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Item 7. Management’s Discussion and Analysis

2024-03-28 compared with 2023-03-30 · 218 added, 217 removed, 156 unchanged (74% of the section changed)

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.

mission is to provide women with superior minimally-invasive, non-surgical product technologies, accessible in the office, improving patient care and overall health economics.

We are a woman-founded and led company with an expansive, internally

created intellectual property portfolio with over 150 patents globally, in-house chemistry, manufacturing, and controls (CMC) and device manufacturing capabilities and proven ability to develop and commercialize products.

Our suite of products

and product candidates address what we believe are multi-billion dollar global market segments in which there has been little advancement for many years, helping women avoid pharmaceutical solutions, implants and surgery that can be expensive and

expose women to harm.

With an initial focus in the area of reproductive health, our two lead product candidates offer solutions for two ends of the spectrum:

FemBloc for permanent birth control and FemaSeed as an artificial insemination

infertility treatment.

We are a leading biomedical company focused on addressing significant unmet needs of women worldwide with a broad portfolio of in-office,

accessible, and innovative therapeutic and diagnostic solutions, including a lead revolutionary product candidate and FDA-cleared products.

Our mission is to provide women with superior minimally-invasive, non-surgical product technologies,

accessible in the office, improving patient care and overall health economics focused on servicing the reproductive health needs for those seeking solutions for infertility issues (FemaSeed and FemVue) or permanent birth control (FemBloc).

a woman-founded and led company with an expansive, internally created intellectual property portfolio with 180 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.

FemaSeed – Our Artificial Insemination Solution .

Our FDA-cleared artificial insemination solution features single intratubal sperm delivery directed to the selected fallopian tube,

the natural site of conception, offering significant advantages over existing assisted reproductive approaches, including significant cost savings and reduction of safety risks.

Our first-line therapeutic infertility solution, FemaSeed, combines

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.

FemVue can be used with our FDA-cleared and

marketed FemCath device, which allows for selective evaluation of the fallopian tube.

At least one open fallopian tube is necessary for successful fertilization, and we believe FemVue offers significant advantages over other existing approaches,

including being able to provide ultrasound evaluation of a woman’s fallopian tubes as part of an existing diagnostic infertility assessment.

In April 2021 we received an IDE approval from the FDA that allowed us to initiate a pivotal trial for the

FemaSeed device.

The first subject was enrolled in July 2021.

In October 2022, we announced an updated study design for the pivotal trial to focus on couples experiencing male factor infertility, an underserved patient segment.

In April 2023 we

received approval to sell FemaSeed in Canada.

In September 2023 we announced 510(k) clearance from the FDA for FemaSeed for intratubal insemination.

The clinical trial was still ongoing at the time of receiving U.S.

regulatory clearance from FDA,

however, the study was concluded with enrollment completed in November 2023.

Topline results of the clinical trial were announced in March 2024.

The trial demonstrated that 24% of women became pregnant after FemaSeed with severe male factor (1

million to 20 million total motile sperm count (TMSC)).

In contrast, a 6.7% pregnancy rate by cycle was described in the literature for intrauterine insemination (IUI) with male factor (greater than 1 million TMSC).

Although permitted to have

multiple FemaSeed attempts, the majority of women who became pregnant did so after the first FemaSeed procedure.

The majority of adverse events were reported as mild (n=127 subjects, 216 cycles).

No new safety concerns were observed through the

seven-week follow-up.

All adverse events were consistent with those known for IUI.

The approved labeling includes women or couples wishing to become pregnant by way of intratubal insemination.

We began the first phase of commercial launch in March

2024 with the announcement of the first commercial use of FemaSeed.

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 allows for fallopian tube evaluation after a FemBloc procedure to confirm occlusion (or procedure success) and is being studied

as part of the FemBloc pivotal trial.

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 and Canada.

an alternative for the diagnosis of cervical cancer by obtaining a comprehensive tissue sample with minimal contamination of the endocervical canal, and is approved for sale in the U.S and Canada.

