Femasys Inc: Form 10-Q for the period ended Jun 30, 2026

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission, or the SEC, on June 30, 2026. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “goal,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential” and similar expressions intended to identify forward-looking statements and reflect our beliefs and opinions on the relevant subject. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. These statements are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

Overview

We are a leading biomedical innovator, addressing significant unmet needs in women’s health worldwide, with a broad patent-protected portfolio of disruptive, accessible, in-office therapeutic and diagnostic products. The Company is a U.S. manufacturer that has received global regulatory approvals for its product portfolio, which is currently being commercialized in the U.S. and key international markets. FemaSeed® Intratubal Insemination, a groundbreaking first-step infertility treatment delivering sperm directly to the site of conception, is U.S. FDA-cleared and approved in Europe, United Kingdom (“UK”), Canada, Israel, Australia and New Zealand. A peer-reviewed publication of positive data from its pivotal clinical trial of FemaSeed demonstrated effectiveness and safety with high satisfaction from both patients and practitioners. FemSperm®, which includes setup, preparation and analysis kits designed to expand our infertility portfolio and, for the first time, enable gynecologists to perform in-office sperm preparation and analysis for use with FemaSeed. FemVue®, a companion diagnostic for fallopian tube assessment via ultrasound, is U.S. FDA-cleared and approved in Europe, UK, Canada, Japan, Israel, Australia and New Zealand. FemHSG™ Catheter, used with FemVue for in-office ultrasound-based evaluation is CE mark approved in Europe. FemVue Controlled is a U.S. FDA-cleared diagnostic device and is the next-generation design integrating features of FemVue and FemChec® technologies into a single platform, enabling multiple clinical uses within one solution, including confirmation of tubal patency prior to use with FemaSeed. FemCerv®, an endocervical tissue sampler for cervical cancer diagnosis, is U.S. FDA-cleared and approved in Europe, UK, Canada, Israel and New Zealand.

FemBloc® permanent birth control is a revolutionary first-in-class non-surgical solution which involves minimally-invasive placement of a patented delivery system for precise delivery of our proprietary synthetic tissue adhesive (blended polymer) into both fallopian tubes simultaneously. Over time, the blended polymer fully degrades and produces nonfunctional scar tissue to permanently block the fallopian tubes in a safe and natural approach. This is in stark contrast to centuries-old surgical sterilization with reported risks that include infection, minor or major bleeding, injury to nearby organs, anesthesia-related events, and even death. Along with the various surgical risks, some patients may not qualify as good surgical candidates due to obesity or medical comorbidities. The FemBloc non-surgical approach has the potential to offer a safe and effective, more accessible in-office alternative with fewer risks, contraindications, and substantially lower cost than the surgical alternative. A peer-reviewed publication of positive data from its initial clinical trials of FemBloc has demonstrated compelling effectiveness and five-year safety with high satisfaction from both patients and practitioners. In March 2025, we announced Conformité Européenne (“CE”) mark certification under European Union (“EU”) Medical Device Regulation (“MDR”) as the first regulatory approval in the world for the FemBloc delivery system for non-surgical female permanent birth control and in June 2025, we announced CE mark certification under EU MDR for the class III blended polymer component, achieving approval for the entire FemBloc system in the EU. In August and September 2025, we announced UK and New Zealand regulatory approvals, respectively, for FemBloc. In March and September 2025, we announced strategic distribution partnerships for FemBloc in Spain and the France/Benelux region, respectively. We received FDA approval in November 2025 of our investigational device exemption (“IDE”) supplement to move forward to the final phase of the pivotal clinical trial (clinicaltrials.gov: NCT05977751) for U.S. approval. In March 2026, we announced the initiation of enrollment in this final phase. FemChec, a companion diagnostic product for FemBloc’s ultrasound-based confirmation test, is U.S. FDA-cleared and approved in Europe, UK, Canada, Israel, Australia and New Zealand.

We are a woman-founded and led company with an expansive, internally created intellectual property portfolio with approximately 228 issued patents globally, in-house chemistry, manufacturing, and controls (CMC) and device manufacturing capabilities and proven ability to develop products with commercialization efforts underway. Our suite of products and U.S. product candidate 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.

