EXAGEN INC. 10-K

Item 9A. Controls and Procedures Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Annual Report on Form 10-K, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, our principal executive officer and principal financial officer have concluded that as of December 31, 2020, our disclosure controls and procedures were effective at the reasonable assurance level. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgement in evaluating the cost-benefit relationship of possible controls and procedures. Attestation Report of the Registered Public Accounting Firm This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm due to an exemption provided by the JOBS Act for "emerging growth companies." Changes in Internal Control Over Financial Reporting There have been no changes in our internal control over financial reporting during the three months ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 91 Item 9B. Other Information Appointment of Chief Operating Officer On March 13, 2021, our board of directors appointed of Mark Hazeltine, age 47, as our Chief Operating Officer, effective as of March 15, 2021. Mark Hazeltine has served in various positions of increasing responsibility since joining Exagen in March 2015, including general manager. Mr. Hazeltine received his Bachelor of Business Administration degree from the University of San Diego and Master of Business Administration degree from the Marshall School of Business at the University of Southern California. Additional information regarding Mr. Hazeltine's background, business and experience will appear in our Definitive Proxy Statement on Schedule 14A, to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K, under the heading's "Executive Officers." Pursuant to the terms of Mr. Hazeltine's offer letter, as amended effective as of March 15, 2021 in connection with his promotion, Mr. Hazeltine will receive an annual base salary of $375,950 and will be eligible to receive an annual incentive bonus at an initial target for calendar year 2021 of 45% of his annual base salary. The offer letter with Mr. Hazeltine provides for an indefinite term and for at-will employment. Mr. Hazeltine is also entitled to participate in all employee benefit plans, programs and arrangements maintained by the company and made available to employees generally. There are no family relationships between Mr. Hazeltine and any of our directors or executive officers that are required to be disclosed pursuant to Item 401(d) of Regulation S-K. In addition, there are no transactions between us and Mr. Hazeltine, or any member of Mr. Hazeltine's immediate family, that are required to be disclosed pursuant to Item 404(a) of Regulation S-K. Executive Change in Control Severance Plan On March 15, 2021, the Compensation Committee of our board of directors adopted the Exagen Inc. Executive Change in Control Severance Plan, or the Severance Plan. The Severance Plan provides for the payment of cash severance and other benefits to our executives, including Fortunato Ron Rocca (President and Chief Executive Officer), Kamal Adawi (Chief Financial Officer and Corporate Secretary) and Mark Hazeltine (Chief Operating Officer), in the event of a qualifying termination of employment with us in connection with a change in control. Under the Severance Plan, in the event of a termination of an executive’s employment by us without “cause” or by the executive for “good reason”, in either case, on or within twelve months following a “change in control”, the executive will be eligible to receive the following payments and benefits: • a cash payment equal to 100% (or, for Mr. Rocca, 125%) of the sum of (i) the executive’s then-current annual base salary, plus (ii) the executive’s target cash performance bonus for the year in which the termination occurs, to be paid in a lump sum on the 30 th day following the executive’s termination; • a cash payment equal to the executive’s pro-rated cash performance bonus (based on actual performance) for the year in which the termination occurs; • Company-subsidized COBRA premium payments for the executive and his or her covered dependents for up to 12 (or, for Mr. Rocca, 15) months; and • full accelerated vesting of all outstanding equity awards of our company that vest solely based on the passage of time. The executive’s right to receive the severance payments and benefits described above is subject to the executive’s delivery and, as applicable, non-revocation of a general release of claims in our favor and the executive’s continued compliance with any applicable restrictive covenants. In addition, in the event that any payment under the Severance Plan, together with any other amounts paid to the executive by us, would subject the executive to an excise tax under Section 4999 of the Internal Revenue Code, such payments will be reduced to the extent that such reduction would produce a better net after-tax result for the executive. The foregoing description of the Severance Plan is qualified in its entirety by reference to the full text of the Severance Plan, a copy of which is filed as Exhibit 10.46 to this Annual Report on Form 10-K and is incorporated herein by reference. 92 Part III. Item 10. Directors, Executive Officers and Corporate Governance The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K. Code of Business Conduct and Ethics We have adopted a Code of Business Conduct and Ethics that applies to our officers, directors and employees, which is available on our website at www.exagen.com. The Code of Business Conduct and Ethics contains general guidelines for conducting the business of our company consistent with the highest standards of business ethics and is intended to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K. In addition, we intend to promptly disclose (1) the nature of any amendment to our Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions and (2) the nature of any waiver, including an implicit waiver, from a provision of our code of ethics that is granted to one of these specified officers, the name of such person who is granted the waiver and the date of the waiver on our website in the future. Item 11. Executive Compensation The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K. Item 13. Certain Relationships and Related Transactions, and Director Independence The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K. Item 14. Principal Accountant Fees and Services The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2021 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K. 93 Part IV Item 15. Exhibits and Financial Statement Schedules Financial Statements and Financial Statement Schedules (1) All financial statements The financial statements of Exagen Inc., together with the report thereon of BDO USA, LLP, an independent registered public accounting firm, are included in this annual report on Form 10-K beginning on page 96. (2) Financial statement schedules All schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. (3) Exhibits A list of exhibits is set form on the Exhibit Index immediately preceding the signature page of this Annual Report on Form 10-K and is incorporated herein by reference. Item 16. Form 10-K Summary None. 94 Exagen Inc. Index to Financial Statements Page Report of Independent Registered Public Accounting Firm 96 Balance Sheets as of December 31, 2020 and 2019 97 Statements of Operations for the Years Ended December 31, 2020 and 2019 98 Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity for the Years Ended December 31, 2020 and 2019 99 Statements of Cash Flows for the Years Ended December 31, 2020 and 2019 100 Notes to Financial Statements 101 95 Report of Independent Registered Public Accounting Firm Stockholders and Board of Directors Exagen Inc. Vista, California Opinion on the Financial Statements We have audited the accompanying balance sheets of Exagen Inc. (“the Company”) as of December 31, 2020 and 2019, the related statements of operations, redeemable convertible preferred stock and stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ BDO USA, LLP We have served as the Company’s auditor since 2017. San Diego, California March 16, 2021 96 Exagen Inc. Balance Sheets (in thousands, except share and per share data) December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 57,448 $ 72,084 Accounts receivable, net 8,910 5,715 Prepaid expenses and other current assets 4,159 3,451 Total current assets 70,517 81,250 Property and equipment, net 2,102 1,380 Goodwill 5,506 5,506 Other assets 250 174 Total assets $ 78,375 $ 88,310 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 3,014 $ 1,476 Accrued and other current liabilities 5,757 4,419 Total current liabilities 8,771 5,895 Borrowings-non-current portion, net of discounts and debt issuance costs 26,659 25,854 Deferred tax liabilities 158 264 Other non-current liabilities 948 638 Total liabilities 36,536 32,651 Commitments and contingencies (Note 5) Stockholders' equity: Preferred stock, $ 0.001 par value; 10,000,000 shares authorized, no shares issued or outstanding at December 31, 2020 and December 31, 2019 — — Common stock, $ 0.001 par value; 200,000,000 shares authorized at December 31, 2020 and December 31, 2019; 12,652,308 and 12,560,990 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively 13 13 Additional paid-in capital 223,115 220,248 Accumulated deficit ( 181,289 ) ( 164,602 ) Total stockholders' equity 41,839 55,659 Total liabilities and stockholders' equity $ 78,375 $ 88,310 The accompanying notes are an integral part of these financial statements 97 Exagen Inc. Statements of Operations (in thousands, except share and per share data) Years Ended December 31, 2020 2019 Revenue $ 41,975 $ 40,387 Operating expenses: Costs of revenue 16,559 18,808 Selling, general and administrative expenses 37,033 28,702 Research and development expenses 3,568 2,176 Total operating expenses 57,160 49,686 Loss from operations ( 15,185 ) ( 9,299 ) Interest expense ( 2,565 ) ( 3,491 ) Change in fair value of financial instruments — 267 Other income, net 984 510 Loss before income taxes ( 16,766 ) ( 12,013 ) Income tax benefit (expense) 79 ( 25 ) Net loss ( 16,687 ) ( 12,038 ) Accretion of redeemable convertible preferred stock — ( 4,640 ) Deemed dividend recorded in connection with financing transactions — ( 13,601 ) Net loss attributable to common stockholders (Note 2) $ ( 16,687 ) $ ( 30,279 ) Net loss per share, basic and diluted (Note 2) $ ( 1.32 ) $ ( 8.46 ) Weighted-average number of shares used to compute net loss per share, basic and diluted (Note 2) 12,632,780 3,578,771 The accompanying notes are an integral part of these financial statements 98 Exagen Inc. Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (in thousands, except share and per share amounts) Redeemable Convertible Preferred Stock Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders' Equity Shares Amount Shares Amount Balances at December 31, 2018 532,606,084 $ 105,232 63,005 $ — $ 40,598 $ ( 152,564 ) $ ( 111,966 ) Accretion of redeemable convertible preferred stock — 4,640 — — ( 4,640 ) — ( 4,640 ) Exercise of stock options — — 1,548 — 4 — 4 Stock-based compensation — — — — 572 — 572 Issuance of Series G redeemable convertible preferred stock for aggregate proceeds of $ 0.078 per share, net of issuance costs of $ 124 (Note 7) 148,928,337 11,492 — — — — — Issuance of Series H redeemable convertible preferred stock for aggregate proceeds of $ 0.047 per share, net of issuance costs of $ 318 (Note 7) 233,446,519 3,941 — — 6,741 — 6,741 Deemed dividend recognized on beneficial conversion features of Series H redeemable convertible preferred stock (Note 7) — 6,741 — — ( 6,741 ) — ( 6,741 ) Deemed dividend from conversion of Series G to Series H redeemable convertible preferred stock (Note 7) 97,592,739 6,860 — — ( 6,860 ) ( 6,860 ) Conversion of preferred stock to common stock in connection with initial public offering (Note 7) ( 1,012,573,679 ) ( 138,906 ) 7,816,643 8 138,898 — 138,906 Issuance of common stock in initial public offering, net of underwriting discount, commissions and issuance costs (Note 8) — — 4,140,000 4 50,440 — 50,444 Net exercise of common and preferred stock warrants — — 539,794 1 510 — 511 Reclassification of redeemable convertible preferred stock warrant liabilities as equity — — — — 726 — 726 Net loss — — — — — ( 12,038 ) ( 12,038 ) Balances at December 31, 2019 — — 12,560,990 13 220,248 ( 164,602 ) 55,659 Exercise of stock options — — 47,549 — 13 — 13 Issuance of stock under Employee Stock Purchase Plan — — 11,649 — 142 — 142 Stock-based compensation — — — — 2,694 — 2,694 Exercise of common stock warrants — — 32,120 — 18 — 18 Net loss — — — — — ( 16,687 ) ( 16,687 ) Balances at December 31, 2020 — $ — 12,652,308 $ 13 $ 223,115 $ ( 181,289 ) $ 41,839 The accompanying notes are an integral part of these financial statements 99 Exagen Inc. Statements of Cash Flows (in thousands) Years Ended December 31, 2020 2019 Cash flows from operating activities: Net loss $ ( 16,687 ) $ ( 12,038 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 546 591 Amortization of debt discount and debt issuance costs 274 691 Non-cash interest expense 531 546 Revaluation of warrant liabilities — ( 267 ) Deferred income taxes ( 106 ) — Loss on disposal of assets — 20 Stock-based compensation 2,694 572 Changes in assets and liabilities: Accounts receivable, net ( 3,195 ) 237 Prepaid expenses and other current assets ( 708 ) ( 1,255 ) Other assets ( 15 ) ( 24 ) Accounts payable 986 528 Accrued and other current liabilities 1,596 688 Net cash used in operating activities ( 14,084 ) ( 9,711 ) Cash flows from investing activities: Purchases of property and equipment ( 455 ) ( 403 ) Proceeds from sale of property and equipment — 300 Net cash used in investing activities ( 455 ) ( 103 ) Cash flows from financing activities: Proceeds from sale of common stock upon exercise of stock options 13 4 Proceeds from common stock issued under Employee Stock Purchase Plan 142 — Proceeds from exercise of common stock warrants 18 — Principal payment on capital lease obligations ( 249 ) ( 138 ) Proceeds from Paycheck Protection Program loan 2,865 — Repayment of Paycheck Protection Program loan ( 2,865 ) — Proceeds from initial public offering, net of issuance costs and offering costs — 50,444 Proceeds from issuance of Series G redeemable convertible preferred stock, net of issuance costs — 7,742 Proceeds from issuance of Series H redeemable convertible preferred stock, net of issuance costs — 10,682 Payments of deferred offering costs ( 21 ) — Net cash (used in) provided by financing activities ( 97 ) 68,734 Net change in cash, cash equivalents and restricted cash ( 14,636 ) 58,920 Cash, cash equivalents and restricted cash, beginning of period 72,184 13,264 Cash, cash equivalents and restricted cash, end of period $ 57,548 $ 72,184 Supplemental disclosure of cash flow information: Cash paid for interest expense $ 1,758 $ 2,288 Supplemental disclosure of non-cash items: Accretion to redemption value of redeemable convertible preferred stock $ — $ 4,640 Equipment purchased under capital lease obligations $ 260 $ 654 Costs incurred, but not paid, in connection with capital expenditures $ 553 $ — Conversion of redeemable convertible preferred stock $ — $ 138,906 Net exercise of common and preferred stock warrants $ — $ 511 Deferred offering costs included in accounts payable and accrued and other current liabilities $ 40 $ — Reclassification of redeemable convertible preferred stock warrant liabilities as equity $ — $ 726 Deemed dividend recognized for beneficial conversion features of Series H redeemable convertible preferred stock $ — $ 6,741 Deemed dividend from conversion of Series G to Series H redeemable convertible preferred stock $ — $ 6,860 Conversion of Series G to Series H redeemable convertible preferred stock $ — $ 11,875 The accompanying notes are an integral part of these financial statements 100 Exagen Inc. Notes to Financial Statements Note 1. Organization Description of Business The Company is dedicated to transforming the care continuum for patients suffering from debilitating and chronic autoimmune diseases by enabling timely differential diagnosis and optimizing therapeutic intervention. Liquidity The Company has incurred recurring losses and negative cash flows from operating activities since inception. The Company anticipates that it will continue to incur net losses into the foreseeable future. At December 31, 2020, the Company had cash and cash equivalents of $ 57.4 million and had an accumulated deficit of $ 181.3 million. Since inception, the Company has financed its operations primarily through private placements of preferred securities, the sale of common stock through its initial public offering (IPO) and debt financing arrangements. Based on the Company's current business plan, management believes that its existing capital resources will be sufficient to fund the Company's obligations for at least twelve months following the issuance of these financial statements. To execute its business plans, the Company may need additional funding to support its continuing operations and pursue its growth strategy. Until such time as the Company can achieve significant cash flows from operations, if ever, it expects to finance its operations through the sale of its stock, debt financings or other strategic transactions. Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all. The terms of any financing may adversely affect the holdings or the rights of the Company's stockholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its programs, product portfolio expansion plans or commercialization efforts, which could have a material adverse effect on the Company's business, operating results and financial condition and the Company's ability to achieve its intended business objectives. Note 2. Summary of Significant Accounting Policies Basis of Presentation and Use of Estimates The Company's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of the accompanying financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates. Significant estimates and assumptions made in the accompanying financial statements include, but are not limited to revenue recognition, the fair value of financial instruments measured at fair value, the recoverability of its long-lived assets (including goodwill), net deferred tax assets (and related valuation allowance), and for periods prior to the IPO, the fair value of the Company's common stock and redeemable convertible preferred stock. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates. Concentration of Credit Risk and Other Risk and Uncertainties Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents, and accounts receivable. Substantially all the Company's cash and cash equivalents are held at one financial institution that management believes is of high credit quality. Such deposits may, at times, exceed federally insured limits. 101 Significant payors and customers are those which represent more than 10% of the Company's total revenue or accounts receivable balance at each respective balance sheet date. For each significant payor and customers, revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable are as follows: Revenue Years Ended December 31, 2020 2019 Medicare 20 % 25 % Janssen (SIMPONI ® ) 12 % * Blue Shield 11 % 12 % Medicare Advantage 11 % 11 % United Healthcare * 11 % * Less than 10%. Accounts Receivable December 31, 2020 2019 Janssen (SIMPONI ® ) 35 % 19 % Blue Shield 11 % 15 % United Healthcare * 22 % * Less than 10%. For the years ended December 31, 2020 and 2019, approximately 70 % and 82 % of the Company's revenue was related to the AVISE ® CTD test, respectively. The Company is dependent on key suppliers for certain laboratory materials. For each of the years ended December 31, 2020 and 2019, approximately 97 % of the Company's diagnostic testing supplies were purchased from two suppliers. An interruption in the supply of these materials would impact the Company's ability to perform testing services. Disaggregation of Revenue The following table includes the Company's revenues as disaggregated by payor and customer category (in thousands): Years Ended December 31, 2020 2019 Revenue: Healthcare insurers $ 22,456 $ 23,984 Government 8,446 9,896 Client(1) 5,109 4,392 Other(2) 836 639 Janssen (SIMPONI ® ) 5,128 1,476 Total revenue $ 41,975 $ 40,387 (1) Includes hospitals, other laboratories, etc. (2) Includes patient self-pay that is immaterial . Fair Value Measurements 102 The carrying value of the Company's cash and cash equivalents approximate fair value due to the short-term nature of these items. Based on the borrowing rates currently available to the Company for debt with similar terms and consideration of default and credit risk, the carrying value of the Company's long-term borrowings approximates its fair value, which is considered a Level 2 input. Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows: Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 - Inputs other than quoted prices included within Level I that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and Level 3 - Unobservable inputs that are supported by little or no market activity for the related assets or liabilities. The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Prior to the IPO, the Company's redeemable convertible preferred stock warrant liabilities were measured at fair value on a recurring basis and were classified as Level 3 liabilities. The Company recorded subsequent adjustments to reflect the increase or decrease in estimated fair value at each reporting date in current period earnings. Cash, Cash Equivalents and Restricted Cash The Company considers all highly-liquid investments purchased with a remaining maturity date upon acquisition of three months or less to be cash equivalents and are stated at cost, which approximates fair value. In 2016, the Company entered into an arrangement with a financial institution with which it has an existing banking relationship whereby in exchange for the issuance of corporate credit cards, the Company agreed to obtain a $ 0.1 million certificate of deposit with this financial institution as collateral for the balances borrowed on these credit cards. The Company has classified the value of this certificate of deposit (including all interest earned thereon) within other assets in the accompanying balance sheets. The Company has the right to terminate the credit card program at any time. Upon termination of the credit card program and repayment of all outstanding balances owed, the Company may redeem the certificate of deposit (and all interest earned thereon). Cash, cash equivalents and restricted cash presented in the accompanying statements of cash flows consist of the following (in thousands): December 31, 2020 2019 Cash and cash equivalents $ 57,448 $ 72,084 Restricted cash 100 100 $ 57,548 $ 72,184 Property and Equipment Property and equipment are stated at cost, net of depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally between three and five years . Leasehold improvements are amortized on a straight-line basis over the lesser of the estimated useful life or the remaining term of the related lease. Maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and 103 accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in other income or expense in the statements of operations in the period realized. Long-lived Assets The Company’s long-lived assets are comprised principally of its property and equipment, finite lived intangible assets, and goodwill. If the Company identifies a change in the circumstances related to its long-lived assets, such as property and equipment and intangible assets (other than goodwill), that indicates the carrying value of any such asset may not be recoverable, the Company will perform an impairment analysis. A long-lived asset (other than goodwill) is deemed to be impaired when the undiscounted cash flows expected to be generated by the asset (or asset group) are less than the asset’s carrying amount. Any required impairment loss would be measured as the amount by which the asset’s carrying value exceeds its fair value, and would be recorded as a reduction in the carrying value of the related asset and a charge to operating expense. Goodwill is reviewed for impairment annually (during the fourth quarter) or more frequently if indicators of impairment exist. As the Company operates in a single operating segment and reporting unit, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative assessment. If, after assessing qualitative factors, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing a quantitative assessment is unnecessary. If deemed necessary, a quantitative assessment compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered impaired; otherwise, an impairment loss is recorded. There was no indication of impairment of goodwill for any periods presented. Clinical Studies From time to time, the Company engages in efforts to scientifically measure and document the application and efficacy of its various testing products. These arrangements typically require the Company to pay a fee to a third-party scientific investigator (usually a physician or research institution) for each subject enrolled in a clinical study, and the Company accrues expenses associated with these efforts as subjects are enrolled in each study. Expenses associated with clinical study activities are recorded in research and development expenses in the accompanying statement of operations. Redeemable Convertible Preferred Stock Prior to the completion of the IPO, the Company had multiple classes of redeemable convertible preferred stock, all of which were classified as temporary equity in the accompanying balance sheet as the redemption of the shares were outside of the Company's control. Redeemable convertible preferred stock which was redeemable on or after a certain date at the option of the holder was accreted to its redemption value from the date of issuance to the earliest redemption date. In connection with the completion of the IPO in September 2019, all outstanding shares of redeemable convertible preferred stock were automatically converted into an aggregate of 7,816,643 shares of common stock, excluding warrant conversions. Redeemable Convertible Preferred Stock Warrants Prior to the completion of the IPO, the Company accounted for its redeemable convertible preferred stock warrants as liabilities based upon the characteristics and provisions of each instrument. The redeemable convertible preferred stock warrants were recorded at their fair value on the date of issuance and were revalued on each subsequent balance sheet date, with fair value changes recognized as increases or reductions in the statements of operations. Upon the completion of the IPO, all remaining outstanding warrants to purchase shares of redeemable convertible preferred stock were automatically converted into warrants to purchase shares of common stock. As such, the warrants no longer require liability accounting and the then fair value of the warrant liability was reclassified into stockholders’ equity. 104 The Company performed the final remeasurement of the warrant liabilities as of the IPO closing date. See Note 7 for the amounts associated with the fair value measurements and Note 8 for further discussion on the remaining warrants. Revenue Recognition Substantially all of the Company's revenue has been derived from sales of its testing products and is primarily comprised of a high volume of relatively low-dollar transactions. The Company primarily markets its testing products to rheumatologists and their physician assistants in the United States. The healthcare professionals who order the Company's testing products and to whom test results are reported are generally not responsible for payment for these products. The parties that pay for these services (the Payors) consist of healthcare insurers, government payors (primarily Medicare and Medicaid), client payors (i.e., hospitals, other laboratories, etc.), and patient self-pay. The Company's service is a single performance obligation that is completed upon the delivery of test results to the prescribing physician which triggers revenue recognition. Payors are billed at the Company's list price. Net revenues recognized consist of amounts billed net of allowances for differences between amounts billed and the estimated consideration the Company expects to receive from such payors. The process for estimating revenues and the ultimate collection of accounts receivable involves significant judgment and estimation. The Company follows a standard process, which considers historical denial and collection experience, insurance reimbursement policies and other factors, to estimate allowances and implicit price concessions, recording adjustments in the current period as changes in estimates occur. Further adjustments to the allowances, based on actual receipts, is recorded upon settlement. The transaction price is estimated using an expected value method on a portfolio basis. The Company's portfolios are grouped per payor (i.e. each individual third-party insurance, Medicare, client payors, patient self-pay, etc.) and per test basis. Collection of the Company's net revenues from payors is normally a function of providing complete and correct billing information to the healthcare insurers and generally occurs within 30 to 90 days of billing . Contracts do not contain significant financing components based on the typical period of time between performance of services and collection of consideration. Janssen Promotion Agreement In December 2018, the Company entered into a co-promotion agreement (the Janssen Agreement) with Janssen Biotech, Inc. (Janssen) to co-promote SIMPONI ® in the United States. The Company is responsible for the costs associated with its salesforce over the course of such co-promotion. Janssen is responsible for all other aspects of the commercialization of SIMPONI ® under the Janssen Agreement. In exchange for the Company's sales and co-promotional services, the Company is entitled to a quarterly tiered promotion fee based on the incremental increase in total prescribed units of SIMPONI ® for that quarter over a predetermined baseline. For the years ended December 31, 2020 and 2019, the tiered promotion fee ranged from $ 750 to $ 1,250 per prescription over a predetermined baseline. Due in part to COVID-19, in June 2020, the Janssen Agreement was amended (June Amended Janssen Agreement). In accordance with the June Amended Janssen Agreement, the predetermined average baseline for prescribed units for each remaining quarter in 2020 was adjusted and is subject to further adjustment, and for each of the third and fourth quarters of 2020, the Company received a minimum promotion fee of $ 0.3 million and the fee was capped at 5 % above the adjusted predetermined baseline. In December 2020, the Janssen Agreement amended. The Janssen Agreement, as amended in June 2020 and December 2020 is collectively referred to as the Amended Janssen Agreement. In accordance with the Amended Janssen Agreement, the predetermined average baseline for prescribed units for the quarters ending December 31, 2020, March 31, 2021 and June 30, 2021, was adjusted to approximately 28,750 prescribed units per quarter, subject to adjustment under certain circumstances. For the first and second quarters of 2021, the Company will be entitled to an amended tiered promotion fee ranging from $ 500 to $ 1,000 per prescription based on the incremental increase in total prescribed units. Pursuant to the Amended Janssen Agreement, for the first and second quarters of 2021, the Company will receive a minimum promotion fee of $ 0.3 million and the fee will be capped at 10 % above the adjusted predetermined baseline. The Company continued to receive a minimum promotion fee of $ 0.3 million and the fee was capped at 5 % above the adjusted predetermined baseline for the quarter ended December 31, 2020. The quarterly tiered promotion fee for the remaining term of the Janssen Promotion Agreement beginning with the quarter ended September 30, 2021 will revert to the terms set forth in the Janssen Agreement prior to amendment, with no minimum promotion fee and no cap on predetermined baseline units. In addition, during the term of the Janssen Agreement, the Company is restricted from promoting any other biologic or Janus kinase inhibitor, or JAK inhibitor, used for treatment of indications covered by the agreement without first obtaining Janssen's written consent. 