bioc-10q_20190930.htm

 

UNITED STATES  

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 2019

OR

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

For the transition period from                      to                     .

Commission file number: 001-36284

 

Biocept, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

80-0943522

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

5810 Nancy Ridge Drive, San Diego, California

(Address of principal executive offices)

92121

(Zip Code)

(858) 320-8200

(Registrant’s telephone number, including area code)

Not Applicable

(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 $.0001 per share

BIOC

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 the 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 by Rule 12b-2 of the Exchange Act). Yes  No 

As of November 8, 2019, there were 23,018,235 shares of the Registrant’s common stock outstanding.

 

 

 

 

 


BIOCEPT, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

September 30, 2019

INDEX

 

 

 

 

  

Page

 

 

IMPORTANT NOTE REGARDING FORWARD-LOOKING STATEMENTS

  

4

 

 

 

PART I.

 

FINANCIAL INFORMATION

  

 

 

 

 

Item 1.

 

Financial Statements

  

5

 

 

 

 

 

Condensed Balance Sheets as of December 31, 2018 and September 30, 2019 (Unaudited)

  

5

 

 

 

 

 

Condensed Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2018 and 2019 (Unaudited)

  

6

 

 

 

 

 

Condensed Statements of Shareholders’ Equity for the three and nine months ended September 30, 2018 and 2019 (unaudited)

  

7

 

 

 

 

 

Condensed Statements of Cash Flows for the nine months ended September 30, 2018 and 2019 (Unaudited)

  

9

 

 

 

 

 

Notes to Condensed Financial Statements (Unaudited)

  

12

 

 

 

Item 2.

 

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

  

28

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

  

39

 

 

 

Item 4.

 

Controls and Procedures

  

39

 

 

 

PART II.

 

OTHER INFORMATION

  

 

 

 

 

Item 1.

 

Legal Proceedings

  

41

 

 

 

 

 

Item 1A.

 

Risk Factors

  

41

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

67

 

 

 

Item 3.

 

Defaults Upon Senior Securities

  

67

 

 

 

Item 4.

 

Mine Safety Disclosures

  

67

 

 

 

Item 5.

 

Other Information

  

67

 

 

 

Item 6.

 

Exhibits

  

67

 

 

 

3


IMPORTANT NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements included or incorporated by reference in this Quarterly Report other than statements of historical fact, are forward-looking statements. You can identify these and other forward-looking statements by the use of words such as “may,” “will,” “could,” “anticipate,” “expect,” “intend,” “believe,” “continue” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to such statements.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in our other filings with the Securities and Exchange Commission, or the SEC. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for us to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made except as required by law. Readers should, however, review the factors and risks we describe in the reports we file from time to time with the SEC. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date the statement is made, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.

 

 

 

4


PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

Biocept, Inc.

Condensed Balance Sheets

 

 

 

December 31,

 

 

September 30,

 

 

2018

 

 

2019

 

 

 

 

 

 

(unaudited)

 

Current assets:

 

 

 

 

 

 

 

Cash

$

3,423,373

 

 

$

6,539,444

 

Accounts receivable, net

 

1,574,325

 

 

 

2,861,659

 

Inventories, net

 

587,222

 

 

 

687,186

 

Prepaid expenses and other current assets

 

425,961

 

 

 

497,121

 

Total current assets

 

6,010,881

 

 

 

10,585,410

 

Fixed assets, net

 

2,739,422

 

 

 

1,325,255

 

Lease right-of-use assets

 

 

 

 

2,610,249

 

Total assets

$

8,750,303

 

 

$

14,520,914

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

2,039,718

 

 

$

1,834,020

 

Accrued liabilities

 

1,928,393

 

 

 

1,846,984

 

Supplier financings

 

 

 

 

132,924

 

Current portion of equipment financings

 

641,536

 

 

 

 

Current portion of lease liabilities

 

 

 

 

1,969,285

 

Total current liabilities

 

4,609,647

 

 

 

5,783,213

 

Non-current portion of equipment financings

 

985,015

 

 

 

 

Non-current portion of lease liabilities

 

 

 

 

1,032,243

 

Non-current portion of deferred rent

 

113,122

 

 

 

 

Total liabilities

 

5,707,784

 

 

 

6,815,456

 

Commitments and contingencies (see Note 11)

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 5,000,000 authorized; 4,417 shares issued and outstanding at December 31, 2018; and 2,133 shares issued and outstanding at September 30, 2019.

