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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended June 30, 2022

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 November 10, 2022, there were 17,058,770 shares of the Registrant’s common stock outstanding.

 

 

 

 

 

 


 

 

BIOCEPT, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

June 30, 2022

INDEX

 

 

 

 

 

Page

 

 

IMPORTANT NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

3

 

 

 

PART I.

 

FINANCIAL INFORMATION

 

 6

 

 

 

Item 1.

 

Financial Statements

 

6

 

 

 

 

 

Condensed Balance Sheets as of December 31, 2021 and June 30, 2022 (Unaudited)

 

6

 

 

 

 

 

Condensed Statements of Operations for the three and six months ended June 30, 2021 and 2022 (Unaudited)

 

7

 

 

 

 

 

Condensed Statements of Shareholders’ Equity for the three and six months ended June 30, 2021 and 2022 (Unaudited)

 

8

 

 

 

 

 

Condensed Statements of Cash Flows for the three and six months ended June 30, 2021 and 2022 (Unaudited)

 

9

 

 

 

 

 

Notes to Condensed Financial Statements (Unaudited)

 

10

 

 

 

Item 2.

 

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

 

20

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

30

 

 

 

Item 4.

 

Controls and Procedures

 

30

 

 

 

PART II.

 

OTHER INFORMATION

 

 32

 

 

 

Item 1.

 

Legal Proceedings

 

32

 

 

 

 

 

Item 1A.

 

Risk Factors

 

32

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

63

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

63

 

 

 

Item 4.

 

Mine Safety Disclosures

 

63

 

 

 

Item 5.

 

Other Information

 

63

 

 

 

Item 6.

 

Exhibits

 

64

 

 

 

 

2


 

 

IMPORTANT NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

 

the performance of our products, assays and services;

 

the ability of our products, assays and services to become a key component of the standard of care for personalized cancer treatment;

 

our ability to generate revenue, grow our business and increase sales of our products, assays and services;

 

our ability to develop and commercialize new products, diagnostic assays, services and enhance our current products, assays and services and future products, assays, and services;

 

our plans to launch a series of cancer diagnostic assays for different predictive biomarkers;

 

our ability to effectively compete with other products, diagnostic assays, methods and services that now exist or may hereafter be developed;

 

our ability to expand our international business and commercialize our products and assays in other countries;

 

market adoption of our products and assays and our ability to successfully complete clinical utility studies;

 

the potential for CNSide to be included in NCCN guidelines;

 

our ability to obtain coverage and adequate reimbursement from governmental and other third-party payers for assays and services;

 

our expectations regarding our material cash requirements, contractual obligations and commitments and the use of our existing cash;

 

our ability to enter into and leverage agreements with commercialization partners for the sales, marketing and commercialization of our current products, assays and services, and our planned future products, assays and services;

 

our ability to satisfy any applicable United States and international regulatory requirements with respect to products, assays and services;

 

our ability to obtain or maintain patents or other appropriate protection for the intellectual property utilized in our current and planned products, assays and services;

 

potential effects of the COVID-19 pandemic on our business;

 

our estimates regarding the period of time for which our current capital resources will be sufficient to fund our continued operations;

 

our expectations and estimates regarding our future use of cash, expenses and costs and needs for additional financing; and

 

our ability to maintain a strong internal control environment and remediate internal control deficiencies.

 

3


 

 

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in this report under the “Management’s Discussion and Analysis” and “Risk Factors” headings, which include but are not limited to the following factors:

 

we may be unable to increase sales of our current products, assays and services or successfully develop and commercialize other products, assays and services;

 

we may be unable to execute our sales and marketing strategy for our products and diagnostic assays and may be unable to gain acceptance in the market and generate sufficient revenue;

 

we may be unable to develop products, assays and services to keep pace with rapid advances in technology, medicine and science;

 

our current products, assays and services and our planned future products, assays and services may not continue to perform as expected;

 

our sole laboratory facility may become damaged or inoperable, or we may be required to vacate the facility;

 

the impact of the COVID-19 pandemic on our business;

 

the decline of our RT-PCR COVID-19 testing business revenues;

 

we may be unable to compete successfully with our competitors and increase or sustain our revenues;

 

medical oncologists, neuro-oncologists, surgical oncologists, urologists, pulmonologists, pathologists and other physicians may decide not to order our current or planned future assays, and laboratory supply distributors and their customers may decide not to order our current or planned future products;

 

we may be unable to identify collaborators willing to work with us to conduct clinical utility studies, or the results of those studies may not demonstrate that an assay provides clinically meaningful information and value;

 

we may lose key members of our executive management team;

