iSpecimen 10Q 2023 Q3 Quarterly report

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 September 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 October 31, 2023, there were 9,075,807 shares of common stock, par value $0.0001 per share, issued and outstanding.

Table of Contents

iSPECIMEN INC.

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

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Condensed Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022	3
	Unaudited Condensed Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2023 and 2022	4
	Unaudited Condensed Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2023 and 2022	5
	Unaudited Condensed Statements of Cash Flows for the Nine Months Ended September 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

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

iSpecimen Inc.

Condensed Balance Sheets



	September 30, 2023		December 31, 2022
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	2,721,568	$	15,308,710
Available-for-sale securities		2,940,967		—
Accounts receivable – unbilled		1,425,434		2,327,789
Accounts receivable, net of allowance for doubtful accounts of $474,052 and $230,999 at September 30, 2023 and December 31, 2022, respectively		1,705,643		1,597,915
Prepaid expenses and other current assets		320,613		300,434
Tax credit receivable		12,332		140,873
Total current assets		9,126,557		19,675,721
Property and equipment, net		146,205		225,852
Internally developed software, net		6,575,811		4,503,787
Operating lease right-of-use asset		233,805		184,692
Other non-current assets		212,718		27,601
Total assets	$	16,295,096	$	24,617,653
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,280,164	$	2,459,063
Accrued expenses		1,027,960		1,531,238
Operating lease current obligation		162,054		158,451
Deferred revenue		46,910		132,335
Total current liabilities		3,517,088		4,281,087
Operating lease long-term obligation		72,288		27,396
Total liabilities		3,589,376		4,308,483

Commitments and contingencies (See Note 8)

Stockholders’ equity
Common stock, $0.0001 par value, 200,000,000 shares authorized, 9,105,044 issued, and 9,074,044 outstanding at September 30, 2023 and 8,956,808 issued and 8,925,808 outstanding at December 31, 2022		907		892
Additional paid-in capital		68,996,195		68,573,774
Treasury stock, 31,000 shares at September 30, 2023 and December 31, 2022, at cost		(172)		(172)
Accumulated other comprehensive income		641		—
Accumulated deficit		(56,291,851)		(48,265,324)
Total stockholders’ equity		12,705,720		20,309,170
Total liabilities and stockholders’ equity	$	16,295,096	$	24,617,653

See accompanying notes to these unaudited condensed financial statements.

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iSpecimen Inc.

Condensed Statements of Operations and Comprehensive Loss

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue	$	2,777,751	$	2,583,412	$	7,353,090	$	7,440,760
Operating expenses:
Cost of revenue		1,392,534		1,181,562		3,393,079		3,347,392
Technology		921,580		752,704		2,599,086		1,915,877
Sales and marketing		897,433		832,625		2,972,757		2,530,619
Supply development		186,176		166,058		801,038		590,508
Fulfillment		471,735		516,637		1,363,427		1,480,425
General and administrative		1,102,373		2,234,885		4,522,028		5,620,393
Total operating expenses		4,971,831		5,684,471		15,651,415		15,485,214

Loss from operations		(2,194,080)		(3,101,059)		(8,298,325)		(8,044,454)

Other income (expense), net
Interest expense		(4,465)		(58,591)		(11,535)		(138,912)
Interest income		67,362		60,812		292,506		87,347
Other income (expense), net		20,082		3,148		(9,173)		9,778
Total other income (expense), net		82,979		5,369		271,798		(41,787)

Net loss	$	(2,111,101)	$	(3,095,690)	$	(8,026,527)	$	(8,086,241)

Other comprehensive income:
Net loss	$	(2,111,101)	$	(3,095,690)	$	(8,026,527)	$	(8,086,241)
Unrealized (loss) gain on available-for-sale securities		(47)		—		641		—
Total other comprehensive (loss) income		(47)		—		641		—
Comprehensive loss	$	(2,111,148)	$	(3,095,690)	$	(8,025,886)	$	(8,086,241)

Net loss per share - basic and diluted	$	(0.23)	$	(0.35)	$	(0.89)	$	(0.92)

Weighted average shares of common stock outstanding - basic and diluted		9,065,319		8,878,888		9,029,732		8,822,423

See accompanying notes to these unaudited condensed financial statements.

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iSpecimen Inc.

Condensed Statements of Changes in Stockholders’ Equity

(Unaudited)


	Nine Months Ended September 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
Stock-based compensation expense	—		—	—		—		49,394		—		—		49,394
Vesting of restricted stock	10,770		1	—		—		56,898		—		—		56,899
Unrealized loss on available-for-sale securities	—		—	—		—		—		(47)		—		(47)
Net loss	—		—	—		—		—		—		(2,111,101)		(2,111,101)
Balance at September 30, 2023	9,074,044	$	907	31,000	$	(172)	$	68,996,195	$	641	$	(56,291,851)	$	12,705,720

See accompanying notes to these unaudited condensed financial statements.

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iSpecimen Inc.

Condensed Statements of Changes in Stockholders’ Equity

(Unaudited)


	Nine Months Ended September 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
Stock-based compensation expense	—		—	—		—		183,270		—		183,270
Vesting of restricted stock units	12,576		1	—		—		36,665		—		36,666
Issuance of common stock through exercise of stock options	1,284		—	—		—		1,284		—		1,284
Net loss	—		—	—		—		—		(3,095,690)		(3,095,690)
Balance at September 30, 2022	8,887,571	$	888	31,000	$	(172)	$	68,528,387	$	(46,105,643)	$	22,423,460

See accompanying notes to these unaudited condensed financial statements.

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iSpecimen Inc.

Condensed Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(8,026,527)	$	(8,086,241)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		351,547		633,475
Proceeds from issuance of common stock in exchange for services		—		6,250
Amortization of internally developed software and other non-current assets		1,435,565		825,804
Depreciation of property and equipment		99,125		13,587
Bad debt expense		243,053		340,858
Accretion of discount on available-for-sale securities		(147,170)		—
Amortization of debt issuance costs on Term Loan		—		9,207
Change in operating assets and liabilities:
Accounts receivable – unbilled		902,355		876,779
Accounts receivable		(350,781)		427,798
Prepaid expenses and other current assets		(20,179)		(14,520)
Operating lease right-of-use asset		(49,113)		110,497
Tax credit receivable		128,541		—
Accounts payable		(178,899)		135,057
Accrued expenses		(503,278)		(124,240)
Accrued interest		—		(389)
Operating lease liability		48,495		(109,543)
Deferred revenue		(85,425)		(654,745)
Net cash used in operating activities		(6,152,691)		(5,610,366)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalization of internally developed software and other non-current assets		(3,692,706)		(1,549,281)
Purchase of property and equipment		(19,478)		—
Purchase of available-for-sale securities		(10,143,156)		—
Proceeds from maturities of available-for-sale securities		7,350,000		—
Net cash used in investing activities		(6,505,340)		(1,549,281)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options		70,889		78,387
Net cash provided by financing activities		70,889		78,387

Net decreases in cash and cash equivalents		(12,587,142)		(7,081,260)
Cash and cash equivalents at beginning of period		15,308,710		27,738,979
Cash and cash equivalents at end of period	$	2,721,568	$	20,657,719

Supplemental disclosure of cash flow information:
Cash paid for interest	$	11,535	$	121,927
Supplemental disclosure of non-cash investing and financing activities:
Non-cash amounts of lease liabilities arising from obtaining right-of use-assets	$	166,357	$	333,123

See accompanying notes to these unaudited condensed financial statements.

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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 since inception. As of September 30, 2023, the Company had working capital of $5,609,469, an accumulated deficit of $56,291,851, cash and cash equivalents and short-term investments of $5,662,535, and accounts payable and accrued expenses of $3,308,124. Since inception, the Company has relied upon raising capital and its revenues to finance operations.

The future success of the Company is dependent on its ability to successfully obtain additional working capital and/or to ultimately attain profitable operations. The Company has initiated efforts to decrease its capital and operational expenditures by cutting costs and right sizing the Company through a reduction in workforce. Throughout the year and primarily on September 6, 2023, the Company executed a reduction in workforce, resulting in an estimated reduction in monthly compensation costs of 29% and additional expenditure reductions estimated to be over 50% of monthly expenditures for the remainder of the year, after streamlining operations and rationalizing resources to focus on key market opportunities. As a result, the Company experienced a significant decrease in expenditures during the third quarter of 2023 compared to the first two quarters of 2023. In addition, the Company plans to add additional customers and suppliers to increase and add additional revenues through its new revenue enhancement projects as well as to reduce and manage expenditures to improve its financial position and fund operations. However, as certain elements of the Company’s operating plan are not within the Company’s control, the Company is unable to assess their probability. The Company may also seek to fund its operations through public equity or debt financing, as well as other sources, but it has not currently identified any specific source of funding. However, the Company may be unsuccessful in increasing its revenues from its new enhancement projects or contain its operating expenses, or it may be unable to raise additional capital on commercially favorable terms. The Company’s failure to generate additional revenues or contain operating costs would have a negative impact on the Company’s business, results of operations and financial condition and the Company’s ability to continue as a going concern. If the Company does not generate enough revenue to provide an adequate level of working capital, its business plan will be scaled down further.

