Item 7. Management’s Discussion and Analysis
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations .
We are a biomedical company focused on transforming women’s healthcare by developing novel solutions and next-generation advancements providing significant clinical impact to address severely
underserved areas. Our mission is to provide women worldwide with superior minimally-invasive, non-surgical product technologies, accessible in the office, improving patient care and overall health economics. We are a woman-founded and led
company with an expansive, internally created intellectual property portfolio with over 150 patents globally, in-house chemistry, manufacturing, and controls (CMC) and device manufacturing capabilities and proven ability to develop and
commercialize products. Our suite of products and product candidates address what we believe are multi-billion dollar global market segments in which there has been little advancement for many years, helping women avoid pharmaceutical solutions,
implants and surgery that can be expensive and expose women to harm. With an initial focus in the area of reproductive health, our two lead product candidates offer solutions for two ends of the spectrum: FemBloc for permanent birth control and
FemaSeed as an artificial insemination infertility treatment.
FemBloc – Our Permanent Birth Control Solution . Our permanent birth control solution in development includes our proprietary FemBloc system, which
features dual intrauterine directional delivery targeting both fallopian tubes simultaneously with a degradable biopolymer followed by an ultrasound confirmation test to confirm procedure success. If approved, we expect FemBloc to be the first
and only non-surgical permanent birth control option, using a minimally invasive delivery system that locally instills a degradable biopolymer, which is designed to cause the fallopian tubes to close using the patient’s own scar tissue, resulting
in permanent birth control for the patient without a permanent implant. We believe the FemBloc solution will be the safest and most natural approach for permanent birth control. FemBloc has the potential to offer significant advantages over the
only existing option, surgical tubal ligation, or “having her tubes tied.” FemBloc is a procedure that can be completed in a physician’s office, with no anesthesia, no incisions or cannulation, no specialty skill set or capital equipment and
minimal pain and recovery time, and no residual implant remaining in the patient’s body after the scar tissue develops, which we believe will likely be at half the cost. We believe there are also significant advantages over other temporary or
reversible methods that women may be using in lieu of the surgical tubal ligation option, as FemBloc does not use hormones or leave a long-term implant behind. Our permanent birth control solution combines FemBloc with an ultrasound in-office
diagnostic test, which uses saline and air contrast to permit the same physician to evaluate the fallopian tubes in-office to confirm the success of FemBloc approximately three months after the FemBloc procedure, rather than requiring the patient
to visit another provider for a radiology-based exam, exposing the patient unnecessarily to radiation and the use of x-ray dye.
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We have studied FemBloc in two clinical trials (a pilot safety study and a pivotal trial) pursuant to an FDA approved investigational device exemption (IDE) evaluating safety in a total of 183
subjects. Subjects are being followed for five years for safety, and for the initial 49 subject pilot study, three years of follow-up have been completed. There have been no serious safety events reported to date in any of the subjects and over
90% of the events reported that were classified as related to the device, procedure or both, were on the day of the procedure or within seven days after the procedure. The reported events were anticipated and the majority (80%) of these events
were bleeding or spotting and/or pain or cramps and over 75% were classified by the physician as mild. Physicians observed that their subjects found the procedure to be highly tolerable, with subject self-reported pain scores similar to placement
of IUDs. Almost every case (96%) was assessed by the physician to be extremely simple or very simple to perform and 99% found it easier than tubal ligation surgery. At the ultrasound confirmation test conducted three months following the FemBloc
procedure, there was no evidence of remaining biopolymer detected in subjects, which may indicate that the biopolymer completely degraded and likely exited the subject with possible menstruation. Subjects found the FemBloc procedure and
confirmation test to be highly tolerable, with pain or discomfort scores similar to placement of other intrauterine devices, such as IUDs. The mean score for FemBloc procedure was 4.3 and for the confirmation test was 3.0, on visual analog scale
(VAS) from 0-10 where 10 is the highest measure of pain/ discomfort.
