10-Q 1 ispc-20230630x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2023

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File No. 001-40501

iSpecimen Inc.

(Exact name of registrant as specified in its charter)

Delaware

    

27-0480143

(State or other jurisdiction of incorporation
or organization)

(I.R.S. Employer Identification No.)

450 Bedford Street, Lexington, Massachusetts 02420

(Address of principal executive offices) (Zip Code)

(781) 301-6700

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

Title of Each Class

    

Trading Symbol(s)

    

Name of Each Exchange on Which Registered

Common Stock, par value $0.0001 per share

ISPC

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

As of July 31, 2023, there were 9,065,483 shares of common stock, par value $0.0001 per share, issued and outstanding.

iSPECIMEN INC.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2023

TABLE OF CONTENTS

Page

PART I - FINANCIAL INFORMATION 

ITEM 1.

Financial Statements

Condensed Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022

3

Unaudited Condensed Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2023 and 2022

4

Unaudited Condensed Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2023 and 2022

5

Unaudited Condensed Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022

7

Notes to Unaudited Condensed Financial Statements

8

ITEM 2.

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

22

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

34

ITEM 4.

Controls and Procedures

34

PART II – OTHER INFORMATION

ITEM 1.

Legal Proceedings

36

ITEM 1A.

Risk Factors

36

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36

ITEM 3.

Defaults Upon Senior Securities

37

ITEM 4.

Mine Safety Disclosures

37

ITEM 5.

Other Information

37

ITEM 6.

Exhibits

37

SIGNATURES

38

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

iSpecimen Inc.

Condensed Balance Sheets

    

    

June 30, 2023

December 31, 2022

ASSETS

(Unaudited)

Current assets:

 

  

 

  

Cash and cash equivalents

$

2,004,500

$

15,308,710

Available-for-sale securities

6,209,491

Accounts receivable – unbilled

 

1,098,356

 

2,327,789

Accounts receivable, net of allowance for doubtful accounts of $492,609 and $230,999 at June 30, 2023 and December 31, 2022, respectively

 

1,458,845

 

1,597,915

Prepaid expenses and other current assets

 

187,769

 

300,434

Tax credit receivable

 

12,332

 

140,873

Total current assets

 

10,971,293

 

19,675,721

Property and equipment, net

 

163,871

 

225,852

Internally developed software, net

 

6,300,465

 

4,503,787

Operating lease right-of-use asset

107,115

184,692

Security deposits

 

27,601

 

27,601

Total assets

$

17,570,345

$

24,617,653

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

1,779,920

$

2,459,063

Accrued expenses

 

882,274

 

1,531,238

Operating lease current obligation

107,975

 

158,451

Deferred revenue

 

89,601

 

132,335

Total current liabilities

 

2,859,770

 

4,281,087

Operating lease long-term obligation

 

 

27,396

Total liabilities

 

2,859,770

 

4,308,483

Commitments and contingencies (See Note 8)

 

  

 

  

Stockholders’ equity

 

 

Common stock, $0.0001 par value, 200,000,000 shares authorized, 9,094,274 issued, and 9,063,274 outstanding at June 30, 2023 and 8,956,808 issued and 8,925,808 outstanding at December 31, 2022

 

906

 

892

Additional paid-in capital

 

68,889,903

 

68,573,774

Treasury stock, 31,000 shares at June 30, 2023 and December 31, 2022, at cost

 

(172)

 

(172)

Accumulated other comprehensive income

688

Accumulated deficit

 

(54,180,750)

 

(48,265,324)

Total stockholders’ equity

 

14,710,575

 

20,309,170

Total liabilities and stockholders’ equity

$

17,570,345

$

24,617,653

See accompanying notes to these unaudited condensed financial statements.

3

iSpecimen Inc.

Condensed Statements of Operations and Comprehensive Loss

(Unaudited)

Three Months Ended June 30, 

Six Months Ended June 30,

    

2023

    

2022

    

2023

    

2022

Revenue

$

1,625,140

$

2,338,688

$

4,575,339

$

4,857,348

Operating expenses:

Cost of revenue

 

853,633

 

999,743

2,000,545

2,165,659

Technology

 

843,099

 

635,650

1,677,506

1,163,173

Sales and marketing

 

977,748

 

950,563

2,025,346

1,697,994

Supply development

 

291,360

 

242,380

614,862

424,450

Fulfillment

 

462,672

 

519,994

891,692

963,788

General and administrative

 

