UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
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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. ☐
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As of May 4, 2023, there were
BIOCEPT, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
March 31, 2023
INDEX
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Page |
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PART I. |
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5 |
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Item 1. |
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5 |
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Condensed Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022 |
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Condensed Statements of Operations for the three months ended March 31, 2023 and 2022 (Unaudited) |
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7 |
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Condensed Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (Unaudited) |
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9 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. |
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27 |
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Item 1. |
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27 |
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Item 1A. |
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27 |
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Item 2. |
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59 |
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Item 3. |
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59 |
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Item 4. |
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59 |
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Item 5. |
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59 |
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Item 6. |
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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:
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. |
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Condensed Balance Sheets |
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(In thousands, except share and per share data) |
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March 31, |
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December 31, |
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2023 |
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2022 |
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Assets |
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(unaudited) |
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Current assets: |
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Cash |
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$ |
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$ |
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Accounts receivable |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Fixed assets, net |
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Lease right-of-use asset - operating |
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Lease right-of-use assets - finance |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Current portion of lease liability - operating |
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Current portion of lease liabilities - finance |
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Supplier financing |
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— |
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Total current liabilities |
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Non-current portion of lease liability - operating |
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Non-current portion of lease liabilities - finance |
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Payor liability |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
5
Biocept, Inc. |
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Condensed Statements of Operations |
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(In thousands, except shares and per share data) |
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(Unaudited) |
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For the Three Months Ended March 31, |
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2023 |
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2022 |
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Net revenues |
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$ |
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$ |
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Costs and expenses: |
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Cost of revenues |
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Research and development expenses |
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General and administrative expenses |
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Sales and marketing expenses |
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Total costs and expenses |
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Loss from operations |
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Other expense: |
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Interest expense, net |
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( |
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( |
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Total other expense: |
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Loss before income taxes |
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( |
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( |
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Income tax expense |
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— |
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— |
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Net loss |
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Net loss attributable to common stockholders |
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$ |
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$ |
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Weighted-average shares outstanding used in computing net loss per share attributable to common stockholders: |
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Basic |
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Diluted |
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Net loss per common share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
6
Biocept, Inc. |
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Condensed Statements of Stockholders' Equity |
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(In thousands, except for shares) |
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(Unaudited) |
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Common Stock |
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Series A |
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Shares |
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Amount |
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Shares |
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Amount |
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Additional |
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Accumulated |
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Total |
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Balance at December 31, 2022 |
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$ |
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$ |
— |
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$ |
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$ |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Shares issued for ATM transaction, net of issuance costs |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
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Balance at March 31, 2023 |
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$ |
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$ |
— |
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$ |
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$ |
( |
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$ |
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Common Stock |
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Series A |
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Shares |
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Amount |
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Shares |
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Amount |
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Additional |
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Accumulated |
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Total |
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Balance at December 31, 2021 |
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$ |
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$ |
— |
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$ |
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$ |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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Shares issued upon conversion of preferred stock |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
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Balance at March 31, 2022 |
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$ |
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$ |
— |
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$ |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
7
Biocept, Inc. |
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Condensed Statements of Cash Flows |
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(in thousands) |
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(Unaudited) |
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For the Three Months Ended March 31, |
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2023 |
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2022 |
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Cash Flows from Operating Activities |
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Net loss |
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$ |
( |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Amortization of right-of-use assets |
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Stock-based compensation |
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Increase (decrease) in cash resulting from changes in: |
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Accounts receivable |
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Inventory |
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( |
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Prepaid expenses and other current assets |
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( |
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Other non-current assets |
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— |
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( |
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Accounts payable |
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( |
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Accrued liabilities |
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( |
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Operating lease liability |
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( |
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— |
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Payor liability |
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— |
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Net cash used in operating activities |
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( |
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Cash Flows from Investing Activities: |
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Purchases of fixed assets |
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( |
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Net cash used in investing activities |
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( |
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Cash Flows from Financing Activities: |
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Net proceeds from issuance of common stock |
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— |
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Net payments on finance leases |
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( |
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( |
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Payments on supplier financing |
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( |
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— |
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Net cash provided by (used in) financing activities |
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( |
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Net decrease in cash |
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( |
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Cash at Beginning of Period |
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Cash at End of Period |
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Supplemental Cash Flow Information: |
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Cash paid for interest |
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$ |
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$ |
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For the Three Months Ended March 31, |
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Non-cash Investing and Financing Activities |
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2023 |
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2022 |
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Unpaid fixed asset purchases |
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$ |
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$ |
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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 $
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:
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.
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
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The Company expenses sales commissions when incurred because the amortization period is
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):
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For the Three Months Ended March 31, |
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2023 |
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2022 |
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Net revenues from non-contracted payers |
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$ |
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$ |
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Net revenues from contracted payers* |
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Net commercial revenues |
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Development services revenues |
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Total net revenues |
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$ |
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$ |
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*
Revenues for the three months ended March 31, 2023 and 2022 included $
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:
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For the Three Months Ended March 31, |
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2023 |
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2022 |
Medicare and Medicare Advantage/CARES Act |
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Blue Cross Blue Shield |
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Kaiser Permanente |
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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:
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March 31, |
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December 31, |
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2023 |
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2022 |
Blue Cross Blue Shield |
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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
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Company for annual reporting periods beginning after December 15, 2022. The Company
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 $
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 $
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 $
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
During the three months ended March 31, 2023, we received net proceeds of approximately $
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4. Balance Sheet Details
The following provides certain balance sheet details (in thousands):
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March 31, |
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December 31, |
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2023 |
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2022 |
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(unaudited) |
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Inventories |
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Raw materials |
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$ |
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$ |
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Subassemblies |
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Finished goods |
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$ |
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$ |
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Less: inventory reserve |
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Total inventories, net |
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$ |
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$ |
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Fixed Assets |
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Machinery and equipment |
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$ |
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$ |
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Furniture and office equipment |
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Computer equipment and software |
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Leasehold improvements |
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Construction in process |
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