10-Q
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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 March 31, 2023

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.)

9955 Mesa Rim Road, 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 May 4, 2023, there were 17,787,185 shares of the Registrant’s common stock outstanding.

 


 

BIOCEPT, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

March 31, 2023

INDEX

Page

 

 

IMPORTANT NOTE REGARDING FORWARD-LOOKING STATEMENTS

3

 

 

 

PART I.

FINANCIAL INFORMATION

5

 

 

 

Item 1.

Financial Statements

5

 

 

 

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

5

 

 

 

Condensed Statements of Operations for the three months ended March 31, 2023 and 2022 (Unaudited)

6

 

 

 

Condensed Statements of Stockholders’ Equity for the three months ended March 31, 2023 and 2022 (Unaudited)

7

 

 

 

Condensed Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (Unaudited)

8

 

 

 

Notes to Condensed Financial Statements (Unaudited)

9

 

 

 

Item 2.

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

18

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

25

 

 

 

Item 4.

Controls and Procedures

 

25

 

 

 

PART II.

OTHER INFORMATION

27

 

 

 

Item 1.

Legal Proceedings

27

 

 

 

 

 

Item 1A.

Risk Factors

27

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

59

 

 

 

Item 3.

Defaults Upon Senior Securities

59

 

 

 

Item 4.

Mine Safety Disclosures

59

 

 

 

Item 5.

Other Information

59

 

 

 

Item 6.

Exhibits

60

 

 

 

 

2


 

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,” “plan,” “estimate,” “potentially,” “predict,” “should” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to such statements.

Forward-looking statements may include, but are not limited to, statements about:

the performance of our products, assays and services;
the ability of our products, assays and services to become a key component of the standard of care for personalized cancer treatment;
our ability to generate revenue, grow our business and increase sales of our products, assays and services;
our ability to develop and commercialize new products, diagnostic assays, services and enhance our current products, assays and services and future products, assays, and services;
our plans to launch a series of cancer diagnostic assays for different predictive biomarkers;
our ability to effectively compete with other products, diagnostic assays, methods and services that now exist or may hereafter be developed;
our ability to expand our international business and commercialize our products and assays in other countries;
market adoption of our products and assays and our ability to successfully complete clinical utility studies;
our FORESEE trial, including anticipated timelines for progressing and completing the trial;
the potential for CNSide to be included in NCCN guidelines;
our ability to obtain coverage and adequate reimbursement from governmental and other third-party payors for assays and services;
our expectations regarding our material cash requirements, contractual obligations and commitments and the use of our existing cash;
our ability to enter into and leverage agreements with commercialization partners for the sales, marketing and commercialization of our current products, assays and services, and our planned future products, assays and services;
our ability to satisfy any applicable United States and international regulatory requirements with respect to products, assays and services;
our ability to obtain or maintain patents or other appropriate protection for the intellectual property utilized in our current and planned products, assays and services;
potential effects of a resurgence of COVID-19 or another epidemic or pandemic on our business;
our estimates regarding the period of time for which our current capital resources will be sufficient to fund our continued operations;
our expectations and estimates regarding our future use of cash, expenses and costs and needs for additional financing; and
our ability to maintain a strong internal control environment and remediate internal control deficiencies.

 

3


 

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 this report under the “Management’s Discussion and Analysis” and “Risk Factors” headings.

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

 

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Assets

 

(unaudited)

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

6,774

 

 

$

12,897

 

Accounts receivable

 

 

1,112

 

 

 

2,151

 

Inventories, net

 

 

704

 

 

 

757

 

Prepaid expenses and other current assets

 

 

500

 

 

 

538

 

Total current assets

 

 

9,090

 

 

 

16,343

 

Fixed assets, net

 

 

2,513

 

 

 

2,572

 

Lease right-of-use asset - operating

 

 

8,339

 

 

 

8,486

 

Lease right-of-use assets - finance

 

 

2,665

 

 

 

3,086

 

Other non-current assets

 

 

386

 

 

 

386

 

Total assets

 

$

22,993

 

 

$

30,873

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,533

 

 

$

1,523

 

Accrued liabilities

 

 

1,300

 

 