1,758,451

 

1,575,365

3,469,633

3,385,679

Total operating expenses

 

5,186,963

 

4,923,695

10,679,584

9,800,743

Loss from operations

 

(3,561,823)

 

(2,585,007)

(6,104,245)

(4,943,395)

Other income (expense), net

Interest expense

 

(3,535)

 

(42,273)

(7,070)

(80,321)

Interest income

 

110,882

 

13,881

225,144

26,535

Other income (expense), net

 

(29,138)

 

6,590

(29,255)

6,630

Total other income (expense), net

 

78,209

 

(21,802)

188,819

(47,156)

Net loss

$

(3,483,614)

$

(2,606,809)

$

(5,915,426)

$

(4,990,551)

Other comprehensive income:

Net loss

$

(3,483,614)

$

(2,606,809)

$

(5,915,426)

$

(4,990,551)

Unrealized (loss) gain on available-for-sale securities

(18,155)

688

Total other comprehensive income

(18,155)

688

Comprehensive loss

$

(3,501,769)

$

(2,606,809)

$

(5,914,738)

$

(4,990,551)

Net loss per share - basic and diluted

$

(0.39)

$

(0.30)

$

(0.66)

$

(0.57)

Weighted average shares of common stock outstanding - basic and diluted

 

9,033,868

 

8,821,698

9,011,644

8,793,723

See accompanying notes to these unaudited condensed financial statements.

4

iSpecimen Inc.

Condensed Statements of Changes in Stockholders’ Equity

(Unaudited)

Six Months Ended June 30, 2023

Accumulated 

Additional

Other

Total

Common Stock

Treasury Stock

 Paid-In 

Comprehensive

Accumulated 

Stockholders'

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Income

    

Deficit

    

Equity

Balance at December 31, 2022

 

8,925,808

$

892

31,000

$

(172)

$

68,573,774

$

$

(48,265,324)

$

20,309,170

Stock-based compensation expense

 

 

 

54,608

 

 

 

54,608

Vesting of restricted stock

28,776

 

3

 

65,946

65,949

Issuance of common stock through exercise of stock options

67,736

 

7

 

67,729

67,736

Unrealized gain on available-for-sale securities

18,843

18,843

Net loss

 

 

 

 

 

 

(2,431,812)

 

(2,431,812)

Balance at March 31, 2023

 

9,022,320

$

902

31,000

$

(172)

$

68,762,057

$

18,843

$

(50,697,136)

$

18,084,494

Stock-based compensation expense

 

 

29,829

 

 

 

29,829

Vesting of restricted stock

37,801

 

4

 

94,864

94,868

Issuance of common stock through exercise of stock options

3,153

 

 

3,153

3,153

Unrealized loss on available-for-sale securities

(18,155)

(18,155)

Net loss

 

 

 

 

 

(3,483,614)

 

(3,483,614)

Balance at June 30, 2023

9,063,274

$

906

31,000

$

(172)

$

68,889,903

$

688

$

(54,180,750)

$

14,710,575

See accompanying notes to these unaudited condensed financial statements.

5

iSpecimen Inc.

Condensed Statements of Changes in Stockholders’ Equity

(Unaudited)

Six Months Ended June 30, 2022

Additional 

Total

Common Stock

Treasury Stock

Paid-In 

Accumulated 

Stockholders’

  

Shares

    

Amount  

    

Shares

    

 Amount  

    

 Capital 

    

Deficit

    

Equity

Balance at December 31, 2021

8,733,479

$

873

31,000

$

(172)

$

67,810,289

$

(38,019,402)

$

29,791,588

Stock-based compensation expense

 

 

 

 

183,410

 

 

183,410

Vesting of restricted stock units

3,125

781

781

Issuance of common stock through exercise of stock options

77,679

8

75,269

75,277

Net loss

 

 

 

 

 

(2,383,742)

 

(2,383,742)

Balance at March 31, 2022

 

8,814,283

$

881

31,000

$

(172)

$

68,069,749

$

(40,403,144)

$

27,667,314

Stock-based compensation expense

 

202,318

202,318

Vesting of restricted stock units

56,601

6

27,024

27,030

Issuance of common stock through exercise of stock options

1,827

1,827

1,827

Issuance of common stock in exchange for services

1,000

6,250

6,250

Net loss

 

 

 

(2,606,809)

(2,606,809)

Balance at June 30, 2022

8,873,711

$

887

31,000

$

(172)

$

68,307,168

$

(43,009,953)

$

25,297,930

See accompanying notes to these unaudited condensed financial statements.

