from operating activities:
            
Net loss
  
$
(11,394,170
)
    
(7,537,845
)
Adjustments to reconcile net loss to net cash used in operating activities:
                
Depreciation
    
539,434
      
551,092
  
Amortization
    
21,799
      
39,976
  
Amortization of right-of-use assets
    
327,907
      
373,219
  
Inventory reserve
    
4,100
      
540
  
Share-based compensation expense
    
224,939
      
193,366
  
Loan and accrued interest forgiveness on note payable
    
—
      
(821,515
)
Loss on fixed asset disposition
    
2,285
      
3,098
  
Changes in operating assets and liabilities:
                
Accounts receivable
    
6,788
      
41,532
  
Inventory
    
(232,553
)
    
(77,432
)
Other assets
    
295,862
      
475,993
  
Accounts payable
    
65,236
      
(228,811
)
Accrued expenses
    
(147,073
)
    
(504,799
)
Lease liabilities
    
(383,616
)
    
(413,212
)
Other liabilities
    
(62,911
)
    
(25,987
)
                 
Net cash used in operating activities
    
(10,731,973
)
    
(7,930,785
)
Cash flows from investing activities:
                
Purchases of furniture and equipment
    
(407,475
)
    
(306,868
)
                 
Net cash used in investing activities
    
(407,475
)
    
(306,868
)
Cash flows from financing activities:
                
Payments of deferred offering costs1
    
(232,845
)
    
(1,578,643
)
Proceeds from issuance of common stock
    
79,463
      
31,740,046
  
Repayment of notes payable
    
(505,205
)
    
(442,086
)
Payments under lease obligations
    
(23,058
)
    
(20,861
)
                 
Net cash (used in) provided by financing activities
    
(681,645
)
    
29,698,456
  
                 
Net change in cash and cash equivalents
    
(11,821,093
)
    
21,460,803
  
Cash and cash equivalents:
                
Beginning of year
    
24,783,029
      
3,322,226
  
                 
End of year
  
$
12,961,936
      
24,783,029
  
                 
Supplemental cash flow information
                
Cash paid for:
                
Interest
  
$
13,464
      
15,865
  
Income taxes
  
$
5,050
      
800
  
Non-cash investing and financing activities:
                
Conversion of convertible preferred stock to common stock
  
$
—
      
55,360,897
  
Commission costs relating to certain proceeds from issuance of common stock
  
$
1,843
      
—
  
Prepaid insurance financed with promissory notes
  
$
141,298
      
181,123
  

 1 Deferred offering costs includes $95 of offering costs charged against certain proceeds from the issuance of common stock.

See accompanying notes to financial statements.
 
7
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021
(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. The Company’s mission is to provide women 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 with an initial focus 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 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 is planned for submission 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. 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.
 
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).
 
Liquidity
 
As of December 31, 2022, the Company has cash and cash equivalents of $12,961,936. The Company plans to finance its operations and development needs with its existing cash and cash equivalents, in the future with additional equity and/or debt financing arrangements, and revenue primarily 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.
 
8
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021
For the year ended December 31, 2022, the Company generated a net loss of $11,394,170. 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 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 December 31, 2022 of $94,134,505 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. 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.

9
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021
The Company is evaluating strategies to obtain the required additional funding for future operations. These strategies may include, but are not limited to, obtaining equity financing, issuing debt or entering into other financing arrangements, and restructuring of operations to grow revenues and decrease expenses. However, given the impact of the economic downturn on the U.S. and global financial markets, the Company may be unable to access further equity or debt financing when needed. As such, there can be no assurance that the Company will be able to obtain additional liquidity when needed or under acceptable terms, if at all.
 
(2)
Summary of Significant Accounting Policies
 

(a)
Use of Estimates in Preparation of Financial Statements
 
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (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 pre-IPO valuation of common stock, stock options, warrants, the valuation of useful lives of property and equipment, and clinical trial cost accruals. Actual results could differ from those estimates.
 

(b)
Certain Risk and Uncertainties
 
Most of the products developed by the Company, such as its FemBloc and FemaSeed, will require approval from the FDA or corresponding foreign regulatory agencies prior to commercial sales. The FemCath (formally FemVue) Cornual Balloon Catheter, FemVue® Saline‑Air Device, FemChec® Pressure Management Device, and FemCerv® Endocervical Sampler have achieved FDA clearance.  The FemVue® Saline‑Air Device has also received approval to sell in Canada, Hong Kong and Japan. There can be no assurance the Company’s other products in development will receive the necessary clearances. If the Company is denied clearance or clearance is delayed, it might have a material adverse impact on the Company.
 
The medical device industry is characterized by frequent and extensive litigation and administrative proceedings over patent and other intellectual property rights. Whether a product infringes a patent involves complex legal and factual issues, the determination of which is often difficult to predict, and the outcome may be uncertain until the court has entered final judgment and all appeals are exhausted. The Company’s competitors may assert that its products or the use of its products are covered by United States or foreign patents held by them. If such relevant patents are upheld as valid and enforceable and the Company is found to infringe, the Company could be prevented from selling its products unless it can obtain a license to use technology or ideas covered by such patents or are able to redesign its products to avoid infringement. A license may not be available at all or on commercially reasonable terms, and it may not be able to redesign its products to avoid infringement.
 
The Company relies on single source suppliers to provide certain components of all its products commercially available and those under development. The Company purchases these components on a purchase order basis. If the Company overestimates its component requirements, it could have excess inventory, which would increase its costs and result in write‑downs harming its operating results. If the Company underestimates its requirements, it may not have an adequate supply, which could interrupt the manufacturing of its products.
 

(c)
Fair Value of Financial Instruments
 
Certain of the Company’s financial instruments, including cash, accounts receivable, inventory, accounts payable, accrued expenses, notes payable and other liabilities approximate their fair value because of the short‑term maturity of these financial instruments. The fair value of the Company’s cash equivalents are based on Level 1 inputs (notes 3 and 4), and the fair value of stock options and warrants is based on Level 3 inputs (note 3).
 

(d)
Cash and Cash Equivalents
 
The Company considers all highly liquid investments with an initial maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist of amounts invested in money market mutual funds and are stated at fair value. See note 2(q) for information on concentration of credit risk.
 
10
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021

 		(e)
Accounts Receivable
 
The Company grants trade credit to customers in the normal course of business and does not require collateral or any other security to support its receivables. Management reviews its accounts receivable monthly for any collection issues. Potentially uncollectible accounts are written off to bad debt expense when it is determined that the likelihood a customer account is uncollectible is probable.  For the year ending December 31, 2022, the company had written off $977 against the reserve, compared to $0 in 2021. As of December 31, 2022 and 2021, the Company’s reserves for uncollectible accounts were $2,048 and $2,026, respectively.
 

