bioc-10q_20200930.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, 2020

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 6, 2020, there were 13,396,748 shares of the Registrant’s common stock outstanding.

 

 

 

 

 


BIOCEPT, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

September 30, 2020

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, 2019 and September 30, 2020 (Unaudited)

  

5

 

 

 

 

 

Condensed Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2019 and 2020 (Unaudited)

  

6

 

 

 

 

 

Condensed Statements of Shareholders’ Equity for the three and nine months ended September 30, 2019 and 2020 (unaudited)

  

7

 

 

 

 

 

Condensed Statements of Cash Flows for the nine months ended September 30, 2019 and 2020 (Unaudited)

  

9

 

 

 

 

 

Notes to Condensed Financial Statements (Unaudited)

  

11

 

 

 

Item 2.

 

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

  

25

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

  

39

 

 

 

Item 4.

 

Controls and Procedures

  

39

 

 

 

PART II.

 

OTHER INFORMATION

  

 

 

 

 

Item 1.

 

Legal Proceedings

  

40

 

 

 

 

 

Item 1A.

 

Risk Factors

  

40

 

 

 

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

  

68

 

 

 

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,

 

 

2019

 

 

2020

 

 

 

 

 

 

(unaudited)

 

Current assets:

 

 

 

 

 

 

 

Cash

$

9,301,406

 

 

$

16,857,941

 

Accounts receivable, net

 

3,527,078

 

 

 

7,954,625

 

Inventories, net

 

767,986

 

 

 

3,315,789

 

Prepaid expenses and other current assets

 

296,127

 

 

 

697,946

 

Total current assets

 

13,892,597

 

 

 

28,826,301

 

Fixed assets, net

 

1,504,330

 

 

 

1,607,177

 

Lease right-of-use assets - operating

 

729,330

 

 

 

235,369

 

Lease right-of-use assets - finance

 

1,606,387

 

 

 

2,135,788

 

Total assets

$

17,732,644

 

 

$

32,804,635

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

2,011,827

 

 

$

6,123,990

 

Accrued liabilities

 

1,980,204

 

 

 

2,622,722

 

Current portion of lease liabilities - operating

 

842,452

 

 

 

242,957

 

Current portion of lease liabilities - finance

 

724,329

 

 

 

914,671

 

Supplier financings

 

 

 

 

209,312

 

Total current liabilities

 

5,558,812

 

 

 

10,113,652

 

Non-current portion of lease liabilities - finance

 

973,189

 

 

 

1,337,686

 

Total liabilities

 

6,532,001

 

 

 

11,451,338

 

Commitments and contingencies (see Note 10)

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 5,000,000 authorized; 2,133 shares issued and outstanding at December 31, 2019 and September 30, 2020.

 

 

 

 

 

Common stock, $0.0001 par value, 150,000,000 authorized; 5,473,848 issued and outstanding at December 31, 2019; 13,396,570 issued and outstanding at September 30, 2020.

 

547

 

 

 

1,340

 

Additional paid-in capital

 

256,917,285

 

 

 

286,780,895

 

Accumulated deficit

 

(245,717,189

)

 

 

(265,428,938

)

Total shareholders’ equity

 

11,200,643

 

 

 

21,353,297

 

Total liabilities and shareholders’ equity

$

17,732,644

 

 

$

32,804,635

 

 

 

 

 

 

 

 

 

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,

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

Net revenues

$

1,529,262

 

 

$

6,586,144

 

 

$

3,744,824

 

 

$

8,950,160

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

2,832,735

 

 

 

5,859,370

 

 

 

8,105,422

 

 

 

11,323,668

 

Research and development expenses

 

1,163,546

 

 

 

1,087,741

 

 

 

3,535,116

 

 

 

3,989,133

 

General and administrative expenses

 

1,700,380

 

 

 

3,023,337

 

 

 

5,058,525

 

 

 

6,839,467

 

Sales and marketing expenses

 

1,462,335

 

 

 

1,434,481

 

 

 

4,451,628

 

 

 

4,232,867

 

Total costs and expenses

 

7,158,996

 

 

 

11,404,929

 

 

 

21,150,691

 

 

 

26,385,135

 

Loss from operations

 

(5,629,734

)

 

 

(4,818,785

)

 

 

(17,405,867

)

 

 

(17,434,975

)

Other income/ (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(62,028

)

 

 

(59,549

)

 

 

(187,575

)

 

 

(171,891

)

Warrant inducement and other income (expenses)

 

 

 

 

 

 

 

(1,831,116

)

 

 

(2,102,109

)

Total other income/ (expense):

 

(62,028

)

 

 

(59,549

)

 

 

(2,018,691

)

 

 

(2,274,000

)

Loss before income taxes

 