6

iSpecimen Inc.

Condensed Statements of Cash Flows

(Unaudited)

Six Months Ended June 30,

    

2023

    

2022

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$

(5,915,426)

$

(4,990,551)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Stock-based compensation expense

 

245,254

 

413,539

Amortization of internally developed software

 

934,829

 

533,112

Depreciation of property and equipment

 

75,726

 

9,132

Bad debt expense

 

261,610

 

269,645

Accretion of discount on available-for-sale securities

(97,874)

Amortization of debt issuance costs on Term Loan

6,116

Change in operating assets and liabilities:

 

 

Accounts receivable – unbilled

 

1,229,433

 

474,742

Accounts receivable

 

(122,540)

 

1,072,721

Prepaid expenses and other current assets

 

112,665

 

(47,832)

Operating lease right-of-use asset

77,577

73,120

Tax credit receivable

128,541

Accounts payable

 

(679,143)

 

(399,652)

Accrued expenses

 

(648,964)

 

(375,547)

Accrued interest

(389)

Operating lease liability

(77,872)

(72,367)

Deferred revenue

 

(42,734)

 

(319,766)

Net cash used in operating activities

 

(4,518,918)

 

(3,353,977)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

Capitalization of internally developed software

 

(2,731,507)

 

(777,181)

Purchase of property and equipment

(13,745)

Purchase of available-for-sale securities

(7,642,929)

Proceeds from sales and maturities of available-for-sale securities

1,532,000

Net cash used in investing activities

 

(8,856,181)

 

(777,181)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Proceeds from exercise of stock options

70,889

77,104

Proceeds from issuance of common stock in exchange for services

6,250

Net cash provided by financing activities

 

70,889

 

83,354

Net decreases in cash and cash equivalents

 

(13,304,210)

 

(4,047,804)

Cash and cash equivalents at beginning of period

 

15,308,710

 

27,738,979

Cash and cash equivalents at end of period

$

2,004,500

$

23,691,175

Supplemental disclosure of cash flow information:

Cash paid for interest

$

7,070

$

74,205

Supplemental disclosure of non-cash investing and financing activities:

Non-cash amounts of lease liabilities arising from obtaining right-of use-assets

$

$

333,123

See accompanying notes to these unaudited condensed financial statements.

7

Table of Contents

iSpecimen Inc.

Notes to Unaudited Condensed Financial Statements

1.NATURE OF BUSINESS AND BASIS OF PRESENTATION

Business

iSpecimen Inc. (“iSpecimen” or the “Company”) was incorporated in 2009 under the laws of the state of Delaware. The Company has developed and launched a proprietary online marketplace platform that connects medical researchers who need access to subjects, samples, and data, with hospitals, laboratories, and other organizations who have access to them. iSpecimen is a technology-driven company founded to address a critical challenge: how to connect life science researchers who need human biofluids, tissues, and living cells (“biospecimens”) for their research, with biospecimens available (but not easily accessible) in healthcare provider organizations worldwide. The Company’s proprietary platform, the iSpecimen Marketplace platform, is designed to solve this problem and transform the biospecimen procurement process to accelerate medical discovery. The Company is headquartered in Lexington, Massachusetts and its principal market is North America. The Company operates as one operating and reporting segment.

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) as determined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for interim financial information, and, pursuant to the rules and regulations of Article 10 of Regulation S-X of the Securities Act of 1933, as amended (the “Securities Act”), published by the Securities and Exchange Commission (“SEC”) for interim financial statements. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results of operations for the periods presented. They may not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto contained in Amendment No. 1 to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2022.

Liquidity and Going Concern

The Company has recognized recurring losses and as of June 30, 2023, the Company had working capital of $8,111,523 and accumulated deficit of $54,180,750. The Company also had accounts payable and accrued expenses of $2,662,194 as of June 30, 2023. Additionally, as of June 30, 2023, the Company had cash and cash equivalents of $2,004,500 and available-for-sale securities of $6,209,491, which can be quickly liquidated. Management believes that the Company's existing cash and cash equivalents, and its available-for-sale securities provide the Company with sufficient liquidity to continue its operations for at least the next 12 months from the date these unaudited condensed financial statements are issued. As a result of recurring losses, the continued viability of the Company beyond August 2024 may be dependent on its ability to continue to raise additional capital to finance its operations.