(f)
Inventories
 
Inventories are stated at the lower of cost or net realizable value.  Cost, which includes amounts related to materials, labor and overhead, is determined on a first‑in, first‑out basis.  Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation.
 
Management reviews inventories continually for aging or obsolescence and accounts for such items once identified. In 2022 and 2021, the Company disposed of inventory in the amount of $2,847 and $586, respectively. As of December 31, 2022 and 2021, the FemVue reserve for slow moving, obsolete, or unusable inventories was $2,103 and $850, respectively.
 
Inventory stated at cost, net of reserve, consisted of the following as of December 31:
 
   
2022
   
2021
 
Materials
  
$
244,498
      
111,531
  
Work in progress
    
100,453
      
12,795
  
Finished goods
    
91,772
      
83,944
  
Inventory, net
  
$
436,723
      
208,270
  
 

(g)
Other Assets
 
The Company has research tax credits that are available to the Company to offset future payroll withholding liabilities.  As of December 31, 2022 and 2021, the total amount of these credits is $891,062 and $766,571, respectively.   The Company has included these amounts on the accompanying balance sheets as follows as of December 31:
 
   
2022
   
2021
 
Other current assets
  
$
212,134
      
184,638
  
Other long-term assets
    
678,928
      
581,933
  
Research tax credits available to the Company
  
$
891,062
      
766,571
  
 

(h)
Property and Equipment
 
Property and equipment are carried at cost less accumulated depreciation and, if applicable, impairment charges. Expenditures which materially increase value or extend useful lives of assets are capitalized, while maintenance and repairs which do not improve or extend the lives of the respective assets are charged to operations when incurred. Gains and losses on the retirement or disposal of individual assets are included in the results of operations. Depreciation and amortization are computed using the straight‑line method over estimated useful lives of assets as follows:

Leasehold improvements
Shorter of lease term(s) or useful life
Office equipment
5 years
Furniture and fixtures
7 years
Machinery and equipment
5 to 7 years

11
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021
Depreciation expense for the years ended 2022 and 2021 was $521,151 and $532,552, respectively.  In 2022, the Company disposed of property and equipment at a cost of $28,234 with a net book value of $2,285, which is recorded in other expense on the statements of comprehensive loss. In 2021, the Company disposed of property and equipment at a cost of $11,401 with a net book value of $3,098, which is recorded in other expense on the statements of comprehensive loss.
 

(i)
Impairment of Long-Lived Assets
 
The Company reviews long‑lived assets, including property and equipment and definite lived intangibles, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the asset group may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset group and its eventual disposition is less than its carrying amount. Impairment, if any, is measured as the amount by which the carrying amount of a long‑lived asset group exceeds its fair value. The Company has not recorded any impairment losses to date.
 

(j)
Leases
 
The Company records operating leases as right-of-use assets and operating lease liabilities in its balance sheets for all operating leases with terms exceeding one year. Right-of-use assets represent the right to use an underlying asset for the lease term, including extension options considered reasonably certain to be exercised, and operating lease liabilities to make lease payments. Right-of-use assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term. To the extent that lease agreements do not provide an implicit rate, the Company uses its incremental borrowing rate based on information available at the lease commencement date to determine the present value of lease payments.  The expense for operating lease payments is recognized on a straight-line basis over the lease term and is included in operating expenses in the Company’s statement of comprehensive loss. Non-lease components included in lease agreements are accounted for separately. The Company records finance leases as right-to-use assets and finance lease liabilities in its balance sheets for all finance leases with terms exceeding one year, similar to operating leases, and records interest expense and depreciation expense on the right-of-use asset in the statement of comprehensive loss.
 

(k)
Intangible Assets
 
Intangible assets consist of patent and trademark application costs and related legal fees, carried at cost less accumulated amortization and, if applicable, impairment charges. Amortization is computed using the straight‑line method over a weighted average useful life of three years and is recorded in depreciation and amortization expense within the results of operations.  Intangible assets consist of the following as of December 31:
 
   
2022
    
2021
  
Cost
  
$
1,668,951
      
1,668,951
  
Accumulated amortization
    
(1,665,657
)
    
(1,643,858
)
Net book value
  
$
3,294
      
25,093
  
 
Amortization expense for intangible assets for the years ended December 31, 2022 and 2021 was $21,799 and $39,976, respectively. Amortization expense related to intangible assets is expected to be $3,294 for the year ended December 31, 2023.
 
12
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021

 		(l)
Deferred Offering Costs
 
Deferred offering costs, which consisted mainly of legal, consulting, and accounting fees directly attributable to a strategic financing transaction, were capitalized in accordance with Staff Accounting Bulletin (SAB) Topic 5.A, codified in Accounting Standards Codification (ASC) 340-10-S99-1.

During 2022, the Company incurred $232,845 in deferred offering costs in connection with the Equity Distribution Agreement entered in July 2022 with Piper Sandler which included an At-The-Market (ATM) facility. These deferred offering costs will be offset against the total proceeds from the issuance of common stock available under the Equity Distribution Agreement, and the Company will expense any remaining balance of deferred offering costs if the Equity Distribution agreement is terminated or aborted. In December 2022, the Company offset $95 of deferred offering costs in connection with the gross proceeds issued under the ATM facility.

13
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021
In May 2021, the Company expensed $188,544 of deferred offering costs in connection with another financing transaction to focus on the IPO transaction.  In June 2021, upon the closing of the IPO, total deferred offering costs of $1,591,143 were offset against the proceeds of the IPO offering.
 
As of December 31, 2022, deferred offering costs capitalized were $232,750 and are included in other long-term assets in the accompanying balance sheet. As of December 31, 2021, no amounts of deferred offering costs were capitalized.
 

(m)
Accrued Expenses
 
Accrued clinical trial expenses include research and development costs for third-party services, largely related to the Company’s clinical trials, that are estimated based upon the 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. Accrued other expenses include director fees, sales taxes and other accrued expenses.
 
Accrued expenses consisted of the following as of December 31:
 
   
2022
    
2021
  
Clinical trial costs
  
$
333,440
      
301,730
  
Compensation costs
    
85,191
      
98,272
  
Franchise taxes     26,886       103,020  
Other
    
11,197
      
100,765
  
Accrued expenses
  
$
456,714
      
603,787
  

14
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021

 		(n)
Clinical Holdback
 
As part of the regulatory approval process for taking its products to market or conducting post-market clinical studies to support marketing efforts for products with regulatory clearance, the Company enters into certain Clinical Trial Agreements (CTAs) which include, among other things, the compensation and payment schedule the participating medical institutions and physicians will receive for all costs in connection with the clinical trial (or study) under the terms of the CTA. As individual patients are enrolled in the study by the participating medical institution or physician, the Company pays certain per study fees according to the CTA for the duration of the trial. As invoices are received by the Company from the medical institution or physician, the Company retains any agreed upon percentage of total invoiced costs, generally ranging between 5% - 15%, that is withheld from payment until the end of the study. These retained amounts are recorded as clinical holdback, a liability, on the accompanying balance sheets, and all expenses incurred in connection with these CTA activities are expensed as services are provided, which are included as research and development expenses on the accompanying statements of comprehensive loss.
 