During the conduct of these two clinical studies, unintended pregnancies occurred in subjects who were told to rely on FemBloc (six pregnancies for the pilot study and three pregnancies for the
pivotal trial). These pregnancies were due to misinterpretation of the ultrasound test using the FemChec device, as reviewed and confirmed by an independent clinical events committee. FDA viewed these unintended pregnancies as a safety concern
and, as a result, in February 2019 we paused the pivotal clinical trial for FemBloc (although subjects are still followed for safety through 5 years). Subsequently, the agency recommended conducting a small clinical study in a new cohort of
subjects to evaluate the adequacy of certain proposed mitigations and validate the ultrasound confirmation test. We began this small study in June 2020 pursuant to an IDE approval, where up to 50 subjects at 5 U.S. sites will receive two
confirmation tests (ultrasound and traditional radiology). Subjects are informed to rely on FemBloc only if both tests confirm procedure success. We 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 – Our Artificial Insemination Solution . Our artificial insemination solution in development includes our proprietary FemaSeed product candidate
for artificial insemination, which features single intrauterine directional delivery with sperm, offering significant advantages over existing artificial insemination solutions, including being the first and only approach that allows selective
delivery of sperm locally and directly to the fallopian tube where conception occurs. Our artificial insemination solution combines FemaSeed with a diagnostic companion product, our FDA-cleared and marketed FemVue device, which, creates saline
and air contrast to safely assess the fallopian tubes for patency prior to treatment with FemaSeed. Fallopian tube patency is necessary for successful fertilization, and we believe FemVue offers significant advantages over other existing
procedures, including being the first product for ultrasound evaluation of a woman’s fallopian tubes as part of a diagnostic infertility assessment. The safety profile of FemaSeed to date is supported by data from our FemBloc clinical trials and
a post-market study of an identical single intrauterine directional delivery device design, for which we received FDA clearance for another indication. In April 2021 we received an IDE approval from FDA that allowed us to initiate a pivotal trial
for the FemaSeed device. The first subject was enrolled in July 2021, and we anticipate an analysis of interim data the fourth quarter of 2022. Completion of enrollment is expected in the first half of 2023 followed by a planned submission of
the results from the trial to FDA in support of a future de novo classification request for FemaSeed. Our FemVue product, a companion diagnostic to FemaSeed, currently has marketing clearances or
authorization in the United States, Europe, Canada, and Japan.
Additional Women’s Health Solutions . We have also developed a novel technology platform for tissue sampling intended to be marketed alongside our other
women-specific medical products in the physician’s office setting. Our FDA-cleared FemCerv product is a biopsy device for endocervical curettage that can be used to sample cervical cells and tissue circumferentially with sample containment within
the device to minimize contamination. We sponsored a post-market study of FemCerv where subjects found the procedure to be relatively pain-free and the sample obtained was complete for analysis, which we believe may aid in reliable diagnosis. Our
FemEMB product candidate in development is designed to obtain a comprehensive and uncontaminated sample of the endometrial cells and tissue in an office procedure. We believe there is a market opportunity for use of FemEMB in continuous
monitoring by multiple sampling procedures that may be employed by physicians during and after treatments for cancers, abnormal bleeding, or other uterine treatments, such as prior to an endometrial ablation. In addition, we plan to explore
expanded indications for the single or dual intrauterine directional delivery to instill therapeutic drugs for the treatment of ailments of the fallopian tubes, for which we have issued patents.
Factors Affecting Our Business
There are a number of factors that have impacted, and we believe will continue to impact, our results of operations and growth. These factors include:
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•
Commencement and conduct of clinical trials for our product candidates . We must successfully obtain timely IDE approval to be able to commence
pivotal clinical trial for FemBloc, as well as our future products. We must successfully recruit and enroll clinical trial participants in our clinical trials for FemBloc and FemaSeed, which is further complicated by the restrictions and
public health concerns of the COVID-19 pandemic, in order to have the requisite data for regulatory submissions, both to the FDA and to international regulatory bodies, for marketing authorization.
•
Regulatory approval of our product candidates . We must successfully obtain timely approvals, de novo classifications or clearances for our product
candidates. For our sales to grow, we will need to receive FDA approval for the FemBloc system for permanent birth control and FDA grant of a de novo classification request for the FemaSeed product for artificial insemination in the
United States, and will need to obtain regulatory approval, grant, clearance or marketing authorization of our other pipeline products in the United States and in international markets.