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iSpecimen Inc.

Notes to Unaudited Condensed Financial Statements

These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year from the date these unaudited condensed financial statements are issued. Management’s plan to mitigate the conditions that raise substantial doubt includes generating additional revenues through its revenue enhancement projects, deferring certain projects and capital expenditures and eliminating certain future operating expenses for the Company to continue as a going concern. However, there can be no assurance that the Company will be successful in completing any of these options. As a result, management’s plans cannot be considered probable and thus do not alleviate substantial doubt about the Company’s ability to continue as a going concern.

The accompanying unaudited condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The unaudited condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.

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 biospecimen industries, which may adversely affect the Company’s business and financial condition. The Company increased its allowance for doubtful accounts in accounts receivables by $243,053 during the nine months ended September 30, 2023 due to certain boutique life sciences customers either lacking liquidity or having 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.

To further address the current market conditions, the Company has taken steps, that 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, enhancing internal team communications to accelerate the sales cycle, moving to a new line of business structure to increase efficiency in operations, implementation of next day quotes to increase conversion ratios of quotes to purchase orders, and initiation of efforts to decrease expenditures through a reduction in workforce.

The Company believes that its business will continue to be resilient through a continued industry-wide economic slowdown in life science research, and that the Company has and will continue to work on improving 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 September 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,

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iSpecimen Inc.

Notes to Unaudited Condensed Financial Statements

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 the Company’s Quarterly Report on Form 10-Q in which these unaudited condensed financial statements are included (the “Quarterly 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 nine months ended September 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 deferred tax valuation allowances, revenue recognition, stock-based compensation, allowance for doubtful accounts, accrued expenses, and the useful lives of internally developed software. 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.

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 impairment charges to be recorded when it determines that the fair value of the investment is below its amortized cost basis. 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 there is a decline in value include: 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.

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iSpecimen Inc.

Notes to Unaudited Condensed Financial Statements

●

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 September 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 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.

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Notes to Unaudited Condensed Financial Statements

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 nine months ended September 30:


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Specimens – contracts with customers	$	2,640,301	$	2,508,298	$	6,874,786	$	7,088,504
Shipping and other		137,450		75,114		478,304		352,256
Revenue	$	2,777,751	$	2,583,412	$	7,353,090	$	7,440,760

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 recorded as income when received. As of September 30, 2023 and December 31, 2022, the Company had an allowance for doubtful accounts of $474,052 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 nine months ended September 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,

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Notes to Unaudited Condensed Financial Statements

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.

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 September 30:


	2023	2022
Shares issuable upon vesting of RSUs	129,077	346,617
Shares issuable upon exercise of stock options	300,909	166,248
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

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Notes to Unaudited Condensed Financial Statements

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 unaudited condensed financial statements.

3.AVAILABLE-FOR-SALE SECURITIES

The Company purchased U.S. treasury bills in the nine months ended September 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 September 30, 2023 are as follows:


			Gross			Gross
	Amortized		unrealized			unrealized
	cost		gains		��	losses		Fair value
Available-for-sale securities:
U.S. Treasury Bills	$	2,940,326	$	32,682		$	(32,041)	$	2,940,967
Total Available-for-sale securities	$	2,940,326	$	32,682		$	(32,041)	$	2,940,967

The Company did not have any realized gains or losses in the nine months ended September 30, 2023. Maturities of the U.S. Treasury bills are all due within the current fiscal year. Marketable securities in an unrealized loss position as of September 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:


	September 30,		December 31,
	2023		2022
Website	$	285,377	$	285,377
Computer equipment and purchased software		96,037		84,589
Equipment		35,449		35,449
Furniture and fixtures		87,184		87,184
Leasehold improvements		68,471		60,441
Total property and equipment		572,518		553,040
Accumulated depreciation		(426,313)		(327,188)
Total property and equipment, net	$	146,205	$	225,852

Depreciation expense for property and equipment was $23,399 and $4,454 for the three months ended September 30, 2023 and 2022, respectively, and $99,125 and $13,587 for the nine months ended September 30, 2023 and 2022, respectively.

5.INTERNALLY DEVELOPED SOFTWARE, NET

During the nine months ended September 30, 2023 and 2022, the Company capitalized $3,501,206 and $1,549,281, 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, consulting costs, payroll, and payroll-related costs for the Company’s employees. The Company recognized $494,353 and $292,692 of amortization expense associated with capitalized internally developed software costs during the three months ended September 30, 2023 and 2022, respectively. The Company recognized

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Notes to Unaudited Condensed Financial Statements

$1,429,182 and $825,804 of amortization expense associated with capitalized internally developed software costs during the nine months ended September 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.

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 September 30, 2023, the balance of the severance, COBRA benefits and employer taxes liabilities was $30,506 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 September 30, 2023, the balance of the severance and employer taxes liabilities was $26,991 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 September 30, 2023:


	Fair Value at September 30, 2023
	Total		Level 1		Level 2		Level 3
Assets:
Available-for-sale securities	$	2,940,967	$	2,940,967	$	—	$	—
Total Assets	$	2,940,967	$	2,940,967	$	—	$	—

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

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Notes to Unaudited Condensed Financial Statements

8.COMMITMENTS AND CONTINGENCIES

Leases

The Company has one operating lease of office space in Lexington, Massachusetts, which will expire on February 28, 2024. The lease was renewed on September 27, 2023 to extend the lease term for a period of 12 months from February 29, 2024 through February 28, 2025. The lease renewal includes an option to terminate the lease before its expiration date if notice is provided to the lessor by June 30, 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.

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

Lease Costs

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


Operating lease expense	$	123,235
Short-term lease expense		2,500
Total lease cost	$	125,735

Lease Position as of September 30, 2023

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


Assets
Operating lease right-of-use assets	$	233,805
Total lease assets	$	233,805

Liabilities
Current liabilities:
Operating lease liability – current portion	$	162,054
Non-current liabilities:
Operating lease liability – net of current portion		72,288
Total lease liability	$	234,342

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Notes to Unaudited Condensed Financial Statements

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 lease as of September 30, 2023:


Weighted average remaining lease term (in years) – operating lease			1.42
Weighted average discount rate – operating lease			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 nine months ended September 30, 2023)	$	41,401
2024		174,338
2025		29,348
Total future minimum lease payments		245,087
Less effect of discounting		(10,745)
Present value of future minimum lease payments	$	234,342

Rent expense for the three months ended September 30, 2023 and 2022 amounted to $41,078 and $42,593, respectively. Rent expense for the nine months ended September 30, 2023 and 2022 amounted to $125,735 and $131,831, respectively.

Cash Flows

Supplemental cash flow information related to the operating lease for the nine months ended September 30, 2023 was as follows:


Non-cash operating lease expense (operating cash flow)	$	(49,113)
Change in operating lease liabilities (operating cash flow)	$	48,495

Sales Tax Payable

The majority of the Company’s customers are researchers, universities, hospitals, and not-for-profit entities that are believed by the Company to have a research and development (“R&D”) tax exemption that generally excludes them from paying sales taxes, with a few exceptions in some tax jurisdictions, provided they have a R&D tax exemption certificate. The main types of specimens the Company sells are blood, blood plasma, human tissue, human parts, and human bodily fluids. Certain of these products are typically not taxable in some states regardless of the buyer’s tax exemption status. The Company historically has not collected sales tax in states where it had sales. Had the Company contemporaneously collected and remitted sales tax for all customers and in all jurisdictions where it would have been required, there would have been no material impact on the Company’s unaudited condensed financial statements.

As a result of an entity-wide risk assessment process that commenced in the second quarter of 2023, the Company engaged external tax consultant advisors to complement internal resources and efforts to provide support in assessing the appropriate sales tax treatment associated with the Company’s products for all prior years in which the Company had generated revenue, to assist with the collection and tracking of Voluntary Disclosure Agreements (“VDAs”) where a potential tax liability may exist and to assist with the implementation of a sales tax software platform solution for the calculation, communication, collection, and remittance of sales tax for all non-exempt future sales.