Impact of the Current Economy

The Company’s financial performance is subject to global economic conditions and their impact on the levels of spending by its customer research organizations, particularly discretionary spending for procurement of specimens used for research. Economic recessions may have adverse consequences across industries, including the health and bio-specimen industries, which may adversely affect the Company’s business and financial condition. The Company increased its allowance for doubtful accounts in accounts receivables by $261,610 during the six months ended June 30, 2023 due to a few boutique life sciences customers that have filed for bankruptcy. The Company has enhanced procedures related to its credit check process for new and existing customers in fiscal year 2023 to mitigate the risk to future collectability of receivables.

Changes in general market, economic and political conditions in domestic and foreign economies or financial markets, including fluctuation in stock markets resulting from, among other things, trends in the economy and inflation, as are being currently experienced, may result in a reduction in researchers’ demand for specimens due to the research organization’s inability to obtain funding.

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iSpecimen Inc.

Notes to Unaudited Condensed Financial Statements

To further address the current market conditions, the Company has taken steps, which include but are not limited to, reevaluating its pricing in order to be more competitive, creating campaigns to highlight and fast-track high demand items, and enhancing internal team communications to accelerate the sales cycle.

The Company believes that its business will continue to be resilient through a continued economic downturn or recession, or slowing or stalled recovery therefrom, and that the Company has the liquidity to address its financial obligations and alleviate possible adverse effects on its business, financial condition, results of operations or prospects.

Impact of the Russian-Ukrainian War on the Company’s Operations

The Company’s business was negatively impacted during the first half of 2022 by the ongoing war between Russia and Ukraine. At the start of the war, the Company had approximately $1 million of purchase orders that were slated to be fulfilled by the Company’s supply network in Ukraine and Russia. This supply network was shut down at the start of the war. Ukrainian suppliers were disabled due to war conditions and evacuations and some of the Company’s Russian suppliers were disabled by sanctions. While the Company mobilized to shift these purchase orders to other suppliers in the network, the process of getting specimen collections from other supply sites took time, which caused a delay in the fulfillment of such purchase orders. Alternate suppliers do not have the same favorable unit economics or specimen collection rates, and this impacted the Company’s margins. Additionally, key resources were diverted from operations to resolving the re-fulfillment issues caused by the conflict.

As of June 30, 2023, the Company’s supply sites in Russia that had not been under sanctions were accessible and the Company’s supply sites in Ukraine were mostly reopened. However, logistics and transportation of specimens out of the country of Ukraine remains challenging and not as economically feasible as they were prior to the beginning of the war. Due to the uncertainty caused by the ongoing war, Ukrainian and Russian suppliers may again become inaccessible to the Company. Therefore, as long as the uncertainty continues, the Company’s policy is to ensure at a purchase order level that an order is not solely sourced from the two countries. The short and long term implications of the war are difficult to predict as of the filing date of this report. The imposition of more sanctions and counter sanctions may have an adverse effect on the economic markets generally and could impact the Company’s business and the businesses of the Company’s supply partners, especially those in Ukraine and Russia. Because of the highly uncertain and dynamic nature of these events, it is not currently possible to estimate the impact of the war on the Company’s business and the companies from which the Company obtains supplies and distributes specimens.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies and recent accounting standards are summarized in Note 2 of Amendment No. 1 to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2022. There were no significant changes to these accounting policies during the six months ended June 30, 2023.

Use of Estimates

The preparation of the Company’s unaudited condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company utilizes certain estimates in the determination of the fair value of its common stock and warrants, deferred tax valuation allowances, revenue recognition, stock-based compensation, allowance for doubtful accounts, and accrued expenses amongst others. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. Actual results could differ from such estimates.

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Table of Contents

iSpecimen Inc.

Notes to Unaudited Condensed Financial Statements

Investments

The Company’s investments are considered to be available-for-sale as defined under ASC 320, Investments- Debt Securities, and are recorded at fair value. Unrealized gains and losses are included in accumulated other comprehensive income. Purchases and sales of securities are reflected on a trade-date basis. Realized gains or losses are released from accumulated other comprehensive income and into earnings on the statement of operations, and amortization of premiums and accretion of discounts on the U.S treasury bills are recorded in interest expense or income, respectively.