 

2,249

 

Current portion of lease liability - operating

 

 

541

 

 

 

518

 

Current portion of lease liabilities - finance

 

 

1,018

 

 

 

1,099

 

Supplier financing

 

 

 

 

 

117

 

Total current liabilities

 

 

4,392

 

 

 

5,506

 

Non-current portion of lease liability - operating

 

 

9,013

 

 

 

9,175

 

Non-current portion of lease liabilities - finance

 

 

1,011

 

 

 

1,200

 

Payor liability

 

 

6,149

 

 

 

6,132

 

Total liabilities

 

 

20,565

 

 

 

22,013

 

Commitments and contingencies (see Note 10)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 5,000,000 shares authorized; 2,090 shares issued and outstanding at March 31, 2023 and December 31, 2022

 

 

 

 

 

 

Common stock, $0.0001 par value, 150,000,000 shares authorized; 17,787,185 shares and 17,070,071 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively.

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

308,008

 

 

 

307,296

 

Accumulated deficit

 

 

(305,582

)

 

 

(298,438

)

Total stockholders’ equity

 

 

2,428

 

 

 

8,860

 

Total liabilities and stockholders’ equity

 

$

22,993

 

 

$

30,873

 

 

 

 

 

 

 

 

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

 

 

 

5


 

 

Biocept, Inc.

 

Condensed Statements of Operations

 

(In thousands, except shares and per share data)

 

(Unaudited)

 

 

 

 

 

 

 

For the Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Net revenues

 

$

673

 

 

$

19,945

 

Costs and expenses:

 

 

 

 

 

 

Cost of revenues

 

 

3,028

 

 

 

10,334

 

Research and development expenses

 

 

1,040

 

 

 

1,846

 

General and administrative expenses

 

 

2,988

 

 

 

6,256

 

Sales and marketing expenses

 

 

715

 

 

 

3,658

 

Total costs and expenses

 

 

7,771

 

 

 

22,094

 

Loss from operations

 

 

(7,098

)

 

 

(2,149

)

Other expense:

 

 

 

 

 

 

Interest expense, net

 

 

(46

)

 

 

(61

)

Total other expense:

 

 

(46

)

 

 

(61

)

Loss before income taxes

 

 

(7,144

)

 

 

(2,210

)

Income tax expense

 

 

 

 

 

 

Net loss

 

 

(7,144

)

 

 

(2,210

)

Net loss attributable to common stockholders

 

$

(7,144

)

 

$

(2,210

)

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

 

 

 

 

 

 

Basic

 

 

17,620,668

 

 

 

16,849,964

 

Diluted

 

 

17,620,668

 

 

 

16,849,964

 

Net loss per common share:

 

 

 

 

 

 

Basic

 

$

(0.41

)

 

$

(0.13

)

Diluted

 

$

(0.41

)

 

$

(0.13

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

6


 

 

Biocept, Inc.

 

Condensed Statements of Stockholders' Equity

 

(In thousands, except for shares)

 

(Unaudited)

 

 

 

Common Stock

 

 

Series A
Convertible
Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional
Paid-in Capital

 

 

Accumulated
Deficit

 

 

Total

 

Balance at December 31, 2022

 

 

17,070,071

 

 

$

2

 

 

 

2,090

 

 

$

 

 

$

307,296

 

 

$

(298,438

)

 

$

8,860

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

316

 

 

 

 

 

 

316

 

Shares issued for ATM transaction, net of issuance costs

 

 

717,114

 

 

 

 

 

 

 

 

 

 

 

 

396

 

 

 

 

 

 

396

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,144

)

 

 

(7,144

)

Balance at March 31, 2023

 

 

17,787,185

 

 

$

2

 

 

 

2,090

 

 

$

 

 

$

308,008

 

 

$

(305,582

)

 

$

2,428

 

 

 

 

Common Stock

 

 

Series A
Convertible
Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional
Paid-in Capital

 

 

Accumulated
Deficit

 

 

Total

 

Balance at December 31, 2021

 

 

16,849,805

 

 

$

2

 

 

 

2,106

 

 

$

 

 

$

303,829

 

 

$

(266,351

)

 

$

37,480

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,759

 

 

 

 

 

 

1,759

 

Shares issued upon conversion of preferred stock

 

 

356

 

 

 

 

 

 

(16

)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,210

)

 

 

(2,210

)

Balance at March 31, 2022

 

 

16,850,161

 

 

$

2

 

 

 

2,090

 

 

$

 

 

$

305,588

 

 

$

(268,561

)

 

$

37,029

 

 

 

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

 

 

 

7


 

 

Biocept, Inc.