Corporate Update

On April 1, 2026, we announced the appointment of John Canning as Chief Operating Officer, who will drive operational execution and support commercial growth.

On April 16, 2026, we announced a strategic partnership with AMI Technologies to introduce and commercialize its fertility portfolio in Israel.

On April 22, 2026, we announced the commercial launch of FemaSeed Complete, a comprehensive fertility solution that enables OB/GYNs to perform first-line insemination entirely within their own practices.

On May 5, 2026, we announced enabling OB/GYNs to deliver first-line fertility treatment with initial commercial use of FemaSeed Complete.

On May 13, 2026, we announced CE Mark approval for FemHSGTM Catheter, to complement FemVue and support streamlined in-office fertility evaluation.

On June 24, 2026, we announced that we regained compliance with Nasdaq Listing Requirements.

On August 7, 2026, we announced a $30 million private placement.

On August 12, 2026, we announced the issuance of patents in the U.S. and key international markets that expand intellectual property protection for the blended polymer component of FemBloc, the Company’s non-surgical permanent birth control technology.

Reverse Stock Split

On June 5, 2026, the Company filed an amendment to its Eleventh Amended and Restated Certificate of Incorporation (the “Amendment”) with the Secretary of State of the State of Delaware to effect a reverse stock split of the Company’s common stock, par value $0.001 per share, at a ratio of 1-for-20 (the “Reverse Stock Split”). The Reverse Stock Split did not change the authorized number of shares of the Company’s common stock. The Amendment was authorized by the stockholders of the Company at the Company’s special meeting of stockholders held on April 29, 2026.

Pursuant to the Amendment, on June 5, 2026, every 20 shares of common stock were automatically converted into one share of common stock, without any change in par value per share. No fractional shares were issued and any fractional shares resulting from the Reverse Stock Split were rounded up to the nearest whole share at the Depository Trust Company (DTC) participant level.

The Reverse Stock Split applied to the Company’s outstanding warrants, stock options and restricted stock units. The number of shares of common stock into which these outstanding securities are convertible or exercisable was adjusted proportionately as a result of the Reverse Stock Split. The exercise prices of any outstanding warrants or stock options were also proportionately adjusted in accordance with the terms of those securities and the Company’s equity incentive plans. The common stock reserved for future issuance under the Company’s 2021 Equity Incentive Plan has been proportionally adjusted. Unless otherwise indicated, all references in these financial statements to common stock, share data, per share data and underlying stock options, warrants, and restricted stock units have been retroactively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.

The Reverse Stock Split became effective at 8:40 a.m. Eastern Time on June 5, 2026, and the Company’s common stock began trading on a split-adjusted basis at the opening of trading on June 8, 2026. All shares of common stock, including common stock underlying warrants, stock options and restricted stock units, as well as all conversion ratios, exercise prices, conversion prices and per share information in the condensed financial statements have been retroactively adjusted to reflect the 1-for-20 Reverse Stock Split, as if the split occurred at the beginning of the earliest period presented in this Quarterly Report on Form 10-Q.

Results of Operations

Comparison of the Three Months Ended June 30, 2026 and 2025

The following table shows our results of operations for the three months ended June 30, 2026 and 2025:

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Sales

Sales decreased by $77,441, or 18.9%, to $331,827 for the three months ended June 30, 2026 from $409,268 for the three months ended June 30, 2025, primarily attributable to lower international sales of FemVue.

Cost of sales

Cost of sales decreased by $15,735 or 9.9%, to $142,436 for the three months ended June 30, 2026 from $158,171 for the three months ended June 30, 2025, and is primarily attributed to decreased sales.

Research and development

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

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R&D expenses increased by $532,449 or 37.6%, to $1,946,878 for the three months ended June 30, 2026 from $1,414,429 for the three months ended June 30, 2025. The increase primarily reflects the transition of development products into inventory to support commercialization during 2025, and increased clinical costs, partially offset by reduced compensation costs.