In August 2023 the Company announced it had

obtained a Medical Device Establishment License from Health Canada allowing the Company to directly sell its four products, FemaSeed, FemVue, FemCath and FemCerv, in Canada.

In October 2023, the Company announced it had completed the European

Union Medical Device Regulation (MDR) final audit, the last step in obtaining an MDR certificate and CE marking, demonstrating Femasys’ compliance with the highest required regulatory standards.

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.

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.

We have studied FemBloc in three clinical trials (a pilot safety study, a pivotal trial, and a validation study) pursuant to an FDA approved investigational device exemption (IDE) for each study with evaluation of

Our permanent birth control solution in late-stage clinical 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 tissue in-growth, resulting in

permanent birth control (sterilization) for the patient without a permanent implant.

FemBloc has the potential to offer significant advantages over the only existing option, surgical tubal ligation, or “having her tubes tied,” including a

significant cost savings at likely half the overall cost.

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 tissue in-growth develops.

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 final 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.

We have studied FemBloc in three prior clinical trials (a pilot safety study, a pivotal trial, and a validation study) pursuant to an FDA approved investigational device exemption (IDE) for each study with evaluation of

safety in a total of 228 subjects.

Subjects are being followed for five years for safety, and for the initial 49 subject pilot study, four years of follow-up have been completed.

Subjects are being followed for five years for safety, and for the initial 49 subject pilot study, five 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 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.

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 FemBloc procedure or within seven days after the procedure.

The reported events were anticipated and the

majority 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 satisfied or very satisfied with the procedure and 96% 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 4.6 and for the confirmation test was 3.3,

on visual analog scale (VAS) from 0-10 where 10 is the highest measure of pain/ discomfort.

During the conduct of the first 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).

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 4.6 and for the

confirmation test was 3.3, on visual analog scale (VAS) from 0-10 where 10 is the highest measure of pain/ discomfort.

During the conduct of the first 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.

The study enrollment concluded in September 2022, in which 45 subjects at five U.S.

sites received two confirmation tests (ultrasound and traditional

Subjects were informed to rely on FemBloc only if both tests confirm procedure success.

There were no pregnancies in subjects told to rely on FemBloc.

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 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.

FemVue can be used with our FDA-cleared and marketed FemCath device, which allows for selective evaluation of the fallopian tube.

Fallopian tube patency is necessary for

successful fertilization, and we believe FemVue offers significant advantages over other existing procedures, including being able to provide ultrasound evaluation of a woman’s fallopian tubes as part of a diagnostic infertility assessment.

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.

The FemaSeed pivotal trial began in July 2021, pursuant to an FDA-approved IDE received in April 2021, at multiple U.S.

In October 2022, we announced an updated study design for the pivotal trial, which will now focus on couples

experiencing male factor infertility.

This update reflects a revised strategy to address this underserved population experiencing infertility with a goal of facilitating accelerated enrollment.

Completion of enrollment is expected in the second

quarter 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, Canada, and Japan.

Our FemCath product, currently has marketing clearance in the United States.

Extenuating circumstances at clinical trial sites may result in a slowdown in enrollment due to consolidation activities and the aftermath of the

overturn of Roe v Wade.

It has been reported that there have been over 25 transactions since the start of 2021 in the infertility market, which is rapidly evolving into large commercial entities.

This rapidly changing market dynamics may be

disruptive to the practice and affect the conduct of clinical studies as integration occurs.

The American Society of Reproductive Medicine (ASRM) issued a statement March 17, 2023 on the abortion policy proposals affecting reproductive

ASRM stated, “At the crux of the issue many of the proposals to ban or otherwise limit access to abortion care fail to protect the use of assisted reproductive technologies, including IVF, and so-called “personhood” measures

(defining life as beginning at conception or fertilization) are multiplying across the nation, causing alarm bells to sound for medical practitioners and infertility patients alike.