 

Condensed Statements of Cash Flows

 

(in thousands)

 

(Unaudited)

 

 

 

For the Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net loss

 

$

(7,144

)

 

$

(2,210

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

467

 

 

 

405

 

Amortization of right-of-use assets

 

 

147

 

 

 

414

 

Stock-based compensation

 

 

316

 

 

 

1,759

 

Increase (decrease) in cash resulting from changes in:

 

 

 

 

 

 

Accounts receivable

 

 

1,039

 

 

 

(2,564

)

Inventory

 

 

53

 

 

 

(570

)

Prepaid expenses and other current assets

 

 

38

 

 

 

(49

)

Other non-current assets

 

 

 

 

 

(16

)

Accounts payable

 

 

(39

)

 

 

375

 

Accrued liabilities

 

 

(949

)

 

 

1,524

 

Operating lease liability

 

 

(139

)

 

 

 

Payor liability

 

 

17

 

 

 

 

            Net cash used in operating activities

 

 

(6,194

)

 

 

(932

)

Cash Flows from Investing Activities:

 

 

 

 

 

 

Purchases of fixed assets

 

 

(91

)

 

 

(98

)

            Net cash used in investing activities

 

 

(91

)

 

 

(98

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

Net proceeds from issuance of common stock

 

 

396

 

 

 

 

Net payments on finance leases

 

 

(117

)

 

 

(268

)

Payments on supplier financing

 

 

(117

)

 

 

 

           Net cash provided by (used in) financing activities

 

 

162

 

 

 

(268

)

Net decrease in cash

 

 

(6,123

)

 

 

(1,298

)

Cash at Beginning of Period

 

 

12,897

 

 

 

28,864

 

Cash at End of Period

 

 

6,774

 

 

 

27,566

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

Cash paid for interest

 

$

46

 

 

$

61

 

 

 

 

For the Three Months Ended March 31,

 

Non-cash Investing and Financing Activities

 

2023

 

 

2022

 

Unpaid fixed asset purchases

 

$

49

 

 

$

60

 

 

 

 

 

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

 

8


 

BIOCEPT, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

1. The Company, Business Activities and Basis of Presentation

The Company and Business Activities

Biocept, Inc., the Company, was founded in California in May 1997 and is a molecular oncology diagnostics company that develops and commercializes proprietary circulating tumor cell and circulating cell-free tumor DNA 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 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 and cerebral spinal fluid, have the potential to provide more contemporaneous information on the characteristics of a patient’s disease when compared with tissue biopsy and radiographic imaging. Further, sales to laboratory supply distributors of the Company’s proprietary specimen collection tubes, or SCTs, 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.

In January 2020, the Company adapted and validated its proprietary blood-based liquid biopsy technology for commercial and clinical research use in CSF to identify tumor cells that have metastasized to the central nervous system, or CNS, in patients with advanced lung cancer or breast cancer. CNSide has been designed to improve the clinical management of patients with suspected metastatic cancer involving the CNS by enabling the quantitative analysis and molecular characterization of tumor cells and cell-free tumor DNA and RNA in the CSF. Since then, we have worked extensively with leading neuro-oncologists and other cancer experts to further define and characterize the use of this unique assay.

In June 2020, we launched a COVID-19 diagnostic (assay manufactured by Thermo-Fisher) which broadened our assay menu to meet the community testing needs due to the emergence of COVID-19.

The Company experienced increased revenue levels in 2022 and 2021 related to its COVID-19 testing business. In February 2023, due to reduced demand, the Company ceased COVID-19 testing services.

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 U.S. GAAP, and are prepared on the basis that the Company will continue as a going concern (see Note 2). The accompanying 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.

