10-Q 1 bioc-10q_20210331.htm 10-Q bioc-10q_20210331.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 March 31, 2021

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 7, 2021, there were 13,402,562 shares of the Registrant’s common stock outstanding.

 

 

 

 

 


 

BIOCEPT, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

March 31, 2021

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, 2020 and March 31, 2021 (unaudited)

  

5

 

 

 

 

 

Condensed Statements of Operations and Comprehensive Loss for the three months ended March 31, 2020 and 2021 (unaudited)

  

6

 

 

 

 

 

Condensed Statements of Shareholders’ Equity for the three months ended March 31, 2020 and 2021 (unaudited)

  

7

 

 

 

 

 

Condensed Statements of Cash Flows for the three months ended March 31, 2020 and 2021 (unaudited)

  

8

 

 

 

 

 

Notes to Condensed Financial Statements (unaudited)

  

9

 

 

 

Item 2.

 

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

  

22

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

  

34

 

 

 

Item 4.

 

Controls and Procedures

  

34

 

 

 

PART II.

 

OTHER INFORMATION

  

 

 

 

 

Item 1.

 

Legal Proceedings

  

35

 

 

 

 

 

Item 1A.

 

Risk Factors

  

35

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

63

 

 

 

Item 3.

 

Defaults Upon Senior Securities

  

64

 

 

 

Item 4.

 

Mine Safety Disclosures

  

64

 

 

 

Item 5.

 

Other Information

  

64

 

 

 

Item 6.

 

Exhibits

  

64

 

 

 

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,

 

 

March 31,

 

 

2020

 

 

2021

 

 

 

 

 

 

(unaudited)

 

Current assets:

 

 

 

 

 

 

 

Cash

$

14,367,942

 

 

$

14,197,547

 

Accounts receivable, net

 

14,144,911

 

 

 

17,143,572

 

Inventories, net

 

1,929,624

 

 

 

3,258,594

 

Prepaid expenses and other current assets

 

2,151,527

 

 

 

697,724

 

Total current assets

 

32,594,004

 

 

 

35,297,437

 

Fixed assets, net

 

2,317,616

 

 

 

2,095,704

 

Lease right-of-use assets - operating

 

9,776,349

 

 

 

9,407,468

 

Lease right-of-use assets - finance

 

2,337,709

 

 

 

3,059,458

 

Other non-current assets

 

425,908

 

 

 

438,776

 

Total assets

$

47,451,586

 

 

$

50,298,843

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

8,364,858

 

 

$

7,295,875

 

Accrued liabilities

 

3,165,669

 

 

 

3,437,575

 

Current portion of lease liabilities - finance

 

963,726

 

 

 

1,179,557

 

Total current liabilities

 

12,494,253

 

 

 

11,913,007

 

Non-current portion of lease liabilities - operating

 

9,805,361

 

 

 

9,798,146

 

Non-current portion of lease liabilities - finance

 

1,459,550

 

 

 

1,816,463

 

Total liabilities

 

23,759,164

 

 

 

23,527,616

 

Commitments and contingencies (see Note 11)

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 5,000,000 authorized; 2,111 shares issued and outstanding at December 31, 2020 and March 31, 2021.

 

 

 

 

 

Common stock, $0.0001 par value, 150,000,000 authorized; 13,397,041 issued and outstanding at December 31, 2020; 13,402,562 issued and outstanding at March 31, 2021.

 

1,340

 

 

 

1,340

 

Additional paid-in capital

 

287,217,949

 

 

 

287,697,462

 

Accumulated deficit

 

(263,526,867

)

 

 

(260,927,575

)

Total shareholders’ equity

 

23,692,422

 

 

 

26,771,227

 

Total liabilities and shareholders’ equity

$

47,451,586

 

 

$

50,298,843

 

 

 

 

 

 

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

5


Biocept, Inc.