 

we may be unable to retain and recruit personnel with the requisite technical skills;

 

we may fail to continue to attract, hire and retain a sufficient number of qualified sales professionals;

 

we may experience delays in transmitting claims to payers;

 

we may encounter manufacturing delays;

 

we may become exposed to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States;

 

general economic and business conditions may have a negative impact on our business;

 

our business may be effected by healthcare policy changes;

 

hospitals or other clients may not pay our invoices or third-party payers may not provide coverage and reimbursement or may breach, rescind or modify their contracts or reimbursement policies or delay payments;

 

our products and assays may not receive favorable treatment, clearance or marketing authorization from the U.S. Food and Drug Administration, or FDA;

 

the FDA may begin requiring approval or clearance for our current products and assays and our planned future products and assays;

 

4


 

 

we may become required to conduct additional clinical studies or trials before continuing to offer assays that we have developed or may develop as laboratory developed tests;

 

we may be unable to obtain and maintain effective patent and proprietary rights for our products and services;

 

we may be unable to protect our intellectual property throughout the world; and

 

we may fail to maintain proper and effective internal control over financial reporting.

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.

 

 

 

 

5


 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Biocept, Inc.

 

Condensed Balance Sheets

 

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

June 30,

 

 

 

2021

 

 

2022

 

Assets

 

 

 

 

 

(unaudited)

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

28,864

 

 

$

22,928

 

Accounts receivable

 

 

13,786

 

 

 

17,376

 

Inventories, net

 

 

2,651

 

 

 

2,249

 

Prepaid expenses and other current assets

 

 

391

 

 

 

1,225

 

Total current assets

 

 

45,692

 

 

 

43,778

 

Fixed assets, net

 

 

2,401

 

 

 

2,699

 

Lease right-of-use assets - operating

 

 

9,026

 

 

 

8,758

 

Lease right-of-use assets - finance

 

 

2,842

 

 

 

2,411

 

Other non-current assets

 

 

456

 

 

 

496

 

Total assets

 

$

60,417

 

 

$

58,142

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,246

 

 

$

4,830

 

Accrued liabilities

 

 

3,018

 

 

 

2,737

 

Current portion of lease liabilities - operating

 

 

426

 

 

 

469

 

Current portion of lease liabilities - finance

 

 

1,083

 

 

 

1,053

 

Supplier financing

 

 

-

 

 

 

524

 

Total current liabilities

 

 

11,773

 

 

 

9,613

 

Non-current portion of lease liabilities - operating

 

 

9,736

 

 

 

9,462

 

Non-current portion of lease liabilities - finance

 

 

1,428

 

 

 

957

 

Payor liability

 

 

-

 

 

 

5,654

 

Total liabilities

 

 

22,937

 

 

 

25,686

 

Commitments and contingencies (see Note 10)

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 5,000,000 shares authorized; 2,106 shares issued and outstanding at December 31, 2021 and June 30, 2022, respectively.

 

 

 

 

 

 

Common stock, $0.0001 par value, 150,000,000 shares authorized; 16,849,805 shares and 16,922,868 shares issued and outstanding at December 31, 2021 and June 30, 2022, respectively.

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

303,829

 

 

 

306,825

 

Accumulated deficit

 

 

(266,351

)

 

 

(274,371

)

Total shareholders’ equity

 

 

37,480

 

 

 

32,456

 

Total liabilities and shareholders’ equity

 

$

60,417

 

 

$

58,142

 

 

 

 

 

 

 

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

 

 

 

6


 

 

 

Biocept, Inc.

 

Condensed Statements of Operations

 

(In thousands, except shares and per share data)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

Net revenues

 

$

12,047

 

 

$

10,611

 

 

$

29,803

 

 

$

30,555

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

7,462

 

 

 

8,023

 

 

 

16,468

 

 

 

18,358

 

Research and development expenses

 

 

1,137

 

 

 

1,729

 

 

 

2,179

 

 

 

3,579

 

General and administrative expenses

 

 

3,251

 

 

 

4,300

 

 

 

6,371

 

 

 

11,106

 

Sales and marketing expenses

 

 

1,945

 

 

 

1,656

 

 

 

3,868

 

 

 

5,316

 

Total costs and expenses

 

 

13,795

 

 

 

15,708

 

 

 

28,886

 

 

 

38,359

 

(Loss) income from operations

 

 

(1,748

)

 

 

(5,097

)

 

 

917

 

 

 

(7,804

)

Other (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(80

)

 

 

(155

)

 

 

(145

)

 

 

(217

)

Total other (expense):

 

 

(80

)

 

 

(155

)

 

 

(145

)

 

 

(217

)

(Loss) income before income taxes

 

