BIORA THERAPEUTICS, INC. – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and notes
thereto and other financial information included elsewhere in this Annual
Report. Some of the information contained in this discussion and analysis
includes forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those described in or implied by
these forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those identified below and those
discussed in the section titled "Risk Factors" included elsewhere in this Annual
Report.
Overview
We are a biotechnology company developing oral biotherapeutics that could enable
new treatment approaches in the delivery of therapeutics. Our therapeutics
pipeline is divided into two therapeutic delivery mechanisms:
•
Targeted delivery of therapeutics to the site of disease in the GI tract,
designed to improve outcomes for patients with IBD; and
•
Systemic delivery of biotherapeutics, designed to replace injection with
needle-free, oral capsules.
Our mission is to improve human health through a more advanced approach to
biotherapeutic delivery.
Our historical operations included a licensed
Amendment
in the molecular testing markets serving women's health providers in the
obstetric, gynecological, fertility, and maternal fetal medicine specialty
areas. Previously, our core business was focused on the prenatal carrier
screening and noninvasive prenatal test market, targeting preconception planning
and routine pregnancy management for genetic disease risk assessment. Through
our former affiliation with
partnership doing business as
operations also included anatomic and molecular pathology testing products in
Common Stock Reverse Split
On
and restated certificate of incorporation (the "Certificate of Amendment") to
effect, as of
Certificate of Amendment also decreased the number of authorized shares of our
common stock from 350,000,000 to 164,000,000. All shares, options, restricted
stock units, warrants and per share amounts included in this Annual Report on
Form 10-K have been retroactively adjusted to reflect the stock split.
Strategic Transformation and Factors Affecting Our Performance
In
Transformation") pursuant to which we are refocusing our efforts on our robust
research and development pipeline to better position the business for future
growth. The Strategic Transformation includes the closure of our genetics
laboratory in
reduction in force and other cost-cutting measures and operational improvements.
Prior to the closure of our genetics laboratory in
generated revenue by providing tests through our
throughout most of the second quarter of 2021. We received payments for such
tests from payors, laboratory distribution partners, and self-paying
individuals, and more than 95% of payments for our tests we received through
reimbursement. We received reimbursement from several distinct channels:
commercial third-party payors, laboratory distribution partners, and government
health benefits programs such as Medicare and Medicaid. Due to the typical lag
in payment following performance of a test, we expect to continue to receive
reimbursement payments for a period of time following the closure of the
laboratory.
In the second quarter of 2020, we added COVID-19 testing to our offering and
began offering COVID-19 testing nationally in
longer performing COVID-19 testing following the shut-down of our Laboratory
Operations.
We are engaged in research and development activities with respect to
therapeutics product candidates. Following the Strategic Transformation, we are
devoting substantially all of our resources to developing and perfecting our
intellectual property rights, conducting research and development activities
(including undertaking preclinical and clinical studies of our therapeutics
product candidates), conducting clinical trials of our most advanced
therapeutics product candidates, organizing and staffing our company,
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business planning and raising capital. We do not have any therapeutics products
approved for sale, and we have not generated any revenue from therapeutics
product sales.
Our business involves significant investment in research and development
activities for the development of new products. We intend to continue investing
in our pipeline of new products and technologies. We expect our investment in
research and development to increase as we pursue regulatory approval of our
targeted therapeutics and systemic therapeutics product candidates. The
achievement of key development milestones is a key factor in evaluating our
performance.
We expect to continue to incur significant expenses and increasing operating
losses in the near term. While we materially reduced our spend profile as a
result of the Strategic Transformation in 2021, we expect our expenses may
increase in connection with our ongoing activities, as we:
•
continue to advance the preclinical and clinical development of our lead
targeted therapeutics and systemic therapeutics product candidates;
•
initiate preclinical studies and clinical trials for additional targeted
therapeutics and systemic therapeutics product candidates that we may identify
in the future;
•
increase personnel and infrastructure to support our clinical development,
research and manufacturing efforts;
•
build out and expand our in-house process development and engineering and
manufacturing capabilities for R&D and clinical purposes;
•
continue to develop, perfect and defend our intellectual property portfolio; and
•
incur additional legal, accounting or other expenses in operating our business,
including the additional costs associated with operating as a public company.