 

 

 

 

 

Common stock, $0.0001 par value, 150,000,000 authorized; 4,629,174 issued and outstanding at December 31, 2018; 23,018,235 issued and outstanding at September 30, 2019.

 

463

 

 

 

2,302

 

Additional paid-in capital

 

223,499,634

 

 

 

247,685,038

 

Accumulated deficit

 

(220,457,578

)

 

 

(239,981,882

)

Total shareholders’ equity

 

3,042,519

 

 

 

7,705,458

 

Total liabilities and shareholders’ equity

$

8,750,303

 

 

$

14,520,914

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

5


Biocept, Inc.

Condensed Statements of Operations and Comprehensive Loss

(Unaudited)

 

 

 

For the three months ended September 30,

 

 

For the nine months ended September 30,

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

Net revenues

$

761,591

 

 

$

1,529,262

 

 

$

2,390,772

 

 

$

3,744,824

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

2,481,916

 

 

 

2,832,735

 

 

 

7,616,473

 

 

 

8,105,422

 

Research and development expenses

 

1,089,746

 

 

 

1,163,546

 

 

 

3,179,612

 

 

 

3,535,116

 

General and administrative expenses

 

1,793,720

 

 

 

1,700,380

 

 

 

5,441,354

 

 

 

5,058,525

 

Sales and marketing expenses

 

1,404,192

 

 

 

1,462,335

 

 

 

4,473,908

 

 

 

4,451,628

 

Total costs and expenses

 

6,769,574

 

 

 

7,158,996

 

 

 

20,711,347

 

 

 

21,150,691

 

Loss from operations

 

(6,007,983

)

 

 

(5,629,734

)

 

 

(18,320,575

)

 

 

(17,405,867

)

Other income/ (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(63,764

)

 

 

(62,028

)

 

 

(230,677

)

 

 

(187,575

)

Warrant inducement and other income (expenses)

 

23,963

 

 

 

 

 

 

(6,037

)

 

 

(1,831,116

)

Total other income/ (expense):

 

(39,801

)

 

 

(62,028

)

 

 

(236,714

)

 

 

(2,018,691

)

Loss before income taxes

 

(6,047,784

)

 

 

(5,691,762

)

 

 

(18,557,289

)

 

 

(19,424,558

)

Income tax expense

 

 

 

 

 

 

 

(739

)

 

 

 

Net loss and comprehensive loss

$

(6,047,784

)

 

$

(5,691,762

)

 

$

(18,558,028

)

 

$

(19,424,558

)

Deemed dividend related to warrants down round provision

 

(636,370

)

 

 

 

 

 

(636,370

)

 

 

(99,743

)

Net loss attributable to common shareholders

$

(6,684,154

)

 

$

(5,691,762

)

 

$

(19,194,398

)

 

$

(19,524,301

)

Weighted-average shares outstanding used in computing net loss per share attributable to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

2,767,440

 

 

 

23,018,235

 

 

 

2,322,749

 

 

 

17,807,298

 

Diluted

 

2,759,614

 

 

 

23,018,235

 

 

 

2,320,111

 

 

 

17,807,298

 

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(2.42

)

 

$

(0.25

)

 

$

(8.26

)

 

$

(1.10

)

Diluted

$

(2.42

)

 

$

(0.25

)

 

$

(8.27

)

 

$

(1.10

)

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

6


Biocept, Inc.