Condensed Statements of Operations and Comprehensive Income/Loss

(Unaudited)

 

 

 

For the three months ended March 31,

 

 

2020

 

 

2021

 

Net revenues

$

1,446,549

 

 

$

17,756,190

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of revenues

 

2,946,858

 

 

 

9,005,856

 

Research and development expenses

 

1,312,676

 

 

 

1,042,725

 

General and administrative expenses

 

1,904,433

 

 

 

3,119,804

 

Sales and marketing expenses

 

1,465,115

 

 

 

1,923,272

 

Total costs and expenses

 

7,629,082

 

 

 

15,091,657

 

(Loss)/income from operations

 

(6,182,533

)

 

 

2,664,533

 

Other expense:

 

 

 

 

 

 

 

Interest expense, net

 

(56,696

)

 

 

(65,241

)

Warrant inducement expense

 

(2,102,109

)

 

 

 

Total other expense

 

(2,158,805

)

 

 

(65,241

)

(Loss)/income before income taxes

 

(8,341,338

)

 

 

2,599,292

 

Income tax expense

 

 

 

 

 

Net (loss)/income and comprehensive (loss)/income

$

(8,341,338

)

 

$

2,599,292

 

Deemed dividend related to warrants down round provision

 

(2,774

)

 

 

 

Net (loss)/income attributable to common shareholders

$

(8,344,112

)

 

$

2,599,292

 

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

 

 

 

 

 

 

 

Basic

 

7,899,991

 

 

 

13,400,007

 

Diluted

 

7,899,991

 

 

 

13,667,716

 

Net (loss)/income per common share:

 

 

 

 

 

 

 

Basic

$

(1.06

)

 

$

0.19

 

Diluted

$

(1.06

)

 

$

0.19

 

 

 

 


 

 

 

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

 

6


 

Biocept, Inc.

Condensed Statement of Shareholders’ Equity

(Unaudited)

 

For the three months ended March 31, 2020

 

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

 

 

696,141

 

 

 

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

 

 

10,870,739

 

 

$

1,087

 

 

 

2,133

 

 

$

 

 

$

276,790,319

 

 

$

(254,061,301

)

 

$

22,730,105

 

 

 

For the three months ended March 31, 2021

 

Common Stock

 

 

Series A

Convertible

Preferred Stock

 

 

Additional

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Deficit

 

 

Total

 

Balance at December 31, 2020

 

 

13,397,041

 

 

$

1,340

 

 

 

2,111

 

 

$

 

 

$

287,217,949

 

 

$

(263,526,867

)

 

$

23,692,422

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

460,201

 

 

 

 

 

 

460,201

 

Shares issued upon exercise of common stock warrants

 

 

5,304

 

 

 

 

 

 

 

 

 

 

 

 

18,552

 

 

 

 

 

 

18,552

 

Shares issued upon conversion of preferred stock

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued upon exercise of options

 

 

194

 

 

 

 

 

 

 

 

 

 

 

 

760

 

 

 

 

 

 

760

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,599,292

 

 

 

2,599,292

 

Balance at March 31, 2021

 

 

13,402,562

 

 

$

1,340

 

 

 

2,111

 

 

$

 

 

$

287,697,462

 

 

$

(260,927,575

)

 

$

26,771,227

 

 

 

 

 

 

 

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

7


Biocept, Inc.

Condensed Statements of Cash Flows

(Unaudited)

 

 

For the three months ended March 31,

 

 

2020

 

 

2021

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

Net (loss)/income

$

(8,341,338

)

 

$

2,599,292

 

Adjustments to reconcile net (loss)/income to net cash (used in)/provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

242,758

 

 

 

366,238

 

Amortization of right-of-use assets

 

(48,481

)

 

 

361,666

 

Change in inventory reserve

 

25,240

 

 

 

(8,519

)

Stock-based compensation

 

142,964

 

 

 

460,201

 

Warrant inducement expense

 

2,102,109

 

 

 

 

Loss (gain) on disposal of fixed assets

 

 

 

 

3,941

 

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

 

 

 

 

 

 

 

Accounts receivable, net

 

108,181

 

 

 

(2,998,661

)

Inventory

 

(175,952

)

 

 

(1,320,451

)

Prepaid expenses and other current assets

 

(133,004

)

 

 

1,453,803

 

Accounts payable

 

412,879

 

 

 

(332,723

)

Accrued liabilities

 

385,784

 

 

 

271,906

 

Other non-current assets

 

 

 

 

(12,868

)

Net cash (used in)/provided by operating activities

 

(5,278,860

)

 

 

843,825

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Purchases of fixed assets

 

(18,507

)

 

 

(712,202

)

Net cash used in investing activities

 

(18,507

)

 

 

(712,202

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Net proceeds from issuance of common stock and warrants

 

14,659,061

 

 

 

 

Proceeds from exercise of common stock warrants

 

2,306,708

 

 

 

18,552

 

Proceeds from exercise of stock options

 

 

 

 

760

 

Payments on finance leases

 

(136,574

)

 

 

(321,330

)

Proceeds from exercise of overallotment warrants

 

659,958

 

 

 

 

Net cash provided by/(used in) financing activities

 

17,489,153

 

 

 

(302,018

)

Net increase/(decrease) in cash

 

12,191,786

 

 

 

(170,395

)

Cash at Beginning of Period

 

9,301,406

 

 

 

14,367,942

 

Cash at End of Period

$

21,493,192

 

 

$

14,197,547

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

         Interest

$

56,696

 

 

$

65,241

 

Non-cash Investing and Financing Activities:

Fixed assets purchased totaling approximately $208,000 and $894,000 during the three months ended March 31, 2020 and 2021, respectively, were recorded as finance leases and were excluded from cash purchases in the Company’s statements of cash flows (see Note 6).