The Company continually monitors the difference between its cost basis and the estimated fair value of its investments. The Company’s accounting policy for impairment recognition requires other-than-temporary impairment charges to be recorded when it determines that it is more likely than not that it will be unable to collect all amounts due according to the contractual terms of the fixed maturity security or that the anticipated recovery in fair value of the equity security will not occur in a reasonable amount of time. Impairment charges on investments are recorded based on the fair value of the investments at the measurement date or based on the value calculated using a discounted cash flow model. Credit-related impairments on fixed maturity securities that the Company does not plan to sell, and for which it is not more likely than not to be required to sell, are recognized in net income. Any non-credit related impairment is recognized as a component of other comprehensive income. Factors considered in evaluating whether a decline in value is other-than-temporary include: the length of time and the extent to which fair value has been less than cost; the financial condition and near-term prospects of the issuer; its intention to hold the investment; and the likelihood that it will be required to sell the investment.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measurements, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

For certain financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable, the carrying amounts approximate their fair values as of June 30, 2023 and December 31, 2022, respectively, because of their short-term nature. Available-for-sale securities are recorded at fair value and as level 1 investments.

Revenue Recognition and Accounts Receivable

The Company recognizes revenue using the five-step approach as follows: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the Company satisfies the performance obligations.

The Company generates revenue by procuring various specimens from hospitals, laboratories, and other supply sites, for the Company’s medical research customers using the Company’s proprietary software, the iSpecimen Marketplace, to identify, locate, and ultimately validate the required specimens to the Company’s customers’ requested specifications. The Company’s performance obligation is to procure a specimen meeting the customer’s specification(s) from a supplier, on a “best efforts” basis, for the Company’s customer at the agreed price per specimen as indicated in the customer’s contract with the Company. The Company does not currently charge suppliers or customers for the use of the Company’s proprietary software. Each customer will execute a material and data use agreement with the Company or agree to online purchase terms, each of which includes terms such as specimen and data use, shipment terms, payment, and cancellation terms. These are then supplemented by purchase orders that specify specimen requirements including detailed

10

Table of Contents

iSpecimen Inc.

Notes to Unaudited Condensed Financial Statements

inclusion/exclusion criteria, quantities to be collected, and pricing. Collectively, these customer agreements represent the Company’s contracts with its customer. Generally, contracts have fixed unit pricing. For certain specimen orders, a refundable customer deposit may be required prior to order fulfillment depending on project set-up requirements, which is presented as deferred revenue. The Company expects to recognize the deferred revenue within the next twelve months.

Specimen collections occur at supply sites within the Company’s network. “Collection” is when the specimen has been removed, or “collected” from the patient or donor. A specimen is often collected specifically for a particular Company order. Once collected, the specimen is assigned by the supplier to the Company and control of the specimen passes to the Company. “Accession” is the process whereby a collected specimen and associated data are registered and assigned in the iSpecimen Marketplace to a particular customer order, which can occur while a specimen is at the supplier site or while at the Company site and it is when control of the specimen passes to the customer. Suppliers may ship specimens to the Company or directly to the customer if specimens must be delivered within a short time period (less than 24 hours after collection) or shipping to the Company is not practical.

The Company has evaluated principal versus agent considerations as part of the Company’s revenue recognition policy. The Company has concluded that it acts as principal in the arrangement as it manages the procurement process from beginning to end, and determines which suppliers will be used to fulfill an order, usually takes physical possession of the specimens, sets prices for the specimens, and bears the responsibility for customer credit risk.

The Company recognizes revenue over time, as the Company has created an asset with no alternative use to the Company, which has an enforceable right to payment for performance completed to date. At contract inception, the Company reviews a contract and related order upon receipt to determine if the specimen ordered has an alternative use by the Company. Generally, specimens ordered do not have an alternative future use to the Company and the performance obligation is satisfied when the related specimens are accessioned. The Company uses an output method to recognize revenue for specimens with no alternative future use. The output is measured based on the number of specimens accessioned. In the rare circumstances where specimens do have an alternative future use, the Company's performance obligation is satisfied at the time of shipment.

Customers are generally invoiced upon shipment. Depending on the quantity of specimens ordered, it may take several accounting periods to completely fulfill a purchase order. In other words, there can be multiple invoices issued for a single purchase order, reflecting the specimens being accessioned over time. However, specimens are generally shipped as soon as possible after they have been accessioned.

Once a specimen that has no alternative future use and for which the Company has an enforceable right to payment has been accessioned, the Company records the offset to revenue in accounts receivable -- unbilled. Once the specimen has been shipped and invoiced, a reclassification is made from accounts receivable-unbilled to accounts receivable.