From the Company’s inception through the filing date of this Quarterly Report, the Company now believes it is probable that an obligation to collect and remit sales tax existed for certain of its sales of products to certain of its customers. Currently, the Company is analyzing its product sales, on an invoice-by-invoice and customer-by-customer basis, to determine which products are subject to sales tax in each jurisdiction, and determining which of its customers are exempt from sales tax, and which customers who were not exempt

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Notes to Unaudited Condensed Financial Statements

from sales tax have already paid compensating use tax. Part of this process includes requesting and obtaining exemption letters or representations from its customers or proof of payment of their compensating use tax. As the Company continues to make progress on this project, certain customers have notified the Company that they are not exempt from the payment of sales tax and have not remitted use tax and the Company has started to invoice such customers for past sales tax due.

At the current time, the Company has not been able to establish a reliable point estimate, nor the maximum potential, of the sales tax liability. As of September 30, 2023, the Company had collected approximately $246,000 from certain customers related to the sales taxes due. This known sales tax liability represents the Company’s current best estimate as to a minimum in a range of estimates of the liability, and the Company has accrued a loss contingency in this amount and recorded an offsetting recovery as these funds have been collected from customers. There was no net impact to the statement of operations for the three and nine months ended September 30, 2023.

The Company is also in the process of identifying in which states there may be a need to file VDAs with relevant taxing jurisdictions regarding its failure to collect and remit sales tax obligations. As of September 30, 2023, the Company had not fully estimated nor recorded the total accrual for the probable sales tax liability nor the interest and penalties likely to be imposed by the taxing jurisdictions for the current and prior reporting periods in the unaudited condensed financial statements. The Company will record the total liability when the amount of its liability becomes reasonably estimable.

Legal Proceedings

From time to time the Company is involved in litigation, claims, and other proceedings arising in the ordinary course of business. Such litigation and other proceedings may include, but are not limited to, actions relating to employment law and misclassification, intellectual property, commercial or contractual claims, or other consumer protection statutes. Litigation and other disputes are inherently unpredictable and subject to substantial uncertainties and unfavorable resolutions could occur. As of September 30, 2023, there was no material litigation against the Company.

9.STOCKHOLDERS’ EQUITY

The Company’s authorized capital is 250,000,000 shares, of which (1) 200,000,000 shares are common stock, par value $0.0001 per share and (2) 50,000,000 shares are preferred stock, par value $0.0001 per share, which may, at the sole discretion of the Company’s board of directors, be issued in one or more series.

Common Stock

During the nine months ended September 30, 2023, the Company issued 70,889 shares of common stock for cash exercises of options of $70,889.

Warrants

Underwriter Warrant

In connection with the Company's underwriting agreement with ThinkEquity, a division of Fordham Financial Management, Inc. and the representative of the Company’s IPO underwriters, the Company issued to ThinkEquity a warrant to purchase up to 90,000 shares of common stock (the "Underwriter Warrant"). The Underwriter Warrant is exercisable at a per share exercise price of $10.00 and is exercisable at any time and from time to time, in whole or in part, during the four- and one-half year period commencing 180 days from the effective date of the IPO registration statement. The Underwriter Warrant became exercisable on or after December 16, 2021 (six months from the effective date of the offering) and expires on June 15, 2026. Upon issuance of the Underwriter Warrant, as partial compensation for its services as an underwriter, the fair value of approximately $0.4 million was recorded as equity issuance costs in the year ended December 31, 2021. As of September 30, 2023, the Underwriter Warrant had not been exercised, and had a weighted average exercise price of $10.00 per share and a remaining weighted average time to expiration of 2.71 years.

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iSpecimen Inc.

Notes to Unaudited Condensed Financial Statements

Lender Warrant

In connection with a term loan (“Term Loan”) entered into with Western Alliance Bank (the “Lender”) on August 13, 2021, the Company issued a warrant to the Lender (the “Lender Warrant”) to purchase 12,500 shares of common stock of the Company. The Lender Warrant is exercisable at a per share exercise price of $8.00 and is exercisable at any time on or after August 13, 2021 through August 12, 2031. The Company determined that the Lender Warrant was equity classified. As of September 30, 2023, the Lender Warrant had not been exercised, and had a weighted average exercise price of $8.00 per share and a remaining weighted average time to expiration of 7.87 years.

PIPE Warrants

On December 1, 2021, the Company completed a private placement (the “PIPE”) in which the Company issued warrants (the “PIPE Warrants”) to purchase up to an aggregate of 1,312,500 shares of common stock. These PIPE Warrants have an exercise price of $13.00 per share and are immediately exercisable upon issuance and will expire on the five- and one-half-year anniversary of the issuance date. As of September 30, 2023, the PIPE Warrants had not been exercised, and had a weighted average exercise price of $13.00 per share and a remaining weighted average time to expiration of 3.75 years.

10.STOCK-BASED COMPENSATION

Stock Incentive Plans

2021 Plan

In March 2021, the Company adopted the iSpecimen Inc. 2021 Stock Incentive Plan, which was subsequently amended in June 2021 and then on May 25, 2022 (the “2021 Plan”). The 2021 Plan was adopted to enhance the Company’s ability to attract, retain and motivate employees, officers, directors, consultants, and advisors by providing such persons with equity ownership opportunities and performance-based incentives. The 2021 Plan authorizes options, restricted stock, RSUs and other stock-based awards. The Company's board of directors, or any committee to which the board of directors delegates such authority, has the sole discretion in administering, interpreting, amending, or accelerating the 2021 Plan. Awards may be made under the 2021 Plan for up to 608,000 shares of the Company's common stock, and the 2021 Plan was made effective with the completion of the IPO.

On May 24, 2023, at the Company’s annual meeting of stockholders, the stockholders approved an amendment to the 2021 Plan to increase the number of shares under the 2021 Plan from 608,000 shares of common stock to 1,869,500 shares of common stock.

During the nine months ended September 30, 2023 and 2022, 182,919 and 175,261 equity awards were issued under the 2021 Plan, respectively. During the three months ended September 30, 2023 and 2022, 19,500 and 8,468 equity awards were issued under the 2021 Plan, respectively. As of September 30, 2023, there were 1,356,946 shares of common stock available for future grants under the 2021 Plan.

2013 Plan

The iSpecimen Inc. 2013 Stock Incentive Plan (the “2013 Plan”) was adopted on April 12, 2013 and subsequently amended on July 29, 2015. The aggregate number of shares of common stock that may be issued pursuant to the 2013 Plan was 1,713,570.

No equity awards were issued under the 2013 Plan during the nine months ended September 30, 2023 and 2022. According to the 2013 Plan which was adopted by the Company’s board of directors on April 12, 2013, no awards shall be granted under the 2013 Plan after the completion of ten years from the date on which the 2013 Plan was adopted by the Company’s board of directors. Therefore, as of April 13, 2023, no further shares had been granted from the remaining shares balance of 3,681 under the 2013 Plan.

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Notes to Unaudited Condensed Financial Statements

Stock Options

The Company granted 182,172 stock options during the nine months ended September 30, 2023. The Company did not grant any stock options in the nine months ended September 30, 2022. The following assumptions were used to estimate the fair value of stock options granted using the Black-Scholes-Merton option pricing model during the nine months ended September 30:


	2023	2022
Assumptions:
Risk-free interest rate	3.75% – 4.52%	—
Expected term (in years)	0.61 – 4.00	—
Expected volatility	59.17% –59.95%	—
Expected dividend yield	—	—

A summary of stock option activity under the 2021 Plan and 2013 Plan is as follows:


				Weighted
				Average
		Weighted		Remaining
	Options	Average		Contractual Term	Aggregate
	Outstanding	Exercise Price		in Years	Intrinsic Value
Balance at December 31, 2022	297,559	$	2.69	6.96	$	63,237
Granted	182,172		1.38	—		—
Exercised	(70,889)		1.00	—		48,494
Cancelled/forfeited	(107,933)		2.69	—		—
Balance at September 30, 2023	300,909	$	2.16	8.77	$	—

Options exercisable at September 30, 2023	118,455	$	2.69	8.13	$	—

The aggregate intrinsic value in the table above represents the difference between the Company's stock price as of the balance sheet date and the exercise price of each in-the-money option on the last day of the period. The aggregate intrinsic value of stock options exercised was $48,494 and $52,495 during the nine months ended September 30, 2023 and 2022, respectively.