The following table shows the activity within the clinical holdback liability accounts for the year ended December 31, 2022:
 
Balance at December 31, 2021
  
$
168,738
  
Clinical holdback retained
    
21,456
  
Clinical holdback paid
    
(48,330
)
Balance at December 31, 2022
  
$
141,864
  
Less: clinical holdback - current portion
    
(45,206
)
Clinical holdback - long-term portion
  
$
96,658
  
 
The following table shows the activity within the clinical holdback liability accounts for the year ended December 31, 2021:
 
Balance at December 31, 2020
  
$
164,972
  
Clinical holdback retained
    
15,503
  
Clinical holdback paid
    
(11,737
)
Balance at December 31, 2021
  
$
168,738
  
Less: clinical holdback - current portion
    
(18,947
)
Clinical holdback - long-term portion
  
$
149,791
  

15
FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021

(o)
Revenue Recognition
 
The Company’s policy is to recognize revenue when a customer obtains control of the promised goods under ASC 606, Revenue from Contracts with Customers. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods, and the Company has elected to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price.  The Company does not have multiple performance obligations in its customer orders, so revenue is recognized upon shipment of the Company’s 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.  There was no revenue recognized during the years ended December 31, 2022 and 2021 from performance obligations satisfied or partially satisfied in prior periods.  Additionally, there were no unsatisfied performance obligations as of December 31, 2022 and 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 the Company’s 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 December 31, 2022, the Company has not had a history of significant returns.
 
The following table summarizes the Company’s sales, primarily from FemVue, by geographic region for the years ending December 31:
 
Primary geographical markets
  
2022
    
2021
  
U.S.
  
$
1,090,359
      
1,005,612
  
International
    
115,859
      
174,077
  
Total
  
$
1,206,218
      
1,179,689
  


(p)
License, Manufacturing, and Supply Agreement – Bayer Yakuhin
 
The Company entered into a FemVue® License, Manufacturing, and Supply Agreement with Bayer Yakuhin, Ltd., a wholly owned subsidiary of Bayer AG, in 2012. The Company sells products based on purchase orders provided by Bayer Yakuhin in accordance with their agreement. Control and risk of ownership transfer at the time of shipment and Femasys records revenue at that time.
 

(q)
Concentration of Credit Risk
 
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash, cash equivalents, and accounts receivable. As of December 31, 2022, the Company maintained substantially all its cash and cash equivalents primarily in one bank, Silicon Valley Bank (SVB), in amounts which, at times, exceed federally insured limits, which Management believed, at that time, SVB was financially sound and minimal credit risk existed with respect to these holdings. As of March 15, 2023, the Company transferred substantially all of its cash and cash equivalents to another financial institution, Wells Fargo Bank.
 
The Company generates revenue from sales directly to U.S. customers and to the Company’s international distributors with all prices in U.S. dollars.   For the years ended December 31, 2022 and 2021, Bayer Yakuhin, Ltd. accounted for 10% and 15% of total revenue, respectively. No other customers accounted for more than 10% of total revenue.  As of December 31, 2022, the Company had one customer with an accounts receivable balance greater than 10% of total receivables or 16% of total receivables. As of December 31, 2021, the company had no customer with an accounts receivable balance greater than 10% of total receivables.
 
16
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021

 		(r)
Research and Development
 
The Company’s research and development expenses consist of engineering, product development, and clinical and regulatory expenses and are expensed as incurred. These expenses include direct expenses related to employee compensation, including salary, benefits and stock-based compensation; expenses related to consulting fees, testing fees, materials, and supplies; and activities conducted by third-party service providers, which include the conducting of preclinical studies and clinical trials.
 

(s)
Sales and Marketing
 
The Company’s sales and marketing expenses consist of direct expenses related to employee compensation, including salary, benefits and stock-based compensation, advertising and marketing, business development, customer service, and travel.
 

(t)
General and Administrative
 
The Company’s general and administrative expenses include accounting, human resources, and general corporate expenses. These expenses are primarily related to employee compensation, including salary, benefits, and stock‑based compensation. General corporate expenses generally relate to office rent, utilities, insurance, legal, and professional fees.
 

(u)
Advertising Expense
 
Advertising costs are expensed as incurred. Advertising costs were $41,022 and $27,000 for the years ended December 31, 2022 and 2021, respectively. They are reflected in sales and marketing expenses in the statements of comprehensive loss.
 

(v)
Stock-Based Compensation
 
Share‑based payments, including grants of stock options, are recognized in the financial statements based on their fair value. The fair value of stock options is estimated using the Black‑Scholes model. This model requires the input of highly subjective assumptions, including the expected term of the award, expected stock volatility, and the price of the underlying shares of stock. Details of the stock‑based compensation and accounting treatment are discussed in note 9.
 

(w)
Income Taxes
 
The Company utilizes the asset‑and‑liability method of accounting for income taxes as set forth in ASC 740, Income Taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as the net operating loss, capital loss, and tax credit carry forwards. Valuation allowances are established against deferred tax assets if it is more likely than not that they will not be realized.
 
ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The standard requires that the Company recognize in its financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Company has determined it had no unrecognized tax benefits as of December 31, 2022 and 2021.
 
17
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021
As of December 31, 2022, the 2019 through 2022 tax years remain subject to examination by federal and most state tax authorities. The use of net operating losses generated in tax years prior to 2018 may also subject returns for those years to examination.
 

(x)
Other Income
 
For the year ended December 31, 2022, the Company recorded no other income. For the year ended December 31, 2021, the Company recorded $821,515 in other income in connection with the Small Business Administration (SBA) Paycheck Protection Program (PPP) loan forgiveness program (see note 6).

 
18
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021

 		(y)
Net Loss per Share Attributable to Common Stockholders
 
Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, without consideration of common stock equivalents.  The net loss attributable to common stockholders is calculated by adjusting the net loss of the Company for the cumulative dividends, if any, on the convertible preferred stock.  Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since the effect of potentially dilutive securities is anti-dilutive given the net loss of the Company.
 

(z)
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.
 

(aa)
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 the Company’s 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 consolidated financial statements.
 
(3)
Fair Value
 
The Company applies a fair value hierarchy that requires the use of observable market data, when available, and prioritizes the inputs to valuation techniques used to measure fair value in the following categories:
 
Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.
 
Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for Identical or similar instruments in markets that are not active, and model‑based valuation techniques for which all significant assumptions are observable in the market.
 
19
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021
Level 3 – Valuation is generated from model‑based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions market participants would use in pricing the asset or liability.
 
The Company’s options on common stock and warrants are classified as equity instruments and are measured at fair value at issue date. The Company values the options based on the Black‑Scholes option pricing model. The Company uses unobservable inputs for the model’s assumptions, including management’s assumptions of the Company’s volatility and price of the underlying stock (notes 8 and 9).
 
(4)
Cash and Cash Equivalents
 
As of December 31, 2022 and 2021, money market funds included in cash and cash equivalents on the balance sheets were $12,553,557 and $24,388,443, respectively, which represent Level 1 within the fair value hierarchy (see note 3).
 
20
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021
(5)
Commitments and Contingencies
 

(a)
Leases
 
As of December 31, 2022, the Company has the right of use for its facilities located in Suwanee, GA under a long-term operating lease agreement, as amended (Lease Agreement), which expires January 2024.  The Company has the option (Extension Option) to extend the term for two consecutive terms of five years each at 100% of the then current market rate, as agreed by both parties, and upon certain terms and conditions and the Company must provide written notice of its intent to exercise this extension option at least twelve months prior to the expiration date of January 2024. In September 2022, the Company provided written notice to the lessor of its intent to exercise this extension option and is currently working with the lessor on the terms. Under the terms of the lease agreement, the Company’s monthly rent is subject to increases on an annual basis. As of December 31, 2022, the Company’s monthly rent payment was $45,659.
 
Operating right-of-use assets and lease liabilities consist of the following as of December 31:
 
   
2022
    
2021
  
Lease right-of-use assets
  
$
307,761
      
635,668
  
Total
  
$
307,761
      
635,668
  
 
Lease liabilities:
  
2022
    
2021
  
Lease liabilities – current portion
  
$
357,640
      
383,616
  
Lease liabilities – long-term portion
    
28,584
      
386,224
  
Total
  
$
386,224
      
769,840
  

As of December 31, 2022 and 2021, the weighted average discount rate for all operating leases with initial terms of more than one year was approximately 10% and the weighted average remaining term for operating leases was 1.1 years and 2.1 years, respectively.
 
The operating lease agreement for the Company’s facility includes non-lease costs, such as common area maintenance, which are recorded as variable lease costs. Operating lease expenses for the year ended are summarized as follows for the years ending December 31:
 
Lease cost:
  
2022
    
2021
  
Operating lease cost
  
$
485,598
      
487,746
  
Short-term lease cost
    
5,730
      
3,343
  
Variable lease cost
    
41,198
      
17,497
  
Total
  
$
532,526
      
508,586
  


(b)
Financing Leases
 
The Company has the right of use for certain leasehold improvements and office equipment at its facility located in Suwanee, GA. For the years ending December 31, 2022 and 2021, no new financing leases were entered into during the year.  Lease expense will be recognized as payment of financing lease, depreciation expense and interest expense.

21
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021
Financing right-of-use assets and lease liabilities consist of the following as of December 31:
 
   
2022
    
2021
  
Lease right-of-use assets
  
$
150,122
      
150,122
  
Accumulated depreciation
    
(138,326
)
    
(120,043
)
Net
  
$
11,796
      
30,079
  

Lease liabilities:
  
2022
    
2021
  
Lease liabilities – current portion
  
$
16,193
       23,058  
Lease liabilities – long-term portion
    
—
       16,193  
Total
  
$
16,193
       39,251  

As of December 31, 2022 and 2021, the weighted average discount rate for all financing leases with initial terms of more than one year was approximately 10%, and the weighted average remaining term for financing leases was 0.7 and 1.6 years, respectively. Depreciation expense associated with the Company’s financing leases was $18,283 and $18,540, respectively, and interest expense was $2,892 and $5,090 for the years ended December 31, 2022 and 2021, respectively.
 
The following table summarizes the Company’s undiscounted cash payment obligations for its lease liabilities with initial terms of more than twelve months as of December 31, 2022:
 
Operating leases:
      
2023
   $
557,500
  
2024
    
47,029
  
Total undiscounted lease payments -operating leases
    
604,529
  
Financing leases:
        
2023
    
16,792
  
Total undiscounted lease payments -finance leases
    
16,792
  
Total undiscounted lease payments
    
621,321
  
Less:   imputed interest
    
(218,904
)
Lease liability
    
402,417
  
Less: current portion of lease liability
    
(373,833
)
Lease liability, less current portion
  
$
28,584
  


(c)
Clinical Trial Agreements
 
As part of the regulatory approval process for taking its products to market or conducting post-market clinical studies to support marketing efforts for products with regulatory clearance, the Company enters into a CTA to compensate each participating medical institution and physician. Generally, upon executing a CTA with a participating medical institution or physician, the Company pays a fee for review board approval that usually requires annual renewals and one time site startup costs. As individual patients are enrolled in the clinical trial by the participating medical institution or physician, the Company pays certain per patient fees according to the CTA for the duration of the trial.   Expenses incurred in connection with these CTA activities are expensed as services are provided and are included in research and development expenses on the accompanying statements of comprehensive loss.

22
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021

 (d)
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 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 the years ended December 31, 2022 and 2021, 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 who 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 December 31, 2022 and 2021.
 
23
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021
(6)
Notes Payable
 

(a)
Paycheck Protection Program Loan
 
In June 2021, the Company was notified by the Georgia Primary Bank (the Lender) that the unsecured loan in the amount of $812,500, which was made pursuant to the PPP, and accrued interest of $9,015 was fully forgiven; and, as a result, the entire amount was derecognized on the Company’s financial statements, which was included as other income for the twelve months ended December 31, 2021 on the accompanying statements of comprehensive loss. The Company is required to maintain all necessary records for at least six years following the date of forgiveness, and the SBA reserves the right to audit the Company’s fully forgiven PPP loan.
 
As of December 31, 2022 and 2021, no amounts were outstanding under the PPP loan. For the years ended December 31, 2022 and 2021, no interest expense on the PPP loan was recognized.
 

(b)
AFCO Credit Corporation (AFCO)
 
In June 2021, the Company executed a Promissory Note with AFCO to finance certain insurance premiums totaling $558,367, requiring the Company to pay $111,673 in a down payment and make monthly installment payments. The annual interest rate was 5.25% and the monthly installment payments were $45,751, which represented principal and interest. The final installment payment was paid April 2022.

In June 2022, the Company executed another 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 5.7% and the monthly installment payment is $47,539, which represent principal and interest. The final installment payment is due March of 2023.
 
As of December 31, 2022 and December 31, 2021, the principal balance on the AFCO note was $141,298 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 $10,572 and $10,775 the years ended December 31, 2022 and 2021, respectively.
 