•
Clinical results . Publications of clinical results by us, our competitors and other third parties can have a significant influence on whether, and
the degree to which, our products are used by physicians and the procedures and treatments those physicians choose to provide.
•
Market acceptance . The success of our business will ultimately depend on our ability to gain broad acceptance of our products, which will require
an extensive education process for both physicians and patients of the benefits of our products.
•
Competition . Our industry has a number of large, well-capitalized companies. We must continue to successfully compete in light of our competitors’
existing and future products and related pricing and their resources to successfully market to the physicians who use our products.
While these factors may present significant opportunities for us, they also pose significant risks and challenges that we must address. See the section titled “Risk Factors” for more
information.
Impact of COVID-19 on Our Business
In March 2020, the World Health Organization declared the outbreak of COVID-19 caused by a novel strain of coronavirus as a pandemic. This contagious disease outbreak continues to spread
throughout the United States and around the world, including through new variants of the virus that have been identified both inside and outside the United States. The worldwide COVID-19 pandemic has affected and may continue to affect our
ability to complete our current preclinical studies and clinical trial, initiate and complete our planned preclinical studies and clinical trials, disrupt regulatory activities or have other adverse effects on our business, results of operations,
financial condition and prospects. In addition, the pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide, both of which could adversely affect our business, operations and ability to
raise funds to support our operations. To date, we have experienced delays in site initiation and subject enrollment in our clinical trials and we may continue to experience some delays in our clinical trials and delays in data collection and
analysis. These delays so far have had a severe impact, and the continued spread of COVID-19 globally could adversely impact our clinical trial operations further, including our ability to initiate sites, recruit and retain subjects and principal
investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak occurs in their geography. We are following, and plan to continue to follow, recommendations from federal, state and local
governments regarding workplace policies, practices and procedures. In March 2020, we implemented a remote working policy for many of our employees and implemented a 30% reduction in force. In addition, the pandemic has decreased the number of
elective surgical procedures, which, if sustained, could have an effect on our future business. For example, tubal ligation procedures sustained an 18% decline in December 2020 compared to December 2019, according to a study published in the
publication Contraception in 2021. We have no assurance that demand for elective reproductive surgery will return to pre-pandemic levels in the future, or at all. We are continuing to monitor the
potential impact of the pandemic, but we cannot be certain what the overall impact will be on our business, financial condition, results of operations and prospects.
Components of Our Comprehensive Loss
Sales
Sales are primarily from the sale of our FemVue product.
We sell our product to physician offices, primarily through direct customer service, as well as through distributors in selected international markets. For the years ended December 31, 2021 and
2020 Bayer Yakuhin, Ltd. accounted for approximately 15% and 11%, respectively, of our total revenue. For products sold through direct customer service, control is transferred upon shipment to customers. For products sold to distributors
internationally, control is transferred upon shipment or delivery to the customer’s named location, based on the contractual shipping terms.
Cost of sales
Cost of sales consists primarily of costs of components for use in our product, the materials and labor that are used to produce our products, and the manufacturing overhead that directly
supports production. We expect cost of sales to increase in absolute terms as our revenue grows.
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Gross margin
Our gross margin has been and will continue to be affected by a variety of factors, primarily production volumes, the cost of direct materials, product mix, geographic mix, discounting
practices, manufacturing costs, product yields, headcount and cost-reduction strategies. While we expect gross margin percentage to increase over the long term, it will likely fluctuate from quarter to quarter as we continue to introduce new
products and adopt new manufacturing processes and technologies.
Research and development
Research and development, or R&D, expense consist of engineering, product development, clinical, and regulatory expenses. R&D expenses include:
•
cost of clinical trials to support our product candidates and product enhancements, including expenses for activities conducted by third-party services providers, primarily clinical research organizations,
or CROs, and site payments;
•
certain personnel-related expenses, including salaries, benefits and stock-based compensation;
•
materials and supplies used for internal R&D and clinical activities;
•
allocated overhead information technology expenses; and
•
cost of outside consultants, who assist with technology development, regulatory affairs, clinical affairs and quality assurance, and testing fees.