Condensed Statements of Shareholders’ Equity

(Unaudited)

 

 

 

 

 

Common Stock

 

 

Series A

Convertible

Preferred Stock

 

 

Additional

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Deficit

 

 

Total

 

Balance at December 31, 2017

 

 

1,181,179

 

 

$

118

 

 

 

 

 

$

 

 

$

196,545,523

 

 

$

(195,249,607

)

 

$

1,296,034

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

225,263

 

 

 

 

 

 

225,263

 

Shares and warrants issued for January 2018 financing transaction, net of issuance costs

 

 

1,095,153

 

 

 

110

 

 

 

 

 

 

 

 

 

13,342,711

 

 

 

 

 

 

13,342,821

 

Adjustment for presentation after reverse stock split

 

 

 

 

 

6,576

 

 

 

 

 

 

 

 

 

(6,576

)

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,357,143

)

 

 

(6,357,143

)

Balance at March 31, 2018

 

 

2,276,332

 

 

$

6,804

 

 

 

 

 

$

 

 

$

210,106,921

 

 

$

(201,606,750

)

 

$

8,506,975

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

173,694

 

 

 

 

 

 

173,694

 

Shares issued for restricted stock units

 

 

5,834

 

 

 

19

 

 

 

 

 

 

 

 

 

(19

)

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,153,101

)

 

 

(6,153,101

)

Balance at June 30, 2018

 

 

2,282,166

 

 

$

6,823

 

 

 

 

 

$

 

 

$

210,280,596

 

 

$

(207,759,851

)

 

$

2,527,568

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

113,072

 

 

 

 

 

 

113,072

 

Shares issued upon conversion of preferred stock

 

 

1,012,622

 

 

 

101

 

 

 

(4,582

)

 

 

 

 

 

(101

)

 

 

 

 

 

 

Preferred shares and warrants issued for August 2018 rights offering, net of issuance costs

 

 

 

 

 

 

 

 

11,587

 

 

 

1

 

 

 

10,097,877

 

 

 

 

 

 

10,097,878

 

Shares and warrant issued for September 2018 registered direct offering, net of issuance costs

 

 

642,438

 

 

 

64

 

 

 

 

 

 

 

 

 

2,247,610

 

 

 

 

 

 

2,247,674

 

Deemed dividends related to warrants downround provision

 

 

 

 

 

 

 

 

 

 

 

 

 

 

636,370

 

 

 

(636,370

)

 

 

 

Common stock reclassification

 

 

 

 

 

(6,594

)

 

 

 

 

 

 

 

 

6,594

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,047,784

)

 

 

(6,047,784

)

Balance at September 30, 2018

 

 

3,937,226

 

 

$

394

 

 

 

7,005

 

 

$

1

 

 

$

223,382,018

 

 

$

(214,444,005

)

 

$

8,938,408

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

 

 

7


Biocept, Inc.

Condensed Statements of Shareholders’ Equity

(Unaudited)

 

 

 

 

Common Stock

 

 

Series A

Convertible

Preferred Stock

 

 

Additional

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Deficit

 

 

Total

 

Balance at December 31, 2018

 

 

4,629,174

 

 

$

463

 

 

 

4,417

 

 

$

 

 

$

223,499,634

 

 

$

(220,457,578

)

 

$

3,042,519

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

102,459

 

 

 

 

 

 

102,459

 

Shares issued upon exercise of common stock warrants

 

 

5,985

 

 

 

1

 

 

 

 

 

 

 

 

 

4,747

 

 

 

 

 

 

4,748

 

Deemed dividends related to warrants downround provision

 

 

 

 

 

 

 

 

 

 

 

 

 

 

99,743

 

 

 

(99,743

)

 

 

 

Shares issued for January 2019 financing transaction, net of issuance costs

 

 

990,000

 

 

 

99

 

 

 

 

 

 

 

 

 

2,032,212

 

 

 

 

 

 

2,032,311

 

Shares and warrants issued for February 2019 financing transaction, net of issuance costs

 

 

6,250,000

 

 

 

625

 

 

 

 

 

 

 

 

 

6,602,110

 

 

 

 

 

 

6,602,735

 

Shares issued for January 2019 financing transaction overallotment, net of issuance costs

 

 

538,867

 

 

 

54

 

 

 

 

 

 

 

 

 

592,252

 

 

 

 

 

 

592,306

 

Shares and warrants issued for March 2019 financing transaction, net of issuance costs

 

 

5,950,000

 

 

 

595

 

 

 

 

 

 

 

 

 

7,553,198

 

 

 

 

 

 

7,553,793

 

Shares issued upon conversion of preferred stock

 

 

503,438

 

 

 

50

 

 

 

(2,278

)

 

 

 

 

 

(50

)

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,916,787

)

 

 

(5,916,787

)

Balance at March 31, 2019

 

 