The amount of unpaid fixed asset purchases excluded from cash purchases in the Company’s statements of cash flows were approximately $17,000 at March 31, 2020 and approximately $319,000 at March 31, 2021.

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.

 

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

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.

The COVID-19 pandemic continues to evolve, and the extent to which COVID-19 may impact the Company’s business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. While the Company experienced increased revenue levels in 2020 and the first quarter in 2021 related to its COVID-19 testing business and attained net income for the first time in its operating history in the fourth quarter in 2020, and again in the first quarter of 2021, these results are not expected to be indicative of future results as the COVID-19 pandemic subsides.

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.

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, 2020 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, 2020, filed with the U.S. Securities and Exchange Commission, or SEC, with our Annual Report on Form 10-K on March 31, 2021 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.

On September 3, 2020, pursuant to the approval of the Company’s board of directors, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company’s outstanding common stock

9


using a ratio of one-for-ten. As such, all references to share and per share amounts in these 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.

A novel strain of coronavirus, or 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), 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 months ended March 31, 2021 may not be indicative of the results that may be expected for the full year.

Significant Accounting Policies

During the three months ended March 31, 2021, 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, 2020.

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. 

10


Transaction Price

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

The Company limits the amount of variable consideration included in the transaction price to the unconstrained portion of such consideration. Revenue is recognized up to the amount of variable consideration that is not subject to a significant reversal until 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 months ended March 31, 2020 and 2021. 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. 

11


Disaggregation of Revenue and Concentration of Risk

The composition of the Company’s net revenues recognized during the three months ended March 31, 2020 and 2021 disaggregated by source and nature are as follows:

 

 

For the three months ended March 31,

 

 

2020

 

 

2021

 

Net revenues from contracted payers*

$

500,188

 

 

$

6,313,884

 

Net revenues from non-contracted payers

 

817,413

 

 

 

11,341,163

 

Development services revenues

 

60,329

 

 

 

39,286

 

Kits and Blood Collection Tubes (BCT)

 

68,619

 

 

 

61,857

 

Total net revenues

$

1,446,549

 

 

$

17,756,190

 

 

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

 

Revenues for the three months ended March 31, 2021 included $17.7 million in commercial test revenue, which includes $16.8 million attributable to RT-PCR COVID-19 testing.    

 

 

For the three months ended March 31,

 

 

2020

 

 

2021

 

Net commercial revenues recognized upon delivery

$

1,317,601

 

 

$

17,655,047

 

Development services revenues recognized upon delivery

 

60,329

 

 

 

39,286

 

Kits and Blood Collection Tubes (BCT)

 

68,619

 

 

 

61,857

 

Total net revenues

$

1,446,549

 

 

$

17,756,190

 

 

At December 31, 2020 and March 31, 2021, unbilled account receivables total approximately $4.5 million and $4.3 million, respectively.

                             

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 payers of the Company’s services such as Medicare, insurance companies, and other third-party payers. The Company’s client base consists of many geographically dispersed clients diversified across various customer types.

The Company's third-party payers that represent more than 10% of total net revenues in any period presented, as well as their related net revenue amount as a percentage of total net revenues, during the three months ended March 31, 2020 and 2021 were as follows:

 

 

For the three months ended March 31,

 

 

2020

 

 

2021

 

Medicare and Medicare Advantage/CARES Act

 

37

%

 

 

35

%

Blue Cross Blue Shield

 

29

%

 

 

30

%

 

 

 

 

 

 

 

 

The Company's third-party payers that represent more than 10% of total net accounts receivable, and their related net accounts receivable balance as a percentage of total net accounts receivable, at December 31, 2020 and March 31, 2021 were as follows:

 

 

December 31, 2020

 

 

March 31, 2021

 

Medicare and Medicare Advantage/CARES Act

 

35

%

 

 

37

%

Blue Cross Blue Shield

 