Such proposals could, intentionally or not, limit and even ban

the use of IVF and routine, safe, and medically proven procedures, such as the removal of an embryo that fails to implant in a uterus, or the disposal of unused embryos.” This uncertainty may affect subject enrollment in clinical studies being

conducted at facilities providing infertility services.

The 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.

The study enrollment concluded in September 2022, in which 45

subjects at five U.S.

sites received two confirmation tests (ultrasound and traditional radiology).

Subjects were informed to rely on FemBloc only if both tests and two independent central readers confirmed procedure success.

There have been no

pregnancies in subjects accurately told to rely on FemBloc.

In June 2023 we received FDA approval of our IDE to evaluate the safety and efficacy of FemBloc, our non-surgical, non-implant, in-office solution for permanent birth control in a

pivotal clinical trial.

In August 2023 we announced the initiation of enrollment in the FINALE [Prospective Multi-Center Trial for FemBloc INtratubal Occlusion for TranscervicAL PErmanent Birth Control] pivotal trial.

This prospective,

multi-center, open-label, single-arm study design includes pregnancy rate as the primary endpoint, which will be analyzed once 401 women have used FemBloc for one year for permanent birth control.

In addition, the study is designed as a roll-in

beginning with enrollment of 50 women for a clinical readout primarily of preliminary safety data prior to enrolling the remaining subjects.

An interim analysis of clinical data endpoints is planned once 300 women have used FemBloc for permanent

birth control for one year.

Follow-up will continue annually for five years post-market.

Additional Women’s Health Solutions .

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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.

There were no adverse

events reported.

We began commercializing the FemCerv product in September 2022.

Our FDA-cleared and Health Canada approved 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

Our FemCerv product was introduced through a limited release in September 2022.

Our FemEMB product candidate in development is designed to obtain a comprehensive and uncontaminated sample of the endometrial cells and tissue in an office

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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

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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 after effects 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.

We must successfully recruit and enroll clinical trial participants in our

clinical trial for FemBloc, which is further complicated by the after effects 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

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.

For our sales to grow, we will need to receive FDA approval for the FemBloc system for permanent birth control, 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.

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.

Commercialization and market acceptance .

The success of our business will ultimately depend on our ability to commercialize our approved products and

gain broad market acceptance of our products, which will require an extensive education process for both physicians and patients of the benefits of our products, engagement of a robust sales force infrastructure and increased manufacturing

Competition .

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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

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

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

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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.

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

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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, 2022 and 2021 Bayer Yakuhin,

For the years ended December 31, 2023 and 2022, Bayer Yakuhin, Ltd.

accounted for approximately 5% and 10%, respectively, of our total revenue.

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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.

expect cost of sales to increase in absolute terms as our revenue grows.

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.

cost of sales to increase in absolute terms as our revenue grows.

Research and development

Research and development, or R&D, expense consist of engineering, product development, clinical, and regulatory expenses.

Research and development, or R&D, expenses 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;

CROs, and site payments;

certain personnel-related expenses, including salaries, benefits and stock-based compensation;

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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

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.

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Sales and marketing

Sales and marketing expense consist of personnel-related expenses, including salaries, benefits, and stock-based compensation.

Sales and marketing expenses consist of personnel-related expenses, including compensation, benefits, and stock-based compensation.

Other sales and marketing expenses include marketing and promotional activities,

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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.

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.

General and administrative expenses consist of personnel-related expenses, including compensation, 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.

fees, including legal, audit and tax fees, insurance costs, cost of outside consultants and employee recruitment and training costs.

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.

Depreciation and amortization expenses 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.

Other income (expense) consists largely of interest earned on our cash equivalents and short-term investments, offset by interest expense and other expenses.

Income tax expense

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Year Ended December 31,

Cost of sales

Cost of sales (excluding depreciation expense)

Operating expenses:

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Other income (expense):

Interest income, net

Interest income

Interest expense

Other expense

Total other income (expense)

Other income (expense), net

Loss before income taxes

Income tax expense

Sales increased by $26,529, or 2.2%, to $1,206,218 in 2022 from $1,179,689 in 2021.