The weighted average grant date fair value of stock options issued in the nine months ended September 30, 2023 was $0.53. The following table sets forth the recorded stock options compensation expense of the Company during the three and nine months ended September 30:


	Three Months Ended September 30,				Nine Months Ended September 30,
Operating expenses:	2023		2022		2023		2022
Technology	$	—	$	2,001	$	5,106	$	7,500
Sales and marketing		509		483		2,007		3,255
Supply development		—		255		820		908
Fulfillment		1,037		590		2,362		2,471
General and administrative		23,797		26,031		78,680		76,727
Total stock options expense	$	25,343	$	29,360	$	88,975	$	90,861

A total of $139,090 of unamortized compensation expense as of September 30, 2023 will be recognized over the remaining requisite service period of 2.72 years. During the nine months ended September 30, 2023 and 2022, the Company received proceeds of $70,889 and $78,387, respectively, from the exercise of stock options.

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Notes to Unaudited Condensed Financial Statements

Restricted Stock Units

A summary of RSUs activity under the 2021 Plan and 2013 Plan is as follows:


		Weighted
	RSUs	Average Grant
	Outstanding	Date Fair Value
Unvested Balance at December 31, 2022	267,505	$	5.43
Granted	747		1.62
Vested	(77,347)		5.33
Forfeited	(61,828)		4.99
Unvested Balance at September 30, 2023	129,077	$	5.68

The Company recorded RSUs compensation expense during the three and nine months ended September 30 as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
Operating expenses:	2023		2022		2023		2022
Technology	$	27,152	$	42,287	$	94,805	$	120,582
Sales and marketing		16,763		25,767		47,577		66,026
Supply development		356		9,137		3,180		27,281
Fulfillment		12,092		22,143		51,144		60,103
General and administrative		24,587		91,243		65,866		268,622
Total RSU expense	$	80,950	$	190,577	$	262,572	$	542,614

As of September 30, 2023, the total unrecognized stock-based compensation expense related to unvested RSUs was $688,510, and it is expected to be recognized on a straight-line basis over a weighted average period of approximately 2.11 years.

11.INCOME TAXES

As of September 30, 2023 and December 31, 2022, the Company had federal net operating loss carryforwards of approximately $47,967,000 and $40,800,000, respectively, of which approximately $13,000,000 expires at various periods through 2037 and approximately $34,967,000 and $27,800,000, respectively, can be carried forward indefinitely. As of September 30, 2023 and December 31, 2022, the Company had state net operating loss carryforwards of approximately $29,750,000 and $25,000,000, respectively, that expire at various periods through 2043, respectively. As of September 30, 2023 and December 31, 2022, the Company had federal and state tax credits of approximately $2,007,000 and $1,094,000, respectively, available for future periods that expire at various periods through 2043. The Company has recorded a full valuation allowance against net deferred income tax assets due to a history of losses generated since inception.

Due to changes in ownership provisions of the Internal Revenue Code of 1986 (the “IRC”), the availability of the Company's net operating loss carryforwards may be subject to annual limitations under Section 382 of the IRC against taxable income in the future period, which could substantially limit the eventual utilization of such carryforwards.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to iSpecimen Inc. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Special Note Regarding Forward-Looking Statements

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance, or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the “Risk Factors” section of Amendment No. 1 to the Company’s Annual Report on Form 10-K/A filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 30, 2023. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Overview

We were incorporated in 2009 under the laws of the state of Delaware. Our mission is to accelerate life science research and development via a single global marketplace platform, the iSpecimen Marketplace, which connects researchers to subjects, specimens, and associated data. We are headquartered in Lexington, Massachusetts. We operate as one operating and reporting segment.

The iSpecimen Marketplace is an automated search and request platform for researchers seeking human biospecimens, and a full suite of fulfillment and management tools for biospecimen providers. The platform taps into information management systems found in biobanks and laboratories for specimen data, and electronic Medical Records to gain insights into the patient populations to support specimen collections directly from research subjects.

Researchers can search this data using our intuitive web-based user interface to obtain specimens more efficiently. They can instantly find the specific specimens they need for their studies, request quotes for these specimens or for custom collections directly from research subjects, place orders, and track and manage their specimens and associated data across projects.

Biospecimen providers also gain efficiencies using the iSpecimen Marketplace, not only because the platform provides instant access to a large researcher base, but because the technology orchestrates the bioprocurement workflow from specimen request to fulfillment. Specimen providers can access intuitive dashboards to view requests, create proposals, and track and manage their orders. Finally, the platform helps with administrative and reporting functions for researchers, suppliers, and our internal personnel, including user and compliance management.

The iSpecimen Marketplace is composed of four major functional areas: search, fulfillment, data, and administrative reporting. We continue to invest in the evolution of these areas to improve engagement with the platform and liquidity across it. Our core business objective is to retain and grow both researcher and supplier usage of our platform to support biospecimen procurement, as well as to position the Company to explore other adjacent business opportunities that can benefit from the use of the iSpecimen Marketplace.

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The iSpecimen Marketplace currently supports the supply chain management and bioprocurement process for specimens and associated data. We generate revenue by procuring various specimens from hospitals, laboratories, and other supply sites, which comprise our global network, and delivering them to our medical research customers using our proprietary software. Costs paid to acquire specimens from hospitals and laboratories generally vary depending upon the sample type, collection requirements, and data provided. We generally operate in a “just in time” fashion, meaning we procure specimens from our suppliers and distribute specimens to our customers after we obtain an order for specimens from a research client. Generally, we do not speculatively purchase and bank samples in anticipation of future, unspecified needs. We believe our approach offers many advantages over a more traditional inventory-based supplier business model. In a fast-paced industry where personalized and precision medicine are growing at extraordinary rates, having access to hundreds of biorepositories to source supplies of biospecimens, rather than being limited to sourcing such biospecimens from a limited number of biorepositories under our management, substantially reduces the risks associated with a limited source of supply and provides us with the ability to avoid many of the operational constraints inherent in an industry where inventory turnover and cash conversion cycles can be lengthy.

Impact of the Current Economy

The Company’s financial performance is subject to global economic conditions and their impact on levels of spending by our 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 biospecimen industries, which may adversely affect our business and financial condition. We increased our allowance for doubtful accounts in accounts receivables by $243,053 during the nine months ended September 30, 2023 due to certain boutique life sciences customers either lacking liquidity or having filed for bankruptcy. We have enhanced procedures related to our credit check process for new and existing customers in fiscal year 2023 to mitigate the risk to future collectability of receivables.

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, enhancing internal team communications to accelerate the sales cycle, moving to a new line of business structure to increase efficiency in operations, implementation of next day quotes to increase conversion ratios of quotes to purchase orders, and initiation of efforts to decrease expenditures through a reduction in workforce.

We believe that our business will continue to be resilient through a continued industry-wide economic slowdown in life science research, and that we will continue to work on improving our liquidity to address our financial obligations and alleviate possible adverse effects on our business, financial condition, results of operations or prospects.

Impact of the Russian-Ukrainian War on Our Operations

Our business was negatively impacted during the first half of 2022 by the ongoing war between Russia and Ukraine. At the start of the war, we had approximately $1 million of purchase orders that were slated to be fulfilled by our 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 our Russian suppliers were disabled by sanctions. While we 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 our margins. Additionally, key resources were diverted from operations to resolving the re-fulfillment issues caused by the conflict.

As of September 30, 2023, our supply sites in Russia that had not been under sanctions were accessible and our 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 us. Therefore, as long as the uncertainty continues, our policy is to ensure at a

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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 Quarterly Report. The imposition of more sanctions and counter sanctions may have an adverse effect on the economic markets generally and could impact our business and the businesses of our 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 our business and the companies from which we obtain supplies and distribute specimens.

Known Trends, Demands, Commitments, Events or Uncertainties Impacting Our Business

Chief Executive Officer Initiatives

Under the direction of Ms. Curley, our Chief Executive Officer, the Company’s mission to accelerate life sciences research and development, pursuant to a single global marketplace platform, remains unchanged from that of prior management. Ms. Curley continues to review the Company’s structure, processes, and resources to evaluate and identify areas for improvement, and has been focused on creating and ensuring a runway for growth and scale for our business. The focus of our activities has been directed at cost containment and increasing our revenue in the second half of 2023, with the goal of becoming cash flow positive in 2024.