 

(1,828

)

 

 

(5,252

)

 

 

772

 

 

 

(8,021

)

              Income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income and comprehensive (loss) income

 

 

(1,828

)

 

 

(5,252

)

 

 

772

 

 

 

(8,021

)

Net (loss) income attributable to common shareholders

 

$

(1,828

)

 

$

(5,252

)

 

$

772

 

 

$

(8,021

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

13,462,329

 

 

 

16,906,314

 

 

 

13,431,340

 

 

 

16,876,841

 

Diluted

 

 

13,462,329

 

 

 

16,906,314

 

 

 

13,646,789

 

 

 

16,876,841

 

Net (loss) income per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.14

)

 

$

(0.31

)

 

$

0.06

 

 

$

(0.48

)

Diluted

 

$

(0.14

)

 

$

(0.31

)

 

$

0.06

 

 

$

(0.48

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

7


 

 

 

Biocept, Inc.

 

Condensed Statements of Stockholder's Equity

 

(In thousands, except for shares)

 

(Unaudited)

 

 

 

Common Stock

 

 

Series A

Convertible

Preferred Stock

 

 

Additional

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Deficit

 

 

Total

 

Balance at December 31, 2021

 

 

16,849,805

 

 

$

2

 

 

 

2,106

 

 

$

 

 

$

303,829

 

 

$

(266,351

)

 

$

37,480

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,317

 

 

 

 

 

 

2,317

 

Shares issued upon conversion of preferred stock

 

 

356

 

 

 

 

 

 

(16

)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,768

)

 

 

(2,768

)

Balance at March 31, 2022

 

 

16,850,161

 

 

$

2

 

 

 

2,090

 

 

$

 

 

$

306,146

 

 

$

(269,119

)

 

$

37,029

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

585

 

 

 

 

 

 

585

 

Shares issued for ATM transaction, net of issuance costs

 

 

72,707

 

 

 

 

 

 

 

 

 

 

 

 

94

 

 

 

 

 

 

94

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,252

)

 

 

(5,252

)

Balance at June 30, 2022

 

 

16,922,868

 

 

$

2

 

 

 

2,090

 

 

$

 

 

$

306,825

 

 

$

(274,371

)

 

$

32,456

 

 

 

 

 

 

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

 

 

 

2,111

 

 

$

 

 

$

287,218

 

 

$

(263,527

)

 

$

23,692

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

460

 

 

 

 

 

 

460

 

Shares issued upon exercise of common stock warrants

 

 

5,304

 

 

 

 

 

 

 

 

 

 

 

 

19

 

 

 

 

 

 

19

 

Shares issued upon conversion of preferred stock

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued upon exercise of options

 

 

194

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,599

 

 

 

2,599

 

Balance at March 31, 2021

 

 

13,402,562

 

 

$

1

 

 

 

2,111

 

 

$

 

 

$

287,698

 

 

$

(260,928

)

 

$

26,771

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

494

 

 

 

 

 

 

494

 

Shares issued for ATM transaction, net of

   issuance costs

 

 

908,044

 

 

 

 

 

 

 

 

 

 

 

 

3,914

 

 

 

 

 

 

3,914

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,828

)

 

 

(1,828

)

Balance at June 30, 2021

 

 

14,310,606

 

 

$

1

 

 

 

2,111

 

 

$

 

 

$

292,106

 

 

$

(262,756

)

 

$

29,351

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

8


 

 

 

Biocept, Inc.

 

Condensed Statements of Cash Flows

 

(in thousands)

 

(Unaudited)

 

 

 

For the Six Months Ended June 30,

 

 

 

2021

 

 

2022

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

772

 

 

$

(8,021

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

711

 

 

 

810

 

Noncash operating lease expense

 

 

721

 

 

 

268

 

Stock-based compensation

 

 

954

 

 

 

2,902

 

Loss on disposal of fixed assets

 

 

5

 

 

 

 

Increase (decrease) in cash resulting from changes in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

1,549

 

 

 

(3,589

)

Inventory

 

 

(1,087

)

 

 

402

 

Prepaid expenses and other current assets

 

 

1,876

 

 

 

6

 

Other non-current assets

 

 

(13

)

 

 

(41

)

Accounts payable

 

 

(1,922

)

 

 

(2,852

)

Accrued liabilities

 

 

(755

)

 

 

(281

)

Operating lease liability

 

 

-

 

 

 

(230

)

Payor liability

 

 

-

 

 

 

5,654

 

            Net cash provided by (used in) operating activities

 

 

2,811

 

 

 

(4,972

)

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Purchases of fixed assets

 

 

(832

)

 

 

(315

)