18,867,464

 

 

$

1,887

 

 

 

2,139

 

 

$

 

 

$

240,486,305

 

 

$

(226,474,108

)

 

$

14,014,084

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

224,641

 

 

 

 

 

 

224,641

 

Shares issued upon exercise of common stock warrants

 

 

4,149,445

 

 

 

415

 

 

 

 

 

 

 

 

 

4,845,307

 

 

 

 

 

 

4,845,722

 

Shares issued upon conversion of preferred stock

 

 

1,326

 

 

 

 

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

Warrant inducement expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,831,116

 

 

 

 

 

 

1,831,116

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,816,012

)

 

 

(7,816,012

)

Balance at June 30, 2019

 

 

23,018,235

 

 

$

2,302

 

 

 

2,133

 

 

$

 

 

$

247,387,369

 

 

$

(234,290,120

)

 

$

13,099,551

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

297,669

 

 

 

 

 

 

297,669

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,691,762

)

 

 

(5,691,762

)

Balance at September 30, 2019

 

 

23,018,235

 

 

$

2,302

 

 

 

2,133

 

 

$

 

 

$

247,685,038

 

 

$

(239,981,882

)

 

$

7,705,458

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

8


Biocept, Inc.

Condensed Statements of Cash Flows

(Unaudited)

 

 

 

For the nine months ended September 30,

 

 

2018

 

 

2019

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

Net loss

$

(18,558,028

)

 

$

(19,424,558

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

580,366

 

 

 

691,191

 

Amortization of right-of-use assets

 

 

 

 

(113,419

)

Inventory reserve

 

(92,488

)

 

 

20,277

 

Stock-based compensation

 

512,029

 

 

 

624,769

 

Warrant inducement expense

 

 

 

 

1,831,116

 

Non-cash interest expense related to credit facility and other financing activities

 

29,425

 

 

 

 

Increase/(decrease) in cash resulting from changes in:

 

 

 

 

 

 

 

Accounts receivable, net

 

(283,028

)

 

 

(1,287,334

)

Inventory

 

9,692

 

 

 

(120,241

)

Prepaid expenses and other current assets

 

277,720

 

 

 

322,299

 

Accounts payable

 

413,562

 

 

 

(198,400

)

Accrued liabilities

 

497,119

 

 

 

76,932

 

Accrued interest

 

(241,034

)

 

 

 

Deferred rent

 

(82,329

)

 

 

 

Net cash used in operating activities

 

(16,936,994

)

 

 

(17,577,368

)

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Purchases of fixed assets

 

(145,253

)

 

 

(297,877

)

Net cash used in investing activities

 

(145,253

)

 

 

(297,877

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Net proceeds from issuance of common stock and warrants

 

25,688,205

 

 

 

16,779,772

 

Proceeds from exercise of common stock warrants

 

 

 

 

2,513,172

 

Proceeds from warrant exercise inducement, net

 

 

 

 

2,337,298

 

Payments on finance leases

 

(160,111

)

 

 

(378,389

)

Payments on supplier and other third-party financings

 

(438,290

)

 

 

(260,537

)

Payments on credit facility

 

(1,197,968

)

 

 

 

Net cash provided by financing activities

 

23,891,836

 

 

 

20,991,316

 

Net increase in Cash

 

6,809,589

 

 

 

3,116,071

 

Cash at Beginning of Period

 

2,146,611

 

 

 

3,423,373

 

Cash at End of Period

$

8,956,200

 

 

$

6,539,444

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

         Interest

$

379,587

 

 

$

187,574

 

         Income taxes

$

739

 

 

$

-

 

Non-cash Investing and Financing Activities:

During the nine months ended September 30, 2018 and 2019, Biocept, Inc., or the Company, financed insurance premiums of approximately $488,000 and $393,000, respectively, through third-party financings. During the nine months ended September 30, 2019, the Company cancelled insurance premiums previously financed through third-parties with an aggregate remaining principal balance outstanding of approximately $31,000, and replaced them with insurance premiums financed through third parties totaling approximately $80,000.

9


Fixed assets purchased totaling approximately $270,000 and $583,000 during the nine months ended September 30, 2018 and 2019, respectively, were recorded as finance lease obligations and were excluded from cash purchases in the Company’s statements of cash flows (see Note 7).