Customers are generally given fourteen days from the receipt of specimens to inspect the specimens to ensure compliance with specifications set forth in the purchase order documentation. Customers are entitled to either receive replacement specimens or receive reimbursement of payments made for such specimens. The Company has a nominal history of returns for nonacceptance of specimens delivered. When this occurs, the Company gives the customer credit for the returns. The Company has not recorded a returns allowance.

The following table summarizes the Company’s revenue for the three and six months ended June 30:

Three months ended June 30, 

Six months ended June 30, 

    

2023

    

2022

    

2023

    

2022

Specimens – contracts with customers

$

1,522,108

$

2,207,820

$

4,234,485

$

4,580,206

Shipping and other

 

103,032

 

130,868

340,854

277,142

Revenue

$

1,625,140

$

2,338,688

$

4,575,339

$

4,857,348

The Company carries its accounts receivable at the invoiced amount less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable to determine if an allowance for doubtful accounts is necessary, based on economic conditions and each customer’s payment history. Receivables are written off when deemed uncollectible, with any future recoveries

11

Table of Contents

iSpecimen Inc.

Notes to Unaudited Condensed Financial Statements

recorded as income when received. As of June 30, 2023 and December 31, 2022, the Company had an allowance for doubtful accounts of $492,609 and $230,999, respectively.

The Company applies the practical expedient to account for shipping and handling activities as fulfillment cost rather than as a separate performance obligation. Shipping and handling costs incurred are included in cost of revenue.

Internally Developed Software, Net

The Company capitalizes certain internal and external costs incurred during the application development stage of internal-use software projects until the software is ready for its intended use. Amortization of the asset commences when the software is complete and placed into service and is recorded in operating expenses. The Company amortizes completed internal-use software over its estimated useful life of five years on a straight-line basis. Costs incurred during the planning, training and post-implementation stages of the software development life cycle are classified as technology costs and are expensed to operations as incurred.

Impairment of Long-Lived Assets

Management reviews long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable. An impairment loss is recognized when expected cash flows are less than the asset’s carrying value. Long-lived assets consist of property and equipment and internal-use software. No impairment charges were recorded for the six months ended June 30, 2023 and 2022.

Stock-Based Compensation

The Company records stock-based compensation for options granted to employees, non-employees, and to members of the board of directors for their services to the Company based on the grant date fair value of awards issued, and the expense is recorded on a straight-line basis over the requisite service period. Forfeitures are recognized when they occur.

The Company uses the Black-Scholes-Merton option pricing model to determine the fair value of stock options. The use of the Black-Scholes-Merton option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. The Company has concluded that its historical share option exercise experience does not provide a reasonable basis upon which to estimate expected term. Therefore, the expected term was determined according to the simplified method, which is the average of the vesting tranche dates and the contractual term. Due to the lack of Company-specific historical and implied volatility data, the estimate of expected volatility is primarily based on the historical volatility of a group of similar companies that are publicly traded. For these analyses, companies with comparable characteristics are selected, including enterprise value and position within the industry, and with historical share price information sufficient to meet the expected life of the stock-based awards. The Company computes the historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of its stock-based awards.

The risk-free interest rate is determined by reference to U.S. Treasury zero-coupon issues with remaining maturities similar to the expected term of the options. The Company has not paid, and does not anticipate paying, cash dividends on shares of its common stock.

The fair value of the Company's common stock is equal to the closing price on the specified grant date.

Restricted Stock Units

The Company recognizes stock-based compensation expense from restricted stock units (the “RSUs”) ratably over the specified vesting period. The fair value of RSUs is determined to be the closing share price of the Company's common stock on the grant date.

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Table of Contents

iSpecimen Inc.

Notes to Unaudited Condensed Financial Statements

Common Stock Warrants

The Company accounts for common stock warrants as either equity instruments or liabilities, depending on the specific terms of the warrant agreement. The warrants shall be classified as a liability if 1) the underlying shares are classified as liabilities or 2) the entity can be required under any circumstances to settle the warrant by transferring cash or other assets. The measurement of equity-classified nonemployee stock-based payments is generally fixed on the grant date and are considered compensatory. For additional discussion on warrants, see Note 9.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss applicable to stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting the weighted-average number of shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the diluted net loss per share calculation, the potential impact of common stock to be issued upon conversion of stock options and warrants to purchase common stock are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share applicable to stockholders were the same for all periods presented.