We have initiated efforts to decrease our capital and operational expenditures by cutting costs and right sizing the Company through a reduction in workforce. Throughout the year and primarily on September 6, 2023, we executed a reduction in workforce, resulting in an estimated reduction in monthly compensation costs of 29% and additional expenditure reductions estimated to be over 50% of monthly expenditures for the remainder of the year, after streamlining operations and rationalizing resources to focus on key market opportunities. As a result, we have experienced a significant decrease in expenditures during the third quarter of 2023 compared to the first two quarters of 2023.

One of our key new revenue enhancement initiatives is to identify, through sequencing, high value cancer patients which possess specific mutations in donor Formalin-Fixed Paraffin-Embedded (“FFPE”) blocks. We have invested in active repetitive screening to create a virtual inventory of availability for our research customers in areas of high value. This initiative is extremely valuable, not only to our business, but we believe, for the entire industry. We have entered into contracts with qualified suppliers to provide specific high value FFPE blocks which, we believe, could result in significant revenue share options. The power of our supplier network makes this initiative possible and when paired with the search functionality of our proprietary iSpecimen Marketplace, it provides an easier solution than what currently exists in our industry. We formally launched this initiative towards the end of the third quarter of 2023 and have recognized a modest level of revenue for this quarter. We now have opportunities and purchase orders, most of which are expected to be fulfilled in the fourth quarter of 2023. We own the data generated from sequencing of the FFPE blocks, and we are now creating a database of research content of our specific high value sequenced data that, we believe, will generate additional reiterative revenue by selling to researchers access to the database.

Our iSpecimen Marketplace Onsite Program, which offers additional support to our biospecimen supplier partners, is underway and we have begun to appoint iSpecimen Marketplace Onsite coordinators, whose responsibility is to field all requests made by the supplier partner and submit proposals on behalf of the supplier partner, resulting in the acceleration of fulfillment with streamlined sample-related management and reduced strain on existing supplier staff and product pipelines.

During 2023, we have had ongoing operational process improvement activities to increase collaboration within and between other departments. In the second quarter of 2023, we moved to a line of business structure which has increased efficiency in our operations and throughout the Company. Previously, it took an extended number of days to complete a feasibility study in order to provide a customer quote, which negatively impacted the time to convert a quote to a purchase order. We completed the implementation of a next day quote system this quarter and we have already started to see positive results, as evidenced by increased conversion ratios of quotes to purchase orders which has contributed to the increased revenue results for the third quarter of 2023.

Ms. Curley has also reviewed our technology roadmap and during the first half of 2023 greenlighted projects to accelerate development timelines. We are committed to investing in and developing our technology. During the nine months ended September 30, 2023, we capitalized approximately $3,501,000 of internally developed software costs with plans to invest at significantly lower levels for the remainder of the year. These investments have already resulted in meaningful progress which includes an updated search functionality, improved user interface, increased automation, and an enhanced matchmaking function of the iSpecimen Marketplace platform. We

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anticipate that these investments will increase revenue opportunities and result in operational efficiencies, positively impacting our liquidity, capital resources and results of operations in the future.

In 2023, while still onboarding new suppliers, we have shifted to the quality of our network. We have established business criteria that focus on supplier capabilities and revenue growth strategies as well as technology criteria for integrating onto our iSpecimen Marketplace platform and participating with us. We have been reengaging our suppliers in a more meaningful manner which assisted us in the implementation of our next day quote system. We now have a key supplier program whereby we proactively engage with the suppliers to promote our business through marketing campaigns and supplier organizations’ offerings.

Market Conditions

In order to address a downturn in the industry that impacted our financial results during the three months ended June 30, 2023, we revised our sales approach as detailed below, which we believe, has put us in a better position, to obtain favorable results faster for the remainder of 2023 and also recognize revenue more in line with historical levels. The majority of our customers are economically impacted by the availability of funding. We believe that the reduction in revenue in the second quarter was a result of the potential of a global economic slowdown at the end of the first quarter and that uncertainty negatively impacted on the equity markets for our industry. These economic challenges negatively impacted spending by our customers, having a direct effect on our revenue results for the second quarter of 2023. Specifically, in the second quarter of 2023, we experienced a substantial decline in the receipt of purchase orders from our customers. Due to this decline in purchase orders from customers, we also experienced a lower backlog of purchase orders compared to prior quarters. This adversely impacted on our ability to fulfill orders and generated lower levels of revenue in the second quarter of 2023 and the first half of the third quarter of 2023. However, revenue in the third quarter of 2023 increased $1.2 million, or 71% sequentially, from $1.6 million in the second quarter of 2023 due to our efforts to address this issue.

During the second quarter of 2023, we focused on launching several new initiatives with the express purpose of increasing our success rates for converting quotes to secured purchase orders, with the goal of reinstating our fulfillment of orders to the levels achieved in quarters prior to the second quarter of 2023. By the third quarter of 2023, we began to see the results of those efforts as evidenced by an increase in the level of our backlog compared to the beginning of the second quarter of 2023, as well as a significant increase in revenue in the third quarter of 2023 compared to the second quarter of 2023. Based on the results in the third quarter of 2023, we believe that this downturn in revenue for the second quarter of 2023 represented a temporary downturn and that we have taken the required actions to address these issues which, we believe, will allow us to achieve better results for the remainder of 2023 and beyond.

Components of Our Results of Operations

Revenue

We generate revenue by procuring various specimens from hospitals, laboratories, and other supply sites for our medical research customers using our proprietary software, the iSpecimen Marketplace, to identify, locate, and ultimately validate the required specimens to our customers’ requested specifications. The Company’s performance obligation is to procure a specimen meeting the customer specification(s) from a supplier, on a “best efforts” basis, for our customer at the agreed price per specimen as indicated in the customer contract with the Company. We do not currently charge suppliers or customers for the use of our 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 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, presented as deferred revenue. The Company expects to recognize the deferred revenue within the next twelve months.

We recognize revenue over time, as we have created an asset with no alternative use and we have an enforceable right to payment for performance completed to date. At contract inception, we review a contract and related order upon receipt to determine if the specimen ordered has an alternative use to us. Generally, specimens ordered do not have an alternative future use to us and our performance obligation is satisfied when the related specimens are accessioned. We use an output method to recognize revenue for specimens with no alternative future use. The output is measured based on the number of specimens accessioned.

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Customers are typically 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.

Cost of Revenue

Cost of revenue primarily consists of the purchase price to acquire specimens from hospitals and laboratories, inbound and outbound shipping costs, supply costs related to samples, payment processing and related transaction costs, and costs paid to the supply sites to support sample collections. Shipping costs upon receipt of products from suppliers are recognized in cost of revenue.

Technology

Technology costs include consulting fees and payroll and related expenses for employees involved in the development and implementation of our technology, software license and system maintenance fees, outsourced data center costs, data management costs, depreciation and amortization, and other expenses necessary to support technology initiatives. Collectively, these costs reflect the efforts we make to offer a wide variety of products and services to our customers. Technology and data costs are generally expensed as incurred.

A portion of technology costs are related to research and development. Costs incurred for research and development are expensed as incurred, except for software development costs that are eligible for capitalization. Research and development costs primarily include salaries and related expenses, in addition to the cost of external service providers.

Sales and Marketing

Sales and marketing costs primarily consist of payroll and related expenses for personnel engaged in marketing and selling activities, including salaries and sales commissions, travel expenses, public relations, and social media costs, ispecimen.com website development and maintenance costs, search engine optimization fees, advertising costs, direct marketing costs, trade shows and events fees, marketing and customer relationship management software, and other marketing-related costs.

Supply Development

We have agreements with supply partners that allow us to procure specimens from them and distribute these samples to customers. Supply development costs primarily include payroll and related expenses for personnel engaged in the development and management of this supply network, related travel expenses, regulatory compliance costs to support the network, and other supply development and management costs.

Fulfillment

Fulfillment costs primarily consist of those costs incurred in operating and staffing operations and customer service teams, including costs attributable to assess the feasibility of specimen requests, creating and managing orders, picking, packaging, and preparing customer orders for shipment, responding to inquiries from customers, and laboratory equipment and supplies.

General and Administrative

General and administrative expenses primarily consist of costs for corporate functions, including payroll and related expenses for human resources, legal, finance, and executive teams, associated software licenses, facilities, and equipment expenses, such as depreciation and amortization expense and rent, outside legal expenses, insurance costs, and other general and administrative costs.