(5,691,762

)

 

 

(4,878,334

)

 

 

(19,424,558

)

 

 

(19,708,975

)

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

Net loss and comprehensive loss

$

(5,691,762

)

 

$

(4,878,334

)

 

$

(19,424,558

)

 

$

(19,708,975

)

Deemed dividend related to warrants down round provision

 

 

 

 

 

 

 

(99,743

)

 

 

(2,774

)

Net loss attributable to common shareholders

$

(5,691,762

)

 

$

(4,878,334

)

 

$

(19,524,301

)

 

$

(19,711,749

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

2,301,819

 

 

 

11,324,289

 

 

 

1,780,727

 

 

 

13,333,427

 

Diluted

 

2,301,819

 

 

 

11,324,289

 

 

 

1,780,727

 

 

 

13,333,427

 

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(2.47

)

 

$

(0.43

)

 

$

(10.96

)

 

$

(1.48

)

Diluted

$

(2.47

)

 

$

(0.43

)

 

$

(10.96

)

 

$

(1.48

)

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

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, 2018

 

 

462,917

 

 

$

46

 

 

 

4,417

 

 

$

 

 

$

223,500,051

 

 

$

(220,457,578

)

 

$

3,042,519

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

102,459

 

 

 

 

 

 

102,459

 

Shares issued upon exercise of common stock warrants

 

 

598

 

 

 

 

 

 

 

 

 

 

 

 

4,748

 

 

 

 

 

 

4,748

 

Deemed dividends related to warrants downround provision

 

 

 

 

 

 

 

 

 

 

 

 

 

 

99,743

 

 

 

(99,743

)

 

 

 

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

 

 

99,000

 

 

 

10

 

 

 

 

 

 

 

 

 

2,032,301

 

 

 

 

 

 

2,032,311

 

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

 

 

625,000

 

 

 

62

 

 

 

 

 

 

 

 

 

6,602,673

 

 

 

 

 

 

6,602,735

 

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

 

 

53,886

 

 

 

5

 

 

 

 

 

 

 

 

 

592,301

 

 

 

 

 

 

592,306

 

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

 

 

595,000

 

 

 

59

 

 

 

 

 

 

 

 

 

7,553,734

 

 

 

 

 

 

7,553,793

 

Shares issued upon conversion of preferred stock

 

 

50,343

 

 

 

5

 

 

 

(2,278

)

 

 

 

 

 

(5

)

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,916,787

)

 

 

(5,916,787

)

Balance at March 31, 2019

 

 

1,886,744

 

 

$

187

 

 

 

2,139

 

 

$

 

 

$

240,488,005

 

 

$

(226,474,108

)

 

$

14,014,084

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

224,641

 

 

 

 

 

 

224,641

 

Shares issued upon exercise of common stock warrants

 

 

414,944

 

 

 

41

 

 

 

 

 

 

 

 

 

4,845,681

 

 

 

 

 

 

4,845,722

 

Shares issued upon conversion of preferred stock

 

 

132

 

 

 

 

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

Warrant inducement expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,831,116

 

 

 

 

 

 

1,831,116

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,816,012

)

 

 

(7,816,012

)

Balance at June 30, 2019

 

 

2,301,820

 

 

$

228

 

 

 

2,133

 

 

$

 

 

$

247,389,443

 

 

$

(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

 

 

2,301,820

 

 

$

228

 

 

 

2,133

 

 

$

 

 

$

247,687,112

 

 

$

(239,981,882

)

 

$

7,705,458

 

 

 

 

 

 

 

 

 

 

 

 

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, 2019

 

 

5,473,848

 

 

$

547

 

 

 

2,133

 

 

$

 

 

$

256,917,285

 

 

$

(245,717,189

)

 

$

11,200,643

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

142,964

 

 

 

 

 

 

142,964

 

Shares issued upon exercise of common stock warrants

 

 

696,140

 

 

 

70

 

 

 

 

 

 

 

 

 

2,306,638

 

 

 

 

 

 

2,306,708

 

Shares issued upon cashless exercise of common stock warrants

 

 

608,000

 

 

 

61

 

 

 

 

 

 

 

 

 

(61

)

 

 

 

 

 

 

Deemed dividends related to warrants downround provision

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,774

 

 

 

(2,774

)

 

 

 

Shares issued for March 2, 2020 financing transaction, net of issuance costs

 

 

2,300,000

 

 

 

230

 

 

 

 

 

 

 

 

 

8,565,270

 

 

 

 

 

 

8,565,500

 

Shares issued for March 4, 2020 financing transaction, net of issuance costs

 

 

1,600,000

 

 

 

160

 

 

 

 

 

 

 

 

 

6,093,401

 

 

 

 

 

 

6,093,561

 