We do not expect to generate significant product revenue unless and until we
successfully complete development and obtain regulatory and marketing approval
of, and begin to sell, one or more of our targeted therapeutics and systemic
therapeutics product candidates, which we expect will take several years. We
expect to spend a significant amount in development costs prior to such time. We
may never succeed in achieving regulatory and marketing approval for our
therapeutics product candidates. We may obtain unexpected results from our
preclinical and clinical trials. We may elect to discontinue, delay or modify
preclinical and clinical trials of our therapeutics product candidates. A change
in the outcome of any of these variables with respect to the development of a
product candidate could mean a significant change in the costs and timing
associated with the development of that product candidate. Accordingly, until
such time as we can generate significant product revenue, if ever, we expect to
continue to seek private or public equity and debt financing to meet our capital
requirements. There can be no assurance that such funding may be available to us
on acceptable terms, or at all, or that we will be able to commercialize our
therapeutics product candidates. In addition, we may not be profitable even if
we commercialize any of our therapeutics product candidates.
Key Components of Our Results of Operations
We are providing the following summary of our revenues, research and development
expenses and selling, general and administrative expenses to supplement the more
detailed discussion below. This summary excludes our revenues, research and
development expenses, selling and marketing, general and administrative and
other expenses associated with our Laboratory Operations, which are reported
within loss from discontinued operations.
Revenue
Historically, all of our revenue has been derived from molecular laboratory
tests, principally from the sale of NIPT, genetic carrier screening, and
pathology molecular testing. If our development efforts for our therapeutics
product candidates are successful and result in regulatory approval, we may
generate revenue from future product sales. If we enter into license or
collaboration agreements for any of our therapeutics product candidates, other
pipeline products or intellectual property, we may generate revenue in the
future from payments as a result of such license or collaboration agreements. We
cannot predict if, when, or to what extent we will generate revenue from the
commercialization and sale of our therapeutics product candidates or from
license or collaboration agreements. We may never succeed in obtaining
regulatory approval for any of our therapeutics product candidates.
Research and Development
Research and development expenses consist primarily of costs associated with
developing new products, including our therapeutics product candidates. Research
and development expenses also consist of personnel expenses, including salaries,
bonuses,
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stock-based compensation expense, benefits, consulting costs, and allocated
overhead costs. Research and development costs are expensed as incurred.
We plan to continue investing in research and development activities for the
foreseeable future as we focus on our targeted therapeutics and systemic
therapeutics programs through preclinical studies and clinical trials. We expect
our investment in research and development to remain relatively flat as we
pursue regulatory approval of our product candidates and as we seek to expand
our pipeline of product candidates.
Product candidates in later stages of clinical development generally have higher
development costs than those in earlier stages of clinical development,
primarily due to the increased size and duration of later-stage clinical trials.
While we plan to partner with large pharmaceutical companies, especially for the
later stage clinical work, we still expect our research and development expenses
to increase over the next several years as we conduct additional preclinical
studies and clinical trials, including later-stage clinical trials, for our
current and future product candidates and pursue regulatory approval of our
product candidates. The process of conducting the necessary preclinical and
clinical research to obtain regulatory approval is costly and time consuming.
The actual probability of success for our product candidates may be affected by
a variety of factors including:
•
the safety and efficacy of our product candidates;
•
early clinical data for our product candidates;
•
investment in our clinical programs;
•
the ability of collaborators to successfully develop our licensed product candidates; • competition; • manufacturing capability; and • commercial viability.
We may never succeed in achieving regulatory approval for any of our product
candidates due to the uncertainties discussed above. We are unable to determine
the duration and completion costs of our research and development projects or
when and to what extent we will generate revenue from the commercialization and
sale of our product candidates, if ever.
Due to the impact of the COVID-19 pandemic, certain of our research and
development activities have been delayed and may be further delayed. For more
information on risks related to COVID-19, see "Risk Factors-Unfavorable global
economic conditions, whether brought about by global crises, health epidemics,
military conflicts and war, geopolitical and trade disputes or other factors,
may have a material adverse effect on our business and financial results."