We track outsourced development costs and other external research and development costs to specific product candidates on a program-by-program basis, fees paid to CROs, manufacturing and
clinical development activities. However, we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to compensation, overhead and early research and other costs which are deployed across
multiple projects under development.
R&D costs are expensed as incurred. In the future, we expect R&D expenses to increase in absolute dollars as we continue to develop our product candidates, expand our product candidate
pipeline, enhance our existing products and technologies and perform activities related to obtaining additional regulatory approval.
Sales and marketing
Sales and marketing expense consist of personnel-related expenses, including salaries, benefits, and stock-based compensation. Other sales and marketing expenses include marketing and
promotional activities, including travel, trade shows and market research, and cost of outside consultants. We expect to grow a sales force and increase marketing efforts as we commercialize our products based on our platform technologies. As a
result, we expect sales and marketing expenses to increase in absolute dollars in future periods.
General and administrative
General and administrative expense consist of personnel-related expenses, including salaries, benefits, travel and stock-based compensation. Other general and administrative expenses include
professional services fees, including legal, audit and tax fees, insurance costs, cost of outside consultants and employee recruiting and training costs. Moreover, we expect to incur additional expenses associated with operating as a public
company, including legal, accounting, insurance, exchange listing and SEC compliance and investor relations. As a result, we expect general and administrative expenses to increase in absolute dollars in future periods.
Depreciation and amortization
Depreciation and amortization expense consist of depreciation expense associated with our fixed assets and lease right of-use assets and amortization expense associated with our patents. We
expect to invest in capital equipment to support our ongoing and planned commercialization efforts and continue to invest in our intellectual property. As a result, we expect our depreciation and amortization expenses to increase in absolute
dollars in the future.
Other income (expense)
Other income (expense) consists largely of interest earned on our cash equivalents and short-term investments, other income earned from grants, and offset by interest expense and other
expenses.
Income tax expense
Income tax expense consists of the minimum state income taxes we are required to pay. We have a full valuation allowance for deferred tax assets, including net operating loss carryforwards and
tax credits related primarily to R&D.
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Results of Operations
Comparison of the Years Ended December 31, 2021 and 2020
The following table shows our results of operations for the years ended December 31, 2021 and 2020:
Year Ended December 31,
2021
2020
Change
% Change
Sales
$
1,179,689
1,037,918
141,771
13.7
%
Cost of sales
370,384
306,533
63,851
20.8
%
Gross margin
809,305
731,385
77,920
10.7
%
Operating expenses:
Research and development
4,084,304
4,130,613
(46,309
)
-1.1
%
Sales and marketing
208,735
310,219
(101,484
)
-32.7
%
General and administrative
4,262,002
2,544,043
1,717,959
67.5
%
Depreciation and amortization
591,068
679,653
(88,585
)
-13.0
%
Total operating expenses
9,146,109
7,664,528
1,481,581
19.3
%
Loss from operations
(8,336,804
)
(6,933,143
)
(1,403,661
)
20.2
%
Other income (expense):
Interest income, net
3,768
22,504
(18,736
)
-83.3
%
Other income
821,515
10,000
811,515
8115.2
%
Interest expense
(19,226
)
(12,553
)
(6,673
)
53.2
%
Other expense
(3,098
)
—
(3,098
)
100.0
%
Total other income (expense)
802,959
19,951
783,008
3924.7
%
Loss before income taxes
(7,533,845
)
(6,913,192
)
(620,653
)
9.0
%
Income tax expense
4,000
1,800
2,200
122.2
%
Net loss
$
(7,537,845
)
(6,914,992
)
(622,853
)
9.0
%
Sales
Sales increased by $141,771, or 13.7%, to $1,179,689 in 2021 from $1,037,918 in 2020. The increase was attributable to a $104,861 increase in U.S. sales and a $36,910 increase in international
sales. U.S. sales increased by 11.6% in 2021 as compared to 2020 and were $1,005,612 in 2021 as compared to $900,751 in 2020, representing a 9.8% increase in units sold coupled with a slight increase in the average selling price. International
sales increased by 26.9% in 2021 compared to 2020 and were $174,077 in 2021 as compared to $137,167 in 2020, representing an 8.5% increase in units sold with an increase in the average selling price due to the sales mix to our international
distributors.