Sales and marketing

Sales and marketing expenses increased by $309,021 or 31.4%, to $1,293,998 for the three months ended June 30, 2026 from $984,977 for the three months ended June 30, 2025. The increase resulted primarily from higher compensation costs and travel expenses.

General and administrative

General and administrative expenses increased by $314,606, or 19.5%, to $1,931,578 for the three months ended June 30, 2026 from $1,616,972 for the three months ended June 30, 2025. The increase resulted primarily from increased professional fees, compensation costs and facility costs.

Depreciation and amortization

Depreciation and amortization expenses decreased by $3,474, or 4.0%, to $82,811 for the three months ended June 30, 2026 from $86,285 for the three months ended June 30, 2025. The decrease resulted from certain fixed assets reaching the end of their useful lives and no longer depreciating.

Other income (expense), net

Other income (expense), net increased by $1,332,000 or 181.4%, to $597,644 of income for the three months ended June 30, 2026 from $734,356 of expense for the three months ended June 30, 2025. The increase resulted from the change in fair value on the Conversion Option liability and Warrants liabilities, interest income earned on our cash and cash equivalents, reduced non-cash interest expense related to amortization for our convertible notes and debt issuance costs incurred in 2025. Refer to the table below for further details.

Income tax expense

Income tax expense increased by $865 or 100%, to $865 for the three months ended June 30, 2026 from $0 for the three months ended June 30, 2025 due to an estimation of higher income tax expense in the second quarter of 2026 as compared to 2025.

Results of Operations

Comparison of the Six Months Ended June 30, 2026 and 2025

The following table shows our results of operations for the six months ended June 30, 2026 and 2025:

Sales

Sales increased by $6,184, or 0.8%, to $756,716 for the six months ended June 30, 2026 from $750,532 for the six months ended June 30, 2025, primarily due to sales of FemaSeed.

Cost of sales

Cost of sales increased by $25,605 or 9.3%, to $301,042 for the six months ended June 30, 2026 from $275,437 for the six months ended June 30, 2025, and is primarily attributed to increased sales.

Research and development

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

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R&D expenses decreased by $1,126,622 or 25.7%, to $3,256,279 for the six months ended June 30, 2026 from $4,382,901 for the six months ended June 30, 2025. The decrease primarily reflects lower compensation costs, regulatory and professional service fees.

Sales and marketing

Sales and marketing expenses increased by 716,209 or 37.8%, to $2,609,753 for the six months ended June 30, 2026 from $1,893,544 for the six months ended June 30, 2025. The increase resulted primarily from higher compensation costs, travel expenses and professional fees.

General and administrative

General and administrative expenses increased by $374,283, or 11.2%, to $3,713,968 for the six months ended June 30, 2026 from $3,339,685 for the six months ended June 30, 2025. The increase resulted primarily from increased professional fees and facility costs.

Depreciation and amortization

Depreciation and amortization expenses decreased by $6,057, or 3.5%, to $165,081 for the six months ended June 30, 2026 from $171,138 for the six months ended June 30, 2025. The decrease resulted from certain fixed assets reaching the end of their useful lives and no longer depreciating.

Other income (expense), net

Other income (expense), net increased by $6,842,053 or 582.4%, to $5,667,277 of income for the six months ended June 30, 2026 from $1,174,776 of expense for the six months ended June 30, 2025. The increase resulted from the change in fair value on the Conversion Option liability and Warrants liabilities, interest income earned on our cash and cash equivalents, reduced non-cash interest expense related to amortization for our convertible notes and debt issuance costs incurred in 2025. Refer to the table below for further details.

Income tax expense (benefit)

Income tax expense (benefit) decreased by $5,053 or 120.7%, to $865 in expense for the six months ended June 30, 2026 from a $4,188 benefit for the six months ended June 30, 2025 due to an estimation of higher income tax expense in 2026 compared to 2025.

Liquidity and Capital Resources

Sources of liquidity

Since our inception through June 30, 2026, 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 June 30, 2026, we had $1,443,502 of cash and cash equivalents and an accumulated deficit of $149,449,139.