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of personnel
costs, including salaries, bonuses, stock-based compensation expense, and
benefits, for our finance and accounting, legal, human resources, and other
administrative teams. Additionally, these expenses include costs for
communication, advertising, conferences, and professional fees of audit, legal,
and recruiting services. Additionally, expenses related to maintaining
compliance with the stipulations of the government settlement and the legal
costs associated with the legal matters described in Part I, Item 3. "Legal
Proceedings" in this Annual Report are included. We expect our selling, general
and administrative expenses to decrease as a result of our discontinued
Laboratory Operations and decreased headcount.
Interest Expense, Net
Interest expense, net is primarily attributable to borrowings under our Credit
Agreement (as defined below), our mortgages payable, lease agreements and
interest income earned from our cash and cash equivalents.
Gain (Loss) on Warrant Liabilities
Gain (loss) on warrant liabilities consists of changes in the fair value of our
liability-classified warrants to purchase common stock.
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Other Income, Net
Other income, net primarily consists of changes in the fair value of our
embedded derivative liability related to the Convertible Notes and inducement
loss on our Convertible Notes.
Income Tax Provision
We account for income taxes under the asset-and-liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis, and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
We recognize the effect of income tax positions only if those positions are more
likely than not of being sustained. Recognized income tax positions are measured
at the largest amount that is more than 50% likely of being realized. Changes in
recognition or measurement are recognized in the period in which the change in
judgment occurs. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. Due to losses
generated in the past and projected future taxable losses anticipated in the
future, we established a 100% valuation allowance on net deferred tax assets.
Results of Operations.
Comparison of Years Ended
Year Ended
December 31,
2022 2021
(in thousands)
Statement of Operations Data:
Revenues $ 305 $ 1,247
Operating expenses:
Research and development 24,049 45,785
Selling, general and administrative 38,037 73,299
Total operating expenses 62,086 119,084
Loss from operations (61,781 ) (117,837 )
Interest expense, net (10,990 ) (12,636 )
Gain (loss) on warrant liabilities 20,904 (54,157 )
Other income, net 2,617 5,990
Loss before income taxes (49,250 ) (178,640 )
Income tax benefit (420 ) (119 )
Loss from continuing operations (48,830 ) (178,521 )
Gain (loss) from discontinued operations 10,673 (68,891 )
Net loss $ (38,157 ) $ (247,412 )
Revenue
As a result of the classification of the Company's Laboratory Operations to
discontinued operations, all revenue from Laboratory Operations has been
classified as discontinued operations. The remaining revenue is related to
license and collaboration agreements.
Research and Development Expenses
Year Ended
December 31, Increase/
2022 2021 (Decrease) % Change
(in thousands)
Research and development $ 24,049 $ 45,785 $ (21,736 ) (47.5 )%
The decrease in research and development expenses was primarily attributable to
a decrease in salary and benefits, consulting and professional fees, and a
decrease in the cost of supplies and facilities.
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Selling, General and Administrative Expenses
Year Ended
December 31, Increase/
2022 2021 (Decrease) % Change
(in thousands)
Selling, general and administrative
The decrease in selling, general and administrative expenses was primarily
attributable to a decrease in salary and benefits, consulting and professional
fees, software costs, business insurance and facilities costs.
Interest Expense, Net
Year Ended
December 31, Increase/
2022 2021 (Decrease) % Change
(in thousands)
Interest expense, net $ 10,990 $ 12,636 $ (1,646 ) (13.0 )%
The decrease in interest expense, net was due to a decrease in the balance of
Convertible Notes due to conversions during 2021.
Gain (Loss) on Warrant Liabilities
Year Ended
December 31, Increase/
2022 2021 (Decrease) % Change
(in thousands)
Gain (loss) on warrant liabilities $ 20,904 $ (54,157 ) $ 75,061 *
* The change is more than 100%
The change in gain (loss) on warrant liabilities was due to the change in fair value of the warrant liabilities for warrants issued during 2021 and inNovember 2022 . Other Income, Net Year Ended December 31, Increase/ 2022 2021 (Decrease) % Change (in thousands) Other income, net$ 2,617 $ 5,990 $ (3,373 ) (56.3 )%
The decrease in other income, net was primarily due to a gain recognized on our
embedded derivative liability related to the Convertible Notes and an inducement
loss related to conversions of Convertible Notes for the year ended
2021
offset by a gain of
Income Tax Benefit
Year Ended
December 31, Increase/
2022 2021 (Decrease) % Change
(in thousands)
Income tax benefit $ 420 $ 119 $ 301 *
* The change is more than 100%
The increase in income tax benefit was primarily due to federal and state income
tax refunds, offset by recognition of a deferred tax liability related to
Enumera.