(7)
Income Taxes
 
The current tax provisions and deferred tax provisions as reflected in the financial statements is as follows as of December 31:

 
  
2022
    
2021
  
Current federal taxes
  
$
—
      
—
  
Current state taxes
    
6,300
      
4,000
  
Current tax provision
    
6,300
      
4,000
  
Deferred federal taxes
    
(2,797,001
)
    
(1,913,368
)
Deferred state taxes
    
371,982
      
(98,744
)
Deferred tax provision
    
(2,425,019
)
    
(2,012,112
)
Valuation allowance change
    
2,425,019
      
2,012,112
  
Total income tax expense provision
  
$
6,300
      
4,000
  


24
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021
A reconciliation of income tax expense at the statutory federal income tax rate and income taxes as reflected in the financial statements is as follows as of December 31:
 
 
  
2022
    
2021
  
Federal income tax at statutory federal rate
    
21.00
%
    
21.00
%
Permanent differences
    
—
      
2.00
  
Research and development credit
    
(1.00
)
    
3.00
  
Other deferred adjustments
    
—
      
—
  
State income tax expense (net of federal benefit)
    
1.00
      
1.00
  
Valuation allowance
    
(21.00
 )    
(27.00
)
Effective tax rate
    
—
 %
   
—
 %

Deferred tax assets (liabilities) consisted of the following as of December 31:
 
   
2022
    
2021
  
Deferred tax asset arising from:
            
Net operating loss carry forwards
   $ 17,869,574      
16,873,473
  
Accrued expenses (vacation)
     7,625      
13,920
  
Intangibles
     90,508      
82,451
  
Property and equipment
    41,279       —  
Research and development expense capitalization
    1,487,512       —  
Research and development tax credits
     3,088,254      
3,190,604
  
Share-based compensation expense
     46,312      
20,207
  
Lease liabilities
     90,224      
188,789
  
Other
     1,189      
8,898
  
Deferred tax asset
     22,722,477      
20,378,342
  
Deferred tax liability arising from:
                
UNICAP
     (10,733 )    
(10,615
)
Right-of-use assets
     (71,646 )    
(138,239
)
Property and equipment
     —      
(14,409
)
Deferred tax liability
    
(82,379
)
    
(163,263
)
Valuation allowance
  
$
22,640,098
      
20,215,079
  
Net deferred tax asset
  
$
—
      
—
  

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and the Company is required to reduce its deferred tax assets by a valuation allowance if it is more likely than not that some or all of its deferred tax assets will not be realized. Management must use judgment in assessing the potential need for a valuation allowance, which requires an evaluation of both negative and positive evidence. The weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively verified. In determining the need for and amount of the valuation allowance, if any, the Company assesses the likelihood that it will be able to recover its deferred tax assets using historical levels of income, estimates of future income and tax planning strategies. As a result of historical cumulative losses, the Company determined that, based on all available evidence, there was substantial uncertainty as to whether it will recover recorded net deferred taxes in future periods. Accordingly, the Company recorded a valuation allowance against all of its net deferred tax assets as of December 31, 2022 and 2021.  The change in valuation allowance was $2,425,019 and $2,012,112 for the years ended December 31, 2022 and 2021, respectively.
 
25
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021
Beginning on January 1, 2022, the Tax Cuts and Jobs Act, enacted in December 2017, eliminated the option to deduct research and development expenditures in the current period and requires taxpayers to capitalize and amortize U.S.-based and non-U.S. based research and development expenditures over five and fifteen years, respectively. This legislation does not impact the Company’s current tax obligations.

As of December 31, 2022 and 2021, respectively, the Company has $82,500,567 and $78,264,967 of federal net operating loss carry forwards and $2,838,559 and $2,407,689 of federal research and experimentation tax credits, respectively, and state net operating loss carry forwards of $9,522,312 and $7,774,956, respectively.  The utilization of such net operating loss carryforwards and the realization of tax benefits in future years depend predominately upon having taxable income. Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership may result in a limitation on the amount of net operating loss carry forwards and tax credit carry forwards that may be used in future years.
 
26
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021
The Company’s net operating losses may be subject to Section 382 of the Internal Revenue Code which provide for a limitation on the annual use of net operating losses following certain ownership changes that could limit the Company’s ability to utilize these carryforwards.  The Company has completed an analysis covering the period February 19, 2004 through December 31, 2018, to determine if such ownership changes have occurred and concluded it was more likely than not that there were changes in ownership during the period, with the most recent change of ownership occurring on December 16, 2016.  Further analyses will be performed prior to recognizing the benefits of any losses or credits in the financial statements, and the Company is in the process of determining the limitations that Section 382 will have on the Company’s net operating loss carryforwards and research credits.  In general, the annual use limitation equals the aggregate value of the Company’s stock at the time of the ownership change multiplied by a specified tax-exempt interest rate.

The following schedule indicates the expiration year, as of December 31, for the Company’s federal net operating loss carryforwards available to future years without taking into account any Section 382 limitations as of December 31, 2022:
 
2024
  
$
430,332
  
2025
    
865,274
  
2026
    
1,213,130
  
2027
    
2,082,043
  
2028
    
2,536,605
  
2029
    
2,235,045
  
2030
    
4,132,949
  
2031
    
3,160,709
  
2032
    
3,533,521
  
2033
    
2,987,848
  
2034
    
2,516,728
  
2035
    
4,777,558
  
2036
    
4,503,474
  
2037
    
6,869,819
  
Indefinitely
    
40,655,622
  
Total
  
$
82,500,657
  

The FASB issued authoritative guidance on accounting for uncertainty in income taxes, which clarifies the accounting for income taxes, by prescribing a minimum recognition threshold that a tax position is required to meet before recognition in the financial statements. The guidance also provides direction on recognition, measurement, classification, interest, and penalties, accounting in interim periods, disclosure, and transition.  Management has determined there are no uncertain tax positions. Accordingly, these financial statements do not include any adjustments or disclosures related to uncertain tax positions.
 
(8)
Stockholders’ Equity
 
The Company’s Board of Directors approved in January 2017 the Tenth Amended and Restated Certificate of Incorporation authorizing the Company to issue for all classes of stock 169,000,000 shares at $0.001 par value per share, of which 95,853,558 shares were designated Common Stock and 73,146,442 shares were designated Preferred Stock.
 
In May 2021, Amendment No 1 of the Tenth Amended and Restated Certificate of Incorporation was filed with the Secretary of Delaware where each nine shares of common stock issued and outstanding were automatically converted into one share of common stock (reverse stock split); thus, the Company effected a 1-for-9 reverse stock split of its common stock. The par value and the authorized shares of the common stock were not adjusted as a result of the reverse stock split. The reverse stock split resulted in an adjustment to the convertible preferred stock conversion price to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion. The accompanying financial statements and notes to the financial statements give retroactive effect to the reverse stock split for all periods presented.
 