The amount of unpaid fixed assets excluded from cash purchases in the Company’s statements of cash flows increased from approximately $31,000 at December 31, 2017 to approximately $55,000 at September 30, 2018.  The amount of unpaid fixed assets excluded from cash purchases in the Company’s statements of cash flows increased from approximately $25,000 at December 31, 2018 to approximately $67,000 at September 30, 2019.

An offering of 1,095,153 shares of the Company’s common stock and warrants to purchase up to an aggregate of 1,095,153 shares of its common stock at a combined offering price of $13.50 per unit occurred on January 30, 2018. All warrants sold in this offering have an exercise price of $1.20 per share, subject to down round adjustment, are exercisable immediately and expire five years from the date of issuance. The estimated aggregate grant date fair value on a relative fair value basis of approximately $9.7 million associated with these warrants was recorded as an offset to additional paid-in-capital (see Note 4). Additionally, approximately $1.4 million of fees and costs directly associated with this offering were recorded as an offset to additional paid-in capital in accordance with applicable accounting guidance.

A rights offering for the Company’s Series A Preferred Stock and warrants was completed on August 13, 2018.  Pursuant to the rights offering the Company sold 11,587 units consisting of an aggregate of 11,587 shares of Series A Preferred Stock and 2,549,140 warrants, with each warrant exercisable for one share of common stock at an exercise price of $4.53 per share.  The gross amount raised in the rights offering was $11.6 million. All warrants sold in this offering have an exercise price of $4.53 per share, are exercisable immediately and expire five years from the date of issuance. The estimated aggregate grant date fair value on a relative fair value basis of approximately $8.4 million associated with these warrants was recorded as an offset to additional paid-in-capital (see Note 4). Additionally, approximately $1.4 million of fees and costs directly associated with this offering were recorded as an offset to additional paid-in capital in accordance with applicable accounting guidance.  During the three months ended September 30, 2018, 4,582 shares of Series A Preferred Stock were converted into 1,012,622 shares of common stock.

An offering of 642,438 shares of the Company’s common stock and pre-funded warrants to purchase up to an aggregate of 120,000 shares of its common stock occurred on September 20, 2018. The shares were sold at a purchase price of $3.285 per share and the pre-funded warrants were sold at a purchase price of $3.275 per pre-funded warrant which represents the per share purchase price for the shares less the $0.01 per share exercise price for each such pre-funded warrant.  The aggregate gross proceeds from the offering were approximately $2.5 million. In addition, in a concurrent private placement, the Company issued to purchasers a warrant to purchase one share of the Company’s common stock for each share and pre-funded warrant purchased for cash in the offering.  All warrants issued in this offering have an exercise price of $3.16 per share, are exercisable upon the six-month anniversary of issuance and expire five years from such date. The estimated aggregate grant date fair value on a relative fair value basis of approximately $2.0 million associated with these warrants was recorded as an offset to additional paid-in-capital (see Note 4). Additionally, approximately $0.3 million of fees and costs directly associated with this offering were recorded as an offset to additional paid-in capital in accordance with applicable accounting guidance.

The issuance of warrants with an exercise price of $3.16 in the September 2018 financing transaction triggered the down round provision in the January 2018 warrants, resulting in recording a deemed dividend related to warrants down round provision in the amount of approximately $636,000 increasing the net loss attributable to common shareholders.  

On January 1, 2019, the Company adopted the accounting rules in ASC Topic 842, Leases (ASC 842), and as a result, recorded net lease right-of-use assets of $1.9 million related to its operating lease, and recorded operating lease liabilities of $2.2 million.  In addition, in accordance with the guidance, $1.4 million of assets under capital leases previously classified in the property, plant, and equipment section of the balance sheet were reclassified to lease right-of-use assets.

On January 18, 2019, the Company completed an offering of 990,000 shares of the Company’s common stock. The shares were sold at a purchase price of $2.25 per share and the net proceeds to the Company from this offering were approximately $2.0 million, after deducting expenses related to the offering including dealer-manager fees and expenses.