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Discontinued Operations
Year Ended
December 31, Increase/
2022 2021 (Decrease) % Change
(in thousands)
Gain (loss) from discontinued operations $ 10,673 $ (68,891 ) $ 79,564 *
* The change is more than 100%
The change in gain (loss) from discontinued operations was due to the closure of
our Laboratory Operations during 2021 and a partial reversal of a third-party
payor accrual. See Notes 4 and 10 to our consolidated financial statements
included elsewhere in this Annual Report for additional information regarding
discontinued operations and commitments and contingencies.
Liquidity and Capital Resources.
Since our inception, our primary sources of liquidity have been generated by our
operations, sales of common stock, preferred stock, warrants to purchase common
stock and preferred stock and cash from debt financings, including Convertible
Notes.
As of
of
we had a net loss of
Our primary requirements for liquidity have been to fund our working capital
needs, capital expenditures, dividends, research and development, and general
corporate needs.
While we have greatly reduced our cash burn following the Strategic
Transformation, we do not expect that our current cash and cash equivalents will
be sufficient to fund our operations for at least 12 months from the issuance
date of the consolidated financial statements for the year ended
2022
substantial doubt exists about our ability to continue as a going concern for 12
months following the issuance date of the consolidated financial statements for
the year ended
capital through equity offerings, including our ATM Facility, and/or debt
financings or from other potential sources of liquidity, which may include new
collaborations, licensing or other commercial agreements for one or more of our
research programs or patent portfolios. Adequate funding, if needed, may not be
available to us on acceptable terms, or at all. If we are unable to raise
capital when needed or on attractive terms, we would be forced to delay, reduce
or eliminate our research and development programs or other operations. If any
of these events occur, our ability to achieve our operational goals would be
adversely affected. Our future capital requirements and the adequacy of
available funds will depend on many factors, including those described in "Risk
Factors." Depending on the severity and direct impact of these factors on us, we
may be unable to secure additional financing to meet our operating requirements
on terms favorable to us, or at all. Our ability to raise additional funds may
be adversely impacted by potential worsening global economic conditions and the
recent disruptions to, and volatility in, the credit and financial markets in
economic uncertainty.
Convertible Notes
In
pursuant to Rule 144A under the Securities Act, we issued a total of
million
issued pursuant to, and are governed by, the Indenture. The Convertible Notes
are due on
and accrue interest at a rate per annum equal to 7.25% payable semi-annually in
arrears on
1, 2021
The Convertible Notes are our senior, unsecured obligations and are (i) equal in
right of payment with our existing and future senior, unsecured indebtedness;
(ii) senior in right of payment to our existing and future indebtedness that is
expressly subordinated to the Convertible Notes; (iii) effectively subordinated
to our existing and future secured indebtedness, to the extent of the value of
the collateral securing that indebtedness; and (iv) structurally subordinated to
all existing and future indebtedness and other liabilities, including trade
payables, and (to the extent we are not a holder thereof) preferred equity, if
any, of our subsidiaries.
At any time, noteholders may convert their Convertible Notes at their option
into shares of our common stock, together, if applicable, with cash in lieu of
any fractional share, at the then-applicable conversion rate. The initial
conversion rate is 11.1204 shares of common stock per
Convertible Notes, which represents an initial conversion price of approximately
Notes before
additional cash payment representing the present value of any remaining interest
payments on the Convertible Notes through
and conversion price are subject to customary adjustments
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upon the occurrence of certain events. In addition, if certain corporate events
that constitute a Make-Whole Fundamental Change (as defined in the Indenture)
occur, then the conversion rate will, in certain circumstances, be increased for
a specified period of time.
The Convertible Notes are redeemable, in whole and not in part, at our option at
any time on or after
principal amount of the Convertible Notes to be redeemed, plus accrued and
unpaid interest, if any, to, but excluding, the redemption date, but only if the
last reported sale price per share of the our common stock exceeds 130% of the
conversion price on (i) each of at least 20 trading days, whether or not
consecutive, during the 30 consecutive trading days ending on, and including,
the trading day immediately before the date we send the related redemption
notice; and (ii) the trading day immediately before the date we send such
notice. In addition, calling the Convertible Notes will constitute a Make-Whole
Fundamental Change, which will result in an increase to the conversion rate in
certain circumstances for a specified period of time.