24

%

 

 

28

%

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, “Credit Losses (Topic 326).” ASU 2016-13 requires that financial assets measured at amortized cost, such as trade receivables and investments, be represented net of expected credit losses, which may be estimated based on relevant information such as historical experience, current conditions, and future expectation for each pool of similar financial asset. The new guidance requires enhanced disclosures related to trade receivables and associated credit losses. In May 2019, the FASB issued ASU No. 2019-05, “Financial Instruments—Credit Losses (Topic 326) Targeted Transition Relief,” which allows for a transition election on certain instruments. The guidance is effective for Small Reporting Companies for fiscal years beginning after

12


December 15, 2022 and interim periods in those fiscal years. In November 2019, the FASB issued ASU No. 2019-11 which amends certain aspects of ASU No. 2016-13, including transition relief for trouble debt restructuring, among other topics. The Company is currently evaluating the impact of this pronouncement on its financial statements.

 

2. Liquidity

As of March 31, 2021, cash totaled $14.2 million and the Company had an accumulated deficit of $260.9 million. For the year ended December 31, 2020 and the three months ended March 31, 2021, the Company had a net loss and net income of $17.8 million and $2.6 million, respectively, and had negative cash flows and cash generated from operations of $19.8 million and $844,000, respectively. At March 31, 2021, the Company had aggregate net interest-bearing indebtedness of $3.0 million, of which $1.2 million was due within one year, in addition to $3.4 million of other non-interest-bearing current liabilities. The Company has historically funded its operations through capital raises.

However, the COVID-19 testing revenue during 2020 and through the first quarter of 2021, has provided the Company with increased levels of cash inflows from operations, and it is expected to continue, albeit at lower and declining levels, throughout at least the next twelve months.  As a result, the Company believes that based on its current and planned cash usage, along with current COVID-19 testing revenues, its cash balances will support operations through the second quarter of 2022. As such, the Company determined that it is not probable based on projected cash flows that substantial doubt about the Company’s ability to continue as a going concern exists for the one-year period following the date that the financial statements for the three months ended March 31, 2021 were issued. The Company’s determination was based on estimates regarding expected COVID-19 testing volumes, which are uncertain and subject to change as more individuals are expected to be vaccinated and as the pandemic subsides.  The Company used all information currently available to make this determination.

Historically, the Company’s principal sources of cash have included proceeds from the issuance of common and preferred stock, proceeds from the exercise of warrants to purchase common stock, proceeds from the issuance of debt, and revenues from laboratory services. The Company’s principal uses of cash have included cash used in operations, payments relating to purchases of property and equipment and repayments of borrowings. The Company expects that the principal uses of cash in the future will be for continuing operations, hiring of sales and marketing personnel and increased sales and marketing activities, funding of research and development, capital expenditures, and general working capital requirements. The Company expects that, as revenues grow, sales and marketing and research and development expenses will continue to grow, albeit at a slower rate and, as a result, the Company will need to generate significant growth in net revenues to achieve and sustain income from operations.  Based on current cash balances and current and planned cash usage, the Company determined that it is not probable that substantial doubt exists about the Company’s ability to continue as a going concern for the one-year period following the date that the financial statements for the three months ended March 31, 2021 were issued. 

In order to meet its long-term operating requirements beyond the next twelve months, the Company will need, among other things, additional capital resources. Until the Company can generate significant cash from operations, including assay revenues, management’s plans to obtain such resources for the Company include proceeds from offerings of the Company’s equity securities or debt, cash received from the exercise of outstanding common stock warrants, or transactions involving product development, technology licensing or collaboration. The Company cannot provide any assurances that such additional funds will be available on reasonable terms, or at all.

 

3. Sales of Equity Securities

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. The warrants issued in connection with the warrant repricing and exchange transaction were considered inducement warrants and are classified in equity. In addition, the modification expense associated with the change in fair value due to the repricing of February and March 2019 warrants is recorded as inducement expense, which was approximately $191,000. The fair value of the warrants issued was approximately $1.9 million. The fair value of the inducement warrants and warrant modification of $2.1 million was expensed as warrant inducement expense in the accompanying statement of operations for the three months ended March 31, 2020.   

13


On March 2, 2020, the Company sold and issued 2,300,000 shares of its common stock at a negotiated purchase price of $4.00 per share in a registered direct offering and received net cash proceeds of approximately $8.6 million after deducting placement agent fees and other expenses.   