On February 12, 2019, the Company received net cash proceeds of approximately $6.6 million as a result of the closing of a follow-on public offering of 6,250,000 shares of its common stock and warrants to purchase up to an aggregate of 6,250,000 shares of its common stock at a combined offering price of $1.20 per unit. All warrants sold in this offering have an exercise price of $1.20 per share, are exercisable immediately and expire five years from the date of issuance. In addition, the Company sold warrants to purchase up to an aggregate of 937,500 shares of the Company’s common stock in connection with the partial exercise of the over-allotment option granted to the underwriters. Upon closing of the transaction, warrants to purchase 915,000 shares were issued pursuant to the placement agents’ partial exercise of their overallotment.

Pursuant to the down round adjustment feature of the January 2018 warrants, the exercise price of these warrants was adjusted to the $1.20 offering price per share in the February 2019 financing transaction and it resulted in recording a deemed dividend of $99,000.

10


On March 19, 2019, the Company received net cash proceeds of approximately $7.5 million as a result of completing a registered direct offering of 5,950,000 shares at a negotiated purchase price of $1.37 per share. In addition, in a concurrent private placement, the Company issued to purchasers a warrant to purchase one share of the Company’s common stock for each share purchased for cash in the offering.  All warrants issued in this offering have an exercise price of $1.25 per share, are exercisable immediately upon issuance and expire 5.5 years following the date of issuance.

 

In May 2019, investors exercised warrants for 4.1 million shares of common stock at exercise prices ranging from $1.20 to $1.25 per share resulting in net cash proceeds to the Company totaling $4.8 million.  Approximately 2.1 million shares of the warrants exercised was pursuant to a warrant inducement transaction raising approximately $2.3 million of net proceeds of the total $4.8 million raised.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

11


BIOCEPT, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

1. The Company, Business Activities and Basis of Presentation

The Company and Business Activities

The Company was founded in California in May 1997 and effected a reincorporation to Delaware in July 2013. The Company is an early stage molecular oncology diagnostics company that develops and commercializes proprietary circulating tumor cell, or CTC, and circulating tumor DNA, or ctDNA, assays utilizing a standard blood sample, or liquid biopsy. The Company’s current and planned assays are intended to provide information to aid healthcare providers to identify specific oncogenic alterations that may qualify a subset of cancer patients for targeted therapy at diagnosis, progression or for monitoring in order to identify specific resistance mechanisms. Sometimes traditional procedures, such as surgical tissue biopsies, result in tumor tissue that is insufficient and/or unable to provide the molecular subtype information necessary for clinical decisions. The Company’s assays, performed on blood, have the potential to provide more contemporaneous information on the characteristics of a patient’s disease when compared with tissue biopsy and radiographic imaging. Additionally, commencing in October 2017, the Company’s pathology partnership program, branded as Empower TCTM, provides the unique ability for pathologists to participate in the interpretation of liquid biopsy results and is available to pathology practices and hospital systems throughout the United States. Further, sales to laboratory supply distributors of the Company’s proprietary blood collection tubes commenced in June 2018, which allow for the intact transport of liquid biopsy samples for research use only, or RUO, from regions around the world.

The Company operates a clinical laboratory that is CLIA-certified (under the Clinical Laboratory Improvement Amendment of 1988) and CAP-accredited (by the College of American Pathologists), and manufactures cell enrichment and extraction microfluidic channels, related equipment and certain reagents to perform the Company’s diagnostic assays in a facility located in San Diego, California. CLIA certification and accreditation are required before any clinical laboratory may perform testing on human specimens for the purpose of obtaining information for the diagnosis, prevention, treatment of disease, or assessment of health. The assays the Company offers are classified as laboratory developed tests under the CLIA regulations.

Basis of Presentation

The accompanying unaudited condensed financial statements and notes are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, and on the basis that the Company will continue as a going concern (see Note 2). The accompanying unaudited condensed financial statements and notes do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

On July 6, 2018, the Company’s stockholders approved, and the Company filed, an amendment to the Company’s Certificate of Amendment of Certificate of Incorporation to effect a one-for-thirty reverse stock split of the Company’s outstanding common stock. As such, all references to share and per share amounts in these unaudited condensed financial statements and accompanying notes have been retroactively restated to reflect the one-for-thirty reverse stock split, except for the authorized number of shares of the Company’s common stock of 150,000,000 shares, which was not affected by the one-for-thirty reverse stock split.