The Convertible Notes have customary provision relating to the occurrence of
Events of Default (as defined in the Indenture), which include the following:
(i) certain payment defaults on the Convertible Notes (which, in the case of a
default in the payment of interest on the Convertible Notes, will be subject to
a 30-day cure period); (ii) our failure to send certain notices under the
Indenture within specified periods of time; (iii) our failure to comply with
certain covenants in the Indenture relating to the Company's ability to
consolidate with or merge with or into, or sell, lease or otherwise transfer, in
one transaction or a series of transactions, all or substantially all of our
assets and assets of our subsidiaries, taken as a whole, to another person; (iv)
a default by us in our other obligations or agreements under the Indenture or
the Convertible Notes if such default is not cured or waived within 60 days
after notice is given in accordance with the Indenture; (v) certain defaults by
us or any of our subsidiaries with respect to indebtedness for borrowed money of
at least
of our subsidiaries for the payment of at least
judgments are not discharged or stayed within 60 days after the date on which
the right to appeal has expired or on which all rights to appeal have been
extinguished; and (vii) certain events of bankruptcy, insolvency and
reorganization involving us or any of our significant subsidiaries. As of
In
holders of Convertible Notes to exchange an aggregate of
amount for 340,554 shares of our common stock. In addition, we issued an
aggregate of 17,112 shares of common stock to certain investors in consideration
for a waiver of certain contractual lock-up provisions to which we agreed in
connection with prior offerings of securities.
In addition to the transaction discussed above, holders of Convertible Notes
exchanged an aggregate of
our common stock during the year ended
PIPE Financings
In
placement with certain institutional and accredited investors, pursuant to which
the purchasers purchased an aggregate of 174,825 units representing (i) 174,825
shares of the Company's common stock, par value
warrants to purchase up to 174,825 shares of common stock. The purchase price
for each unit was
exercisable at an exercise price of
provided under the terms of the warrants. The warrants were immediately
exercisable and expire on the fifth anniversary of the initial date of issuance.
If exercised for cash, the warrants would result in additional gross proceeds to
us of approximately
In
placement with certain institutional and accredited investors, pursuant to which
the purchasers agreed to purchase an aggregate of 647,773 units representing (i)
647,773 shares of the Company's common stock, par value
pre-funded warrants in lieu thereof), and (ii) warrants to purchase up to
647,773 shares of common stock. The purchase price for each unit was
an aggregate purchase price of approximately
closed on
warrants. The warrants were immediately exercisable and expire on the fifth
anniversary of the date of issuance. The pre-funded warrants were exercisable at
an initial exercise price of
exercised for cash, the warrants would result in additional gross proceeds to us
of approximately
stock as a result of the exercise of the outstanding pre-funded warrants at an
exercise price of
Registered Offerings
In
common stock and (ii) warrants to purchase 1,600,000 shares of common stock in
an underwritten public offering (the "
sold together with one warrant to purchase one share of common stock at a
combined public offering price of
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the accompanying warrant. We received approximately
proceeds, after deducting underwriting discounts and commissions and other
offering expenses payable by the Company. The warrants have an exercise price of
following the date of issuance. The agreement also allowed for the purchase of
up to an additional 240,000 shares at the option of the underwriters, which was
partially exercised for warrants to purchase an aggregate of 77,280 shares of
common stock.
In
institutional and accredited investors relating to the offering and sale of
533,333 shares of common stock at a purchase price of
registered direct offering. We received approximately
proceeds, after deducting placement agent fees and other offering expenses
payable by the Company.
In
certain institutional and accredited investors relating to the offering and sale
of an aggregate of (i) 1,300,250 shares of common stock and (ii) warrants to
purchase 1,300,250 shares of common stock in a registered direct offering (the
"
purchase one share of common stock at a combined public offering price of
per share of the common stock and the accompanying warrant. We received
approximately
and offering expenses. Approximately
received in the form of a waiver of the Company's
payment on the Convertible Notes. The warrants have an exercise price of
per share, are exercisable six months following the date of issuance, and will
expire five years following the initial exercise date.