 

9


 

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, 2022 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, 2022, filed with the SEC with our Annual Report on Form 10-K on April 17, 2023, 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.

Reclassification

The Company reclassified the change in inventory reserve for the three months ended March 31, 2022 of approximately $0.1 million within the condensed statement of cash flows to conform to the current year presentation. The change in inventory reserve is now included in the increase (decrease) in cash resulting from changes in inventory within the cash flows from operating activities. This reclassification had no effect on previously reported cash flows from operating activities in the unaudited condensed statement of cash flows.

Significant Accounting Policies

During the three months ended March 31, 2023, 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, 2022.

Revenue Recognition and Accounts Receivable

The Company's commercial revenues are generated from diagnostic services provided to patients' physicians and billed to third-party insurance payors 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, 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 payor 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 the Centers for Medicare & Medicaid Services, or CMS, and applicable reimbursement contracts established between the Company and payors, 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 payor 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.

 

10


 

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, was 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, subject to price concessions 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 variability is due to several factors, such as the payment history or lack thereof for third-party payors, reimbursement rate changes for contracted and non-contracted payors, any patient co-payments, deductibles or compliance incentives, the existence of secondary payors and claim denials. The Company estimates the amount of variable consideration using the most likely amount approach to estimating variable consideration for third-party payors, including direct patient bills, whereby the estimated reimbursement for services is established by payment histories on CPT codes for each payor, or similar payor types. When no payment history is available, the value of the account is estimated at Medicare rates, with additional other payor-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 payor, among other variables. The estimates of amounts that will ultimately be realized from commercial diagnostic services for non-contracted payors 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 implicit price concessions 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.

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.

 

11


 

The Company expenses sales commissions when incurred because the amortization period is one year or less. These costs 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 months ended March 31, 2023, disaggregated by source and nature, are as follows (in thousands):

 

 

 

For the Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Net revenues from non-contracted payers

 

$

501

 

 

$

7,262

 

Net revenues from contracted payers*

 

 

159

 

 

 

12,645

 

     Net commercial revenues

 

 

660

 

 

 

19,907

 

Development services revenues

 

 

13

 

 

 

38

 

     Total net revenues

 

$

673

 

 

$

19,945

 

 

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

 

Revenues for the three months ended March 31, 2023 and 2022 included $0.7 million and $19.9 million, respectively, in commercial test revenues, including $0.2 million and $18.6 million of revenues attributable to RT-PCR COVID-19 testing. As of March 31, 2023, there were no unbilled accounts receivable.

Concentrations of credit risk with respect to revenues are primarily limited to geographies to which the Company provides a significant volume of its services, and to specific third-party payors of the Company’s services such as Medicare, insurance companies, and other third-party payors. The Company’s client base consists of many geographically dispersed clients diversified across various customer types.

The Company's third-party payors that represent more than 10% of total net revenues in any period presented during the three months ended March 31, 2023 and 2022 were as follows:

 

 

 

For the Three Months Ended March 31,

 

 

2023

 

2022

Medicare and Medicare Advantage/CARES Act

 

19%

 

43%

Blue Cross Blue Shield

 

15%

 

16%

Kaiser Permanente

 

4%

 

14%

The Company's third-party payors that represent more than 10% of total accounts receivable at March 31, 2023 and December 31, 2022 were as follows:

 

 

 

March 31,

 

December 31,

 

 

2023

 

2022

Blue Cross Blue Shield

 

27%

 

23%

 

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses, which requires the measurement of expected credit losses for financial instruments carried at amortized cost, such as accounts receivable, held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of this standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting period. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments- Credit Losses, which included an amendment of the effective date. The standard is effective for the

 

12


 

Company for annual reporting periods beginning after December 15, 2022. The Company adopted this standard on January 1, 2023, which did not have an impact on its financial statements.

In September 2022, the FASB issued ASU 2022-04, Liabilities-Supplier Finance Programs, to enhance the transparency of supplier finance programs. The main objective of this standard requires a buyer in a supplier finance program to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The standard is effective for the Company for annual reporting periods beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted this standard on January 1, 2023, which did not have an impact on its financial statements.