The unaudited condensed financial statements included in this Form 10-Q have been prepared in accordance with the U.S. Securities and Exchange Commission, or SEC, instructions for Quarterly Reports on Form 10-Q. Accordingly, the condensed financial statements are unaudited and do not contain all the information required by GAAP to be included in a full set of financial statements. The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for a complete set of financial statements. The audited financial statements for the year ended December 31, 2018, filed with the U.S. Securities and Exchange Commission, or SEC, with our Annual Report on Form 10-K on March 29, 2019 include a summary of our significant accounting policies and should be read in conjunction with this Form 10-Q. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such periods have been included in this Form 10-Q. All such adjustments are of a normal recurring nature. The results of operations for interim periods are not necessarily indicative of the results of operations for the entire year.

Certain prior period balances have been reclassified to conform to the current period presentation. Such reclassifications had no effect on net loss.

Revenue Recognition and Accounts Receivable

The Company's commercial revenues are generated from diagnostic services provided to patient’s physicians and billed to third-party insurance payers such as managed care organizations, Medicare and Medicaid and patients for any deductibles, coinsurance or

12


copayments that may be due. Commencing on January 1, 2018, the Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, or ASC 606, which requires that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company adopted the provisions of ASC 606 using the modified retrospective application method applied to all contracts, which did not impact amounts previously reported by the Company, nor did it require a cumulative effect adjustment upon adoption, as the Company’s method of recognizing revenue under ASC 606 was analogous to the method utilized immediately prior to adoption. Accordingly, there is no need for the Company to disclose the amount by which each financial statement line item was affected as a result of applying the new standard and an explanation of significant changes.

Contracts

For its commercial revenues, while the Company markets directly to physicians, its customer is the patient. Patients do not enter into direct agreements with the Company, however, a patient’s insurance coverage requirements would dictate whether or not any portion of the cost of the tests would be patient responsibility. Accordingly, the Company establishes contracts with commercial insurers in accordance with customary business practices, as follows:

 

 

 

 

Approval of a contract is established via the order and accession, which are submitted by the patient’s physician.

 

 

 

The Company is obligated to perform its diagnostic services upon receipt of a sample from a physician, and the patient and/or applicable payer are obligated to reimburse the Company for services rendered based on the patient’s insurance benefits.

 

 

 

 

Payment terms are a function of a patient’s existing insurance benefits, including the impact of coverage decisions with CMS and applicable reimbursement contracts established between the Company and payers, unless the patient is a self-pay patient, whereby the Company bills the patient directly after the services are provided.

 

 

 

Once the Company delivers a patient’s assay result to the ordering physician, the contract with a patient has commercial substance, as the Company is legally able to collect payment and bill an insurer and/or patient, regardless of payer contract status or patient insurance benefit status.

 

 

 

 

Consideration associated with commercial revenues is considered variable and constrained until fully adjudicated, with net revenues recorded to the extent that it is probable that a significant reversal will not occur.

The Company’s development services revenues are supported by contractual agreements and generated from assay development services provided to entities, as well as certain other diagnostic services provided to physicians, and revenues are recognized upon delivery of the performance obligations in the contract.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service, or a bundle of goods or services, to the customer. For its commercial and development services revenues, the Company’s contracts have a single performance obligation, which is satisfied upon rendering of services, which culminates in the delivery of a patient’s assay result(s) to the ordering physician or entity. The duration of time between accession receipt and delivery of a valid assay result to the ordering physician or entity is typically less than two weeks. Accordingly, the Company elected the practical expedient and therefore, does not disclose the value of unsatisfied performance obligations. 