The table below provides potentially dilutive common stock equivalents excluded from diluted net loss per share as of June 30:

2023

    

2022

Shares issuable upon vesting of RSUs

168,641

367,118

Shares issuable upon exercise of stock options

345,987

171,154

Shares issuable upon exercise of PIPE Warrant (defined below) to purchase common stock

1,312,500

1,312,500

Shares issuable upon exercise of Lender Warrant (defined below) to purchase common stock

12,500

12,500

Shares issuable upon exercise of Underwriter Warrant (defined below) to purchase common stock

90,000

90,000

Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. In addition, an entity will have to disclose significantly more information about allowances and credit quality indicators. The new standard is effective for the Company for fiscal years beginning after December 15, 2022. The Company adopted this new standard as of January 1, 2023. ASU 2016-13 did not have a material impact on the Company’s financial statements.

3.AVAILABLE-FOR-SALE SECURITIES

The Company purchased U.S. treasury bills in the six months ended June 30, 2023 and has classified them as available-for-sale securities. The amortized cost, gross unrealized gains and losses, and fair value for available-for-sale securities as of June 30, 2023 are as follows:

Gross

Gross

Amortized

unrealized

unrealized

    

cost

    

gains

losses

Fair value

Available-for-sale securities:

U.S. Treasury Bills

$

6,208,803

$

26,230

$

(25,542)

$

6,209,491

Total Available-for-sale securities:

$

6,208,803

$

26,230

$

(25,542)

$

6,209,491

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Table of Contents

iSpecimen Inc.

Notes to Unaudited Condensed Financial Statements

The Company did not have any realized gains or losses in the six months ended June 30, 2023. Maturities of the U.S. Treasury bills are all due within the year. Marketable securities in an unrealized loss position as of June 30, 2023 were not deemed impaired at acquisition and subsequent declines in fair value are not deemed attributed to declines in credit quality. The Company believes that it is more likely than not that it will receive a full recovery of par value on the securities, although there can be no assurance that such recovery will occur.

4.PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following at the dates indicated:

June 30, 

December 31, 

    

2023

    

2022

Website

$

285,377

$

285,377

Computer equipment and purchased software

 

90,304

 

84,589

Equipment

 

35,449

 

35,449

Furniture and fixtures

 

87,184

 

87,184

Leasehold improvements

 

68,471

 

60,441

Total property and equipment

 

566,785

 

553,040

Accumulated depreciation

 

(402,914)

 

(327,188)

Total property and equipment, net

$

163,871

$

225,852

Depreciation expense for property and equipment was $37,137 and $4,420 for the three months ended June 30, 2023 and 2022, respectively, and $75,726 and $9,132 for the six months ended June 30, 2023 and 2022, respectively.

5.INTERNALLY DEVELOPED SOFTWARE, NET

During the six months ended June 30, 2023 and 2022, the Company capitalized $2,731,507 and $771,181, respectively, of internally developed software costs in connection with the development and continued enhancement of the technology platform and web interfaces. Capitalized costs primarily consist of software costs, payroll, and payroll-related costs for the Company’s employees. The Company recognized $501,502 and $266,893 of amortization expense associated with capitalized internally developed software costs during the three months ended June 30, 2023 and 2022, respectively. The Company recognized $934,829 and $533,112 of amortization expense associated with capitalized internally developed software costs during the six months ended June 30, 2023 and 2022, respectively.

6.SEVERANCE

Dr. Christopher Ianelli

On September 19, 2022, the Company received a notice of departure from Dr. Christopher Ianelli to vacate his position of Chief Executive Officer and President of the Company, effective as of October 24, 2022 (the “Ianelli Separation Date”), as a result of the non-renewal of his Executive Employment Agreement dated June 21, 2021. Dr. Ianelli continued to serve on the Company’s board of directors until his resignation on July 7, 2023.  

The Company entered into a Separation Agreement with Dr. Ianelli, dated October 24, 2022 (the “Ianelli Separation Agreement”). Pursuant to the Ianelli Separation Agreement, the Company shall pay severance equal to 12 months of base salary in effect as of the Ianelli Separation Date in the amount of $350,000. The severance payments shall be paid in equal installments commencing on the Company’s first regular payroll date after the Ianelli Separation Date and ending on the 12-month anniversary of the Ianelli Separation Date. In the year ended December 31, 2022, the Company recognized a severance expense and corresponding liability in the amount of $376,400 for Dr. Ianelli’s severance payment and COBRA benefits.