 

2. Liquidity

As of March 31, 2023, cash totaled $6.8 million, and the Company had an accumulated deficit of $305.6 million. For the three months ended March 31, 2023 and 2022, the Company incurred net losses of $7.1 million and $2.2 million, respectively.
 

The Company has historically funded its operations primarily through sales of its equity securities. During the three months ended March 31, 2023, net revenues were approximately $0.7 million compared with approximately $19.9 million for the same period in the prior year. In February 2023, the Company ceased COVID-19 testing services.
 

The Company incurred operating losses for the three months ended March 31, 2023 and 2022. The Company does not anticipate it will be profitable until, if ever, it has commercial expansion of its proprietary clinical diagnostic laboratory assays designed to identify rare tumor cells from cerebrospinal fluid, trademarked as CNSide. Accordingly, management performed the required going concern assessment and determined substantial doubt exists about the Company's ability to continue as a going concern within one year after the issuance date of this Quarterly Report on Form 10-Q. We currently expect that our existing resources will only be sufficient to fund our planned operations and expenditures into the third quarter of 2023. Management intends to continue its efforts to contain costs, reducing staff, and to raise additional capital until it ultimately generates sufficient cash to support operations from commercial sales. Management’s plans are based on events that are not within its control and therefore substantial doubt about the Company’s ability to continue as a going concern has not been alleviated.
 

3. Sales of Equity Securities

On May 12, 2021, the Company entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (the “Sales Agent”), under which the Company could issue and sell from time to time up to $25,000,000 of its common stock through or to the Sales Agent, as sales agent or principal. The issuance and sale of these shares under the Sales Agreement, if any, is subject to the continued effectiveness of a shelf registration statement on Form S-3 cover the sale of such shares. Our shelf registration statement on Form S-3, filed with the SEC on April 24, 2020, is no longer available and we will not be able to file a new Form S-3 until, at the earliest, September 1, 2023. Sales of the Company’s common stock, under the Sales Agreement are made at market prices by any method that is deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. Each time the Company wishes to issue and sell common stock under the Sales Agreement, it notifies the Sales Agent of the number of shares to be issued, the dates on which such sales are anticipated to be made and any minimum price below which sales may not be made. Once the Company has so instructed the Sales Agent, unless the Sales Agent declines to accept the terms of the notice, the Sales Agent has agreed to use its commercially reasonable efforts consistent with its normal trading and sales practices to sell such shares up to the amount specified on such terms.

The obligations of the Sales Agent under the Sales Agreement to sell the Company’s common stock are subject to a number of conditions that the Company must meet. The offering of common stock pursuant to the Sales Agreement will terminate upon the earlier of (1) the sale of all common stock subject to the Sales Agreement and (2) termination of the Sales Agreement as permitted therein. The Sales Agreement may be terminated by either party at any time upon ten days’ prior notice. The Sales Agent is entitled to compensation from the Company at a fixed commission rate equal to 3.0% of the gross sales price per share of any common stock sold under the Sales Agreement.

During the three months ended March 31, 2023, we received net proceeds of approximately $0.4 million from the sale of our common stock and issued 717,114 shares of our common stock at a weighted average purchase price of $0.57 pursuant to the Sales Agreement. As of March 31, 2023, $9.5 million of our common stock remained available for sale under the Sales Agreement.

 

13


 

4. Balance Sheet Details

The following provides certain balance sheet details (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(unaudited)

 

 

 

 

Inventories

 

 

 

 

 

 

Raw materials

 

$

1,159

 

 

$

1,564

 

Subassemblies

 

 

210

 

 

 

401

 

Finished goods

 

 

28

 

 

 

36

 

 

 

$

1,397

 

 

$

2,001

 

Less: inventory reserve

 

 

(693

)

 

 

(1,244

)

Total inventories, net

 

$

704

 

 

$

757

 

Fixed Assets

 

 

 

 

 

 

Machinery and equipment

 

$

3,169

 

 

$

3,183

 

Furniture and office equipment

 

 

161

 

 

 

160

 

Computer equipment and software

 

 

3,958

 

 

 

3,824

 

Leasehold improvements

 

 

695