The increase was attributable to a $84,747 increase in U.S.

sales and a $58,218 decrease in international sales.

increased by 8.4% in 2022 as compared to 2021 and were $1,090,359 in 2022 as compared to $1,005,612 in 2021, representing a 45.1% increase in units sold but were offset by a reduction in the average selling price.

International sales decreased by

33.4% in 2022 compared to 2021 and were $115,859 in 2022 as compared to $174,077 in 2021, representing a 33.4% decrease in units sold with the average selling price remaining the same.

Cost of sales and gross margin percentage

Cost of sales increased by $71,554, or 19.3%, to $441,938 in 2022 from $370,384 in 2021.

The increase in cost of sales was mainly due an increase in material costs, production personnel labor and overhead costs

applied to our cost of sales compared to the same period last year.

As a result, gross margin percentage was 63.4% in 2022 as compared to 68.6% in 2021.

We expect to see improvement in our gross margin in the future as we are investing in

equipment and tooling which will enable us to reduce labor in certain manufacturing processes and reduce material costs as well.

Sales from FemVue decreased by $134,248 or 11.1%, to $1,071,970 in 2023 from $1,206,218 in 2022.

The decrease is attributable to reduced U.S.

and international sales of $76,434 and $57,814, respectively for the comparable

sales decreased by 7.0% in 2023 as compared to 2022, represented by a 9.0% decrease in units sold, offset by a slightly increased average selling price.

International sales decreased by 49.9% in 2023 compared to 2022, represented by a

50.1% decrease in units sold, offset by a 0.4% increase in the average selling price.

Cost of sales

Cost of sales decreased by $61,869, or 14.0%, to $380,069 in 2023 from $441,938 in 2022.

The decrease in cost of sales is primarily attributed to reduced sales and certain manufacturing efficiencies.

Research and development

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R&D expenses increased by $1,394,946 or 24.0%, to $7,208,701 in 2023 from $5,813,755 in 2022.

The net increase of $1,729,451 was primarily due to the increase of $551,445 in compensation and related personnel

costs primarily in salaries, fringe benefits and share-based compensation expense due to an increase in headcount, an increase of $957,505 in clinical-related costs, an increase of $184,581 in professional and outside consultant costs, and an

increase of $75,074 in other costs all to mainly support our clinical trials.

The increase of $1,394,946 is primarily due to increased compensation costs, material and development costs, and

professional and outside consultant costs, partially offset by reduced clinical-related costs and other costs.

Sales and marketing

Sales and marketing expenses increased by $91,274 or 16.3%, to $650,126 in 2023 from $558,852 in 2022.

The net increase was primarily due to an increase in compensation and related personnel costs due to the

increase in headcount in 2022 and an increase in sales in marketing costs primarily to promote our FemVue product.

The net increase relates primarily to marketing and travel costs to promote our commercial products.

General and administrative

General and administrative expenses increased by $1,427,304, or 26.3%, to $6,858,008 in 2023 from $5,430,704 in 2022.

The increase was largely due various additional costs associated with being a public company

including an increase in compensation and related personnel costs, an increase in facility and other overhead costs mainly for additional directors & officers insurance, and an increase in professional costs.

The increase relates primarily to increased compensation costs, share-based compensation expense and

professional costs, partially offset by decreased facility and other overhead costs.

Depreciation and amortization

Depreciation and amortization expenses decreased by $29,835, or 5.0%, to $561,233 in 2022 from $591,068 in 2021 primarily due to reduction of amortization expense associated with the Company’s intangible assets.

Depreciation and amortization expenses decreased by $77,752, or 13.9%, to $483,481 in 2023 from $561,233 in 2022.

The decrease relates to depreciation expense associated with the Company’s fixed assets and amortization

expense associated with the Company’s intangible assets that have reached the end of their useful lives.

Other income (expense)

Total other income (expense) decreased by $590,565, or 73.5%, to $212,394 in 2022 from $802,959 in 2021, the decrease is largely from the $821,515 in other income recognized due to the SBA approval of our PPP loan

forgiveness in 2021, offset by an increase of $224,396, or 5955.3% in interest income, net.