In July 2022, we entered into an Equity Distribution Agreement with Piper Sandler & Co. (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 December 2025, we filed a new prospectus pursuant to which we may sell up to $9.8 million under the Equity Distribution Agreement. As of June 30, 2026, 31,195 shares of common stock had been sold for aggregate proceeds of approximately $353,000 under the Equity Distribution Agreement pursuant to the prospectus. As of June 30, 2026, the amount we were authorized to sell was subject to baby-shelf limitations. As of June 30, 2026, the available amount pursuant to the prospectus was approximately $9.4 million.

In June 2025, we sold 180,000 shares of common stock in an underwritten public offering at $17.00 per share. Separately and concurrently, we sold 84,314 shares of common stock in a private placement at a price of $17.00 per share to certain existing institutional stockholders and a price of $20.40 per share to certain directors and officers. Net proceeds from the transaction were $3,705,061.

On June 30, 2025, we entered into an Any Market Purchase Agreement (“Purchase Agreement” or “AMPA”) with Alumni Capital LP (“Alumni”) whereby we have the right, but not the obligation, to sell to Alumni up to an aggregate of $10 million in shares of common stock in a series of purchases until December 31, 2026. We may elect that Alumni purchase up to $1 million in shares of common stock (or up to $5 million if mutually agreed) at either (i) the lowest traded price for the four previous business days, multiplied by 90%, or (ii) up to the lesser of (a) $1 million in shares of common stock, or (b) 100% of the average daily trading volume of common stock for the previous two business days at the lowest daily dollar volume-weighted average price, multiplied by 97%. We are limited to issuances to Alumni of 19.99% of the shares of common stock outstanding immediately prior to the execution of the Purchase Agreement.

In August 2025, we sold an aggregate of (i) 521,731 shares of common stock in a public offering and to certain Company officers (ii) pre-funded warrants to purchase up to 587,500 shares of common stock and (iii) common warrants to purchase up to 1,109,237 shares of common stock. Additionally, common warrants to purchase 22,185 shares of common stock were issued to the underwriter as compensation for services performed. The purchase price per share for the common stock was $7.20, except for shares sold to certain company officers, which was $10.31 per share. The purchase price per share for the pre-funded warrants was $7.20. The net proceeds from the August 2025 Financing at closing were approximately $7.1 million. As of June 30, 2026, 250,000 pre-funded warrants and 460,959 common warrants were exercised for approximately $3.3 million.

In November 2025, we entered into a definitive agreement for the issuance of (i) senior secured convertible notes in an aggregate principal amount of $12,000,000, convertible into 818,544 shares of common stock at a conversion price of $14.66 per share, (ii) Series A-1 Warrants to purchase up to an aggregate of 818,937 shares of common stock at an exercise price of $16.20 per share, subject to adjustments (iii) Series B-1 Warrants to purchase an aggregate of 818,937 shares of common stock at an exercise price of $18.40 per share, subject to adjustments, and (iv) Series C-1 Warrants to purchase an aggregate of 818,937 shares of common stock at an exercise price of $22.00 per share, subject to adjustments, if all warrants are exercised for cash. In March 2026, we modified the November 2025 agreement to remove the non-standard adjustment to the conversion price of the notes and exercise prices of the Series A-1 Warrants, Series B-1 Warrants and Series C-1 Warrants, respectively, upon a Share Combination Event. As consideration for this modification, the Company issued the holders of the 2025 Notes and related Warrants new Series D-1 Warrants which allow the holders to purchase an aggregate number of 818,937 shares of the Company’s common stock at an exercise price of $11.60 per share. The financing resulted in aggregate gross proceeds of $12,000,000, with total potential funding of approximately $68 million, including the D-1 Warrants. In April 2026, shareholders approved the issuance of shares of common stock issuable upon conversion of the 2025 Notes and exercise of Series A-1, B-1, C-1, and D-1 Warrants, including any issuances to directors and officers of the Company who are holders of these instruments, in excess of 19.99% of the issued and outstanding shares of common stock of the Company (to the extent that anti-dilution or price adjustment provisions in the instruments result in an effective conversion or exercise price below the Nasdaq Minimum Price).