Transaction Price

The transaction price is the amount of consideration that the Company expects to collect in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties, such as sales taxes. The consideration expected from a contract with a customer may include fixed amounts, variable amounts, or both. The Company’s gross commercial revenues billed, and corresponding gross accounts receivable, are subject to estimated deductions for such allowances and reserves to arrive at reported net revenues, which relate to differences between amounts billed and corresponding amounts estimated to be subsequently collected, and is deemed to be variable although the variability is not explicitly stated in any contract. Rather, the implied variability is due to several factors, such as the payment history or lack thereof for third-party payers, reimbursement rate changes for contracted and non-contracted payers, any patient co-payments, deductibles or compliance incentives, the existence of secondary payers and claim denials. The Company estimates the amount of variable consideration using the most likely amount approach to estimating variable consideration for third-party payers, including direct patient bills, whereby the estimated reimbursement for services are established by payment histories on CPT codes for each payer, or similar payer types. When no payment history is available, the value of the account is estimated at Medicare rates, with additional other payer-specific reserves taken as appropriate. Collection periods for billings on commercial revenues range from less than 30 days to several months, depending on the contracted or non-contracted nature of the payer, among other variables. The estimates of amounts that will ultimately be realized from commercial diagnostic services for non-contracted payers require significant judgment by management.

The Company limits the amount of variable consideration included in the transaction price to the unconstrained portion of such consideration. Revenue is recognized up to the amount of variable consideration that is not subject to a significant reversal until

13


additional information is obtained or the uncertainty associated with the additional payments or refunds is subsequently resolved. Differences between original estimates and subsequent revisions, including final settlements, represent changes in the estimate of variable consideration and are included in the period in which such revisions are made. The Company monitors its estimates of transaction price to depict conditions that exist at each reporting date. If the Company subsequently determines that it will collect more consideration than it originally estimated for a contract with a customer, it will account for the change as an increase in the estimate of the transaction price in the period identified as an increase to revenue. Similarly, if the Company subsequently determines that the amount it expects to collect from a customer is less than it originally estimated, it will generally account for the change as a decrease in the estimate of the transaction price as a decrease to revenue, provided that such downward adjustment does not result in a significant reversal of cumulative revenue recognized. Revenue recognized from changes in transaction prices was not significant during the three and nine months ended September 30, 2018 and 2019.

Allocate Transaction Price

For the Company’s commercial revenues, the entire transaction price is allocated to the single performance obligation contained in a contract with a customer. For the Company’s development services revenues, the contracted transaction price is allocated to each single performance obligation contained in a contract with a customer as performed.

Point-in-time Recognition

The Company’s single performance obligation is satisfied at a point in time, and that point in time is defined as the date a patient’s successful assay result is delivered to the patient’s ordering physician or entity. The Company considers this date to be the time at which the patient obtains control of the promised diagnostic assay service. 

Contract Balances

The timing of revenue recognition, billings and cash collections results in accounts receivable recorded in the Company’s condensed balance sheets. Generally, billing occurs subsequent to delivery of a patient’s test result to the ordering physician or entity, resulting in an account receivable.  

Practical Expedients

The Company does not adjust the transaction price for the effects of a significant financing component, as at contract inception, the Company expects the collection cycle to be one year or less.

The Company expenses sales commissions when incurred because the amortization period is one year or less, which are recorded within sales and marketing expenses.  

The Company incurs certain other costs that are incurred regardless of whether a contract is obtained. Such costs are primarily related to legal services and patient communications. These costs are expensed as incurred and recorded within general and administrative expenses. 

Disaggregation of Revenue and Concentration of Risk

The composition of the Company’s net revenues recognized during the three and nine months ended September 30, 2018 and 2019, disaggregated by source and nature, are as follows:

 

 

For the three months ended September 30,

 

 

For the nine months ended September 30,

 

 

2018

 

 

2019

 

 

2018

 

 

2019

 

Net revenues from contracted payers*

$

325,097

 

 

$

476,101

 

 

$

1,019,857

 

 

$

1,447,421

 

Net revenues from non-contracted payers

 

373,018

 

 

 

956,140

 

 

 

1,201,869

 

 

 

2,080,018

 

Development services revenues

 

63,476

 

 

 

37,981

 

 

 

159,606

 

 

 

125,169

 

Kits and Blood Collection Tubes (BCT)

 

 

 

 

59,040

 

 

 

9,440

 

 

 

92,216

 

Total net revenues

$

761,591

 

 

$

1,529,262

 

 

$

2,390,772

 

 

$

3,744,824

 

 

*Includes Medicare and Medicare Advantage, as reimbursement amounts are fixed.  

 

14


 

For the three months ended September 30,

 

 

For the nine months ended September 30,

 

 

2018

 

 

2019

 

 

2018

 

 

2019