Total other income (expense) increased by $53,235, or 25.1%, to $265,629 in 2023 from $212,394 in 2022.

The increase relates to interest income, partially offset by interest expense and non-cash discount amortization

related to the convertible notes payable.

Income tax expense

Income tax expense increased by $2,300 or 57.5%, to $6,300 in 2022 from $4,000 in 2021 due to an increase in our minimum net worth taxes we are required to pay.

Income tax expense decreased by $1,962 or 31.1%, to $4,338 in 2023 from $6,300 in 2022 due to a decrease in the minimum net worth taxes we are required to pay.

Liquidity and Capital Resources

Sources of liquidity

Since our inception through December 31, 2022, our operations have been financed primarily by net proceeds from the sale of our common stock and convertible preferred stock, indebtedness and, to a lesser extent,

product revenue.

Since our inception through December 31, 2023, our operations have been financed primarily by net proceeds from the sale of our common stock and convertible preferred stock, indebtedness and, to a lesser extent, product

As of December 31, 2023, we had $21,716,077 of cash and cash equivalents and an accumulated deficit of $108,381,629.

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.

On July 1, 2022, we entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Piper Sandler & Co.

(“Piper Sandler” or the “Sales Agent”) and filed a related Prospectus establishing an “at-the-market”

facility, pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $8,800,000 from time to time through the Sales Agent pursuant to the Prospectus.

As of December 31, 2022, 51,251 shares of

our common stock had been sold under the Equity Distribution Agreement.

On March 10, 2023, Silicon Valley Bank (SVB), at which we maintained cash and cash equivalents in multiple accounts, was closed by the California Department of Financial Protection and Innovation, which appointed

the Federal Deposit Insurance Corporation (FDIC) as receiver.

The failure of SVB exposed us to liquidity and credit risk prior to the completion of the FDIC resolution of SVB in a manner that fully protects all depositors.

We did not experience

any losses with respect to our funds that had been deposited with SVB.

In July 2022, we entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Piper Sandler & Co.

(“Piper Sandler” or the “Sales Agent”) and filed a related prospectus establishing an

“at-the-market” facility, pursuant to which we may offer and sell shares of our common stock from time to time through the Sales Agent.

In October 2023, the Sales Agent was authorized to sell shares of common stock for an aggregate offering price

up to $16.7 million pursuant to the prospectus.

As of December 31, 2023, approximately 3.3 million shares of common stock have been sold for aggregate proceeds of $7.7 million under the Equity Distribution Agreement pursuant to the prospectus.

In April 2023, we sold an aggregate of (i) 1,318,000 shares of common stock and (ii) pre-funded warrants to purchase up to 1,878,722 shares of common stock in a registered direct offering and, in a concurrent private

placement, warrants to purchase up to 3,196,722 shares of common stock.

Additionally, common warrants were issued to the placement agent in this transaction to purchase up to 191,803 shares of common stock as compensation for services, collectively

the (“April 2023 Financing”).

The purchase price per share for the common stock, prefunded warrants was $1.22 and $1.2199, respectively.

The net proceeds from the April 2023 Financing at closing were approximately $3.4 million.

The warrants in the

April 2023 Financing were fully exercised for cash for additional proceeds of $3.5 million.

In November 2023, we entered into a securities purchase agreement with certain accredited investors pursuant to which we sold (i) senior unsecured convertible notes in an aggregate principal amount of $6,850,000,

convertible into shares of common stock at a conversion price of $1.18 per share, (ii) Series A Warrants to purchase up to an aggregate of 5,805,083 shares of common stock at an exercise price of $1.18 per share, and (iii) Series B Warrants to

purchase up to an aggregate of 5,805,083 shares of common stock at an exercise price of $1.475 per share (collectively, the “November 2023 Financing”).

Net proceeds from the November 2023 Financing were $6.3 million.