In August 2026, we completed a private placement resulting in gross proceeds of $30.0 million. Pursuant to the agreement, we issued an aggregate of 9,374,999 shares of common stock and pre-funded warrants to purchase shares of common stock, together with accompanying warrants to purchase an aggregate of 18,749,998 shares of common stock. The purchase price was $3.20 per share of common stock (or $3.1999 per pre-funded warrant), and the accompanying warrants have an exercise price of $2.95 per share. The accompanying warrants consist of warrants exercisable for an aggregate of 9,374,999 shares of common stock and milestone warrants exercisable for an aggregate of 9,374,999 shares of common stock, subject to certain vesting and exercisability conditions. If all accompanying warrants are exercised for cash, then we could receive up to an additional $60.0 million in gross proceeds.

Funding requirements

Based on our current operating plan, our current cash and cash equivalents, proceeds from our recently completed private placement of $30 million, and anticipated revenues from product sales are expected to be sufficient to fund our ongoing operations for at least twelve months. Our convertible notes contain restrictions that limit our ability to issue securities without complying with certain participation rights. 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. If we are unable to obtain additional financing when needed, we may need to terminate, significantly modify, or delay the development of our U.S. product candidate, or we may need to obtain funds through collaborations or otherwise on terms that may require us to relinquish rights to our technologies or our U.S. product candidate 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 and commercialization activities and terminate our operations, and you could experience a complete loss of your investment.

We expect to continue to make substantial investments in our ongoing commercialization of our products and the pivotal trial that is designed to provide clinical evidence of the safety and effectiveness of our U.S. product candidate, FemBloc. We also expect to continue to make investments in research and development to develop future products, manufacturing, regulatory affairs and post-market clinical trials. We will additionally need to make investments in our sales and marketing organization for FemaSeed and FemBloc. 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.

Our future capital requirements will depend on many factors, including:

the cost, timing and results of our clinical trial and U.S. 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 U.S. product candidate 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 Six Months Ended June 30, 2026 and 2025

The following table summarizes our cash flows for the six months ended June 30, 2026 and 2025:

Operating activities

For the six months ended June 30, 2026, cash used in operating activities was $8,079,197, attributable to net loss of $3,622,995, net non-cash gains of $4,837,472 and a net change in our net operating assets and liabilities of $381,270. Non-cash activity primarily consisted of a change in fair value of the Conversion Option liability and warrants liabilities of $1,732,413 and $4,228,000, respectively, $362,657 of amortization of the discount on convertible notes, $362,428 in share-based compensation, $232,775 in right-of-use asset amortization and $165,081 in depreciation and amortization. The change in our net operating assets and liabilities was primarily due to increases in accounts payable of $499,250, decreases in accounts receivable of $465,551 and prepaid and other assets of $308,488, offset by an increase in inventory of $451,028 and decreases in lease liabilities of $249,081 and accrued expenses of $184,220. We intend to meet future operating cash requirements through increased sales of commercial products and fundraising, as discussed in Funding requirements.

For the six months ended June 30, 2025, cash used in operating activities was $9,117,950, attributable to a net loss of $10,482,761 and a net change in our net operating assets and liabilities of $416,139, partially offset by non-cash charges of $1,780,950. Non-cash charges primarily consisted of $746,612 in amortization of the discount on convertible notes, $549,208 in share-based compensation, $260,819 in right-of-use asset amortization, $171,138 in depreciation and amortization and $53,173 in loss on property and equipment dispositions. The change in our net operating assets and liabilities was primarily due to increases in inventory of $2,186,415, decreases in lease liabilities of $264,580 and accrued expenses of $98,297, partially offset by an increase in accounts payable of $1,758,162 and decreases in accounts receivable of $233,789 and prepaid and other assets of $165,056. We intend to meet future operating cash requirements through increased sales of commercial products and fundraising, as discussed in Funding requirements.

Investing activities

For the six months ended June 30, 2026, cash used in investing activities for the purchase of property and equipment and acquisition of patents was $101,317.