27
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021
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 the underwriters of $425,000. Immediately prior to the closing of the IPO, all of the convertible Series A preferred stock and 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 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 December 31, 2022, 51,251 shares of common stock had been sold under the Equity Distribution Agreement.
 

(a)
Common Stock
 
The holders of the common stock shall have the exclusive right to vote for the election of directors and on all other matters requiring stockholder action, each outstanding share entitling the holder thereof to one vote on each matter properly submitted to the stockholders of the Company for their vote; provided, however, that, except as otherwise required by law, holders of common stock, as such, shall not be entitled to vote on any amendment to the Amended and Restated Certificate (or on any amendment to a certificate of designations of any series of preferred stock) that alters or changes the powers, preferences, rights or other terms of one or more outstanding series of preferred stock if the holders of such affected series of preferred stock are entitled to vote, either separately or together with the holders of one or more other such series, on such amendment pursuant to this Amended and Restated Certificate (or pursuant to a certificate of designations of any series of preferred stock).
 
Dividends may be declared and paid or set apart for payment upon the common stock out of any assets or funds of the Company legally available for the payment of dividends, but only when and as declared by the Board of Directors or any authorized committee thereof.
 
In the event of our liquidation or dissolution, the holders of common stock are entitled to receive proportionately the Company’s net assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption, or conversion rights.
 

(b)
Convertible Preferred Stock
 
In June 2021,  17,210,609 shares of convertible preferred stock outstanding were automatically converted into 1,912,332 shares of common stock after taking into account the 1-for-9 reverse stock split.
 
As of December 31, 2022, no shares of convertible preferred stock have been issued and/or outstanding, and no dividends have been declared or paid since inception.
 

(c)
Redeemable Convertible Preferred Stock
 
In June 2021, 55,835,833 shares of redeemable convertible preferred stock outstanding were automatically converted into 6,204,011 shares of common stock after taking into account the 1-for-9 reverse stock split.
 
As of December 31, 2022, no shares of redeemable convertible preferred stock have been issued and/or outstanding, and no dividends have been declared or paid since inception.
 
28
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021

 		(d)
Preferred Stock
 
Under the terms of the Amended and Restated Certificate, the Company’s Board of Directors is authorized to direct the Company to issue shares of preferred stock in one or more series without stockholder approval. The Board of Directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.
 
The purpose of authorizing the Board of Directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions, future financings, and other corporate purposes, could have the effect of making it more difficult for a third-party to acquire, or could discourage a third-party from seeking to acquire, a majority of the outstanding voting stock. As of December 31, 2022 and 2021, no shares of preferred stock are outstanding.
 

(e)
Warrants

As of December 31, 2022, the Company has warrants outstanding to purchase shares of common stock, which are all exercisable in whole or in part, with expiration dates as follows:

   
Number of
        
   
warrants
    
Exercise
  
Expiration date
  
outstanding
    
price
  
March 2024
    
31,882
    
$
31.50
  
April 2024
    
4,762
    
$
31.50
  
April 2025
    
55,117
    
$
7.25
  
December 2026
    
128,934
    
$
9.45
  
January 2027
    
12,705
    
$
9.45
  
Total
    
233,400
  

In May 2022, a warrant to purchase 11,112 shares of common stock expired.


(f)
Dividends
 
As of December 31, 2022, no dividends have been declared or paid since inception.
 
As of December 31, 2022, the Company had 11,869,704 shares of common stock outstanding,
 
(9)
Equity Incentive Plans
 

(a)
Stock Option Plans – Prior to the IPO
 
Prior to the IPO in June 2021, the Company maintained two equity incentive plans, the 2004 Stock Incentive Plan, as amended, or 2004 Plan, and the 2015 Stock-Based Incentive Compensation Plan, or 2015 Plan, which provided the Company’s employees, non-employee directors, consultants and independent contractors the opportunity to participate in the equity appreciation of the business through the receipt of stock options to purchase shares of common stock. New grants ceased being made under the 2004 Plan upon the adoption of the 2015 Plan; however, outstanding stock options under the 2004 Plan may continue to be exercised in accordance with their terms. We adopted the 2015 Plan in April 2015, which contains substantially similar terms and conditions as the 2004 Plan. The 2015 Plan initially had 1,176,681 shares of common stock reserved for issuance under the 2015 Plan and was administered by the compensation committee of the Board of Directors. Upon the closing of the IPO, no further awards will be made under the 2015 Plan; however, outstanding stock options under the 2015 Plan may continue to be exercised in accordance with their terms.  No grants were awarded under our 2015 plan for the years ended December 31, 2022 and 2021.
 

(b)
Stock Option Plans – Post the IPO
 
In June 2021, in connection with the IPO, the 2021 Equity Incentive Plan (2021 Plan) became effective, which was adopted by the Board of Directors in February 2021 and the 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.
 
29
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021
Under the 2021 Plan, the Company may grant awards in respect of shares of common stock to employees, consultants, and non-employee directors pursuant to option awards, stock appreciation right, or SAR, awards, restricted stock awards, restricted stock unit, or RSU, awards, performance stock awards, performance stock unit, or PSU, awards, and other stock-based awards.
 
The total number of shares of common stock available for awards under the 2021 Plan is 1,111,111, provided that such number shall be automatically increased on each January 1, beginning on January 1, 2022, by 4% of the outstanding number of shares of common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Board of Directors.  The aggregate number of shares of our common stock that will be available for issuance under awards granted pursuant to the 2021 Plan shall also be increased by the number of shares underlying the portion of an award granted under the 2015 Plan that is cancelled, terminated or forfeited or lapses after the effective date of the 2021 Plan. No more than 1,111,111 shares of common stock issued under the 2021 Plan may be issued pursuant to the exercise of incentive stock options (ISO), provided that such number shall be automatically increased on each January 1, beginning on January 1, 2022, by the lesser of 4% of the outstanding number of shares of common stock on the immediately preceding December 31 or 555,555 shares of common stock. Shares of common stock issued by us in connection with the assumption or substitution of outstanding grants or under certain stockholder approved plans from an acquired company shall not reduce the number of shares of common stock available for awards under the 2021 Plan. Shares of common stock underlying the portion of an award that is forfeited or otherwise terminated for any reason whatsoever, in any case, without the issuance of shares of common stock, will be added back to the number of shares of common stock available for grant under the 2021 Plan. No non-employee director may be granted awards under the 2021 Plan in any one calendar year covering a number of shares of common stock that have a fair market value on the grant date in excess of $350,000 in the first calendar year of such non-employee director’s initial service as a non-employee director and $200,000 in any other calendar year of such non-employee director’s service as a non-employee director.
 