Shares issued for exercise of December 2019 overallotment warrants, net of issuance costs

 

 

192,750

 

 

 

19

 

 

 

 

 

 

 

 

 

659,939

 

 

 

 

 

 

659,958

 

Warrant inducement expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,102,109

 

 

 

 

 

 

2,102,109

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,341,338

)

 

 

(8,341,338

)

Balance at March 31, 2020

 

 

10,870,738

 

 

$

1,087

 

 

 

2,133

 

 

$

 

 

$

276,790,319

 

 

$

(254,061,301

)

 

$

22,730,105

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

194,236

 

 

 

 

 

 

194,236

 

Shares issued upon exercise of common stock warrants

 

 

20,584

 

 

 

2

 

 

 

 

 

 

 

 

 

72,606

 

 

 

 

 

 

72,608

 

Shares issued for April 2020 financing transaction, net of issuance costs

 

 

2,230,000

 

 

 

223

 

 

 

 

 

 

 

 

 

9,577,074

 

 

 

 

 

 

9,577,297

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,489,303

)

 

 

(6,489,303

)

Balance at June 30, 2020

 

 

13,121,322

 

 

 

1,312

 

 

 

2,133

 

 

 

 

 

 

286,634,235

 

 

 

(260,550,604

)

 

 

26,084,943

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

166,730

 

 

 

 

 

 

166,730

 

Shares issued upon exercise of common stock warrants

 

 

6,546

 

 

 

1

 

 

 

 

 

 

 

 

 

22,387

 

 

 

 

 

 

22,388

 

Shares issued upon cashless exercise of common stock warrants

 

 

268,772

 

 

 

27

 

 

 

 

 

 

 

 

 

(27

)

 

 

 

 

 

 

Costs related to previous financings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(42,430

)

 

 

 

 

 

(42,430

)

Fractional shares adjustment upon one-for-ten reverse stock split

 

 

(70

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,878,334

)

 

 

(4,878,334

)

Balance at September 30, 2020

 

 

13,396,570

 

 

$

1,340

 

 

 

2,133

 

 

$

 

 

$

286,780,895

 

 

$

(265,428,938

)

 

$

21,353,297

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

2019

 

 

2020

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

Net loss

$

(19,424,558

)

 

$

(19,708,975

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

691,191

 

 

 

839,794

 

Amortization of right-of-use assets

 

(113,419

)

 

 

(105,534

)

Inventory reserve

 

20,277

 

 

 

57,350

 

Stock-based compensation

 

624,769

 

 

 

503,930

 

Warrant inducement expense

 

1,831,116

 

 

 

2,102,109

 

Gain on disposal of fixed assets

 

 

 

 

(1,680

)

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

 

 

 

 

 

 

 

Accounts receivable, net

 

(1,287,334

)

 

 

(4,427,547

)

Inventory

 

(120,241

)

 

 

(2,605,153

)

Prepaid expenses and other current assets

 

322,299

 

 

 

165,353

 

Accounts payable

 

(198,400

)

 

 

3,853,736

 

Accrued liabilities

 

76,932

 

 

 

642,516

 

Net cash used in operating activities

 

(17,577,368

)

 

 

(18,684,101

)

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Purchases of fixed assets

 

(297,877

)

 

 

(64,331

)

Net cash used in investing activities

 

(297,877

)

 

 

(64,331

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Net proceeds from issuance of common stock and warrants

 

16,779,772

 

 

 

24,193,930

 

Proceeds from exercise of common stock warrants

 

2,513,172

 

 

 

2,401,704

 

Proceeds from warrant exercise inducement, net

 

2,337,298

 

 

 

 

Proceeds from exercise of overallotment warrants

 

 

 

 

659,958

 

Payments on finance leases

 

(378,389

)

 

 

(518,190

)

Payments on supplier and other third-party financings

 

(260,537

)

 

 

(432,435

)

Net cash provided by financing activities

 

20,991,316

 

 

 

26,304,967

 

Net increase in Cash

 

3,116,071

 

 

 

7,556,535

 

Cash at Beginning of Period

 

3,423,373

 

 

 

9,301,406

 

Cash at End of Period

$

6,539,444

 

 

$

16,857,941

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

         Interest

$

187,574

 

 

$

171,891

 

         Income taxes

$

-

 

 

$

-

 

Non-cash Investing and Financing Activities:

During the nine months ended September 30, 2019 and 2020, Biocept, Inc., or the Company, financed insurance premiums of approximately $393,000 and $567,000, respectively, through third-party financings.   

Fixed assets purchased totaling approximately $583,000 and $1,073,000 during the nine months ended September 30, 2019 and 2020, respectively, were recorded as finance lease obligations and were excluded from cash purchases in the Company’s statements of cash flows (see Note 6).