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iSpecimen Inc.

Notes to Unaudited Condensed Financial Statements

On January 1, 2023, the Company accrued an additional $23,580 in severance expense and liability which represents the employer’s portion of the applicable taxes on the remaining severance payments. As of June 30, 2023, the balance of the severance, COBRA benefits and employer taxes liabilities was $142,935 and is recorded on the balance sheet.

Jill Mullan

On September 20, 2022, the Company received a notice of departure from Jill Mullan to vacate the position of Chief Operating Officer of the Company, effective as of October 24, 2022. At the time the notice of departure was received from Ms. Mullan, she had received an executive employment agreement for the renewal of her employment with the Company. Ms. Mullan continued to serve on the Company’s board of directors until May 24, 2023, the end of the term of her directorship.

The Company and Ms. Mullan executed a separation agreement on October 28, 2022 with an effective date of October 24, 2022. The Company recognized $325,000 in severance expense for Ms. Mullan on November 4, 2022, the date on which her separation agreement revocation period expired. The severance expense is recorded within general and administrative expense on the statement of operations and the corresponding liability is recorded in accrued liabilities on the balance sheet.

On January 1, 2023, the Company accrued an additional $21,896 in severance expense and liability which represents the employer’s portion of the applicable taxes on the remaining severance payments. As of June 30, 2023, the balance of the severance and employer taxes liabilities was $121,457 and is recorded on the balance sheet.

7. FAIR VALUE MEASUREMENTS

The following table sets forth the Company’s assets to be measured at fair value on a recurring basis and their respective classification within the fair value hierarchy as of June 30, 2023:

Fair Value at June 30, 2023

Total

    

Level 1

    

Level 2

    

Level 3

Assets:

Available-for-sale securities

$

6,209,491

$

6,209,491

$

$

Total Assets

$

6,209,491

$

6,209,491

$

$

As of June 30, 2023, the Company did not have any liabilities measured at fair value on a recurring basis.

8.COMMITMENTS AND CONTINGENCIES

Leases

The Company has one operating lease of office space in Lexington, Massachusetts, which will expire on February 28, 2024.

Leases with an initial term of twelve months or less are not recorded on the balance sheet date, and the Company does not separate lease and non-lease components of contracts. There are no material residual guarantees associated with any of the Company’s leases, and there are no significant restrictions or covenants included in the Company’s lease agreements.

The Company’s lease agreement does not provide an implicit borrowing rate. Therefore, the Company used a benchmark approach to derive an appropriate imputed discount rate. The Company benchmarked itself against other companies of similar credit ratings and comparable quality and derived an imputed rate, which was used to discount its real estate lease liabilities. The Company used estimated incremental borrowing rates for its active real estate lease. The calculated incremental borrowing rate was 5.96%, which was calculated based on the remaining lease term of 1.92 years as of January 1, 2022.

There was no sublease rental income for the six months ended June 30, 2023, and the Company is not the lessor in any lease arrangement, and there have been no related-party lease agreements.

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Table of Contents

iSpecimen Inc.

Notes to Unaudited Condensed Financial Statements

Lease Costs

The table below presents certain information related to the lease costs for the Company’s operating lease for the six months ended June 30, 2023:

Operating lease expense

$

82,157

Short-term lease expense

 

2,500

Total lease cost

$

84,657

Lease Position as of June 30, 2023

Right-of-use lease assets and lease liabilities for the Company’s operating lease as of June 30, 2023 were recorded in the balance sheet as follows:

Assets

Operating lease right-of-use assets

$

107,115

Total lease assets

$

107,115

Liabilities

Current liabilities:

Operating lease liability – current portion

$

107,975

Noncurrent liabilities:

Operating lease liability – net of current portion

Total lease liability

$

107,975

Lease Terms and Discount Rate

The table below presents certain information related to the weighted average remaining lease term and the weighted average discount rate for the Company’s operating leases as of June 30, 2023:

Weighted average remaining lease term (in years) – operating leases

0.67

Weighted average discount rate – operating leases

 

5.96%

Undiscounted Cash Flows

Future lease payments included in the measurement of lease liabilities on the balance sheet are as follows:

    

2023 (excluding the six months ended June 30, 2023)

$

82,802

2024

 

27,600

Total future minimum lease payments

110,402

Less effect of discounting