Options granted under the 2021 Plan may be either ISOs or nonqualified stock options. The price at which shares of common stock may be purchased upon exercise shall be determined by the compensation committee but shall not be less than the fair market value of one share of common stock on the date of grant, or, in the case of an ISO granted to a ten-percent stockholder, less than 110% of the fair market value of a share of common stock on the date of grant. The compensation committee may grant options that have a term of up to 10 years, or, in the case of an ISO granted to a ten-percent stockholder, five years. The award agreement shall specify the exercise price, term, vesting requirements, including any performance goals, and any other terms and conditions applicable to the granted option. Unless otherwise provided in an award agreement or an effective employment, consulting, severance or similar agreement with us or a subsidiary, upon a participant’s termination of service for any reason, the unvested portion of each award of options granted generally will be forfeited with no compensation due the participant.
 
Activity under the stock option plans was as follows:
 
          Weighted  
          average  
    Number of     exercise  
   
options
    
price
  
Balances at December 31, 2020
    
743,627
    
$
3.60
  
Granted
    
—
      
—
  
Exercised
    
(44,698
)
    
2.83
  
Expired
    
(556
)
    
27.00
  
Forfeited
    
(8,378
)
    
5.43
  
Balances at December 31, 2021
    
689,995
    
$
3.58
  
Granted
    
367,670
      
5.33
  
Exercised
    
(9,445
)
    
1.71
  
Expired
    
(10,558
)
    
27.00
  
Forfeited
    
(106,112
)
    
4.09
  
Balances at December 31, 2022
    
931,550
    
$
3.97
  

30
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021
Stock options granted under the stock option plans for the years ended December 31 2022 and 2021 were as follows:

 
  
2022
    
2021
  
Employee
    
299,670
      
—
  
Nonemployee
    
68,000
      
—
  
Total
    
367,670
      
—
  

The intrinsic value of options exercised during the years ended December 31, 2022 and 2021 was $3,306 and $159,062, respectively. The intrinsic values represent 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.
 
The options outstanding and vested and currently exercisable by exercise prices as of December 31, 2022 were as follows:
 
Option outstanding
    
Options vested and exercisable
  
            Weighted           Weighted
    Weighted  
            average     Number of     average
    average  
Exercise     Outstanding     remaining     options     Exercise     remaining  
price
    
(in shares)
    
life years
    
vested
    
price
    
life years
  
$
1.13 - 1.67
      
91,100
      
9.59
      
—
    
$
—
      
—
  
 
1.68 - 1.86
      
193,335
      
3.21
      
82,224
      
1.71
      
3.21
  
 
1.87 - 3.14
      
166,850
      
9.09
      
—
      
—
      
—
  
 
3.15 - 3.60
      
259,836
      
4.50
      
259,836
      
3.24
      
4.50
  
 
3.61 - 5.31
      
68,616
      
5.23
      
68,616
      
3.97
      
5.23
  
 
5.32 - 9.56
      
51,813
      
6.95
      
38,765
      
6.12
      
6.95
  
 
9.57 - 13.00
      
100,000
      
9.07
      
—
      
—
      
—
  
         
931,550
      
6.23
      
449,441
       3.32      
4.58
  
 
As of December 31, 2022, the total number of shares of common stock reserved for future awards under the 2021 Plan is 1,325,247.


(c)
Inducement Grants
 
For the year ended December 31, 2022, the Company awarded, outside the 2021 Plan, two stock option grants for the right to purchase a total of 150,000 shares of common stock (inducement grants), which were approved by the Compensation Committee. The weighted average exercise price was $2.42. The inducement grants will vest in equal installments over four years provided the employee remains employed by the Company on the vesting date. As of December 31, 2022, awards to purchase 150,000 options are outstanding, none are exercisable, and the weighted average remaining life is 9.4 years.
  

(d)
Valuation
 
The Company uses the Black‑Scholes option pricing model to determine the fair value of stock awards granted to employees and nonemployees. The determination of the fair value of share‑based payment awards granted using a pricing model is affected by the Company’s stock price as well as the assumptions regarding a number of complex and subjective variables as follows:
 
31
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021

(i)
Expected Term
 
The expected term of stock options represents the period the stock options are expected to remain outstanding. The Company’s historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term because of a lack of sufficient data. Therefore, the Company estimates the expected term for all options granted by using the simplified method provided by the ASC 718, which calculates the expected term as the average of the time-to-vesting and the contractual life of the options. The contractual term for options awarded since inception is 10 years for employees and non-employees.
 

(ii)
Risk‑Free Interest Rate
 
The risk‑free interest rate is based on U.S. Treasury zero‑coupon issues with remaining terms similar to the expected term on the options.
 

(iii)
Dividend Yield
 
The Company has not declared or paid any cash dividends from inception through December 31, 2022 and does not plan to pay any cash dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation model.
 
32
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021

(iv)
Expected Volatility
 
Expected volatility measures the amount that a stock price has fluctuated or is expected to fluctuate during a period. The Company determines volatility based on an analysis of comparable companies.
 

(v)
Forfeitures
 
The Company accounts for forfeitures as they occur.

The Black-Scholes weighted average assumptions for all stock option awards granted during 2022 were as follows:


  2022  
 
  
2021 Equity Plan
    
Inducement Grants
  
Fair Value of Awards
  
$
2.06
      
2.01
  
Grant Price
  
$
5.33
      
2.42
  
 
                
Expected term (in years)
    
6.28
      
6.25
  
Risk‑free interest rate
    
2.13
%
    
2.52
%
Dividend yield
    
—
%
    
—
%
Expected volatility
    
107.98
%
    
107.70
%


(e)
Employee Stock Purchase Plan (ESPP)

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

The total number of shares of common stock available for purchase under the ESPP is 166,666, provided that such number is automatically increased on January 1 of each calendar year, from January 1, 2022 through January 1, 2031 by the least of (i) 1.0% of the total number of shares of common stock outstanding on December 31 of the immediately preceding calendar year, (ii) 222,222 shares of common stock or (iii) a number determined by the board of directors that is less than the foregoing clauses (i) and (ii).

Under the ESPP, the Company may specify offerings with durations of not more than 27 months and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of common stock will be purchased for employees participating in the offering. An offering may be terminated under certain circumstances. No employee may purchase more than 12,254 shares of common stock under the ESPP during any offering period. Unless otherwise determined by the board of directors, shares of common stock will be purchased for accounts of employees participating in the ESPP at a price per share equal to the lower of (i) 85% of the fair market value of a share of common stock on the last date of an offering period or (ii) 85% of the fair market value of a share of common stock on the first day of such offering period.

As December 31, 2022, 4,843 shares of common stock have been purchased under the ESPP, and the total number of shares of common stock reserved for future awards under the ESPP is 279,864.