            Net cash used in investing activities

 

 

(832

)

 

 

(315

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Net proceeds from issuance of common stock

 

 

3,914

 

 

 

94

 

Proceeds from exercise of common stock warrants

 

 

18

 

 

 

 

Proceeds from exercise of stock options

 

 

1

 

 

 

 

Payments on finance leases

 

 

(624

)

 

 

(501

)

Payments on supplier financing

 

 

(205

)

 

 

(242

)

           Net cash provided by (used in) financing activities

 

 

3,104

 

 

 

(649

)

Net increase (decrease) in Cash

 

 

5,083

 

 

 

(5,936

)

Cash at Beginning of Period

 

 

14,368

 

 

 

28,864

 

Cash at End of Period

 

 

19,451

 

 

 

22,928

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

 

         Interest

 

$

145

 

 

$

217

 

 

 

 

For the Six Months Ended June 30,

 

Non-cash Investing and Financing Activities

 

2021

 

 

2022

 

Financed insurance premiums

 

$

                 622

 

 

$

672

 

Fixed assets purchased through financed lease obligations

 

$

                 894

 

 

$

                         -

 

Fixed assets within accounts payable

 

$

                   88

 

 

$

                     361

 

 

 

 

 

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

 

9


 

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 a molecular oncology diagnostics company that develops and commercializes proprietary clinical diagnostic laboratory assays designed to identify rare tumor cells and cell-free tumor DNA from blood and cerebrospinal fluid, or CSF. The identification of tumor cells and cell-free tumor DNA in CSF has become the Company’s principal development focus following its early commercial expansion into CSF in 2020.

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 proprietary microfluidic channels for cell enrichment and extraction, as well as certain reagents that are used to perform the Company’s diagnostic assays in a facility located in San Diego, California. CLIA certification and CAP 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 (LDTs) 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.

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, 2021 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, 2021, filed with the SEC with our Annual Report on Form 10-K on April 5, 2022 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 six months ended June 30, 2021 of approximately $60,000 within the condensed statement of cash flows to conform to the current year presentation. The change in inventory reserve is now included in the increase (decrease) in cash resulting from changes in inventory within the cash flows from operating activities. This reclassification had no effect on previously reported cash flows from operating activities in the unaudited condensed statement of cash flows.

 

 

 

10


 

 

Significant Accounting Policies

During the three and six months ended June 30, 2022, 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, 2021.

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 the Centers for Medicare & Medicaid Services, or CMS, and applicable reimbursement contracts established between the Company and payers, unless the patient is a self-pay patient, whereby the Company bills the patient directly after the services are provided.

 

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

 

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

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

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service, or a bundle of goods or services, to the customer. For its commercial and development services revenues, the Company’s contracts have a single performance obligation, which is satisfied upon rendering of services, which culminates in the delivery of a patient’s assay result(s) to the ordering physician or entity. The duration of time between accession receipt and delivery of a valid assay result to the ordering physician or entity is typically less than two weeks, and for our RT-PCR COVID-19 testing, typically 48 hours or less. Accordingly, the Company elected the practical expedient and therefore, does not disclose the value of unsatisfied performance obligations. 

Transaction Price

The transaction price is the amount of consideration that the Company expects to collect in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties, such as sales taxes. The consideration expected from a contract with a customer may include fixed amounts, variable amounts, or both. The Company’s gross commercial revenues billed, and corresponding gross accounts receivable, 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 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 is 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

 

11


 

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 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. Further, although the Company believes that its estimate for implicit price concessions 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. 

 

12


 

Disaggregation of Revenue and Concentration of Risk

The composition of the Company’s net revenues recognized during the three and six months ended June 30, 2022, disaggregated by source and nature, are as follows (in thousands):

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

Net revenues from non-contracted payers

 

$

5,059

 

 

$

9,085

 

 

$

16,400

 

 

$

21,729

 

Net revenues from contracted payers*

 

 

6,920

 

 

 

1,434

 

 

 

13,234

 

 

 

8,697

 

     Net commercial revenues

 

 

11,979

 

 

 

10,519

 

 

 

29,634

 

 

 

30,426

 

Development services revenues

 

 

33

 

 

 

92

 

 

 

73

 

 

 

129

 

Kits and Specimen Collection Tubes (SCTs)

 

 

35

 

 

 

 

 

 

96

 

 

 

 

     Total net revenues

 

$

12,047

 

 

$

10,611

 

 

$

29,803

 

 

$

30,555

 

 

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

 

Revenues for the three and six months ended June 30, 2022 included $10.6 million and $30.6 million, respectively, in commercial test revenues, including $9.8 million and $28.4 million of revenues attributable to RT-PCR COVID-19 testing. At June 30, 2022, unbilled accounts receivable totaled approximately $3.8 million.