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Financial Operations Overview and Analysis for the Three and Nine Months Ended September 30, 2023 and 2022 (Unaudited)

Comparison of the Three Months Ended September 30, 2023 and 2022


		Three Months Ended September 30,			Change
	2023		2022		Dollars		Percentage
Revenue	$	2,777,751	$	2,583,412	$	194,339	8	%
Operating expenses:
Cost of revenue		1,392,534		1,181,562		210,972	18	%
Technology		921,580		752,704		168,876	22	%
Sales and marketing		897,433		832,625		64,808	8	%
Supply development		186,176		166,058		20,118	12	%
Fulfillment		471,735		516,637		(44,902)	(9)	%
General and administrative		1,102,373		2,234,885		(1,132,512)	(51)	%
Total operating expenses		4,971,831		5,684,471		(712,640)	(13)	%
Loss from operations		(2,194,080)		(3,101,059)		906,979	29	%
Other income (expense), net
Interest expense		(4,465)		(58,591)		54,126	92	%
Interest income		67,362		60,812		6,550	11	%
Other income, net		20,082		3,148		16,934	538	%
Total other income (expense), net		82,979		5,369		77,610	1,446	%
Net loss	$	(2,111,101)	$	(3,095,690)		984,589	32	%

Revenue

Revenue increased by approximately $194,000, or 8%, from approximately $2,584,000 for the three months ended September 30, 2022 to approximately $2,778,000 for the three months ended September 30, 2023. This was primarily due to an increase of 527, or 11%, in specimen count from 4,840 specimens in the three months ended September 30, 2022 to 5,367 specimens in the three months ended September 30, 2023. The effect of the increase in specimen count was partially offset by a change in the specimen mix which caused the average selling price per specimen to decrease by $16, or 3%, from approximately $534 in the three months ended September 30, 2022 to $518 in the three months ended September 30, 2023.

Cost of Revenue

Cost of revenue increased by approximately $211,000, or 18%, from approximately $1,182,000 for the three months ended September 30, 2022 to approximately $1,393,000 for the three months ended September 30, 2023, which was attributable to a $15, or 6%, increase in the average cost per specimen and an 11% increase in the number of specimens accessioned for the current period compared to the same period in the prior year.

Technology

Technology expenses increased by approximately $169,000, or 22%, from approximately $753,000 for the three months ended September 30, 2022 to approximately $922,000 for the three months ended September 30, 2023. The increase was related to increases in amortization of internally developed software of approximately $202,000 and professional fees unrelated to internally developed software of approximately $94,000, which were partially offset by decreases in headcount and payroll and related expenses of approximately $126,000 and in general and administrative expenses of approximately $1,000.

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Sales and Marketing Expenses

Sales and marketing expenses increased by approximately $65,000, or 8%, from approximately $833,000 for the three months ended September 30, 2022 to approximately $898,000 for the three months ended September 30, 2023. The increase was attributable to increases in professional fees of approximately $123,000 and payroll and related expenses of approximately $112,000 due to hiring more sales personnel, which were partially offset by decreases in external marketing expenses of approximately $169,000 and travel expenses of approximately $2,000.

Supply Development

Supply development expenses increased by approximately $20,000, or 12%, from approximately $166,000 for the three months ended September 30, 2022 to approximately $186,000 for the three months ended September 30, 2023. The increase was primarily attributable to increases in professional fees of approximately $16,000, and payroll and related expenses of approximately $6,000, which were partially offset by a decrease in travel expenses of approximately $2,000.

Fulfillment

Fulfillment costs decreased by approximately $45,000, or 9%, from approximately $517,000 for the three months ended September 30, 2022 to approximately $472,000 for the three months ended September 30, 2023. The decrease was primarily attributable to a decrease in payroll and related expenses of approximately $158,000 for personnel engaged in pre-sales feasibility assessments and post-sales fulfillment activities, which was partially offset by increases in professional fees of approximately $106,000 and travel expenses of $7,000.

General and Administrative Expenses

General and administrative expenses decreased by approximately $1,133,000, or 51%, from approximately $2,235,000 for the three months ended September 30, 2022 to approximately $1,102,000 for the three months ended September 30, 2023. The decrease was attributable to decreases in payroll and related expenses of approximately $606,000, taxes and insurance of approximately $300,000, professional fees of approximately $126,000, bad debt expense of approximately $90,000, and utilities and facilities of approximately $36,000, which were partially offset by increases in depreciation and amortization expenses of approximately $19,000 and other general operating expenses of approximately $6,000.

Other Income (Expense), Net

Other income (expense), net, increased by approximately $78,000, or 1,446%, from approximately $5,000 of other income, net for the three months ended September 30, 2022 to approximately $83,000 of other income, net, for the three months ended September 30, 2023. The increase in other income (expense), net, was attributable to increases in interest income of approximately $7,000, a decrease in interest expense of approximately $54,000, and an increase in other income of approximately $17,000.

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Comparison of the Nine Months Ended September 30, 2023 and 2022


		Nine Months Ended September 30			Change
	2023		2022		Dollars		Percentage
Revenue	$	7,353,090	$	7,440,760	$	(87,670)	(1)	%
Operating expenses:							��
Cost of revenue		3,393,079		3,347,392		45,687	1	%
Technology		2,599,086		1,915,877		683,209	36	%
Sales and marketing		2,972,757		2,530,619		442,138	17	%
Supply development		801,038		590,508		210,530	36	%
Fulfillment		1,363,427		1,480,425		(116,998)	(8)	%
General and administrative		4,522,028		5,620,393		(1,098,365)	(20)	%
Total operating expenses		15,651,415		15,485,214		166,201	1	%
Loss from operations		(8,298,325)		(8,044,454)		(253,871)	(3)	%
Other income (expense), net
Interest expense		(11,535)		(138,912)		127,377	92	%
Interest income		292,506		87,347		205,159	235	%
Other income (expense), net		(9,173)		9,778		(18,951)	(194)	%
Total other income (expense), net		271,798		(41,787)		313,585	750	%
Net loss	$	(8,026,527)	$	(8,086,241)		59,714	1	%

Revenue

Revenue decreased by approximately $88,000, or 1%, from approximately $7,441,000 for the nine months ended September 30, 2022 to approximately $7,353,000 for the nine months ended September 30, 2023. This was primarily due to a decrease in average selling price per specimen of $50, or 11%, from approximately $444 in the nine months ended September 30, 2022 to $394 in the nine months ended September 30, 2023. The decrease in average selling price per specimen was offset by an increase of 1,910, or 11%, in specimen count from 16,768 specimens in the nine months ended September 30, 2022 to 18,678 specimens in the nine months ended September 30, 2023.

Cost of Revenue

Cost of revenue increased by approximately $46,000, or 1%, from approximately $3,347,000 for the nine months ended September 30, 2022 to approximately $3,393,000 for the nine months ended September 30, 2023, which was attributable to an 11% increase in the number of specimens accessioned during the nine months ended September 30, 2023 over the same period in the prior year, which was offset by an $18, or 9%, decrease in the average cost per specimen impacted by the specimen mix during the nine month period ended September 30, 2023 over the same period in 2022.

Technology

Technology expenses increased by approximately $683,000, or 36%, from approximately $1,916,000 for the nine months ended September 30, 2022 to approximately $2,599,000 for the nine months ended September 30, 2023. The period over period increase was related to increases in amortization of approximately $603,000, payroll and related expenses of approximately $52,000, and professional fees of approximately $33,000, which were partially offset by a decrease in general operating expense of approximately $5,000.

Sales and Marketing Expenses

Sales and marketing expenses increased approximately $442,000, or 17%, from approximately $2,531,000 for the nine months ended September 30, 2022 to approximately $2,973,000 for the nine months ended September 30, 2023. The period over period increase was primarily attributable to increases in payroll and related expenses of approximately $535,000, external marketing expense of approximately $271,000, and general operating expenses related to sales and marketing of approximately $17,000, which were partially offset by a decrease in advertising and promotions expense of approximately $381,000.

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Supply Development

Supply development expenses increased approximately $211,000, or 36%, from approximately $590,000 for the nine months ended September 30, 2022 to approximately $801,000 for the nine months ended September 30, 2023. The period over period increase was primarily attributable to increases in professional fees of approximately $278,000 and general supply development expenses of approximately $3,000, which were partially offset by a decrease in payroll and related expenses of approximately $71,000.

Fulfillment

Fulfillment costs decreased approximately $117,000, or 8%, from approximately $1,480,000 for the nine months ended September 30, 2022 to approximately $1,363,000 for the nine months ended September 30, 2023. The decrease was primarily attributable to a decrease in payroll and related expenses of approximately $243,000 for personnel engaged in pre-sales feasibility assessments and order fulfillment, which was partially offset by increases in professional fees of approximately $102,000 and general operating expenses related to fulfillment of approximately $24,000.