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.  The amount of unpaid fixed assets excluded from cash purchases in the Company’s statements of cash flows increased from approximately $32,000 at December 31, 2019 to approximately $173,000 at September 30, 2020.

9


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 99,000 shares of the Company’s common stock. The shares were sold at a purchase price of $22.50 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 625,000 shares of its common stock and warrants to purchase up to an aggregate of 625,000 shares of its common stock at a combined offering price of $12.00 per unit. All warrants sold in this offering have an exercise price of $12.00 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 93,750 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 91,500 shares were issued pursuant to the placement agents’ partial exercise of their overallotment. The estimated aggregate grant date fair value on a relative fair value basis of approximately $6.8 million associated with these warrants was recorded as an offset to additional paid-in capital (see Note 4).

Pursuant to the down round adjustment feature of the January 2018 warrants, the exercise price of these warrants was adjusted to the $12.00 offering price per share in the February 2019 financing transaction and it resulted in recording a deemed dividend of $99,000.

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 595,000 shares at a negotiated purchase price of $13.70 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 $12.50 per share, are exercisable immediately upon issuance and expire 5.5 years following the date of issuance. The estimated aggregate grant date fair value on a relative fair value basis of approximately $6.0 million associated with these warrants was recorded as an offset to additional paid-in capital (see Note 4).

 

In January 2020, the Company issued an aggregate of 692,725 shares of its common stock pursuant to the exercise of certain warrants issued by the Company in February 2019 and March 2019, as part of a warrant repricing and exchange transaction. As part of the warrant repricing and exchange transaction, the Company issued an aggregate of 692,725 new warrants in exchange for the exercise of the February 2019 and March 2019 warrants and received net proceeds of approximately $2.3 million. As a result of the warrant repricing, the exercise price of warrants to purchase an aggregate of 89,657 shares of common stock issued by the Company in January 2018 was adjusted from $4.05 to $3.495 per share.

In January 2020, the Company issued 192,750 shares of common stock pursuant to the partial exercise of the underwriters’ overallotment option from the Company’s December 2019 public offering. The net proceeds to the Company from the overallotment closing, was approximately $700,000.

In June 2020, the Company entered into an amendment of its facility lease relating to its current facility in San Diego, California to extend the term of the lease originally set to expire in July 2020 to November 2020. Pursuant to the extension of the lease term, the Company recorded an additional lease right-of-use asset and lease liability of $482,000 (see Note 6).

 

 

 

 

 

 

 

 

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

10


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 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 TC TM, 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.

In July 2013, the Company effected a reincorporation to Delaware by merging itself with and into Biocept, Inc., a Delaware corporation, which had been formed to be and was a wholly-owned subsidiary of the Company since July 23, 2013.

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 September 3, 2020, the Company filed an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended, to effect a one-for-ten reverse stock split of the shares of common stock outstanding on September 4, 2020. 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-ten 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-ten 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, 2019 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, 2019, filed with the U.S. Securities and Exchange Commission, or SEC, with our Annual Report on Form 10-K on March 27, 2020 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.

A novel strain of coronavirus (“COVID-19”) continues to spread and severely impact the economy of the United States and other countries around the world. Since March 2020, federal, state and local governmental policies and initiatives designed to reduce the transmission of COVID-19 have resulted in, among other things, a significant reduction in physician office visits, the cancellation of elective medical procedures, customers closing or severely curtailing their operations (voluntarily or in response to government orders),

11


and the adoption of work-from-home policies, all of which have had, and the Company believes will continue to have, an impact on the Company’s results of operations, financial position, and cash flows. Additionally, beginning during the second quarter of 2020, the Company experienced growing demand for COVID-19 molecular and antibody testing services and has expanded its capacity in order to satisfy such demand. As a result, operating results for the three and nine months ended September 30, 2020 may not be indicative of the results that may be expected for the full year.

Significant Accounting Policies

During the three and nine months ended September 30, 2020, there were no changes to our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, except as described in Recent Accounting Pronouncements below.

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 copayments that may be due. 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.

Contracts

For its commercial revenues, while the Company markets directly to physicians and other healthcare providers, the Company provides services that benefit the patient. Patients do not typically 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, such as pharma or biotech organizations, 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, and for our RT-PCR COVID-19 testing, typically 48 hours or less. 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

12


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 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, 2019 and 2020. Further, although the Company believes that its estimate for contractual allowances and other reserves is appropriate, it is possible that the Company will experience an impact on cash collections as a result of the impact of the COVID-19 pandemic.

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, 2019 and 2020, disaggregated by source and nature, are as follows:

 

13


 

For the three months ended September 30,

 

 

For the nine months ended September 30,

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

Net revenues from contracted payers*