On March 4, 2020, the Company sold and issued 1,600,000 shares of its common stock at a negotiated purchase price of $4.10 per share in a registered direct offering and received net cash proceeds of approximately $6.1 million after deducting placement agent fees and other expenses. 

 

4. Fair Value Measurement

The estimated nonrecurring fair value measurements associated with fixed asset purchases recorded as right-of-use asset finance lease obligations totaling approximately $894,000 during the three months ended March 31, 2021 were calculated as the present value of the lease payments based on contractual payment amounts and estimated market rates.  Upon adoption of guidance in ASC Topic 842 Leases, the estimated fair value of the right-of-use operating lease asset was recorded based on the present value of future lease payments based on contractual payment amounts and estimated market rates in effect.

Other Fair Value Measurements

As of the closing of the Company’s January 2020 warrant repricing and exchange transaction, the estimated grant date fair value of approximately $2.80 per share associated with the warrants to purchase up to 692,725 shares of common stock issued in the transaction, or a total of approximately $1.9 million, was recorded as a warrant inducement expense with an offset to additional paid-in capital. All warrants issued in this warrant inducement transaction have an exercise price of $3.495 per share, are exercisable beginning 6 months from issuance and expire 5.5 years from the date of issuance. The fair value of the warrants was estimated using a Black-Scholes model with the following assumptions:

Beginning stock price

$

3.00

 

Exercise price

$

3.495

 

Expected dividend yield

 

0.00

%

Discount rate-bond equivalent yield

 

1.66

%

Expected life (in years)

 

5.50

 

Expected volatility

 

150.33

%

In addition to the inducement warrants issued in the Company’s January 2020 warrant repricing and exchange transaction, the Company adjusted the exercise prices of the February 2019 and March 2019 warrants from $12.00 and $12.50, respectively, to $3.495 to induce exercise of these warrants. This price modification triggered the requirement for modification accounting of these warrants.  Based on the applicable guidance, the modification required the Company to value the modified February 2019 and March 2019 warrants immediately prior to the modification of the exercise price and immediately following the modification and record the difference between the resulting two values as warrant inducement expense.

The estimated fair value prior to modification of the February 2019 and March 2019 warrants was approximately $2.70 per share, whereas the estimated fair value of the February 2019 warrants increased to $2.90 due to the adjustment of the exercise price, and the estimated fair value of the March 2019 warrants increased to $3.00 per share.  There were 216,725 February 2019 warrants and 476,000 March 2019 warrants eligible for this price modification and the resulting modification expense recorded as warrant inducement expenses were $60,000 and $130,000, respectively.

5. Balance Sheet Details

The following provides certain balance sheet details:

 

14


 

 

December 31,

 

 

March 31,

 

 

2020

 

 

2021

 

Inventories

 

 

Raw materials

$

1,235,620

 

 

$

2,406,901

 

Subassemblies

 

691,126

 

 

 

839,674

 

Finished goods

 

2,878

 

 

 

12,019

 

 

$

1,929,624

 

 

$

3,258,594

 

Fixed Assets

 

 

Machinery and equipment

$

2,974,320

 

 

$

2,962,742

 

Furniture and office equipment

 

156,987

 

 

 

156,987

 

Computer equipment and software

 

2,428,211

 

 

 

2,556,276

 

Leasehold improvements

 

570,173

 

 

 

95,990

 

Construction in process

 

761,221

 

 

 

485,359

 

Total fixed assets, gross

 

6,890,912

 

 

 

6,257,354

 

Less accumulated depreciation and amortization

 

(4,573,296

)

 

 

(4,161,650

)

Total fixed assets, net

$

2,317,616

 

 

$

2,095,704

 

Accrued Liabilities

 

 

 

 

 

 

 

Accrued payroll

$

452,118

 

 

$

772,342

 

Accrued vacation

 

868,557

 

 

 

952,885

 

Accrued bonuses

 

1,022,421

 

 

 

1,265,262

 

Accrued sales commissions

 

456,526

 

 

 

339,000

 

Accrued other

 

366,047

 

 

 

108,086

 

Total accrued liabilities

$

3,165,669

 

 

$

3,437,575

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the three months ended March 31, 2021, machinery and equipment and leasehold improvements with a net book value of approximately $4,000 were disposed of and $712,000 of fixed assets were acquired.   