General and Administrative Expenses

General and administrative expenses decreased approximately $1,098,000, or 20%, from approximately $5,620,000 for the nine months ended September 30, 2022 to approximately $4,522,000 for the nine months ended September 30, 2023. The period over period decrease was attributable to decreases in compensation costs of approximately $791,000, taxes and insurance of approximately $227,000, bad debt expense of approximately $98,000, utilities and facilities of approximately $40,000, and general operating expenses of approximately $28,000, which were partially offset by an increase in depreciation and amortization of approximately $86,000.

Other Income (Expense), net

Other income (expense), net, increased by approximately $314,000, or 750%, from approximately $42,000 of other expense, net for the nine months ended September 30, 2022 to approximately $272,000 of other income, net, for the nine months ended September 30, 2023. The increase in other income (expense), net, was attributable to increases in interest income of approximately $205,000, and a decrease in interest expense of approximately $127,000, offset by an increase in other expense of approximately $19,000.

Liquidity and Capital Resources


						Change
	September 30, 2023		December 31, 2022		Dollars		Percentage
Balance Sheet Data:
Cash and cash equivalents	$	2,721,568	$	15,308,710	$	(12,587,142)		(82)	%
Available-for-sale securities		2,940,967		—		2,940,967		100	%
Working capital		5,609,469		15,394,634		(9,785,165)		(64)	%
Total assets		16,295,096		24,617,653		(8,322,557)		(34)	%
Total stockholders' equity		12,705,720		20,309,170		(7,603,450)		(37)	%


	Nine Months Ended September 30,				Change
	2023		2022		Dollars		Percentage
Statement of Cash Flow Data:
Net cash flows used in operating activities	$	(6,152,691)	$	(5,610,366)	$	(542,325)	(10)	%
Net cash flows used in investing activities		(6,505,340)		(1,549,281)		(4,956,059)	(320)	%
Net cash flows provided by financing activities		70,889		78,387		(7,498)	(10)	%
Net decrease in cash and cash equivalents	$	(12,587,142)	$	(7,081,260)	$	(5,505,882)

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Since inception, we have relied upon raising capital to finance our operations. In the nine months ended September 30, 2023, we invested approximately $3.5 million of cash in further developing our iSpecimen Marketplace technology with plans to invest at a lower level for the remainder of the year. We intend to continue to use our existing cash to grow our supply network, increase our marketing and sales presence, scale our operations, and for working capital and general corporate purposes.

We have had recurring losses since inception. As of September 30, 2023, we had working capital of approximately $5,600,000, an accumulated deficit of $56,291,851, cash and cash equivalents and short-term investments of $5,662,535 and accounts payable and accrued expenses of $3,308,124. Our continued viability is dependent on the ability to successfully obtain additional working capital and/or ultimately attain profitable operations. Throughout the year and primarily on September 6, 2023, we executed a reduction in workforce, resulting in an estimated reduction in monthly compensation costs of 29% and additional expenditures reductions estimated to be over 50% of monthly expenditures for the remainder of the year, after streamlining operations and rationalizing resources to focus on key market opportunities. We plan to add additional customers and suppliers to increase and add additional revenues through our new revenue enhancement projects as well as to reduce and manage expenditures to improve our financial position and ensure continued funding of operations. However, as certain elements of our operating plan are not within our control, we are unable to assess their probability. We may also seek to fund our operations through public equity or debt financing, as well as other sources, but we have not currently identified any specific source of financing. However, we may be unsuccessful in increasing our revenues from our new enhancement project or contain our operating expenses, or we may be unable to raise additional capital on commercially favorable terms. Our failure to generate additional revenues or contain operating costs would have a negative impact on our business, results of operations and financial condition and our ability to continue as a going concern. If we do not generate enough revenue to provide an adequate level of working capital, our business plan will be scaled down further.

These conditions raise substantial doubt regarding our ability to continue as a going concern for a period of one year after the date of this Quarterly Report. Management’s plan to mitigate the conditions that raise substantial doubt includes generating additional revenues through its revenue enhancement projects, deferring certain projects and capital expenditures and eliminating certain future operating expenses for us to continue as a going concern. However, there can be no assurance that we will be successful in completing any of these options. As a result, management’s plans cannot be considered probable and thus do not alleviate substantial doubt about our ability to continue as a going concern.

Cash Flows

Operating Activities

For the nine months ended September 30, 2023, net cash used in operating activities was approximately $6,153,000, which consisted of a net loss of approximately $8,027,000 offset by non-cash charges of approximately $1,982,000, which included $1,435,565 related to amortization of internally developed software and other non-current assets, $351,547 in stock-based compensation, $243,053 in bad debt expense, $99,125 related to depreciation and amortization of property and equipment, which were offset by $147,170 of accretion of discount on available-for-sale securities. Total changes in assets and liabilities of approximately $108,000 were attributable to a $503,278 decrease in accrued expenses, a $350,781 increase in accounts receivable, a $178,899 decrease in accounts payable, a $85,425 decrease in deferred revenue, a $49,113 increase in right-of-use asset, and a $20,179 increase in prepaid expenses and other current assets, offset by a $902,355 decrease in accounts receivables-unbilled, a $128,541 decrease in tax credit receivable, and a $48,495 increase in operating lease liability.

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For the nine months ended September 30, 2022, net cash used in operating activities was approximately $5,610,000, which consisted of a net loss of approximately $8,086,000 offset by non-cash charges of approximately $1,829,000, which included $825,804 related to amortization of internally developed software, $633,475 in stock-based compensation, $340,858 in bad debt expense, $13,587 related to depreciation and amortization of property and equipment, $9,207 of amortization of debt issuance costs on the Term Loan, and $6,250 of proceeds from issuance of common stock in exchange for services. Total changes in assets and liabilities of approximately $647,000 were attributable to a $876,779 decrease in accounts receivable-unbilled, a $427,798 decrease in accounts receivable, and a $135,057 increase in accounts payable, offset by a $654,745 decrease in deferred revenue, a $124,240 decrease in accrued expenses, and a $14,520 increase in prepaid expenses and other current assets.

Investing Activities

Net cash used in investing activities was approximately $6,505,000 and $1,549,000 for the nine months ended September 30, 2023 and 2022, respectively. Net cash used in investing activities for the nine months ended September 30, 2023 consisted of $10,143,156 of purchases of available-for-sale securities, $3,692,706 of capitalization of internally developed software and other non-current assets, and $19,478 of purchases of property and equipment, which were offset by $7,350,000 of proceeds from sale and maturities of available-for-sale securities. Net cash used in investing activities for the nine months ended September 30, 2022 consisted of $1,549,281 of capitalization of internally developed software.

Financing Activities

Net cash provided by financing activities was approximately $71,000 and $78,000 for the nine months ended September 30, 2023 and 2022, respectively. Net cash provided by financing activities for the nine months ended September 30, 2023 consisted of $70,889 received from the exercise of stock options. Net cash provided by financing activities for the nine months ended September 30, 2022 consisted of $78,387 received from the exercise of stock options.

Effects of Inflation and Supply Chain Shortages

Our operations are heavily reliant on specimen availability, and as a result, we often receive more requests than we can fulfill. While the Company is subject to these types of supply chain constraints that are specific to the specimen industry, we have not been materially affected by the more common supply chain issues currently affecting the economy, specifically surrounding transportation, except for an increase in our shipping costs. Shipping costs increased approximately $126,000, or 36%, from approximately $352,000 to $478,000 period over period during the nine months ended September 30, 2023. Due to the small size of the packages that we ship, our carriers were able to continue making timely deliveries during the nine months ended September 30, 2023.

We have experienced negative effects of inflation in certain areas of our business due to the high rates of inflation in the world’s current economy. This inflation is affecting employee salaries, which account for a significant portion of our operating costs. Additionally, the costs of supplies have been affected by inflation; however, these costs are not significant to the Company’s results.

Inflation has not had a significant impact on the cost of specimens due to our long-term contracts maintained with vendors, which include revenue sharing plans.

Non-GAAP Financial Measure

To supplement our unaudited condensed financial statements, which are prepared and presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), we use adjusted earnings before interest, taxes, depreciation, and amortization (“Adjusted EBITDA”), a non-GAAP financial measure, to understand and evaluate our core operating performance. This non-GAAP financial measure, which may be different than similarly titled measures used by other companies, is presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We define our non-GAAP financial measure of Adjusted EBITDA as net loss, excluding income tax benefit, depreciation and amortization, non-cash impact of severance accruals, stock-based compensation expense and interest expense.