105 The Janssen Agreement expires on December 31, 2021, unless extended by the Company for an additional 12 months upon 180 days written notice prior to the end of the current term. If the Company elects to extend the term, the predetermined baseline for 2022 will be subject to future agreement by the Company and Janssen. Janssen may terminate the Amended Janssen Agreement at any time for any reason upon 30 days' notice to the Company, and the Company may terminate the Amended Janssen Agreement for any reason at the end of any calendar quarter upon 30 days' notice to Janssen. Either party may terminate the Amended Janssen Agreement in the event of the other party's default of any of its material obligations under the agreement if such default remains uncured for a specified period of time following receipt of written notice of such default. The Company's obligations relating to sales and co-promotion services for SIMPONI ® is a series of single performance obligations since Janssen simultaneously receives and consumes benefits provided by the Company's sales and co-promotional services. The method for measuring progress towards satisfying the performance obligations is based on prescribed units in excess of the contractual baseline at the contractual rate earned per unit since the agreement is cancelable. The Company recognized co-promotion revenue of approximately $ 5.1 million and $ 1.5 million during the years ended December 31, 2020 and 2019, respectively. The related expenses for marketing SIMPONI ® are included in selling, general and administrative expenses and are expensed as incurred. Research and Development Costs associated with research and development activities are expensed as incurred and include, but are not limited to, personnel-related expenses, including stock-based compensation expense, materials, laboratory supplies, consulting costs, costs associated with setting up and conducting clinical studies and allocated overhead including rent and utilities. Advertising and Marketing Costs Costs associated with advertising and marketing activities are expensed as incurred. Total advertising and marketing costs were approximately $ 1.3 million and $ 1.6 million for the years ended December 31, 2020 and 2019, respectively, and are included in selling, general and administrative expenses in the accompanying statements of operations. Shipping and Handling Costs Costs incurred for shipping and handling are included in costs of revenue in the accompanying statements of operations and totaled approximately $ 1.4 million for each of the years ended December 31, 2020 and 2019. Stock-Based Compensation The Company recognizes compensation expense for all stock-based awards to employees and directors based on the grant-date estimated fair values over the requisite service period of the awards (usually the vesting period) on a straight-line basis. The fair value of stock options and purchases under the employee stock purchase plan (ESPP) rights is determined using the Black-Scholes-Merton (BSM) option pricing model, which requires management to make certain assumptions regarding a number of complex and subjective variables. Equity award forfeitures are recorded as they occur. The BSM option pricing model incorporates various estimates, including the fair value of the Company's common stock, expected volatility, expected term and risk-free interest rates. The weighted-average expected term of options was calculated using the simplified method. This decision was based on the lack of relevant historical data due to the Company's limited historical experience. In addition, due to the Company's limited historical data, the estimated volatility incorporates the historical volatility over the expected term of the award of comparable companies whose share prices are publicly available. The risk-free interest rate for periods within the contractual term of the option is based on the U.S. Treasury yield in effect at the time of grant. The dividend yield was zero , as the Company has never declared or paid dividends and has no plans to do so in the foreseeable future. Upon the effective date of the IPO, the Company began using the closing price of its common stock as the fair value of its common stock on the corresponding date. Prior to the completion of the IPO in September 2019, due to the absence of a public market for the Company's common stock, it was necessary to estimate the fair value of the common stock underlying the Company's stock-based awards when performing fair value calculations using the BSM option pricing model. The fair value of the common stock underlying the Company's stock-based awards was assessed on each grant date by the Company's board of directors (Board of Directors). 106 Comprehensive Loss Comprehensive loss is defined as a change in equity of a business enterprise during a period, resulting from transactions from nonowner sources. There have been no items qualifying as other comprehensive loss and, therefore, for all periods presented, the Company's comprehensive loss was the same as its reported net loss. Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would adjust the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company records uncertain tax positions on the basis of a two-step process whereby (i) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability. Net Loss Per Share Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. Potentially dilutive common stock equivalents are comprised of redeemable convertible preferred stock, warrants for the purchase of redeemable convertible preferred and common stock, options outstanding under the Company's stock option plans and shares of the Company's common stock pursuant to Employee Stock Purchase Plan. For the years ended December 31, 2020 and 2019, there is no difference in the number of shares used to calculate basic and diluted shares outstanding as the inclusion of the potentially dilutive securities would be antidilutive. Potentially dilutive securities not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in common stock equivalent shares): Years Ended December 31, 2020 2019 Warrants to purchase common stock 426,827 461,273 Common stock options 1,975,761 1,375,542 Employee stock purchase plan 11,640 — Total 2,414,228 1,836,815 Government Assistance Grant Income Government assistance grants which are unconditional when received and intended to compensate for expenses incurred or replace lost revenue are recognized when those expenses are incurred or during the period that lost revenue is experienced, and are included in other income, net in the accompanying statements of operations. 107 Segment Reporting Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations as, and manages its business in, one operating segment. Recent Accounting Pronouncements Not Yet Adopted From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB), or other standard setting bodies and adopted by the Company as of the specified effective date. Under the Jumpstart Our Business Startups Act of 2012 (JOBS Act), the Company meets the definition of an emerging growth company. The Company has elected to use the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company's financial position or results of operations upon adoption. In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). The new topic supersedes Topic 840, Leases , and increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosures of key information about leasing arrangements. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842 , which provides narrow amendments to clarify how to apply certain aspects of the new lease standard, and ASU 2018-11, Leases: Targeted Improvements , which was issued to provide relief to companies from restating comparative periods. Pursuant to this ASU, in the period of adoption the Company will not restate comparative periods presented in its financial statements. The effective date of this guidance for public companies is for reporting periods beginning after December 15, 2018. In June 2020, the FASB issued ASU 2020-05, which delays the adoption of ASU 2016-02 for non-public entities to fiscal years beginning after December 15, 2021, and interim periods beginning after December 15, 2022. As an emerging growth company as defined in the JOBS Act, the Company has elected to delay adoption of this ASU until January 1, 2022. Topic 842 mandates a modified retrospective transition method. The Company intends to adopt the new lease standard using a cumulative effect to accumulated deficit and will elect the package of practical expedients, which among other things will allow the Company to carry forward its historical lease classification. The Company is currently evaluating the impact of Topic 842 on its financial statements. In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes . The new guidance removes certain exceptions to the general principles of ASC 740 in order to simplify the complexities of its application. These changes include eliminations to the exceptions for intraperiod tax allocation, recognizing deferred tax liabilities related to outside basis differences, and year-to-date losses in interim periods, among others. The effective date of this guidance for public companies is for fiscal years, and interim period within those fiscal years, beginning after December 15, 2020. The Company does not anticipate the adoption will have a material impact on its financial statements. Recently Adopted Accounting Standards In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement: Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement , which adds and modifies certain disclosure requirements for fair value measurements. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements. However, public companies will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. The narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods, and early adoption is permitted. The Company adopted this guidance on January 1, 2020, and the adoption did not have a material impact on its financial statements. Note 3. Other Financial Information Prepaid Expenses and Other Current Assets 108 Prepaid expenses and other current assets consist of the following (in thousands): December 31, 2020 2019 Diagnostic testing supplies $ 1,203 $ 1,427 Prepaid product royalties 68 123 Prepaid maintenance and insurance contracts 2,229 1,768 Other prepaid and other current assets 659 133 Prepaid and other current assets $ 4,159 $ 3,451 Property and Equipment Property and equipment consist of the following (in thousands): December 31, 2020 2019 Furniture and fixtures $ 64 $ 25 Laboratory equipment 2,679 2,228 Computer equipment and software 927 851 Leasehold improvements 1,072 424 Construction in progress 301 247 Total property and equipment 5,043 3,775 Less: accumulated depreciation and amortization ( 2,941 ) ( 2,395 ) Property and equipment, net $ 2,102 $ 1,380 Depreciation and amortization expense for the years ended December 31, 2020 and 2019, was approximately $ 0.5 million and $ 0.6 million, respectively. At December 31, 2020 and December 31, 2019, the gross book value of assets under capital lease was $ 1.2 million and $ 0.8 million, respectively, and is classified in "Laboratory equipment" in the table above. Accrued and Other Current Liabilities Accrued and other current liabilities consist of the following (in thousands): December 31, 2020 2019 Accrued payroll and related expenses $ 3,589 $ 2,362 Accrued interest 147 145 Accrued purchases of goods and services 311 319 Accrued royalties 221 727 Accrued clinical study activity 228 40 Capital lease obligations, current portion 308 238 Other accrued liabilities 953 588 Accrued and other current liabilities $ 5,757 $ 4,419 Note 4. Borrowings 2017 Term Loan 109 In September 2017, the Company executed a term loan agreement (the 2017 Term Loan) with Innovatus Life Sciences Lending Fund I, LP (Innovatus) and borrowed $ 20.0 million, $ 17.8 million of which was immediately used to repay the Company's existing loan with Capital Royalty Partners II L.P. and its affiliates. On December 7, 2018, the Company borrowed an additional $ 5.0 million under the 2017 Term Loan. At December 31, 2020, no additional amounts remain available to borrow under the 2017 Term Loan. In November 2019, the Company executed the First Amendment to the Loan and Security Agreement (the 2017 Loan Amendment). The interest rate on all borrowings under the Loan Amendment is 8.5 %, of which 2.0 % is paid in-kind in the form of additional term loans (PIK Loans) until December of 2022, after which interest accrues at an annual rate of 8.5 %. The Company has estimated the effective interest rate of this loan to be approximately 10 %. Accrued interest is due and payable monthly, unless the Company elects to pay paid-in-kind interest. The outstanding principal and accrued interest on the Loan Amendment will be repaid in twenty-four equal monthly installments commencing in December 2022. Upon repayment of the final installment under the Loan Amendment, the Company is required to pay an additional fee of $ 1.0 million. This obligation is being accreted into interest expense over the term of Loan Amendment using the effective interest method. For each of the years ended December 31, 2020 and 2019, the Company issued PIK Loans totaling $ 0.5 million. The Loan Amendment requires a prepayment premium of 3 % of the aggregate outstanding principal. The prepayment premium decreases by 1 % during each subsequent twelve-month period after November 19, 2020. The Loan Amendment is collateralized by a first priority security interest on substantially all of the Company's assets, including intellectual property. The affirmative covenants of the Loan Amendment require that the Company timely file taxes, maintain good standing and government compliance, maintain liability and other insurance, provide prompt notification of significant corporate events, and furnish audited financial statements within 150 days of fiscal year end without qualification as to the scope of the audit or as to going concern and without any other similar qualification. The affirmative covenants require that the Company achieve a specified level of revenue, as measured quarterly on a rolling twelve-month basis, and commencing with the quarter ending December 31, 2019. The consequences of failing to achieve the performance covenant may be cured if, within sixty days of failing to achieve the performance covenant, the Company issues additional equity securities or subordinated debt with net proceeds sufficient to fund any cash flow deficiency generated from operations, as defined. The Company's revenues for the twelve-month ended September 30, 2020 were lower than the specified targets, as a result, the Company and Innovatus agreed on a new management plan and target to bring the Company back into compliance with the Loan Amendment. The Loan Amendment requires that the Company maintain certain levels of minimum liquidity. The Company is required to maintain an unrestricted cash balance of $ 2.0 million. The negative covenants provide, among other things, that without the prior consent of Innovatus subject to certain exceptions, the Company may not dispose of certain assets, engage in certain business combinations or acquisitions, incur additional indebtedness or encumber any of the Company's property, pay dividends on the Company's capital stock or make prohibited investments. The Loan Amendment agreement provides that an event of default will occur if, among other triggers, (i) the Company defaults in the payment of any amount payable under the agreement when due, (ii) there occurs any circumstance(s) that could reasonably be expected to result in a material adverse effect on the Company's business, operations or condition, or on the Company's ability to perform its obligations under the agreement, (iii) the Company becomes insolvent, (iv) the Company undergoes a change in control or (v) the Company breaches any negative covenants or certain affirmative covenants in the agreement or, subject to a cure period, otherwise neglects to perform or observe any material item in the agreement. At December 31, 2020, the Company was in compliance with all covenants of the Loan Amendment. Upon an event of default in any of the Loan Amendment covenants, the repayment of the Loan Amendment may be accelerated and the applicable interest rate will be increased by 4.0 % until the default is cured. Although repayment of the Loan Amendment can be accelerated under certain circumstances, the Company believes acceleration of this loan is not probable as of the date of these financial statements. Accordingly, the Company has reflected the amounts of the Loan Amendment due beyond twelve months of the balance sheet date as non-current. Future Minimum Payments on the Outstanding Borrowings As of December 31, 2020, future minimum aggregate payments, including interest, for outstanding borrowings under the Loan Amendment are as follows (in thousands): 110 Years Ending December 31, 2021 $ 1,755 2022 2,996 2023 15,619 2024 14,280 Total 34,650 Less: Unamortized debt discount and issuance costs ( 296 ) Interest ( 7,695 ) Total borrowings, net of discounts and debt issuance costs $ 26,659 Note 5. Commitments and Contingencies Leases As of December 31, 2020, the Company leases office and laboratory space in Vista, California, under leases that expire in January 2026, with an option to extend a portion of the lease for an additional 5-year period. In addition, the Company also leases additional office space in Vista, California, under a lease that expires in January 2026 with an option to extend the lease for an additional 5-year period. The Company's lease payments under each of these leases are subject to escalation clauses. Minimum annual lease payments under non-cancelable lease arrangements at December 31, 2020 are as follows (in thousands): Years Ending December 31, Capital Leases Operating Leases 2021 $ 344 $ 590 2022 318 613 2023 231 626 2024 58 640 2025 — 654 Thereafter — 55 Total minimum lease payments 951 $ 3,178 Less: amount representing interest ( 67 ) Present value of future minimum lease payments 884 Less: current portion ( 308 ) Long-term capital lease obligations $ 576 For the years ended December 31, 2020 and 2019, rent expense was $ 0.6 million and $ 0.5 million, respectively. Acquisition-related liabilities In connection with the acquisition of the medical diagnostics division of Cypress Bioscience, Inc. in 2010, the Company was required to pay certain amounts in the event that certain revenue milestones were achieved and upon the first commercial sale of a product associated with this acquisition. The acquisition also included amounts that may be due under several licensing agreements. All milestone payments other than one have been paid as of December 31, 2017. The remaining milestone obligation is for an additional $ 2.0 million payment due to Prometheus Laboratories, Inc. (Prometheus) for which the fair value was determined to be zero at December 31, 2020 and 2019. In addition, the Company has ongoing royalty payment obligations on net sales of products which incorporate certain acquired technologies of 2.5 %. Future royalties payable under these arrangements are limited to the lesser 111 of an aggregate of $ 1.2 million (including an upfront payment of $ 100,000 ) or the total royalties earned through January 1, 2024. Licensing Agreements The Company has licensed technology for use in its diagnostic tests. In addition to the milestone payments required by these agreements as described above, individual license agreements generally provide for ongoing royalty payments on net sales of products which incorporate licensed technology, as defined, ranging from 2.0 % to 3.0 %. Royalties are accrued when earned and recorded in costs of revenue in the accompanying statement of operations. Supply Agreement In September 2020, the Company entered into an amended supply agreement with one supplier for reagents which includes minimum annual purchase commitments of $ 4.1 million and $ 6.0 million for years ended December 31, 2021 and 2022, respectively, with a 15 % annual increase thereafter through the year ended December 31, 2025. Contingencies In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications; including subpoenas and other civil investigative demands, from governmental agencies, Medicare or Medicaid payors and managed care organizations reviewing billing practices or requesting comment on allegations of billing irregularities that are brought to their attention through billing audits or third parties. The Company's exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made or of which of the Company believes to be immaterial. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. Litigation From time to time, the Company may be subject to various legal proceedings that arise in the ordinary course of business activities. Note 6. Fair Value Measurements The following table sets forth the Company's financial instruments that were measured at fair value on a recurring basis within the fair value hierarchy (in thousands): December 31, 2020 Total Level 1 Level 2 Level 3 Assets: Money market funds $ 34,507 $ 34,507 $ — $ — December 31, 2019 Total Level 1 Level 2 Level 3 Assets: Money market funds $ 70,760 $ 70,760 $ — $ — The fair value of the Company's money market funds is based on quoted market prices. Note 7. Redeemable Convertible Preferred Stock Series G Financing In January 2019, the Company entered into an agreement with new and certain existing preferred stockholders to issue shares of Series G redeemable convertible preferred stock in multiple separate closings at a per share price of $ 0.078 in each closing. In conjunction with the issuance of the Series H redeemable convertible preferred stock, 112 each share of issued and outstanding Series G redeemable convertible preferred stock was converted into shares of Series H redeemable convertible preferred stock. Series H Financing In July 2019, the Company entered into an agreement with a new investor to issue shares of Series H redeemable convertible preferred stock at a per share price of $ 0.04712 . The Company accounted for the difference between the effective conversion price of $ 0.04712 and the fair value of the underlying common stock at the commitment date as a beneficial conversion feature, which was immediately accreted as a deemed dividend. As a result, the Company recognized a beneficial conversion feature in the amount of $ 6.7 million in the third quarter of 2019, that was recorded as additional paid-in capital (in the absence of retained earnings) in the accompanying statement of redeemable convertible preferred stock and stockholders’ equity. Additionally, the Company concluded that the conversion of shares of Series G into shares of Series H redeemable convertible preferred stock in connection with the issuance of Series H redeemable convertible preferred stock represented an extinguishment of the Series G shares. As a result, the Company recognized a deemed dividend for the extinguishment charge in the amount of $ 6.9 million in the third quarter of 2019, that was recorded as additional paid-in capital (in the absence of retained earnings) in the accompanying statement of redeemable convertible preferred stock and stockholders' equity. Initial Public Offering Upon completion of the Company's IPO in September 2019, an aggregate of 7,816,643 shares of common stock, excluding warrant conversion, were issued to the holders of the Company's Series A-3, Series B-3, Series C, Series D, Series E, Series F and Series H redeemable convertible preferred stockholders upon the automatic conversion of all shares of redeemable convertible preferred stock to common stock. As a result, no shares of redeemable convertible preferred stock remained outstanding at December 31, 2020 and 2019. Note 8. Stockholders' Equity Reverse Stock Split On September 6, 2019, the Company effected a one-for-183.635 reverse stock split of its common stock (the Reverse Stock Split). The par value and the authorized shares of the common stock were not adjusted as a result of the Reverse Stock Split. All issued and outstanding common stock and the conversion ratio of the redeemable convertible preferred stock have been retroactively adjusted to reflect this Reverse Stock Split for all periods presented in the accompanying financial statements and notes to the financial statements. Common Stock On September 23, 2019, the Company closed its IPO of 4,140,000 shares of its common stock at a price to the public of $ 14.00 per share, including the exercise in full by the underwriters of their option to purchase 540,000 additional shares of the Company's common stock. Including the exercise of the option to purchase additional shares, the aggregate net proceeds to the Company from the offering was approximately $ 50.4 million, net of underwriting discounts, commissions and other offering expenses, for aggregate expenses of approximately $ 7.5 million. In addition, an aggregate of 7,816,643 shares of common stock, excluding warrant conversions, were issued to the holders of the Company's Series A-3, Series B-3, Series C, Series D, Series E, Series F and Series H redeemable convertible preferred stockholders upon the automatic conversion of all shares of redeemable convertible preferred stock to common stock. Outstanding Warrants The following equity classified warrants to purchase common stock were outstanding as of December 31, 2020: 113 Shares Exercise Price Issuance date Expiration date Common stock warrants 252,798 $ 1.84 January 19, 2016 January 19, 2026 Common stock warrants 69,176 1.84 March 31, 2016 March 31, 2026 Common stock warrants 131 1.84 April 1, 2016 April 1, 2026 Common stock warrants 83,778 14.32 September 7, 2017 September 7, 2024 Common stock warrants 20,944 14.32 December 7, 2018 December 7, 2025 426,827 During the year ended December 31, 2020, warrants to purchase common stock were exercised resulting in the issuance of 32,120 shares of the Company's common stock and cash proceeds of an immaterial amount. Note 9. Stock Option Plan In September 2019, the Company's Board of Directors adopted, and the Company's stockholders approved, the 2019 Incentive Award Plan (the 2019 Plan). A total of (i) 2,011,832 shares of common stock plus (ii) shares subject to awards granted under the 2013 Plan on or before the effective date of the 2019 Plan became available for issuance under the 2019 Plan and was initially be reserved for issuance under the 2019 Plan. Under the 2019 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other awards to individuals who are then employees, officers, non-employee directors or consultants of the Company or its subsidiaries. The options generally expire ten years after the date of grant and are exercisable to the extent vested. Vesting is established by the Board of Directors and is generally four years from the date of grant. The 2019 Plan contains an "evergreen provision" that allows annual increases in the number of shares available for issuance on the first day of each calendar year through January 1, 2029 in an amount equal to the lesser of: (i) 4 % of the outstanding capital stock on each December 31st, or (ii) such lesser amount determined by the Board of Directors. As of December 31, 2020, 1,139,323 shares remained available for future awards. Under the evergreen provision, on January 1, 2021, an additional 506,092 shares became available for issuance under the 2019 Plan. Activity under the Company's stock option plans is set forth below: Number of Options Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding, December 31, 2019 1,375,542 $ 8.33 9.16 $ 23,654 Granted 951,031 $ 16.02 Exercised ( 47,549 ) $ 0.27 Forfeited ( 293,412 ) $ 10.46 Expired ( 9,851 ) $ 29.02 Outstanding, December 31, 2020 1,975,761 $ 11.81 8.71 $ 6,750 Vested and expected to vest, December 31, 2020 1,975,761 $ 11.81 8.71 $ 6,750 Options exercisable, December 31, 2020 464,606 $ 6.75 8.01 $ 3,362 The weighted-average grant date fair value per share of employee options granted to employees during the years ended December 31, 2020 and 2019 was $ 7.55 and $ 7.79 , respectively. The intrinsic value is calculated as the difference between the fair value of the Company's common stock and the exercise price of the stock options. The fair value of the Company's common stock is $ 13.20 and $ 25.40 per share at December 31, 2020 and 2019, respectively. The intrinsic value of options exercised for the years ended December 31, 2020 and 2019 was $ 1.0 million and an immaterial amount, respectively. Stock-Based Compensation Expense The fair value of employee stock options was estimated using the following assumptions to determine the fair value of stock options granted: 114 Years Ended December 31, 2020 2019 Expected volatility 47 %- 53 % 46 %- 59 % Risk-free interest rate 0.4 %- 1.7 % 1.6 %- 2.6 % Dividend yield — — Expected term (in years) 5.50 - 6.08 5.75 - 6.08 Employee Stock Purchase Plan In September 2019, the Board of Directors adopted the Employee Stock Purchase Plan (the ESPP). The ESPP became effective on the day the ESPP was adopted by the Company's Board of Directors. The ESPP permits participants to purchase common stock through payroll deductions of up to 20 % of their eligible compensation. A total of 120,000 shares of common stock was initially reserved for issuance under the ESPP. In addition, the number of shares of common stock available for issuance under the ESPP will be annually increased on the first day of each fiscal year during the term of the ESPP, beginning with the 2020 calendar year through January 1, 2029 in an amount equal to the lesser of (i) 1 % of the outstanding capital stock on December 31st, or (ii) such lesser amount determined