Cost of sales and gross margin percentage
Cost of sales increased by $63,851, or 20.8%, to $370,384 in 2021 from $306,533 in 2020. The increase was primarily due to the increase in sales along with the sales mix between U.S. and international sales in
2021 compared to 2020 as our international sales have a lower gross margin. In addition, we are experiencing pricing increases from our suppliers along with our production personnel taking longer to build our FemVue product than originally
planned. As a result, gross margin percentage was 68.6% in 2021 as compared to 70.5% in 2020. We expect to see improvement in our gross margin in the future as our new production personnel become more efficient with the manufacturing process
and as we invest in equipment which will allow us to automate certain manufacturing processes.
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Research and development
The following table summarizes our R&D expenses incurred during the periods presented:
Year Ended December 31,
2021
2020
Compensation and related personnel costs
$
2,384,135
2,610,615
Clinical-related costs
882,138
966,026
Material and development costs
587,777
426,986
Professional and outside consultant costs
160,120
86,779
Other costs
70,134
40,207
Total research and development expenses
$
4,084,304
4,130,613
R&D expenses decreased by $46,309 or 1.1%, to $4,084,304 in 2021 from $4,130,613 in 2020. The net decrease of $46,309 was due to the decrease of $226,480 in compensation and related personnel costs primarily
in salaries, fringe benefits and share-based compensation expense, a decrease of $83,888 in clinical-related costs and offset by increased costs largely supporting our clinical trials of $160,791 in material and development costs, $73,341 in
professional and outside consultant cost, and $29,927 in other costs.
Sales and marketing
Sales and marketing expenses decreased by $101,484 or 32.7%, to $208,735 in 2021 from $310,219 in 2020. The net decrease was primarily due to a decrease of $174,468 in compensation and related personnel costs due
to the reduction in staff in March 2020 and partially offset by $75,933 in sales in marketing costs primarily to promote our FemVue product.
General and administrative
General and administrative expenses increased by $1,717,959, or 67.5%, to $4,262,002 in 2021 from $2,544,043 in 2020. The increase was largely due to an increase of $1,188,473 in professional costs largely
associated with our financing transactions and additional costs associated with being a public company, and $426,743 in facility and other allocated overhead costs mainly for additional directors & officers insurance.
Depreciation and amortization
Depreciation and amortization expenses decreased by $88,585, or 13.0%, to $591,068 in 2021 from $679,653 in 2020 primarily due to reduction of amortization expense associated with the Company’s intangible assets.
Other income (expense)
Total other income (expense) increased by $783,008, or 3924.7%, to $802,959 in 2021 from $19,951 in 2020 largely from the $821,515 in other income recognized due to the SBA approval of our PPP loan forgiveness in
2021.
Income tax expense
Income tax expense increased by $2,200 or 122.2%, to $4,000 in 2021 from $1,800 in 2020 due to increase in our minimum net worth tax we are required to pay.
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Liquidity and Capital Resources
Sources of liquidity
Since our inception through December 31, 2021, our operations have been financed primarily by net proceeds from the sale of our common stock and convertible preferred stock, indebtedness and, to a lesser extent,
product revenue. As of December 31, 2021, we had $24,783,029 of cash and cash equivalents and an accumulated deficit of $82,740,335.
On June 14, 2021, we were notified by Georgia Primary Bank that the Paycheck Protection Program (PPP) loan in the amount of $812,500 and accrued interest of $9,015 was fully forgiven; and, as a result, we recognized $821,515 in other income in
June 2021.
On June 22, 2021, we closed our initial public offering (the IPO) in which we issued and sold 2,650,000 shares of our authorized common stock. The price per share in the IPO was
$13.00. Net proceeds received, after deducting underwriting discounts, commissions, and legal expenses, were $31,613,500. Offering costs incurred by the Company were $2,016,143, which includes legal expenses incurred and paid by our
underwriters of $425,000. Immediately prior to the closing of the IPO, all our shares of our convertible Series A preferred stock and our redeemable convertible Series B and Series C preferred stock automatically converted into 8,116,343 shares
of common stock.