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We believe that Adjusted EBITDA provides useful information about our financial performance, enhances the overall understanding of our past performance and future prospects, and allows for greater transparency with respect to a key metric used by our management for financial and operational decision-making. We believe that Adjusted EBITDA helps identify underlying trends in our business that otherwise could be masked by the effect of the expenses that we exclude in Adjusted EBITDA.

We are presenting the non-GAAP measure of Adjusted EBITDA to assist investors in seeing our financial performance through the eyes of management, and because we believe this measure provides an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA compared to net loss, the closest comparable GAAP measure. Some of these limitations are that:

ØAdjusted EBITDA excludes certain recurring, non-cash charges such as accrued severance, depreciation of leasehold improvements, property and equipment, amortization of amortization of internally developed software and, although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future;

ØAdjusted EBITDA excludes stock-based compensation expense which has been, and will continue to be for the foreseeable future, significant recurring expenses in our business and an important part of our compensation strategy; and

The following table presents a reconciliation of Adjusted EBITDA to net loss, the most comparable GAAP financial measure, for each of the periods presented:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net loss	$	(2,111,101)	$	(3,095,690)	$	(8,026,527)	$	(8,086,241)
Depreciation and amortization		524,135		293,920		1,534,690		839,391
Accrued severance costs		15,160		350,000		15,160		350,000
Stock-based compensation		106,293		219,936		351,547		633,475
Interest expense		4,465		58,591		11,535		138,912
Adjusted EBITDA	$	(1,461,048)	$	(2,173,243)	$	(6,113,595)	$	(6,124,463)

Critical Accounting Policies

We have chosen accounting policies that we believe are appropriate to accurately and fairly report our operating results and financial condition in conformity with GAAP. We apply these accounting policies in a consistent manner. Our significant accounting policies are discussed in Note 2, “Summary of Significant Accounting Policies,” in our financial statements included in Amendment No. 1 to our Annual Report on Form 10-K/A for the year ended December 31, 2022.

The application of critical accounting policies requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. These estimates and assumptions are based on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances. We evaluate these estimates and assumptions on an ongoing basis. If actual results ultimately differ from previous estimates, the revisions are included in results of operations in the period in which the actual amounts become known. The critical accounting policies that involve the most significant management judgments and estimates used in preparation of our unaudited condensed financial statements or are the most sensitive to change from outside factors, are discussed in “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Amendment No. 1 to the Company’s Annual Report on the Form 10-K/A for the year ended December 31, 2022. There have been no material changes in our critical accounting policies and procedures during the nine months ended September 30, 2023.

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JOBS Act Transition Period

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 and (ii) complying with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii) December 31, 2026; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable for smaller reporting companies.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended September 30, 2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. These controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, in a manner to allow timely decisions regarding required disclosures. Based on this evaluation, management has concluded that our disclosure controls and procedures were not effective as of September 30, 2023 due to the following material weakness in internal control over financial reporting:

●	The Company did not design and maintain adequate controls to maintain appropriate documentation for the tax exempt status of its customers, calculate and collect sales tax at point of sale, and subsequently report and remit in a timely manner to the relevant tax jurisdictions sales tax obligations.

Notwithstanding the existence of the material weakness described above, management believes that the unaudited condensed financial statements included in this Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows as of and for the periods presented, in conformity with GAAP.

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Management’s Plan for Remediation

The material weakness described above was identified as a result of an entity-wide risk assessment process that commenced in the quarter ended June 30, 2023. The Company is in the process of implementing a remediation plan to improve our internal control over financial reporting and to remediate the related control deficiencies that led to the material weakness. In response to these deficiencies, management, with the oversight of the Audit Committee of the Board of Directors, has identified and implemented steps to remediate the material weakness.

The Company began implementing the remediation plan during the second quarter of fiscal year 2023 and this remediation is ongoing as of the filing date of this Quarterly Report. The following remedial measures are designed to address the material weakness and to continue to improve our internal control over financial reporting.

●	We have engaged external tax advisors to complement internal resources and efforts and provide support in assessing the appropriate sales tax treatment associated with the Company’s products for all prior years in which the Company had generated revenue.

●

We have begun obtaining sales tax exemption letters, representation letters or proof of payments of compensating use tax from our customers and we have started a collection effort of these sales taxes from certain customers who have notified the Company that they do not have a sales tax exemption letter.

●

We have begun implementing a sales tax software platform solution for the calculation, communication, collection, and remittance of sales tax for all non-exempt future sales, and assisting with the collection and tracking of Voluntary Disclosure Agreements received from states where a potential sales tax liability may exist.

●	We have begun designing and implementing enhanced policies, procedures and controls related to the calculation, communication, collection, and remittance of sales tax to relevant jurisdictions.

●	We have begun training appropriate personnel in the effective design and execution of our enhanced policies, procedures, and controls, including the importance of the ongoing, consistent effective execution of such procedures and controls.

We are committed to the remediation of the material weakness and expect to successfully implement enhanced control processes. However, as we continue to evaluate, and work to improve our internal control over financial reporting, management may determine that additional measures to address control deficiencies or modifications to the remediation plan are necessary. Therefore, we cannot assure you when we will be able to fully remediate such weakness, nor can we be certain that additional actions will not be required or what the costs may be of any such additional actions. Moreover, we cannot assure you that additional material weaknesses will not arise in the future.

Changes in Internal Control Over Financial Reporting

We are in the process of implementing certain changes to our internal controls to remediate the material weakness described above. Except as noted above, there were no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

Other than as described below, there have been no material changes with respect to risk factors previously disclosed in Amendment No. 1 to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2022, filed with the SEC on March 30, 2023.

We have identified a material weakness in our internal controls over financial reporting that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remediate a material weakness or if we otherwise fail to establish and maintain effective control over financial reporting, our ability to accurately and timely report our financial results could be adversely affected.

We are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which requires management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our controls over financial reporting. Although we are required to disclose changes made in our internal controls and procedures on a quarterly basis, we are not required to make our first annual assessment of our internal controls over financial reporting pursuant to Section 404 until the later of (i) the year following our first annual report required to be filed with the SEC or (ii) the date we are no longer an emerging growth company. This assessment needs to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an opinion on the effectiveness of our internal control over financial reporting, provided that our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting until our first annual report required to be filed with the SEC, following the later of the date we are deemed to be an “accelerated filer” or a “large accelerated filer,” each as defined in the Exchange Act, or the date we are no longer an emerging growth company, as defined in the JOBS Act. We could be an emerging growth company for up to five years after the date of our initial public offering.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. In the second quarter of 2023, the Company engaged external tax consultant advisors to complement internal resources and efforts to provide support in assessing the Company’s tax liability associated with products for all prior years in which the Company had generated revenue, to assist with the collection and tracking of Voluntary Disclosure Agreements (“VDAs”) where a potential sales tax liability may exist and to assist with the implementation of a sales tax software platform solution for the calculation, communication, collection, and remittance of sales tax for all non-exempt future sales. From the Company’s inception through present, the Company now believes it is probable that a sales tax liability existed for certain of its sales of products to certain of its customers; however, due to the complexity and uncertainty around the application of these rules by taxing authorities, results may vary materially from the Company’s expectations. Currently, the Company does not have sufficient information to reasonably estimate the minimum or maximum amount of the sales tax liability as of the date of this Quarterly Report. However, the Company has collected approximately $246,000 from certain customers related to sales taxes due. This known sales tax liability represents its current best estimate as to a minimum, and an offsetting recovery as these funds have been collected from customers. The Company will record additional liability when the total amount of the liability becomes reasonably estimable. The Company is also in the process of identifying where there may be a need to file VDAs with relevant taxing jurisdictions regarding its failure to collect and remit sales tax obligations.

We also may identify future material weaknesses in our internal controls over financial reporting or fail to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, and we may be unable to accurately report our financial results, or report them within the timeframes required by law or stock exchange regulations. We cannot assure you that additional material weaknesses will not exist or otherwise be discovered, any of which could adversely affect our reputation, financial condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

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Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

Item 6. Exhibits

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report.




No.	Description of Exhibit
31.1*	Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	Inline XBRL Instance Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*	Cover Page Interactive Data File––the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

*	Filed herewith.

**	Furnished.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	iSpecimen Inc.


Date: November 2, 2023	By:	/s/ Tracy Curley
	Name:	Tracy Curley
	Title:	Chief Executive Officer, Chief Financial Officer and Treasurer (Principal Executive Officer and Principal Financial and Accounting Officer)

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iSpecimen (ISPC) 10-Q2023 Q3 Quarterly report

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