by the Board of Directors. Under the evergreen provision, on January 1, 2021, an additional 126,523 shares became available for issuances under the ESPP. Stock-based compensation expense for the ESPP was an immaterial amount for the year ended December 31, 2020. The following assumptions were used to calculate the stock-based compensation for each stock purchase right granted under the ESPP: Years Ended December 31, 2020 Expected volatility 58 %- 83 % Risk-free interest rate 0.1 %- 1.1 % Dividend yield — Expected term (in years) 0.5 Total non-cash stock-based compensation expense recorded related to options granted and stock purchase rights granted under the ESPP in the statement of operations is as follows (in thousands): Years Ended December 31, 2020 2019 Cost of revenue $ 33 $ 9 Selling, general and administrative 2,419 445 Research and development 242 118 Total $ 2,694 $ 572 As of December 31, 2020, total unrecognized compensation cost was $ 8.5 million, which is expected to be recognized over a remaining weighted-average vesting period of 2.8 years. Common stock reserved for future issuance consists of the following at December 31, 2020: Warrants to purchase common stock 426,827 Common stock option grants issued and outstanding 1,975,761 Common shares available for grant under the stock option plan 1,139,323 Common shares available for future issuance under ESPP 233,961 Total 3,775,872 115 Note 10. Income Taxes The provision for income taxes consists of the following (in thousands): Years Ended December 31, 2020 2019 Current: Federal $ — $ — State 27 5 Total current 27 5 Deferred: Federal ( 117 ) 10 State 11 10 Total deferred ( 106 ) 20 (Benefit) provision for income tax $ ( 79 ) $ 25 The effective tax rate of our provision for income taxes differs from the federal statutory rate as follows: Years Ended December 31, 2020 2019 Federal statutory tax rate ( 21.0 ) % ( 21.0 ) % State income taxes, net of federal tax benefits ( 3.9 ) % ( 3.6 ) % Change in fair value of preferred stock liabilities — % ( 0.5 ) % Change in valuation allowance 22.6 % ( 36.1 ) % Limitation of net operating losses — % 59.8 % Other 1.8 % 1.6 % Effective tax rate ( 0.5 ) % 0.2 % Significant components of the Company’s deferred tax assets at December 31, 2020 and 2019 are shown below. A valuation allowance has been established as realization of the Company’s deferred tax assets has not met the more likely-than-not threshold requirement. If the Company’s judgment changes and it is determined that the Company will be able to realize these deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets will be accounted for as a reduction to income tax expense (in thousands). 116 December 31, 2020 2019 Deferred tax assets: Net operating loss carryforwards $ 17,733 $ 15,287 Research and development tax credits 629 419 Accruals, reserves and other 1,448 590 Interest expense 1,306 744 Basis differences in fixed and intangible assets 117 225 Total gross deferred tax assets 21,233 17,265 Less: Valuation allowance ( 20,596 ) ( 16,797 ) Deferred tax assets, net 637 468 Deferred tax liabilities: Financing and acquisition-related liabilities ( 336 ) ( 336 ) Indefinite lived assets ( 459 ) ( 396 ) Deferred tax liabilities, net ( 795 ) ( 732 ) Net deferred tax liabilities $ ( 158 ) $ ( 264 ) Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2020 and 2019, which related primarily to increases in net operating loss carryforwards, accrued revenue and accruals and reserves were as follows (in thousands): December 31, 2020 2019 Valuation allowance at the beginning of the year $ 16,797 $ 21,138 Decreases recorded as benefits to income tax provision — ( 4,341 ) Increases recorded to income tax provision 3,799 — Valuation allowance at the end of the year $ 20,596 $ 16,797 At December 31, 2020 and 2019, the Company had federal net operating loss carryforwards of approximately $ 70.6 million and $ 60.7 million, respectively. At December 31, 2020 and 2019, the Company had state net operating loss carryforwards of $ 48.9 million and $ 43.5 million, respectively. Approximately $ 43.5 million of the federal tax loss carryforwards will begin to expire in 2022, unless previously utilized. The federal net operating loss carryforwards generated in after December 31, 2017 of $ 27.1 million will carryforward indefinitely. The Company’s state tax loss carryforwards will expire in 2032, unless previously utilized. At December 31, 2019, the Company's deferred tax assets are primarily comprised of federal and state tax net operating loss carryforwards. The Company completed a formal study through the year ended December 31, 2019 and determined ownership changes within the meaning of Internal Revenue Code (IRC), Section 382 had occurred in 2003, 2008, 2012, 2017 and 2019. Based on the analysis, $ 61.8 million of the Company's tax attribute carryforwards through December 31, 2017 cannot be utilized under IRC Section 382. The Company's ability to utilize net operating loss carryforwards generated after December 31, 2017 will not expire under the Tax Cuts and Jobs Act of 2017. The Company adjusted tax attribute carry forwards and deferred tax assets accordingly. As the deferred tax assets associated with the tax attribute carry forwards were fully offset by a valuation allowance, a corresponding reduction in the Company's valuation allowance was also recorded, resulting in no income tax impact. The Company is subject to taxation in the U.S. and in various state jurisdictions. The Company’s tax years for 2002 and forward are subject to examination by the U.S. and state tax authorities due to the carryforward of unutilized net operating losses and research and development credits. 117 The Company recognizes interest and/or penalties related to income tax matters in its provision for income taxes. The Company does not have any accruals for, and did not recognize any, interest or penalties in these financial statements in any period presented. Uncertain Tax Positions At December 31, 2020 and 2019, the Company had no unrecognized tax benefits. The Company does not believe that the balance of unrecognized tax benefits will materially change within the next twelve months. Note 11. Related Parties The closings of the Series G financing and the Series H financing described in Note 7 were issued to existing holders of the Company's redeemable convertible preferred stock, including certain members of our Board of Directors. Note 12. 401(k) Plan The Company sponsors an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Code. Participating employees may defer up to the Internal Revenue Service annual contribution limit. Additionally, the Company may elect to make contributions into the savings plan at its sole discretion. For the years ended December 31, 2020 and 2019, the Company made contributions to the Plan at 3 % of qualified employee compensation, which totaled approximately $ 0.5 million and $ 0.4 million, respectively. Note 13. COVID-19 During 2020, due to the worldwide COVID-19 pandemic, the Company experienced a reduction in patient test volumes, delays in patient enrollment in ongoing and planned clinical studies, and delays in the procurement of its testing supplies. In response to the pandemic, the Company has curtailed non-essential employee travel, equipped employees with the ability to work remotely with the exception of clinical laboratory employees, and reduced marketing spend and employee headcount. The reduction in headcount resulted in a restructuring charge for termination benefits of $ 0.3 million which has been paid as of December 31, 2020. The full extent to which the COVID-19 pandemic will directly or indirectly continue to impact the Company's business, results of operations and financial condition, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional and international markets. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. Under the Tax Cuts and Jobs Act (TCJA), NOLs generated post TCJA were allowed to be carried forward indefinitely but were only allowed to offset 80% of taxable income. As a result of the CARES Act and the change to permit NOLs generated in taxable years 2018, 2019 and 2020 to offset 100% of taxable income, the Company released valuation allowance against its deferred tax assets in the amount of $ 0.1 million for the year ended December 31, 2020. On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law. It provides additional COVID-19 focused relief and extends certain provisions of the CARES Act. At this time, the Company does not believe that the Consolidated Appropriations Act, 2021 has a material impact on its financial statements. In April 2020, the Company received $ 0.7 million of funding under the CARES Act Provider Relief Fund, subject to the Company's agreement to comply with the Department of Health & Human Services' (HHS) standard terms and conditions. The CARES Act Provider Relief Fund is a federal fund allocated for general distributions to Medicare facilities and providers impacted by the COVID-19 pandemic and is intended to support COVID-related expenses or lost revenue attributable to COVID-19. The funding received is considered a government grant which is recognized when there is reasonable assurance that the grant will be received and that conditions attached to the grant have 118 been met. For the year ended December 31, 2020, the Company recognized $ 0.7 million due to lost revenue attributable to COVID-19, which is reflected in other income, net, on its statements of operations. On April 16, 2020, the Company entered into a promissory note with BOKF, NA dba Bank of Oklahoma, the lender, evidencing an unsecured loan pursuant to the U.S. Small Business Administration (SBA) Paycheck Protection Program (PPP) of the CARES Act of approximately $ 2.9 million (the PPP Loan). The Company applied for and received the PPP Loan pursuant to the then published PPP qualification and certification requirements. On April 23, 2020, the SBA, in consultation with the Department of Treasury, issued new guidance that created uncertainty regarding the qualification requirements for the PPP Loan (the New Guidance). In light of the New Guidance, on May 11, 2020, the Company paid off in full the principal and interest on the PPP Loan, resulting in the termination of the promissory note. 119 Index to Exhibits Incorporated by Reference Exhibit Number Exhibit Description Form File No. Exhibit Exhibit Filing Date Filed/Furnished Herewith 3.1 Form of Amended and Restated Certificate of Incorporation. 