 

6. Leases

Effective January 1, 2019, the Company adopted US GAAP accounting rules in ASC Topic 842, Leases (ASC 842), using the modified retrospective method.  The Company elected to follow the package of practical expedients provided under the transition guidance within ASC 842, and accordingly, did not reassess whether any expired or existing contracts are or contain leases, did not reassess expired or existing leases, and did not reassess initial direct costs for any existing leases.  Upon adoption, the Company recorded an operating lease right-of-use asset and an operating lease liability on the balance sheet.  In addition, assets under equipment leases previously classified as capital leases within Fixed Assets on the Company’s balance sheet were reclassified to finance lease right-of-use assets upon adoption of the guidance.  Right-of-use assets and obligations were recognized based on the present value of remaining lease payments over the lease term.  As the Company’s operating lease does not provide an implicit rate, an estimated incremental borrowing rate was used based on the information available at the adoption date in determining the present value of lease payments.  Operating lease expense is recognized on a straight-line basis over the lease term.  Variable lease costs such as common area costs and other operating costs are expensed as incurred.  Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Finance Leases

The Company leases certain laboratory equipment under arrangements previously accounted for as capital leases, classified on the Company’s balance sheet as fixed assets and related lease liabilities and depreciated on a straight-line basis over the lease term.  Upon adoption of ASC 842, leased equipment previously classified as fixed assets totaling $1.4 million in net book value were reclassified to lease right-of-use assets in accordance with the guidance. The equipment under finance leases is depreciated on a straight-line basis over periods ranging from approximately 3 to 7 years. The total gross value of equipment capitalized under such lease arrangements was approximately $4,639,000 and $5,533,000 at December 31, 2020 and March 31, 2021, respectively. Total accumulated depreciation related to financed equipment was approximately $2,302,000 and $2,474,000 at December 31, 2020 and March 31, 2021, respectively, and total depreciation expense related to financed equipment during the three months ended March 31, 2020 and 2021 was approximately $146,000 and $172,000, respectively.

In February 2020, the Company entered into finance leases for a total capitalized amount of $197,000 for three pieces of equipment. Under the terms of the equipment financing agreement, which was accounted for as a finance lease transaction, the principal balance plus interest for the equipment are to be repaid in full in installments ranging from 48 to 60 monthly installments of $4,532 totaling approximately $265,000 through January 2025.  In addition, in March 2020, the Company entered into a finance lease for a capitalized

15


amount of $11,000 for an additional piece of equipment.  Under the term of the equipment financing agreement, the principal amount plus interest are to be repaid in 48 monthly installments of $288 totaling approximately $14,000 through February 2024.

During the three months ended March 31, 2021, the Company entered into finance leases for a total capitalized amount of $894,000 for four pieces of equipment.  Under the terms of the financing agreements, which were accounted for as finance lease transactions, the principal balance plus interest for the equipment are to be paid in installments ranging from 36 to 60 monthly installments of $21,330 totaling approximately $1,064,000 through March 2026.

Operating Lease

The Company leases its primary laboratory and office facilities in San Diego, California.  In accordance with the ASC 842 guidance, the facility lease is classified as an operating lease.  From its inception until December 2020, the Company’s primary facilities were located at 5810 Nancy Ridge Road in San Diego, California (Nancy Ridge Facility). The average monthly cash payment for the operating lease was approximately $120,000 per month, and the lease term expired on July 31, 2020, but was extended as stated below.  The Company recorded a lease right-of-use asset and lease liability of $1,930,000 and $2,201,000, respectively, as of January 1, 2019, based on present value of payments and an incremental borrowing rate of 4.5%.

On June 5, 2020, the Company entered into a fifth amendment (the “Amendment”) to its lease agreement, dated March 31, 2004, relating to the Nancy Ridge Facility.  Pursuant to the Amendment, the expiration date of the Lease was extended from July 31, 2020 to November 30, 2020.  The monthly base rent during the extended term was the then current monthly rate paid by the Company.  The Company agreed to pay additional rent and all other charges as set forth in the Lease through the expiration date.  Pursuant to the extension of the expiration date of the lease, the Company recorded an additional lease right-of-use asset and lease liability of $482,000. In order to allow the Company adequate time to move its operations to its new facility, the Company entered into an additional extension related to the facility extending the lease until December 11, 2020 at the prorated amount of the current rent.