Additionally, the Company agreed with certain institutional investors to amend
outstanding warrants previously issued in 2021 to purchase (i) up to 104,895
shares of common stock with an exercise price of
to 403,887 shares of common stock with an exercise price of
Accordingly, the Company agreed to (i) lower the exercise price of such existing
warrants to
amended, will not be exercisable until
expiration date of such existing warrants to
warrants are held by affiliates of Athyrium.
At-The-Market Sales Agreement and Offering
In
Sale Agreement") with
& Co. LLC
stock having an aggregate offering price of up to
time, in "at the market" offerings through the Agents (the "ATM Facility"). In
connection with the
price to
made at prevailing market prices at the time of sale, or as otherwise agreed
with the Agents. The Agents will receive a commission from the Company of up to
3.0% of the gross proceeds of any shares of common stock sold under the ATM Sale
Agreement. During the three months ended
proceeds of
expenses, from the sale of 70,550 shares under the ATM Sale Agreement. We sold
such shares at a weighted average purchase price of
three months ended
million
of 52,620 shares under the ATM Sale Agreement. The Company sold such shares at a
weighted average purchase price of
deducting commissions and other offering expenses, from the sale of 317,155
shares under the ATM Sale Agreement. The Company sold such shares at a weighted
average purchase price of
Mortgages
In
the purpose of acquiring a facility located in
previously leased by us and is used primarily for laboratory testing and
research purposes. The mortgage was paid off in
a mortgage with
outstanding on
primarily for laboratory testing. The mortgage was paid off in
prior to the sale of
Cash Flows
Our primary uses of cash are to fund our operations and research and development
as we continue to grow our business. We expect to continue to incur operating
losses in future periods as our operating expenses increase to support the
growth of our business. We expect that our research and development expenses
will continue to increase as we focus on developing our therapeutics product
candidates, through preclinical studies and clinical trials. We also expect our
investment in research and development to increase as we pursue regulatory
approval of our product candidates and as we seek to expand our pipeline of
product candidates. Cash used to
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fund operating expenses is impacted by the timing of when we pay expenses, as
reflected in the change in our outstanding accounts payable and accrued
expenses.
The following table summarizes our cash flows for the periods indicated (in
thousands):
Year Ended
December 31,
2022 2021
Cash used in operating activities
Cash used in investing activities
(792 ) (1,242 )
Cash provided by financing activities 7,298 165,049
Operating Activities
Net cash used in operating activities in the year ended
primarily attributable to a
charges, primarily driven by a
fair value, a
gain on investment in Enumera, offset by
compensation expense,
and
changes in operating assets and liabilities was attributable to a
decrease in accounts payable and a
liabilities, offset by a
current assets. Additionally, net cash provided by operating activities from
discontinued operations contributed
Net cash used in operating activities in the year ended
primarily attributable to a
million
by an
stock-based compensation expense and an
cash outflow from changes in operating assets and liabilities was attributable
to a
other long-term liabilities. Additionally, net cash used in operating activities
from discontinued operations contributed
Investing Activities
Net cash used in investing activities during the year ended
was attributable to
cash used in investing for the year ended
discontinued operations.
Financing Activities
Net cash provided by financing activities during the year ended
2022
issuance of common stock and
common stock warrants, partially offset by
insurance financing. Net cash provided by financing activities during the year
ended
proceeds from the issuance of common stock warrants,
proceeds from the issuance of common stock, and
from the exercise of common stock warrants, partially offset by
payments for insurance financing and
mortgages payable.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
conformity with GAAP. The preparation of financial statements in accordance with
GAAP requires management to make estimates and assumptions about future events
that affect the amounts of assets and liabilities reported, disclosures about
contingent assets and liabilities, and reported amounts of revenue and expenses.
These estimates and assumptions are based on management's best estimates and
judgment. Management regularly evaluates its estimates and assumptions using
historical experience and other factors; however, actual results could differ
materially from these estimates and could have an adverse effect on our
financial statements.
While our significant accounting policies are more fully described in the notes
to our consolidated financial statements elsewhere in this annual report, we
believe that the accounting policies discussed below are most critical to
understanding and evaluating our historical and future performance.