Funding requirements
Based on our current operating plan, our current cash and cash equivalents are expected to be sufficient to fund our ongoing operations at least 12 months from the date of filing these
financial statements. Our estimate as to how long we expect our existing cash and cash equivalents to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources
sooner than we currently expect. Changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned.
Our cash and cash equivalents as of December 31, 2021 will not be sufficient to fund all of our product candidates through regulatory approval, and we anticipate needing to raise additional
capital to complete the development and commercialization of our product candidates. However, we can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds will be available to
us, that such additional financing will be sufficient to meet our needs or be on terms acceptable to us. This risk may increase if economic and market conditions deteriorate. If we are unable to obtain additional financing when needed, we may
need to terminate, significantly modify, or delay the development of our product candidates, or we may need to obtain funds through collaborations or otherwise on terms that may require us to relinquish rights to our technologies or product
candidates that we might otherwise seek to develop or commercialize independently. If we are unable to raise adequate additional capital as and when required in the future, we could be forced to cease development activities and terminate our
operations, and you could experience a complete loss of your investment. Based on our planned operations, we expect that our current cash and cash equivalents will be sufficient to fund our operations for at least 12 months after the date our
most recent financial statements were issued without raising additional capital through equity and/or debt financing.
We expect to continue to make substantial investments in these trials and in additional clinical trials that are designed to provide clinical evidence of the safety and effectiveness of our
products. We also expect to continue to make investments in research and development, regulatory affairs and clinical trials to develop future products. If our product candidates are approved, we will need to make investments in our sales and
marketing organization. Because of these and other factors, we expect to continue to incur substantial net losses and negative cash flows from operations for the foreseeable future.
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Our future capital requirements will depend on many factors, including:
•
the cost, timing and results of our clinical trials and regulatory reviews;
•
the cost and timing of establishing sales, marketing and distribution capabilities;
•
the timing, receipt and amount of sales from our current and potential products;
•
our ability to continue manufacturing our products and product candidates and to secure the components, services and supplies needed in their production;
•
the degree of success we experience in commercializing our products;
•
the emergence of competing or complementary technologies;
•
the cost of preparing, filing, prosecuting, maintaining, defending and enforcing any patent claims and other intellectual property rights; and
•
the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions.
Cash Flows
Comparison of the Years Ended December 31, 2021 and 2020
The following table summarizes our cash flows for the years ended December 31:
Year Ended December 31,
2021
2020
Net cash used in operating activities
$
(7,930,785
)
(4,933,015
)
Net cash (used in) provided by investing activities
(306,868
)
968,319
Net cash provided by financing activities
29,698,456
871,648
Net change in cash and cash equivalents
$
21,460,803
(3,093,048
)
Operating activities
In 2021, cash used in operating activities was $7,930,785, attributable to a net loss of $7,537,845 and a net change in our net operating assets and liabilities of $732,716 and offset by net
non-cash charges of $339,776. Non-cash charges primarily consisted of $193,366 in stock-based compensation and $964,287 in depreciation and amortization offset by the PPP loan forgiveness of $821,515. The change in our net operating assets and
liabilities was primarily due to a decrease in accounts payable, accrued expenses, and lease liabilities totaling $1,146,822, offset by an increase in other assets of $475,993.
In 2020, cash used in operating activities was $4,933,015, attributable to a net loss of $6,914,992, and offset by a net change in our net operating assets and liabilities of $557,962 and
non-cash charges of $1,424,015. Non-cash charges primarily consisted of $318,640 in stock-based compensation and $1,100,764 in depreciation and amortization. The change in our net operating assets and liabilities was primarily due to an increase
in accounts payable, accrued expenses, and other liabilities totaling $931,170, offset by a decrease in lease liabilities of $445,733.
Investing activities
In 2021, cash used in investing activities for the purchase of equipment was $306,868.