On June 1, 2020, the Company entered into a lease for a 39,000 square foot headquarters, manufacturing and laboratory facility at 9955 Mesa Rim Road in San Diego, California. The lease commenced on December 1, 2020 and is for a term of 127 months from the commencement date.  The lease includes a rent abatement period of seven months, from January 2021 through July of 2021, during which period the Company is exempted from paying the amount of base rent of $111,000. In addition, the lease stipulates an additional two months of lease abatement period in the event that the property is sold within the first six months of the initial lease period. In March 2021, the Company was notified that the original landlord has sold the building, hence the Company is eligible for an additional two months of rent abatement period. In addition, the landlord agreed to pay for certain preapproved leasehold improvement costs through a one-time leasehold improvement allowance of approximately $1,586,000, and an additional leasehold improvement allowance of approximately $1,586,000. The amount of additional leasehold improvement allowance of approximately $1,586,000 is to be paid back to the landlord during the term of the lease by the Company, amortized at an agreed upon annual rate of 7% as an additional rent payment of approximately $18,000 per month. The average monthly cash payment including payment for the additional leasehold improvement allowance for the lease is approximately $140,000 per month with initial monthly lease payments of $128,000 per month.  The Company recorded a lease right-of-use asset and lease liability of $9,776,000 and $9,805,000, respectively, as of December 31, 2020, based on the present value of payments and an incremental borrowing rate of 12%. As the Company’s lease did not provide an implicit rate, the Company estimated the incremental borrowing rate based on the credit quality of the Company and by comparing interest rates available in the market for similar borrowings.  The Company recorded $1,631,000 and $361,000 in other current assets related to reimbursable leasehold improvement costs incurred as of December 31, 2020 and March 31, 2021, respectively.

In addition, the Company reviews agreements at inception to determine if they include a lease, and when they do, uses its incremental borrowing rate or implicit interest rate to determine the present value of the future lease payments.

The following schedule sets forth the components of right-of-use lease assets as of December 31, 2020 and March 31, 2021 as follows:

 

December 31,

 

 

March 31,

 

 

2020

 

 

2021

 

Lease right-of-use assets:

 

 

 

 

 

 

 

Operating

$

9,776,349

 

 

$

9,407,468

 

Finance

 

2,337,709

 

 

 

3,059,458

 

Total

$

12,114,058

 

 

$

12,466,926

 

The following schedule sets forth the current portion of operating and finance lease liabilities as of December 31, 2020 and March 31, 2021:

 

16


 

 

December 31,

 

 

March 31,

 

 

2020

 

 

2021

 

Current portion of lease liabilities:

 

 

 

 

 

 

 

Operating

$

 

 

$

 

Finance

 

963,726

 

 

 

1,179,557

 

Total

$

963,726

 

 

$

1,179,557

 

 

The following schedule sets forth the long-term portion of operating and finance lease liabilities as of December 31, 2020 and March 31, 2021:

 

December 31,

 

 

March 31,

 

 

2020

 

 

2021

 

Long-term portion of lease liability:

 

 

 

 

 

 

 

Operating

$

9,805,361

 

 

$

9,798,146

 

Finance

 

1,459,550

 

 

 

1,816,463

 

Total

$

11,264,911

 

 

$

11,614,609

 

The following schedule represents the components of lease expense for the three months ended March 31, 2020 and March 31, 2021:

 

 

For the three months ended

 

 

March 31, 2020

 

 

March 31, 2021

 

Lease cost

 

 

 

 

 

 

 

Finance lease cost

 

 

 

 

 

 

 

Amortization of right-of-use assets

$

144,530

 

 

$

172,325

 

Interest on lease liabilities

 

56,701

 

 

 

65,241

 

Operating lease cost

 

318,005

 

 

 

414,802

 

Total

$

519,236

 

 

$

652,368

 

The following schedule sets forth the remaining future minimum lease payments outstanding under finance and operating leases, as well as corresponding remaining sales tax and maintenance obligation payments that are expensed as incurred and due within each respective year ending December 31, as well as the present value of the total amount of the remaining minimum lease payments as of March 31, 2021:

 

Finance

 

 

Operating

 

 

Minimum

 

 

Maintenance and

 

 

Minimum

 

 

Lease

 

 

Sales Tax Obligation

 

 

Lease

 

 

Payments

 

 

Payments

 

 

Payments

 

2021

$

981,740

 

 

$

93,621

 

 

$

495,590

 

2022

 

1,020,965

 

 

 

101,578

 

 

 

1,586,210

 

2023

 

873,830

 

 

 

85,427

 

 

 

1,629,025

 

2024

 

464,328

 

 

 

55,806

 

 

 

1,671,841

 

Thereafter

 

209,372

 

 

 

16,184

 

 

 

11,995,433

 

Total payments

 

3,550,235

 

 

 

352,616

 

 

 

17,378,099

 

Less amount representing interest

 

(554,215

)

 

 

 

 