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 during the three and six months ended June 30, 2021 and 2022 were as follows:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

Medicare and Medicare Advantage/CARES Act

 

57%

 

 

12%

 

 

44%

 

 

32%

 

Blue Cross Blue Shield

 

25%

 

 

17%

 

 

28%

 

 

16%

 

Kaiser Permanente

 

0%

 

 

23%

 

 

0%

 

 

17%

 

The Company's third-party payers that represent more than 10% of total accounts receivable at December 31, 2021 and June 30, 2022 were as follows:

 

 

December 31,

 

 

June 30,

 

 

 

2021

 

 

2022

 

Medicare and Medicare Advantage/CARES Act

 

31%

 

 

8%

 

Blue Cross Blue Shield

 

19%

 

 

12%

 

 

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 Company for annual reporting periods beginning after December 15, 2022. The Company does not expect the adoption of this standard to have a significant impact on its financial statements.

In September 2022, the FASB issued ASU 2022-04, Liabilities-Supplier Finance Programs, to enhance the transparency of supplier finance programs. The main objective of this standard requires a buyer in a supplier finance program to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from

 

13


 

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 is currently evaluating the expected impact the adoption of this standard will have on its financial statements.

 

2. Liquidity

As of June 30, 2022, cash totaled $22.9 million and the Company had an accumulated deficit of $274.4 million. For the six months ended June 30, 2022, the Company incurred a net loss of  $8.0 million.      

The Company has historically funded its operations primarily through sales of its equity securities. For the year ended December 31, 2021, revenue from the Company’s COVID-19 testing business provided an increased level of cash flow. During the quarter ended June 30, 2022, net revenues were approximately $10.6 million compared with approximately $12.0 million for the same period in the prior year.

During 2021 and the three and six months ended June 30, 2022, the Company incurred operating losses. The Company had net cash provided by operations for the year ended December 31, 2021, and net cash used to fund operations for the three and six months ended June 30, 2022. The Company does not anticipate it will be profitable until 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 review required for going concern accounting and does not believe the Company presently has sufficient liquidity to continue to operate for the next twelve months after the filing of this Quarterly report on Form 10-Q. Management intends to continue its efforts to contain costs and to raise additional capital until it ultimately generates sufficient cash to support operations from commercial sales.

 

3. Sales of Equity Securities

As part of a warrant repricing and exchange transaction, in January 2020, the Company issued an aggregate of 692,725 new warrants in exchange for the exercise of certain warrants issued by the Company in February 2019 and March 2019 for an aggregate of 692,725 shares of common stock 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 during the year ended December 31, 2021.

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 may issue and sell from time to time up to $25,000,000 of its common stock through or to the Sales Agent, as sales agent or principal. The issuance and sale of these shares under the Sales Agreement, if any, is subject to the continued effectiveness of the Company’s shelf registration statement on Form S-3, filed with the SEC on April 24, 2020. Our shelf registration statement on Form S-3 will be unavailable upon our filing of our Annual Report on Form 10-K for the year ending December 31, 2022 and we will not be able to file a new Form S-3 until, at the earliest, September 1, 2023. Sales of the Company’s common stock, under the Sales Agreement are made at market prices by any method that is deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. Each time the Company wishes to issue and sell common stock under the Sales Agreement, it notifies the Sales Agent of the number of shares to be issued, the dates on which such sales are anticipated to be made and any minimum price below which sales may not be made. Once the Company has so instructed the Sales Agent, unless the Sales Agent declines to accept the terms of the notice, the Sales Agent has agreed to use its commercially reasonable efforts consistent with its normal trading and sales practices to sell such shares up to the amount specified on such terms.

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

During 2021, the Company received net proceeds of $14.1 million from the sale of our common stock and issued 3,428,680 shares of our common stock at a weighted average purchase price of $4.31 pursuant to the Sales Agreement. During the three and six months ended June 30, 2022, we received net proceeds of approximately $94,000 from the sale of our common stock and issued 72,707 shares

 

14


 

of our common stock at a weighted average purchase price of $1.74 pursuant to the Sales Agreement. As of June 30, 2022, $10.1 million of our common stock remained available for sale under the Sales Agreement.

 

 

4. Balance Sheet Details

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

 

 

 

December 31,

 

 

June 30,

 

 

 

2021

 

 

2022

 

 

 

 

 

 

 

(unaudited)

 

Inventories

 

 

 

 

 

 

 

 

Raw materials

 

$

2,303

 

 

$

2,021

 

Subassemblies