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Assets Held for Sale and Discontinued Operations
Assets classified as held for sale are reported at the lower of their carrying
value or fair value less costs to sell. Depreciation and amortization of assets
ceases upon designation as held for sale. Discontinued operations comprise
activities that were disposed of, discontinued or held for sale at the end of
the period, represent a separate major line of business that can be clearly
distinguished for operational and financial reporting purposes and represent a
strategic business shift having a major effect on the Company's operations and
financial results according to Accounting Standard Codification ("ASC") Topic
205, Presentation of Financial Statements. We have included all of our revenues
and expenses for the
to as the Laboratory Operations, as discontinued operations and all assets and
liabilities as held for sale.
Revenue Recognition
Revenue is primarily derived from providing molecular laboratory tests to
customers. We invoice and collect from third-party payors, laboratory services
intermediaries, and self-paying individuals. Third-party payors include
commercial payors, such as health insurance companies, health maintenance
organizations and government payors, such as Medicare and Medicaid in
States
and delivery of test results to the customer.
In accordance with ASC 606, we follow a five-step process to recognize revenue:
(i) identify the contract with the customer; (ii) identify the performance
obligations; (iii) determine the transaction price; (iv) allocate the
transaction price to the performance obligations; and (v) recognize revenue when
the performance obligations are satisfied. We have evaluated our contracts with
healthcare insurers, government payors, laboratory partners, and patients and
identified a single performance obligation in those contracts, the delivery of a
test result. We satisfy our performance obligation at a point in time upon the
delivery of the test result, at which point control is transferred to the
customer, and we can bill for the tests. The amount of revenue recognized
reflects the amount of consideration to which we expect to be entitled, or the
transaction price, and considers the effects of variable consideration, which is
discussed below.
The transaction price is an estimate and may be fixed or variable. Variable
consideration includes reimbursement from healthcare insurers, government
payors, and patients and is adjusted for estimates of disallowed cases,
discounts, and refunds using the expected value approach. Tests billed to
healthcare insurers and directly to patients can take up to six months to
collect and we may be paid less than the full amount billed or not be paid at
all. For insurance carriers and government payors, we utilize the expected value
approach using a portfolio of relevant historical data for payors with similar
reimbursement experience. The portfolio estimate is developed using historical
reimbursement data from payors and patients, as well as known current
reimbursement trends not reflected in the historical data. Such variable
consideration is included in the transaction price only to the extent it is
probable that a significant reversal in the amount of cumulative revenue
recognized will not occur when the uncertainties with respect to the amount are
resolved. We monitor these estimates at each reporting period based on actual
cash collections in order to assess whether a revision to the estimate is
required. Both the initial estimate and any subsequent revision to the estimate
contain uncertainty and require the use of judgment in the estimation of the
transaction price and application of the constraint for variable consideration.
If actual results in the future vary from our estimates, we will adjust these
estimates, which would affect revenue and earnings in the period such variances
become known. The consideration expected from laboratory partners is generally a
fixed amount.
Common Stock Warrant Liabilities
We account for the common stock warrants issued as part of the
Offering and
accordance with applicable accounting guidance based on the specific terms of
the warrant agreement. As these warrants are classified as liabilities, they are
remeasured each period until settled or until classified as equity. Any
resulting gain or loss related to the changes in the fair value of the warrant
liabilities are recorded to gain (loss) on warrant liabilities on the
consolidated statements of operations. Changes in our inputs and assumptions,
such as our stock price and the estimated volatility of common stock, could
result in material changes in the valuation in future periods.
Risk-Free Interest Rate-The risk-free interest rate is calculated using the
average of the published interest rates of
maturities that are commensurate with the expected term.
Expected Volatility-Given the limited period of time our stock has been traded
in an active market, the expected volatility is estimated by taking the average
historical volatility for industry peers, consisting of several public companies
in the Company's industry that are similar in size, stage, or financial
leverage, over a period of time commensurate with the expected term of the
awards.
Fair Value of Common Stock-The fair value of our common stock is the closing
price of our common stock on the date of valuation.
Expected Term-The expected term represents the remaining contractual term of the
warrant.