In 2020, cash provided by investing activities was $968,319, attributable to maturities of short-term investments of $1,000,000 offset by the purchase of property and equipment of $8,352 and
payments of patents and other intangible assets of $23,329.
Financing activities
In 2021, cash provided by financing activities was $29,698,456, attributable to net proceeds from our IPO of $30,034,857, exercise of stock options totaling $126,546, offset by repayments on notes payable of
$442,086 and payments under lease obligations of $20,861.
In 2020, cash provided by financing activities was $871,648, consisting of the proceeds of the PPP note proceeds of $812,500, proceeds from the exercise of stock options of $153,200, offset by
deferred offering cost payments of $75,000 and payments under lease obligations of $19,052.
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Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined in the rules and regulations of the SEC.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally
accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are
based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.
While our significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following
discussion addresses our most critical accounting policies, which are those that are most important to our financial condition and results of operations and require our most difficult, subjective and complex judgments.
Revenue recognition
Our policy is to recognize revenue when a customer obtains control of the promised goods under Accounting Standards Codification 606— Revenue from Contracts
with Customers (Topic 606) , which we adopted effective January 1, 2018. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods, and we have elected to exclude
amounts collected from customers for all sales (and other similar) taxes from the transaction price. We do not have multiple performance obligations in our customer orders, so revenue is recognized upon shipment of our goods based upon
contractually stated pricing at standard payment terms ranging from 30 to 60 days. All revenue is recognized point in time and no revenue is recognized over time.
The majority of products sold directly to U.S. customers are shipped via common carrier, and the customer pays for shipping and handling and assumes control Free on Board (FOB) shipping point.
Products shipped to our international distributors are in accordance with their respective agreements; however, the shipping terms are generally EX-Works, reflecting that control is assumed by the distributor at the shipping point. Returns are
only accepted with prior authorization from the Company. Items to be returned must be in original unopened cartons and are subject to a 30% restocking fee. As of December 31, 2021, we have not had a history of significant returns.
Accrued expenses
We accrue expenses for estimated costs of R&D activities conducted by our third-party service providers, which include the conduct of preclinical studies and clinical trials. We record the
estimated costs of R&D activities based upon the estimated amount of services provided but not yet invoiced. These costs, at times, may be a significant component of the research and development expenses and the Company makes estimates in
determining the accrued expense each period. As actual costs become known, the Company adjusts its accrual. These accrued R&D costs are included in accrued expenses on the balance sheet and within R&D expense on the statement of
comprehensive loss.
Recent Accounting Pronouncements
See Notes 2(z) and 2(aa) to our financial statements in Part II, Item 8 for information related to recently issued accounting pronouncements.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Interest rate risk
Our cash and cash equivalents as of December 31, 2021 consisted of $24,783,029 in bank deposits and money market funds that presently earn very little interest. We believe such
interest-earning instruments carry a low degree of interest rate risk. The goals of our investment policy are liquidity and capital preservation; we do not enter into investments for trading or speculative purposes and have not used any
derivative financial instruments to manage our interest rate exposure. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short-term nature of our
cash and cash equivalents.
Foreign currency exchange risk
As we expand internationally, our results of operations and cash flows may become increasingly subject to fluctuations due to changes in foreign currency exchange rates. Our functional
currency is the U.S. dollar, and our revenue is denominated primarily in U.S. dollars. For the years ended December 31, 2021 and 2020, all our sales were in U.S. dollars. Our expenses are generally denominated in the currencies in which our
operations are located, which is primarily in the United States. A 10% change in exchange rates would not result in a material change in fair value of our cash and accounts receivable in 2021. As our operations in countries outside of the United
States grow, our results of operations and cash flows may be subject to fluctuations due to changes in foreign currency exchange rates, which could harm our business in the future. To date, we have not entered into any material foreign currency
hedging contracts, although we may do so in the future.
Emerging Growth Company Status
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the
enactment of the JOBS Act until such time as those standards apply to private companies. We have elected not to take advantage of such extended transition period, which means that we will adopt a new standard when a standard is issued or revised.
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Table of Contents
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