(f)
Stock‑Based Compensation Expense
 
Stock‑based compensation expense recognized is based on the value of the portion of stock option awards that is ultimately expected to vest on a straight-line basis. Stock‑based compensation expense recognized in the Company’s statements of comprehensive loss during the years ended December 31, 2022 and 2021 includes compensation expense for stock‑based awards based on the fair value estimated in accordance with the provisions of ASC 718, Compensation – Stock Compensation.

33
Table of Contents

FEMASYS INC.
Notes to Financial Statements
December 31, 2022 and 2021
The following table shows the stock-based compensation expense related to vested stock option grants to employees and nonemployees awarded under the stock plans and inducement grants by financial statement line item on the accompanying statement of comprehensive loss:

   
2022
    
2021
  
Research and development
  
$
95,484
      
106,469
  
Sales and marketing
    
6,680
      
3,759
  
General and administrative
    
122,775
      
83,138
  
Total share-based compensation expense
  
$
224,939
      
193,366
  
 
As of December 31, 2022, the remaining amount of stock‑based compensation expense that is expected to be recognized in future periods for employees and nonemployees is $1,058,218, which includes $463,311 of compensation expense to be recognized upon achieving a certain performance condition. The $594,907 of unrecognized expense is expected to be recognized over a weighted average period of 2.9 years.

(10)
Retirement Plan
 
The Company has a 401(k) defined contribution plan covering substantially all full‑time employees, meeting certain eligibility requirements. The Company has no required matching or other contribution requirements. For the year end December 31, 2022 and 2021, the company contributed $73,947 and $0 of voluntary employer matching contributions.
 
(11)
Related‑Party Transactions
 
During the years ended December 31, 2022 and 2021, there were no related-party transactions.
 
(12)
Net Loss per Share Attributable to Common Stockholders
 
The following table sets forth the computation of the basic and diluted net loss per share for the years ended December 31:
 
   
2022
    
2021
  
             
Net loss attributable to common stockholders, basic & diluted
  
$
(11,394,170
)
    
(7,537,845
)

               
Weighted average number of shares used in computing net loss per share attributable to common stockholders, basic and diluted
     11,815,019      
6,712,028
  
Net loss per share attributable to common stockholders, basic and diluted
   $ (0.96 )    
(1.12
)
 
The following potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding because they would be anti-dilutive for the years ended December 31:
 
   
2022
    
2021
  
Options to purchase common stock
    
1,081,550
      
689,995
  
Warrants to purchase common stock
    
233,460
      
244,572
  
Total potential shares
    
1,315,010
      
934,567
  


34
Table of Contents
PART IV

Item 15.
Exhibits.

Exhibit
Incorporated by Reference

File

Number
Description of Document
Schedule/Form
Number
Exhibit
Filing Date






3.1
Eleventh Amended and Restated Certificate of Incorporation of Femasys Inc.
Form 8-K
001-40492
3.1
June 22, 2021
3.2
Amended and Restated Bylaws of Femasys Inc.
Form 8-K
001-40492
3.2
June 22, 2021
3.3
First Amendment to the Amended and Restated Bylaws of Femasys Inc.
Form 8-K
001-40492
3.1
March 30, 2023
4.1
Description of the Registrant’s Securities
Form 10-K
001-40492
4.1
March 24, 2022
4.2
Form of Certificate of Common Stock
Form S-1
333-256156
 4.1
 May 14, 2021
4.3
Form of indenture
Form S-3
333-266001
4.3
July 1, 2022
10.1
Femasys Inc. 2021 Equity Incentive Plan, and forms of agreements thereunder
Form S-1
 333-256156
 10.3
May 14, 2021
10.2
Femasys Inc. 2021 Employee Stock Purchase Plan
Form S-1
 333-256156
 10.4
May 14, 2021
10.3
Amended and Restated Employment Agreement, by and between Femasys Inc. and Kathy Lee-Sepsick
Form S-1/A
 333-256156
 10.6
June 14, 2021
10.4
Amended and Restated Employment Agreement, by and between Femasys Inc. and Daniel Currie
Form S-1/A
 333-256156
 10.8
June 14, 2021
10.5
Employment Agreement, dated February 15, 2010, by and between Femasys Inc. and Gary Thompson
Form S-1/A
 333-256156
 10.9
June 14, 2021
10.6
Femasys Inc. Non-Employee Director Compensation Policy
Form S-1/A
 333-256156
 10.11
June 14, 2021
10.7
Form of Indemnification Agreement between Femasys Inc. and its directors and officers
Form S-1
 333-256156
 10.12
May 14, 2021
10.8
Master Services Agreement and Statement of Work for consulting services, effective August 12, 2021, by and between Femasys Inc. and Bespoke Medical Affairs Solutions, LLC
Form 10-Q
001-40492
 10.1
 November 12, 2021
10.9
Employment Agreement, dated as of February 28, 2022, between Femasys Inc. and Dov Elefant
Form 8-K
001-40492
 10.1
February 24, 2022
10.10
Form of Inducement Stock Option Agreement
Form 8-K
001-40492
10.2
February 24, 2022
10.11
Sales Agreement dated as of July 1, 2022, by and between Femasys Inc. and Piper Sandler & Co.
Form S-3
333-266001
1.2
July 1, 2022
Consent of KPMG LLP



24.1*
Power of Attorney (included on signature page)



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



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




35
Table of Contents
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



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 Extension 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 XRBL and contained in Exhibit 101)




Item 16.
Form 10-K Summary.

None.

36
Table of Contents
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 21st day of July 2023.

FEMASYS INC.

Dated: July 21 2023
By: /s/ Kathy Lee-Sepsick

Kathy Lee-Sepsick

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kathy Lee-Sepsick and Daniel Currie, and each of them as his or her true and lawful attorneys-in- fact and agents, each with the full power of substitution, for him or her and in his or her name, place or stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, and each of them, or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
Title
Date





By: /s/ Kathy Lee-Sepsick


July 21, 2023
Kathy Lee-Sepsick
Chair of the Board of Directors, President and
Chief Executive Officer (principal executive officer)






By: *


July 21, 2023
Dov Elefant
Chief Financial Officer (principal financial and accounting officer)






By: *


July 21, 2023
Charles Larsen
Director






By: /s/ Keith Kendall


July 21, 2023
Keith Kendall
Director






By: /s/ Alistair Milnes


July 21, 2023
Alistair Milnes
Director






By: *


July 21, 2023
Anne Morrissey
Director






By: *


July 21, 2023
Wendy Perrow
Director






By: *


July 21, 2023
Edward Uzialko, Jr.
Director


*By:
/s/ Kathy Lee-Sepsick

Kathy Lee-Sepsick, Attorney-in-fact


37