77
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AtDecember 31, 2022 , the fair value of our warrant liabilities of$3.5 million , was estimated using the Black-Scholes Model with the following inputs and assumptions: December 31, December 31, 2022 2021 Risk-free interest rate 4.0% 1.3% Expected volatility 106.2% - 107.1% 91.9% Stock price $ 3.30$ 52.25 Expected life (years) 3.6 - 5.4 4.6
Embedded Derivative Related to Convertible Notes
In December of 2020, we issued Convertible Notes due in
conversion option which required bifurcation upon issuance and was periodically
remeasured to fair value separately as an embedded derivative. The conversion
option included additional interest payments payable to the noteholders if
converted prior to
to determine the fair value of the embedded features, which incorporates inputs
including the common stock price, volatility of common stock, and time to
maturity. The embedded feature was remeasured to fair value at each balance
sheet date through
the change in the fair value recorded to other income (expense), net in the
consolidated statements of operations. The fair value of the embedded derivative
was zero as of
sheet. As of
longer have an embedded derivative.
Stock-Based Compensation
We calculate the fair value of stock options using the Black-Scholes option
pricing valuation model, which incorporates various assumptions including
assumptions including volatility, expected term, and risk-free interest rate.
Compensation related to service-based awards are recognized starting on the
grant date on a straight-line basis over the vesting period, which is typically
four years.
Determining the grant date fair value of options using the Black-Scholes option
pricing model requires management to make assumptions and judgments. If any of
the assumptions used in the Black-Scholes model change significantly,
stock-based compensation for future awards may differ materially compared with
the awards granted previously. The Company's key inputs and assumptions are as
follows:
Fair Value of Common Stock-Prior to the IPO, our common stock was not publicly
traded, therefore we estimated the fair value of common stock. Following the
IPO, the fair value of our common stock for awards with service-based vesting is
the closing price of our common stock on the date of grant or other relevant
determination date.
Expected Term-The expected term represents the period that the stock-based
awards are expected to be outstanding. We determines the expected term using the
simplified method. The simplified method deems the term to be the average of the
time-to-vesting and the contractual life. For stock options granted to
non-employees, the expected term equals the remaining contractual term of the
option from the vesting date. For the 2020 Employee Stock Purchase Plan, the
expected term is the period of time from the offering date to the purchase date.
Expected Volatility-Given the limited period of time our stock has been traded
in an active market, the expected volatility is estimated by taking the average
historical volatility for industry peers, consisting of several public companies
in the Company's industry that are similar in size, stage, or financial
leverage, over a period of time commensurate with the expected term of the
awards.
Risk-Free Interest Rate-The risk-free interest rate is calculated using the
average of the published interest rates of
maturities that are commensurate with the expected term.
Dividend Rate-The dividend yield assumption is zero, as the Company has no plans
to pay dividends.
The following assumptions were used for the Black-Scholes option valuation
model:
Year ended
December 31,
2022 2021
Risk-free interest rate 2.0% - 4.2% 0.6% - 1.4%
Expected volatility 90.7% - 101.3% 52.9% - 77.0%
Expected dividend yield - -
Expected life (years) 5.5 - 6.3 3.0 - 6.3
78
--------------------------------------------------------------------------------
other assets acquired in a business combination that are not individually
identified and separately recognized.
tested annually for impairment at the reporting unit level, or more frequently
when events or changes in circumstances indicate that fair value of the
reporting unit has been reduced to less than its carrying value. We may choose
to perform a qualitative assessment to determine whether it is more likely than
not that the fair value of a reporting unit is less than its carrying amount as
a basis for determining whether it is necessary to perform a quantitative
assessment.
If a quantitative assessment is deemed necessary, we compare the fair value of
the reporting unit with its carrying amount, including goodwill. An impairment
loss will be recognized if the reporting unit's carrying amount exceeds its fair
value, to the extent that it does not exceed the total carrying amount of
goodwill. No impairment existed as of
Recent Accounting Pronouncements
Refer to Note 2, "Summary of Significant Accounting Policies" to the
consolidated financial statements included in this Annual Report for information
on recently issued accounting pronouncements.
JOBS Act Accounting Election
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS
Act, emerging growth companies can delay adopting new or revised accounting
standards issued subsequent to the enactment of the JOBS Act until such time as
those standards apply to private companies. We have elected to use this extended
transition period and, as a result, our financial statements may not be
comparable to companies that comply with public company effective dates. We also
intend to rely on other exemptions provided by the JOBS Act, including without
limitation, not being required to comply with the auditor attestation
requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended.
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