8-K 001-39049 3.1 9/23/2019 3.2 Form of Amended Restated Bylaws. 8-K 001-39049 3.2 9/23/2019 4.1 Specimen stock certificate evidencing the shares of common stock. S-1/A 333-233446 4.1 9/9/2019 4.2 Amended and Restated Investors’ Rights Agreement, dated July 12, 2019, by and among the Registrant and certain of its stockholders. S-1/A 333-233446 4.2 9/9/2019 4.3 Amendment to Convertible Promissory Notes and Warrants, dated January 19, 2016. S-1/A 333-233446 4.7 9/9/2019 4.4 Form of Warrant to Purchase Stock issued to Innovatus Life Sciences Lending Fund I, LP in connection with the Registrant's 2018 loan agreement. S-1/A 333-233446 4.9 9/9/2019 10.1# Exagen Corporation 2002 Stock Option Plan, as amended, and form of option agreement thereunder. S-1/A 333-233446 10.1 9/9/2019 10.2# Exagen Diagnostics, Inc. 2013 Stock Option Plan, as amended, and form of option agreement thereunder. S-1/A 333-233446 10.2 9/9/2019 10.3# Exagen Inc. 2019 Incentive Award Plan. S-1/A 333-233446 10.3 9/9/2019 10.4# Form of Option Agreement under Exagen Inc. 2019 Incentive Award Plan. S-1/A 333-233446 10.4 9/9/2019 10.5# Form of Restricted Stock Unit Agreement under Exagen Inc. 2019 Incentive Award Plan. X 10.6# Exagen Inc. 2019 Employee Stock Purchase Plan. S-1/A 333-233446 10.5 9/9/2019 10.7† License Agreement, dated September 13, 2007, by and between Prometheus Laboratories Inc. and the Registrant (as successor in interest to Proprius, Inc.). S-1/A 333-233446 10.6 9/9/2019 10.8† First Amendment to License Agreement, dated October 23, 2013, by and between Prometheus Laboratories Inc. and the Registrant (as successor in interest to Cypress Bioscience, Inc.). S-1/A 333-233446 10.7 9/9/2019 10.9† Asset Purchase Agreement, dated October 8, 2010, by and between Cypress Bioscience, Inc., Proprius, Inc. and the Registrant. S-1/A 333-233446 10.11 9/9/2019 10.10† Amendment No. One to Asset Purchase Agreement, dated March 10, 2011, by and between Cypress Bioscience, Inc., Proprius, Inc. and the Registrant. S-1/A 333-233446 10.12 9/9/2019 10.11 Amendment No. Two to Asset Purchase Agreement, dated August 21, 2012, by and between Royalty Pharma Collection Trust, Proprius, Inc. and the Registrant. S-1/A 333-233446 10.13 9/9/2019 10.12† Amendment No. Three to Asset Purchase Agreement, dated February 6, 2013, by and between Royalty Pharma Collection Trust, Proprius, Inc. and the Registrant. S-1/A 333-233446 10.14 9/9/2019 10.13 Amendment No. Four to Asset Purchase Agreement, dated October 8, 2013, by and between Royalty Pharma Collection Trust, Proprius, Inc. and the Registrant. S-1/A 333-233446 10.15 9/9/2019 120 10.14 Amendment No. Five to Asset Purchase Agreement, dated January 26, 2016, by and between Royalty Pharma Collection Trust, Proprius, Inc. and the Registrant. S-1/A 333-233446 10.16 9/9/2019 10.15† Amendment No. Six to Asset Purchase Agreement, dated February 16, 2017, by and between Royalty Pharma Collection Trust, Proprius, Inc. and the Registrant. S-1/A 333-233446 10.17 9/9/2019 10.16† Amended and Restated Exclusive License Agreement, dated August 2, 2011, by and between the University of Pittsburgh—Of the Commonwealth System of Higher Education and the Registrant. S-1/A 333-233446 10.18 9/9/2019 10.17† First Amendment to Amended and Restated Exclusive License Agreement, dated May 17, 2012, by and between the University of Pittsburgh—Of the Commonwealth System of Higher Education and the Registrant. S-1/A 333-233446 10.19 9/9/2019 10.18† Second Amendment to Amended and Restated Exclusive License Agreement, dated September 30, 2013, by and between the University of Pittsburgh—Of the Commonwealth System of Higher Education and the Registrant. S-1/A 333-233446 10.20 9/9/2019 10.19 Third Amendment to Amended and Restated Exclusive License Agreement, dated June 24, 2016, by and between the University of Pittsburgh—Of the Commonwealth System of Higher Education and the Registrant. S-1/A 333-233446 10.21 9/9/2019 10.20† Exclusive License Agreement, dated September 30, 2013, by and between the University of Pittsburgh—Of the Commonwealth System of Higher Education and the Registrant. S-1/A 333-233446 10.22 9/9/2019 10.21† Exclusive License Agreement, dated September 5, 2011, by and between Thierry Dervieux, Ph.D. and the Registrant. S-1/A 333-233446 10.23 9/9/2019 10.22† Co-Promotion Agreement, dated December 10, 2018, by and between Janssen Biotech, Inc. and the Registrant. S-1/A 333-233446 10.24 9/9/2019 10.23† Amendment #1 to Co-Promotion Agreement, dated January 1, 2019, by and between Janssen Biotech, Inc. and the Registrant. 10-Q 001-39049 10.1 7/28/2020 10.24† Amendment #2 to Co-Promotion Agreement, dated June 18, 2020, by and between Janssen Biotech, Inc. and the Registrant. 10-Q 001-39049 10.2 7/28/2020 10.25† Amendment #3 to Co-Promotion Agreement, dated December 23, 2020, by and between Janssen Biotech, Inc. and the Registrant. X 10.26 Standard Industrial/Commercial Multi-Tenant Lease, dated January 13, 2012, by and between RGS Properties and the Registrant. 10-Q 001-39049 10.1 7/28/2020 10.27 First Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated December 1, 2013, by and between RGS Properties and the Registrant. 10-Q 001-39049 10.2 7/28/2020 10.28 Second Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated April 29, 2016, by and between RGS Properties and the Registrant. 10-K 001-39049 10.27 3/25/2020 10.29 Third Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated June 16, 2017, by and between RGS Properties and the Registrant. 10-K 001-39049 10.28 3/25/2020 121 10.30 Fourth Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated March 16, 2020, by and between RGS Properties and the Registrant. 10-K 001-39049 10.29 3/25/2020 10.31 Standard Industrial/Commercial Single-Tenant Lease, dated September 4, 2014, by and between Geiger Court, LLC and the Registrant. S-1/A 333-233446 10.31 9/9/2019 10.32 First Amendment to Standard Industrial/Commercial Single-Tenant Lease, dated August 2, 2017, by and between Geiger Court, LLC and the Registrant. 10-K 001-39049 10.31 3/25/2020 10.33 Extension of Lease to Standard Industrial/Commercial Single-Tenant Lease, dated March 12, 2020, by and between Liberty Vista and the Registrant. 10-K 001-39049 10.32 3/25/2020 10.34 First Amendment to Standard Industrial/Commercial Single-Tenant Lease, dated January 6, 2021, by and between Liberty Vista and the Registrant. X 10.35 Standard Industrial/Commercial Multi-Tenant Lease, dated March 17, 2020 by and between RGS Properties and the Registrant. 10-K 001-39049 10.33 3/25/2020 10.36 Master Lease Agreement, dated February 1, 2018, by and between Celtic Commercial Finance, a division of MB Equipment Finance, LLC and the Registrant. S-1/A 333-233446 10.32 9/9/2019 10.37 Loan and Security Agreement, dated September 7, 2017, by and between Innovatus Life Sciences Lending Fund I, LP and the Registrant. S-1/A 333-233446 10.33 9/9/2019 10.38 First Amendment to Loan and Security Agreement with Innovatus Life Sciences Lending I, LP dated November 19, 2019. 10-K 001-39049 10.36 3/25/2020 10.39 Acknowledgement Letter to Loan and Security Agreement, by and between Innovatus Life Sciences Lending Fund I, LP and the Registrant. 10-Q 001-39049 10.1 11/10/2020 10.40# Offer Letter, dated October 12, 2010, by and between Thierry Dervieux, Ph.D. and the Registrant, as amended on September 9, 2011 and September 6, 2019. S-1/A 333-233446 10.34 9/9/2019 10.41 Form of Indemnification Agreement for Directors and Officers. S-1/A 333-233446 10.35 9/9/2019 10.42# Offer Letter, dated October 7, 2011, by and between Fortunato Ron Rocca and the Registrant, as amended on September 4, 2019. S-1/A 333-233446 10.36 9/9/2019 10.43# Offer Letter, dated May 16, 2017, by and between Kamal Adawi and the Registrant, as amended on September 4, 2019. S-1/A 333-233446 10.37 9/9/2019 10.44# Offer Letter dated February 21, 2020, by and between Debra Zack, MD Ph.D. and the Registrant. 10-K 001-39049 10.41 3/25/2020 10.45# Non-Employee Director Compensation Program. S-1/A 333-233446 10.38 9/9/2019 10.46# Executive Change in Control Severance Plan. X 23.1 Consent of Independent Registered Public Accounting Firm X 24.1 Power of Attorney (included on signature page). X 31.1 Certificate of Principal Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 31.2 Certificate of Principal Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 122 32.1* Certifications Pursuant to U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002. X 101.SCH XBRL Taxonomy Extension Schema Document. X 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. X 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. X 101.LAB XBRL Taxonomy Extension Labels Linkbase Document. X 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. X * This certification is deemed not filed for purpose of section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. # Indicates management contract or compensatory plan. † Portions of this exhibit (indicated by asterisks) have been omitted for confidentiality purposes. 123 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. EXAGEN INC. Date: March 16, 2021 by: /s/ Fortunato Ron Rocca Fortunato Ron Rocca President and Chief Executive Officer (Principal Executive Officer) Power of Attorney KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Fortunato Ron Rocca and Kamal Adawi as his or her true and lawful attorneys-in-fact, and each of them, with full power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, and either of them, or his or their substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. 124 Signature Title Date /s/ Fortunato Ron Rocca President, Chief Executive Officer and Director March 16, 2021 Fortunato Ron Rocca (Principal Executive Officer) /s/ Kamal Adawi Chief Financial Officer and Corporate Secretary March 16, 2021 Kamal Adawi (Principal Financial and Accounting Officer) /s/ Brian Birk Chairman of the Board of Directors March 16, 2021 Brian Birk /s/ Jeff Elliott Director March 16, 2021 Jeff Elliott /s/ Wendy S. Johnson Director March 16, 2021 Wendy S. Johnson /s/ Tina S. Nova, Ph.D. Director March 16, 2021 Tina S. Nova, Ph.D. /s/ Ebetuel Pallares, Ph.D. Director March 16, 2021 Ebetuel Pallares, Ph.D. /s/ Bruce C. Robertson, Ph.D. Director March 16, 2021 Bruce C. Robertson, Ph.D. /s/ James L.L. Tullis Director March 16, 2021 James L.L. Tullis 125