 

(7,579,953

)

Present value of payments

$

2,996,020

 

 

$

352,616

 

 

$

9,798,146

 

 

The following schedule sets forth supplemental cash flow information related to operating and finance leases as of March 31, 2020 and March 31, 2021:

 

 

For the three months ended

 

 

March 31, 2020

 

 

March 31, 2021

 

Other information

 

 

 

 

 

 

 

Operating cash flows from finance leases

$

56,701

 

 

$

65,241

 

Operating cash flows from operating leases

$

366,487

 

 

$

53,136

 

Financing cash flows from finance leases

$

136,574

 

 

$

321,330

 

17


 

 

The aggregate weighted average remaining lease term was 3.27 years on finance leases and 10.17 years on operating leases as of March 31, 2021. The aggregate weighted average discount rate was 16.84% on finance leases and 12.0% on operating leases as of March 31, 2021.  During the three months ended March 31, 2021, the Company added $894,000 of right of use assets in exchange for finance lease liabilities.

 

7. Stock-Based Compensation

Equity Incentive Plans

The Company maintains two equity incentive plans: the Amended and Restated 2013 Equity Incentive Plan, as amended, or the 2013 Plan, and the 2007 Equity Incentive Plan, or the 2007 Plan. The 2013 Plan includes a provision that shares available for grant under the Company’s 2007 Plan become available for issuance under the 2013 Plan and are no longer available for issuance under the 2007 Plan.

At the Company’s annual meeting of stockholders held on June 5, 2020, the Company’s stockholders approved amendments to the 2013 Plan, which included an increase in the number of non-inducement shares of common stock authorized for issuance under the 2013 Plan by 730,000 shares. In December 2020, the Company’s board of directors approved an increase of the number of inducement shares of common stock authorized for issuance under the 2013 Plan by 750,000 shares. As of March 31, 2021, 762,421 shares of the Company’s common stock were authorized exclusively for the issuance of stock awards to employees who have not previously been an employee or director of the Company, except following a bona fide period of non-employment, as an inducement material to the individual’s entering into employment with the Company, as defined under applicable Nasdaq Listing Rules.

As of March 31, 2021, under all plans, a total of 1,036,409 non-inducement shares were authorized for issuance, 988,101 shares had been issued with 993,172 non-inducement stock options and restricted stock units, or RSUs, underlying outstanding awards, and 32,220 non-inducement shares were available for grant. As of March 31, 2021, a total of 761,836 inducement shares were authorized for issuance, 268,882 inducement shares had been issued with 259,542 inducement stock options and RSUs underlying outstanding awards, and 502,210 inducement shares were available for grant under the 2013 Plan.

Stock Options

A summary of stock option activity for the three months ended March 31, 2021 is as follows:

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

Weighted

 

 

Remaining

 

 

Number of

 

 

Average Exercise

 

 

Contractual

 

 

Shares

 

 

Price Per Share

 

 

Term in Years

 

Outstanding at December 31, 2020

 

1,078,704

 

 

$

11.64

 

 

 

9.36

 

Granted

 

175,041

 

 

$

5.70

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

Cancelled/forfeited/expired

 

(40,461

)

 

$

19.09

 

 

 

 

 

Outstanding at March 31, 2021

 

1,213,284

 

 

$

10.44

 

 

 

9.31

 

Vested and unvested expected to vest at March 31, 2021

 

1,179,760

 

 

$

10.60

 

 

 

9.31

 

The intrinsic values of options outstanding, options exercisable, and options vested and unvested expected to vest at December 31, 2020 and March 31, 2021 were each $4,714 and $61,515, respectively.

The assumptions used in the Black-Scholes pricing model for stock options granted during the three months ended March 31, 2021 were as follows:

 

Stock and exercise prices

$5.09 - $6.03

 

Expected dividend yield

 

0.00%

 

Discount rate-bond equivalent yield

0.52% – 1.15%

 

Expected life (in years)

5.39 – 5.98

 

Expected volatility

164.0% - 170.1%

 

Restricted Stock

18


A summary of RSU activity for the three months ended March 31, 2021 is as follows:

 

 

 

 

 

 

Weighted

 

 

Number of

 

 

Average Grant

 

 

Shares

 

 

Date Fair Value

 

Outstanding at December 31, 2020

 

36

 

 

$

4,158

 

Granted

 

 

 

 

 

Vested and issued

 

 

 

 

 

Forfeited

 

 

 

 

 

Outstanding at March 31, 2021

 

36

 

 

$

4,158