For the six months ended June 30, 2025, cash used in investing activities for the purchase of property and equipment and acquisition of patents was $193,567.

Financing activities

For the six months ended June 30, 2026, cash provided by financing activities was $357,663, attributable to proceeds from sales under the at-the-market facility and proceeds from the issuance of shares under the ESPP Plan.

For the six months ended June 30, 2025, cash provided by financing activities was $9,077,823, attributable to proceeds from sales under the at-the-market facility, net of issuance costs of $5,331,887, proceeds from the June 2025 financing, net of issuance costs of $3,705,061 and proceeds from the issuance of shares under the ESPP Plan of $40,875.

Critical Accounting Estimates

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

While our significant accounting policies are more fully described in Note 2 to our financial statements appearing in the Annual Report on Form 10-K for the year ended December 31, 2025 as filed on March 31, 2026, 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 ASC 606, Revenue from Contracts with Customers, 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 typically ranging from 30 to 60 days. All revenue is recognized at a point in 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 at 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 us. Items to be returned must be in original unopened cartons and are subject to a 30% restocking fee. As of June 30, 2026, we have not had a history of significant returns.

Convertible Notes, Conversion Option liability and Warrants liabilities

The Company accounts for debt and equity instruments issued in financing transactions, including the senior secured convertible notes (“2025 Notes”) and related warrants issued in its November 2025 financing transaction, which require significant management judgments and estimates. The financial instruments issued contain complex embedded features, including conversion options, exercise price adjustment provisions, redemption features, and other settlement terms that require evaluation under applicable accounting guidance to determine whether such features should be classified as equity or derivative liabilities.

Management concluded that certain embedded conversion features within the 2025 Notes and the related warrants were not indexed to the Company’s common stock under ASC 815-40 and therefore did not qualify for equity classification, primarily due to shareholder approval requirements that limited settlement in shares and, prior to the March 2026 modification, certain market-based adjustment provisions. Accordingly, the Conversion Option embedded in the 2025 Notes and the Warrants were recognized as derivative liabilities and initially measured at fair value in accordance with ASC 820, with subsequent changes in fair value recognized in earnings each reporting period.

In March 2026, the Company modified the 2025 Notes and related warrants to remove certain market-based adjustment provisions and issued additional Series D-1 warrants in connection with the modification. The Company evaluated the modification under the applicable accounting guidance and recorded the new Series D-1 warrants as derivative liabilities at fair value upon issuance.

In April 2026, shareholders approved the issuance of shares underlying the 2025 Notes and Series A-1, B-1, C-1, and D-1 Warrants in excess of the Nasdaq 19.99% limitation. Following the approval, the Company reassessed the Conversion Option and Warrants under ASC 815-40 and determined that they met the criteria for equity classification. As a result, the instruments were reclassified from derivative liabilities to equity and are no longer subject to recurring fair value measurement.

The valuation of the derivative liabilities required the use of significant estimates and assumptions, including the Company’s stock price, expected volatility, expected term, risk-free interest rates, probability and timing of potential future events, and assumptions related to conversion and exercise probability. Management also exercised significant judgment in evaluating whether the Conversion Option and Warrants met the liability or equity classification criteria under ASC 815-40, particularly in connection with the March 2026 modification and the April 2026 shareholder approval. Changes in these assumptions could have materially impacted the estimated fair value of the derivative liabilities and the related gains or losses recognized in the Company’s condensed statements of operations and comprehensive loss, and the classification of these instruments.

In addition, the Company records the 2025 Notes at amortized cost and accretes the associated debt discount and issuance costs to interest expense using the effective interest method over the expected term of the instruments. The effective interest rate of the 2025 Notes was impacted by the initial allocation of proceeds between the debt host and derivative liabilities, which required significant management judgment.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including to our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial and accounting officer), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our management has concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2026.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended June 30, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

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

Risk Factors

As of the date of this report, there are no material changes to our risk factors as previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025, and our Quarterly Report on Form 10-Q for the three months ended March 31, 2026.