If exercised for cash, the

warrants issued in the November 2023 Financing could result in proceeds of up to an additional $15.4 million.

Funding requirements

Based on our current operating plan, our current cash and cash equivalents are expected to be sufficient to fund our ongoing operations into the first

quarter of 2024.

Our estimate as to how long we expect our existing cash and cash equivalents to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources

sooner than we currently expect.

Changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate.

We do not expect liquidity to be sufficient for twelve months from the date of these financial statements.

As a result of our current limited financial liquidity, we have concluded that substantial doubt exists about our

ability to continue as a going concern.

Based on our current operating plan, our current cash and cash equivalents are expected to be sufficient to fund our ongoing operations into the second half of 2025.

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.

Our cash and cash equivalents as of December 31, 2023 will not be sufficient to fund all of our product candidates through regulatory approval, and we anticipate needing to raise additional capital to complete the

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We expect to continue to make substantial investments in our ongoing trials and in additional clinical trials that are designed to provide clinical evidence of the safety and effectiveness of our products.

expect to continue to make investments in research and development, manufacturing, 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.

We also expect

to continue to make investments in research and development, manufacturing, 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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Net cash used in investing activities

Net cash (used in) provided by financing activities

Net cash provided by (used in) financing activities

Net change in cash and cash equivalents

Operating activities

In 2022, cash used in operating activities was $10,731,973, attributable to a net loss of $11,394,170 and a net change in our net operating assets and liabilities of $458,267 and offset by net non-cash charges of

In 2023, cash used in operating activities was $11,280,546, attributable to a net loss of $14,247,124, offset by non-cash charges of $1,745,072 and a net change in our net operating assets and liabilities of $1,221,506.

Non-cash charges primarily consisted of $675,700 in stock-based compensation, $907,985 in depreciation and amortization and $107,963 in amortization of the discount on the convertible notes.

The change in our net operating assets and liabilities

was primarily due to an increase of $1,614,647 in accounts payable and accrued liabilities, partially offset by and a decrease of $440,489 in lease liabilities.

In 2022, cash used in operating activities was $10,731,973, attributable to a net loss of $11,394,170 and a net change in our net operating assets and liabilities of $458,267, offset by non-cash charges of $1,120,464.

Non-cash charges primarily consisted of $224,939 in stock-based compensation and $889,140 in depreciation and amortization.

The change in our net operating assets and liabilities was primarily due to an increase of $232,553 in

inventory and a decrease of $383,616 in lease liabilities, offset by a change in other assets of $295,862.

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

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.

The change in our net operating assets and liabilities was primarily due to an increase of $232,553 in inventory and a

decrease of $383,616 in lease liabilities, offset by a change in prepaid and other assets of $295,862.

Investing activities

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Financing activities

In 2022, cash used in financing activities was $681,645, attributable to payments of deferred offering costs of $232,845, repayments on notes payable of $505,205, payments under lease obligations of $23,058, and

In 2023, cash provided by financing activities was $20,178,604, attributable primarily to cash provided by proceeds from the issuance of stock and subsequent warrant exercises of $7,587,977, sales under the at-the-market

facility of $7,665,066, and the issuance of convertible notes for $6,850,000.

Cash used in financing activities included payments of offering costs of $1,072,908, repayments on notes payable of $610,340, issuance costs for the at-the-market

facility of $229,953 and payments under lease obligations of $16,193.

In 2022, cash used in financing activities was $681,645, attributable to payments of deferred offering costs of $232,845, repayments on notes payable of $505,205 and payments under lease obligations of $23,058, partially

offset by proceeds from issuance of common stock of $79,463.

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.

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

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S.

generally accepted accounting

principles, or GAAP.

generally accepted accounting principles, or

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

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.

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.

results may differ from these estimates under different assumptions or conditions and any such differences may be material.

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

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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.

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.

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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;

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.

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.

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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.

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.

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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.

See Notes 2(ab) and 2(ac) to our financial statements in Part II, Item 8 for information related to recently issued accounting pronouncements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis