What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-03-20 compared with 2022-03-22 · 490 added, 399 removed, 537 unchanged (62% of the section changed)

6 unchanged sentences

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, 2021, 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.

Based on that evaluation, our principal executive officer and principal financial officer have concluded that as of December 31, 2022, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, due to the material weakness in our internal control over financial reporting described below.

Management's Report on Internal Control over Financial Reporting

2 unchanged sentences

Our internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the

financial statements.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect all misstatements.

1 unchanged sentence

Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

As of December 31, 2021, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.

Based on this assessment, our management concluded that, as of December 31, 2021, our internal control over financial reporting was effective based on those criteria.

On November 13, 2022, management and the audit committee of our board of directors determined that we made certain errors in revenue resulting from erroneous and duplicate billings related to changes in billing practices.

errors were due to the inadequate design and implementation and precision of internal controls and procedures to evaluate and monitor the accounting for revenue recognition.

As a result, revenue and accounts receivable were overstated and other liabilities was understated for the quarter and year to date periods ended June 30, 2022.

We concluded that these were material errors in the financial statements requiring a restatement of the Form 10-Q for the three and six months ended June 30, 2022.

Accordingly, management has determined that this control deficiency constituted a material weakness and, as a result, management has concluded that, as of December 31, 2022, our internal control over financial reporting was not effective based on the criteria in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission.

Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Remediation Plan to Address the Material Weaknesses

Management is actively engaged in the implementation of, remediation efforts to address the material weakness.

The remediation plan includes:

(i) evaluating the staffing level, skills and qualification of accounting department personnel, (ii) enhancement of our existing control structure and processes for revenue recognition and (iii) improving the detailed review process of our revenue recognition models.

The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.

The weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Attestation Report of the Registered Public Accounting Firm

1 unchanged sentence

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, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other than the material weakness discussed above, there have been no changes in our internal control over financial reporting during the three months ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls and Procedures

Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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 judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Other Information.

15 unchanged sentences

Financial Statements and Financial Statement Schedules

A list of exhibits is set forth on the Exhibit Index immediately preceding the signature page of this Annual Report on Form 10-K and is incorporated herein by reference.

(2) 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 94.

(3) 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.

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.

Form 10-K Summary.

Index to Exhibits

Incorporated by Reference

Exhibit Number Exhibit Description Form File No.

Exhibit Exhibit Filing Date Filed/Furnished Herewith

3.1 Amended and Restated Certificate of Incorporation.

8-K 001-39049 3.1 9/23/2019

3.2 Amended and Restated Bylaws.

8-K 001-39049 3.1 3/22/2021

3.3 Amended and Restated Bylaws, dated January 19, 2023.

8-K 001-39049 3.1 1/23/2023

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 Company and certain of its stockholders.

S-1/A 333-233446 4.2 9/9/2019

4.3 Amended and Restated Stockholders' Agreement, dated July 12, 2019, by and among the Company and certain of its stockholders.

S-1/A 333-233446 4.3 9/9/2019

4.4 Form of Common Stock Purchase Warrant issued to investors by the Company in connection with private placement financings.

S-1/A 333-233446 4.4 9/9/2019

4.5 Form of Common Stock Purchase Warrant to purchase common stock issued to investors by the Company in 2016.

S-1/A 333-233446 4.8 9/9/2019

4.6 Form of Warrant to Purchase Stock issued to Innovatus Life Sciences Lending Fund I, LP in connection with the Company's 2018 loan agreement.

S-1/A 333-233446 4.9 9/9/2019

4.7 Form of Exchange Warrant.

10-Q 001-39049 4.5 8/9/2021

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.

10-K 001-39049 10.5 3/16/2021

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 Company (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 Company (as successor in interest to Cypress Bioscience, Inc.).

S-1/A 333-233446 10.7 9/9/2019

10.9 Letter Agreement, dated September 28, 2021, by and between the Company and Prometheus Laboratories Inc.

10-Q 001-39049 10.6 11/10/2021

10.10† Asset Purchase Agreement, dated October 8, 2010, by and between Cypress Bioscience, Inc., Proprius, Inc.

and the Company.

S-1/A 333-233446 10.11 9/9/2019

10.11† Amendment No.

One to Asset Purchase Agreement, dated March 10, 2011, by and between Cypress Bioscience, Inc., Proprius, Inc.

and the Company.

S-1/A 333-233446 10.12 9/9/2019

10.12 Amendment No.

Two to Asset Purchase Agreement, dated August 21, 2012, by and between Royalty Pharma Collection Trust, Proprius, Inc.

and the Company.

S-1/A 333-233446 10.13 9/9/2019

10.13† Amendment No.

Three to Asset Purchase Agreement, dated February 6, 2013, by and between Royalty Pharma Collection Trust, Proprius, Inc.

and the Company.

S-1/A 333-233446 10.14 9/9/2019

10.14 Amendment No.

Four to Asset Purchase Agreement, dated October 8, 2013, by and between Royalty Pharma Collection Trust, Proprius, Inc.

and the Company.

S-1/A 333-233446 10.15 9/9/2019

10.15 Amendment No.

Five to Asset Purchase Agreement, dated January 26, 2016, by and between Royalty Pharma Collection Trust, Proprius, Inc.

and the Company.

S-1/A 333-233446 10.16 9/9/2019

10.16† Amendment No.

Six to Asset Purchase Agreement, dated February 16, 2017, by and between Royalty Pharma Collection Trust, Proprius, Inc.

and the Company.

S-1/A 333-233446 10.17 9/9/2019

10.17† 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 Company.

S-1/A 333-233446 10.18 9/9/2019

10.18† 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 Company.

S-1/A 333-233446 10.19 9/9/2019

10.19† 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 Company.

S-1/A 333-233446 10.20 9/9/2019

10.20 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 Company.

S-1/A 333-233446 10.21 9/9/2019

10.21† Exclusive License Agreement, dated September 30, 2013, by and between the University of Pittsburgh-Of the Commonwealth System of Higher Education and the Company.

S-1/A 333-233446 10.22 9/9/2019

10.22† Exclusive License Agreement, dated September 5, 2011, by and between Thierry Dervieux, Ph.D.

and the Company.

S-1/A 333-233446 10.23 9/9/2019

10.23† Co-Promotion Agreement, dated December 10, 2018, by and between Janssen Biotech, Inc.

and the Company.

S-1/A 333-233446 10.24 9/9/2019

10.24† Amendment #1 to Co-Promotion Agreement, dated January 1, 2019 by and between Janssen Biotech, Inc.

and the Company.

10-Q 001-39049 10.1 7/28/2020

10.25† Amendment #2 to Co-Promotion Agreement, dated June 18, 2020 by and between Janssen Biotech, Inc.

and the Company.

10-Q 001-39049 10.2 7/28/2020

10.26† Amendment #3 to Co-Promotion Agreement, dated December 23, 2020 by and between Janssen Biotech, Inc.

and the Company.

10-K 001-39049 10.25 3/16/2021

10.27† Amendment #4 to Co-Promotion Agreement, dated June 30, 2021 by and between Janssen Biotech, Inc.

and the Company.

10-Q 001-39049 10.1 8/9/2021

10.28 Standard Industrial/Commercial Multi-Tenant Lease, dated January 13, 2012, by and between RGS Properties and the Company.

10-Q 001-39049 10.1 7/28/2020

10.29 First Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated December 1, 2013, by and between RGS Properties and the Company.

10-Q 001-39049 10.2 7/28/2020

10.30 Second Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated April 29, 2016, by and between RGS Properties and the Company.

10-K 001-39049 10.27 3/25/2020

10.31 Third Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated June 16, 2017, by and between RGS Properties and the Company.

10-K 001-39049 10.28 3/25/2020

10.32 Fourth Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated March 16, 2020, by and between RGS Properties and the Company.

10-K 001-39049 10.29 3/25/2020

10.33 Fifth Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated October 19, 2021, by and between RGS Properties and the Company.

10-Q 001-39049 10.3 11/10/2021

10.34 Standard Industrial/Commercial Single-Tenant Lease, dated September 4, 2014, by and between Geiger Court, LLC and the Company.

S-1/A 333-233446 10.31 9/9/2019

10.35 First Amendment to Standard Industrial/Commercial Single-Tenant Lease, dated August 2, 2017, by and between Geiger Court, LLC and the Company.

10-K 001-39049 10.31 3/25/2020

10.36 Extension of Lease to Standard Industrial/Commercial Single-Tenant Lease, dated March 12, 2020, by and between Liberty Vista and the Company.

10-K 001-39049 10.32 3/25/2020

10.37 First Amendment to Standard Industrial/Commercial Single-Tenant Lease, dated January 6, 2021, by and between Liberty Vista and the Company.

10-K 001-39049 10.34 3/16/2021

10.38 Second Amendment to Standard Industrial/Commercial Single-Tenant Lease, dated October 11, 2021, by and between Liberty Vista and the Company.

10-Q 001-39049 10.2 11/10/2021

10.39 Standard Industrial/Commercial Multi-Tenant Lease, dated March 17, 2020 by and between RGS Properties and the Company.

10-K 001-39049 10.33 3/25/2020

10.40 First Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated October 19, 2021, by and between RGS Properties and the Company.

10-Q 001-39049 10.4 11/10/2021

10.41† Sublease Agreement, dated August 19, 2021, by and between Plum Healthcare Group, LLC and the Company.

10-Q 001-39049 10.1 11/10/2021

10.42 Master Lease Agreement, dated February 1, 2018, by and between Celtic Commercial Finance, a division of MB Equipment Finance, LLC and the Company.

S-1/A 333-233446 10.32 9/9/2019

10.43 Loan and Security Agreement, dated September 7, 2017, by and between Innovatus Life Sciences Lending Fund I, LP and the Company.

S-1/A 333-233446 10.33 9/9/2019

10.44 First Amendment to Loan and Security Agreement, dated November 19, 2019, by and between Innovatus Life Sciences Lending I, LP and the Company.

10-K 001-39049 10.36 3/25/2020

10.45 Acknowledgement Letter to Loan and Security Agreement, dated October 7, 2020, by and between Innovatus Life Sciences Lending Fund I, LP and the Company.

10-Q 001-39049 10.1 11/10/2020

10.46 Second Amendment to Loan and Security Agreement, dated November 1, 2021, by and among Innovatus Life Sciences Lending Fund I, LP, other lenders and the Company.

10-Q 001-39049 10.5 11/10/2021

10.47# Offer Letter, dated October 12, 2010, by and between Thierry Dervieux, Ph.D.

and the Company, as amended on September 9, 2011 and September 6, 2019.

S-1/A 333-233446 10.34 9/9/2019

10.48 Form of Indemnification Agreement for Directors and Officers.

S-1/A 333-233446 10.35 9/9/2019

10.49# Offer Letter, dated October 7, 2011, by and between Fortunato Ron Rocca and the Company, as amended on September 4, 2019.

S-1/A 333-233446 10.36 9/9/2019

10.50# Offer Letter, dated May 16, 2017, by and between Kamal Adawi and the Company, as amended on September 4, 2019.

S-1/A 333-233446 10.37 9/9/2019

10.51# Offer Letter dated February 21, 2020, by and between Debra Zack, MD Ph.D.

and the Company.

10-K 001-39049 10.41 3/25/2020

10.52# Non-Employee Director Compensation Program.

S-1/A 333-233446 10.38 9/9/2019

10.53# Executive Change in Control Severance Plan.

10-K 001-39049 10.46 3/16/2021

10.54# Employment Agreement, dated as of October 16, 2022, by and between the Company and John Aballi

8-K 001-39049 10.1 10/16/2022

10.55# Severance Agreement, dated as of October 14, 2022, by and between the Company and Ron Rocca

8-K 001-39049 10.2 10/16/2022

10.56 Sales Agreement, dated as of September 15, 2022, by and between the Company and Cowen and Company, LLC

8-K 001-39049 1.1 9/15/2022

10.57 Consulting Agreement, dated as of December 5, 2022, by and between the Company and Debra Zack, M.D., Ph.D.

8-K 001-39049 10.1 12/5/2022

23.1 Consent of Independent Registered Public Accounting Firm.

24.1 Power of Attorney (included on signature page).

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.

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.

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.

101.SCH XBRL Taxonomy Extension Schema Document.

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.

104 The cover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2021, has been formatted in Inline XBRL.

* 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.

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.

March 20, 2023

/s/ John Aballi

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 John Aballi 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.

Signature Title Date

/s/ John Aballi President, Chief Executive Officer and Director March 20, 2023

John Aballi (Principal Executive Officer)

/s/ Kamal Adawi Chief Financial Officer and Corporate Secretary March 20, 2023

Kamal Adawi (Principal Financial and Accounting Officer)

Executive Chairperson of the Board March 20, 2023

/s/ Brian Birk Director March 20, 2023

/s/ Ana Hooker Director March 20, 2023

Johnson Director March 20, 2023

/s/ Ebetuel Pallares, Ph.D.

Director March 20, 2023

Ebetuel Pallares, Ph.D.

Robertson, Ph.D.

Director March 20, 2023

Robertson, Ph.D.

/s/ Frank Stokes Director March 20, 2023

/s/ James L.L.

Tullis Director March 20, 2023

Index to Financial Statements

6 unchanged sentences

Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors

Shareholders and Board of Directors

Vista, California

3 unchanged sentences

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, 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.

Change in Accounting Principle

As discussed in Note 5 to the financial statements, effective January 1, 2022, the Company adopted Accounting Standards Codification Topic 842, Leases .

Basis for Opinion

24 unchanged sentences

Property and equipment, net 8,197 4,772

Operating lease right-of-use assets 4,885 —

Goodwill — 5,506

4 unchanged sentences

Accounts payable $ 3,046 $ 2,492

Operating lease liabilities 1,040 —

Borrowings-current portion 190 —

Accrued and other current liabilities 5,347 6,826

1 unchanged sentence

Borrowings-non-current portion, net of discounts and debt issuance costs 28,778 27,478

Non-current operating lease liabilities 4,493 —

Deferred tax liabilities — 306

16 unchanged sentences

(in thousands, except share and per share data)

Years Ended December 31,

Year Ended December 31,

Revenue $ 45,563 $ 48,299

3 unchanged sentences

Research and development expenses 9,876 7,237

Goodwill Impairment 5,506 —

Total operating expenses 91,614 72,366

1 unchanged sentence

Interest expense ( 2,448 ) ( 2,625 )

Other income, net 16 984

Interest income 830 16

Loss before income taxes ( 47,669 ) ( 26,676 )

Income tax (expense) benefit ( 175 ) 79

Income tax expense 282 ( 175 )

Net loss $ ( 47,387 ) $ ( 26,851 )

3 unchanged sentences

Statements of Stockholders' Equity

(in thousands, except share and per share amounts)

(in thousands, except share amounts)

Common Stock Additional

4 unchanged sentences

Balances at December 31, 2020 12,652,308 $ 13 $ 223,115 $ ( 181,289 ) $ 41,839

Issuance of stock in public offering, net of issuance costs of $ 4,435

4,255,000 4 64,705 — 64,709

Retirement of common stock in exchange for common stock warrant ( 804,951 ) ( 1 ) ( 12,774 ) — ( 12,775 )

Issuance of common stock warrant in exchange for retirement of common stock — — 12,775 — 12,775

Exercise of stock options 11,950 — 89 — 89

4 unchanged sentences

Balances at December 31, 2021 16,164,994 16 293,060 ( 208,140 ) 84,936

Issuance of stock in public offering, net of issuance costs of $ 4,435

4,255,000 4 64,705 — 64,709

Retirement of common stock in exchange for common stock warrant ( 804,951 ) ( 1 ) ( 12,774 ) — ( 12,775 )

Issuance of common stock warrant in exchange for retirement of common stock — — 12,775 — 12,775

Issuance of stock from vested restricted stock units and payment of employees' taxes 64,064 — ( 239 ) — ( 239 )

Exercise of stock options 245,186 1 60 — 61

1 unchanged sentence

Stock-based compensation — — 4,704 — 4,704

Exercise of common stock warrants 17,719 — 32 — 32

Net loss — — — ( 47,387 ) ( 47,387 )

3 unchanged sentences

(in thousands)

Years Ended December 31,

Year Ended December 31,

Cash flows from operating activities:

5 unchanged sentences

Deferred income taxes ( 306 ) 148

Non-cash lease expense 967 —

Long-lived assets impairment 397 —

Goodwill impairment 5,506 —

Stock-based compensation 4,704 4,728

3 unchanged sentences

Other assets ( 47 ) ( 167 )

Operating lease liabilities ( 854 ) —

Accounts payable 901 ( 655 )

7 unchanged sentences

Proceeds from exercise of stock options 61 89

Payments of taxes withheld on vested restricted stock units ( 239 ) —

Proceeds from common stock issued under Employee Stock Purchase Plan 385 390

Proceeds from exercise of common stock warrants — 32

Principal payment on capital lease obligations ( 525 ) ( 249 )

Proceeds from Paycheck Protection Program loan — 2,865

Repayment of Paycheck Protection Program loan — ( 2,865 )

Principal payment on finance lease obligations ( 667 ) ( 525 )

Principal payment on note payable obligations ( 29 ) —

Proceeds from the issuance of common stock in public offering, gross — 69,144

1 unchanged sentence

Payments of deferred offering costs — ( 40 )

Net cash provided by (used in) financing activities 64,683 ( 97 )

Net cash (used in) provided by financing activities ( 489 ) 64,683

Net change in cash, cash equivalents and restricted cash ( 36,951 ) 41,994

Cash, cash equivalents and restricted cash, beginning of period 57,548 72,184

Cash, cash equivalents and restricted cash, end of period $ 99,542 $ 57,548

Cash, cash equivalents and restricted cash, beginning of year 99,542 57,548

Cash, cash equivalents and restricted cash, end of year $ 62,591 $ 99,542

Supplemental disclosure of cash flow information:

1 unchanged sentence

Supplemental disclosure of non-cash items:

Equipment purchased under capital lease obligations $ 1,111 $ 260

Equipment purchased under finance lease obligations $ 741 $ 1,111

Equipment purchased under notes payable obligations $ 807 $ —

Costs incurred, but not paid, in connection with capital expenditures $ 182 $ 685

Deferred offering costs included in accounts payable and accrued and other current liabilities $ — $ 40

Deferred offering costs reclassified to equity $ — $ 28

2 unchanged sentences

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.

(the Company) is a commercial-stage diagnostics company dedicated to helping patients suffering from debilitating and chronic autoimmune diseases by enabling timely differential diagnosis and optimizing therapeutic intervention.

The Company has incurred recurring losses and negative cash flows from operating activities since inception.

1 unchanged sentence

At December 31, 2022, the Company had cash and cash equivalents of $ 62.4 million and had an accumulated deficit of $ 255.5 million.

Since inception, the Company has financed its operations primarily through a combination of equity financings of common stock and private placements of preferred securities, debt financing arrangements, and revenue from sales of the Company's products.

Since inception, the Company has financed its operations primarily through a combination of equity financings, debt financing arrangements, and revenue from sales of the Company's products.

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.

9 unchanged sentences

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) and net deferred tax assets (and related valuation allowance).

Significant estimates and assumptions made in the accompanying financial statements include, but are not limited to revenue recognition, the estimated incremental borrowing rate for the determination of the Company's operating lease right-of-use (ROU) assets, the recoverability of its long-lived assets and the goodwill impairment test.

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.

4 unchanged sentences

Such deposits may, at times, exceed federally insured limits.

We have not experienced any losses on our cash or cash equivalents.

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 customer, revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable are as follows:

Years Ended December 31,

For each significant payor and customer,

revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable are as follows:

Year Ended December 31,

Medicare 39 % 19 %

1 unchanged sentence

Blue Shield * 12 %

Janssen (SIMPONI ® )

* Less than 10%.

Accounts Receivable

Medicare 21 % *

Medicare Advantage 13 % *

Blue Shield * 19 %

United Healthcare * 18 %

Janssen (SIMPONI ® )

* Less than 10%.

5 unchanged sentences

The following table includes the Company's revenues as disaggregated by payor and customer category (in thousands):

Years Ended December 31,

Healthcare insurers $ 27,499 $ 22,456

Year Ended December 31,

Commercial $ 18,975 $ 27,499

Government 17,687 9,221

5 unchanged sentences

(2) Includes patient self-pay.

Fair Value Measurements

The carrying value of the Company's cash and cash equivalents approximate fair value due to the short-term nature of these items.

The estimated fair value of the Company's long-term borrowings are determined by Level 2 inputs and is based primarily on quoted market prices for the same or similar issues.

The recorded value of the Company's

long-term borrowings approximates the current fair value as the interest rate and other terms are that which are currently available to the Company.

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;

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.

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.

The Company has 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.

deposit with this financial institution as collateral for the balances borrowed on these credit cards ($ 0.2 million and $ 0.1 million at December 31, 2022 and 2021, respectively).

The Company has classified the value of this certificate of deposit (including all interest earned thereon) within other assets in the accompanying balance sheets.

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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 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.

When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in operating expenses 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.

The Company’s long-lived assets are comprised principally of its property and equipment and operating lease assets (see Note 5).

We amortize all finite lived intangible assets over their respective estimated useful lives.

Operating lease assets are amortized over the term of the leases.

In considering whether long-lived assets are impaired, we combine our intangible assets and other long-lived assets (excluding goodwill), into groupings, a determination which we principally make on the basis of whether the assets are specific to a particular test offered by us or technology we are developing.

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.

Management’s estimates of future cash flows are impacted by projected test volume and levels of reimbursement, as well as expectations related to the future cost structure of the entity.

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.

During the year ended December 31, 2022, the Company recorded an impairment charge to fixed assets totaling $ 0.4 million (see Note 3).

The impairment charge was classified within research and development expenses in the accompanying statements of operations.

Goodwill is reviewed for impairment annually (during the fourth quarter) or more frequently if indicators of impairment exist.

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otherwise, an impairment loss is recorded.

No impairment was recognized for any of the periods presented.

During the year ended December 31, 2022, the Company recorded an impairment charge to goodwill totaling $ 5.5 million (see Note 3).

The Company categorizes leases at their commencement as either operating or finance leases.

Effective January 1, 2022 upon the adoption of Accounting Standards Codification (ASC) 842, the Company recognizes operating lease ROU assets and operating lease liabilities for each lease arrangement identified.

Lease liabilities are recorded at the present value of future lease payments discounted using the Company's incremental borrowing rate for the lease established at the commencement date.

ROU assets are measured at the amount of the lease liability plus any initial direct costs, less any lease incentives received before commencement.

Lease expense is recognized as a single lease cost over the lease term on a straight-line basis.

The Company has elected not to apply the recognition requirements to short-term leases and not to separate non-lease components from lease components for its leases.

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.

Payments made prior to the completion of clinical study services are capitalized until the services are rendered.

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 based on estimated progress of services performed, including actual level of subjects enrolled and progress of the clinical studies.

Payments made prior to the completion of clinical study services are capitalized as a prepaid expense.

The prepaid amounts are expensed as the related goods are delivered or the services are performed, or when it is no longer expected that the goods will be delivered or the services rendered.

Expenses associated with clinical study activities are recorded in research and development expenses in the accompanying statement of operations.

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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 (each, a payors) consist of healthcare insurers, government payors (primarily Medicare and Medicaid), client payors (i.e., hospitals, other laboratories, etc.), and patient self-pay.

The parties that pay for these services (each, a payor) consist of commercial payors (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.

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Further adjustments to the allowances, based on actual receipts, are recorded upon settlement.

Included in revenues for the years ended December 31, 2022 and 2021 was a net revenue decrease of $ 2.4 million and a net revenue increase of $ 0.7 million, respectively, associated with changes in estimated variable consideration related to performance obligations satisfied in previous periods.

The transaction price is estimated using an expected value method on a portfolio basis.

Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved.

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.

each individual commercial payor, Medicare, Medicaid, client payors, patient self-pay, etc.) and per test.

Consideration may be constrained and excluded from the transaction price in situations where there is no contractually agreed upon reimbursement coverage or in absence of a predictable pattern and history of collectability with a payor.

Accordingly, in such situations revenues are recognized on the basis of actual cash collections.

Additionally, from time to time, the Company may issue refunds to payors for overpayments or amounts billed in error.

Any refunds are accounted for as reductions in revenues in the statement of operations as an element of variable consideration.

The estimated expected refunds are accrued as a liability on the Company’s balance sheet.

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.

Revenue recognized during the years ended December 31, 2021 and 2020 related to performance obligations satisfied in previous periods was approximately $ 0.7 million and $ 0.8 million, respectively, which relates to a change in estimate of the transaction price.

Janssen Promotion Agreement

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(Janssen) to co-promote SIMPONI ® in the United States.

In August 2021, the Company and Janssen mutually agreed to terminate the Janssen Agreement effective on August 31, 2021.

Pursuant to the Janssen Agreement, the Company was responsible for the costs associated with its sales force over the course of such co-promotion.

In August 2021, the Company and Janssen mutually agreed to terminate the Janssen Agreement, effective August 31, 2021.

Pursuant to the Janssen Agreement, as amended, the Company was responsible for the costs associated with its sales force over the course of such co-promotion.

Janssen was 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 was 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 year ended December 31, 2020, 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 to adjust the predetermined average baseline for the third and fourth quarters of 2020.

The Janssen Agreement was further amended in June 2020 and December 2020 to adjust the predetermined average baseline for prescribed units for the quarters ending December 31, 2020 and March 31, 2021 and was subject to further adjustment under certain circumstances.

In June 2021, the Janssen Agreement was again amended to proportionally increase the baseline for prescribed units for the quarter ended June 30, 2021 to reflect the addition of certain geographies to the sales territories covered by the Janssen Agreement.

For the first and second quarters of 2021, the Company earned the minimum promotion fee of $ 0.3 million.

Upon the termination of the Janssen Agreement on August 31, 2021, the Company became entitled to receive an aggregate of $ 0.6 million in consideration, which was earned in the year ended December 31, 2021.

Pursuant to the terms of the termination, the Company is restricted from promoting any other biologic or Janus kinase inhibitor used for treatment of indications covered by the Janssen Agreement without first obtaining Janssen's written consent until May 31, 2022.

The Company's obligations relating to sales and co-promotion services for SIMPONI ® were a series of single performance obligations since Janssen simultaneously received and consumed benefits provided by the Company's sales and co-promotional services.

The method for measuring progress towards satisfying the performance obligations was based on prescribed units in excess of the contractual baseline at the contractual rate earned per unit since the Amended Janssen Agreement was cancelable.

The Company recognized co-promotion revenue of approximately $ 1.2 million and $ 5.1 million during the years ended December 31, 2021 and 2020, respectively.

The related expenses for marketing SIMPONI ® are included in selling, general and administrative expenses and are expensed as incurred.

The method for measuring progress towards satisfying the performance obligations was based on prescribed units in excess of the contractual baseline at the contractual rate earned per unit.

The Company recognized no co-promotion revenue and $ 1.2 million in co-promotion revenue during the years ended December 31, 2022 and December 31, 2021, respectively.

The related expenses for marketing SIMPONI ® were included in selling, general and administrative expenses and were expensed as incurred.

Pursuant to the terms of the termination, the Company received $ 0.6 million in consideration (which was earned in the year ended December 31, 2021) and the Company was restricted until May 31, 2022 from promoting any other biologic or Janus kinase inhibitor used for the treatment of indications covered by the Janssen Agreement without first obtaining Janssen's written consent.

The restriction no longer applies.

Research and Development

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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 Company's 2019 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 BSM option pricing model incorporates various inputs, including the fair value of the Company's common stock, expected volatility, expected term and risk-free interest rates.

Volatility is based on the Company's historical calculated volatility since being publicly traded.

The weighted-average expected term of options was calculated using the simplified method.

The risk-free interest rate for periods within the contractual term of the option is based on the U.S.

The risk-free interest rate for periods within the contractual term of the option is based

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.

The fair value of each restricted stock unit is determined on the grant date using the closing price of the Company's common stock on the grant date and generally vest from the grant date in four equal annual installments subject to the holder's continued service with the Company.

The dividend yield is zero , as the Company has never declared or paid dividends and has no plans to do so in the foreseeable future.

The fair value of each restricted stock unit is determined on the grant date using the closing price of the Company's common stock on that date.

The Company's restricted stock units generally vest in equal annual installments over four years from the date of grant or, for grants to new hires, date of hire.

Vesting of restricted stock units is subject to the holder's continued service with the Company.

The Company issues new shares to satisfy restricted stock units upon vesting.

The fair value of the Company's common stock is determined by using the closing price of its common stock on the corresponding date.

Comprehensive Loss

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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.

The weighted-average number of shares in 2021 used to compute basic and diluted shares includes shares issuable upon the exercise of pre-funded warrants at a nominal price.

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 shares and common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods.

The weighted-average number of shares used to compute basic and diluted shares includes shares issuable upon the exercise of pre-funded warrants at a nominal price.

Potentially dilutive common stock equivalents are comprised of warrants for the purchase of common stock, options and restricted stock units outstanding under the Company's 2019 Incentive Award Plan (the 2019 Plan) and shares of the Company's common stock pursuant to the ESPP.

For the years ended December 31, 2021 and 2020,

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.

For the years ended December 31, 2022 and 2021, 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):

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Total 2,925,262 2,858,956

Government Assistance Grant Income

Absent authoritative accounting standards, interpretive guidance issued and commonly applied by financial statement preparers allows for the selection of accounting policies amongst acceptable alternatives.

Based on the facts and circumstances of the government assistance received by the Company as discussed in Note 11, the Company determined it most appropriate to account for the transaction by analogy to International Accounting Standards 20 (IAS 20), Accounting for Government Grants and Disclosure of Government Assistance .

IAS 20 permits for the recognition in earnings either separately under a general heading such as other income, or as a reduction of the related expenses.

Segment Reporting

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The Company views its operations as, and manages its business in, one operating segment.

Recent Accounting Pronouncements Not Yet Adopted

Recent Accounting Pronouncements

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.

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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.

Recently Adopted Accounting Standards

In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842).

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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 early adopt this ASU as of 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 in the process of completing its evaluation of the effect that the adoption of this ASU will have on its financial statements.

The Company currently believes the most significant change will be

related to the recognition of a new right-of-use asset and lease liability at January 1, 2022 on the Company's balance sheet for its office and laboratory space operating leases.

Recently Adopted Accounting Standards

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 adopted this guidance on January 1, 2021, and the adoption did not have a material impact on its financial statements.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832).

The update requires certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution model by analogy.

The amendments in this update are effective for fiscal years beginning after December 15, 2021.

Early application of the amendments is permitted.

The Company early adopted these disclosure requirements and applied them to its disclosure of the funding received as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in 2020.

On January 1, 2022, the Company adopted ASU 2016-12, using the modified retrospective transition method.

Periods prior to January 1, 2022 have not been restated for the adoption of ASC 842 and continue to reflect the accounting treatment of leases in accordance with the prior lease accounting guidance, ASC 840, Leases .

The Company adopted the new lease standard using a cumulative effect to accumulated deficit and there was no impact to accumulated deficit upon adoption.

The Company elected the package of practical expedients, which among other things allowed the Company to carry forward its historical lease classification.

As part of the adoption, the Company recorded operating lease liabilities of $ 6.4 million, operating lease ROU assets of $ 5.9 million, adjusted for deferred rent and lease incentive obligations of $ 0.5 million previously included in other non-current liabilities and accrued and other current liabilities, pertaining to its office and laboratory space operating leases.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which requires the measurement of expected credit losses for financial instruments carried at amortized cost, such as accounts receivable, held at the reporting date based on historical experience, current conditions and reasonable forecasts.

The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financing Instruments-Credit Losses , which included an amendment of the effective date for nonpublic entities.

For non-emerging growth companies, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019.

For emerging growth companies, ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The Company adopted this pronouncement on January 1, 2023 and the impact of the provisions of this standard on its Consolidated Financial Statements is expected to be immaterial.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible

Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

Specifically, ASU 2020-06 simplifies accounting for the issuance of convertible instruments by removing major separation models required under current GAAP.

In addition, the ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share (EPS) calculation in certain areas.

ASU 2020-06 will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

Early adoption is permitted, beginning in fiscal years which begin after December 15, 2020, including interim periods within those fiscal years.

The FASB has specified that an entity should adopt the guidance as of the beginning of its annual fiscal year.

The amendment is to be adopted through either a modified retrospective or fully retrospective method of transition.

The Company is currently evaluating the potential impact that the adoption of ASU 2020-06 may have on its consolidated financial statements and related disclosures.

Other Financial Information

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Depreciation and amortization expense for the years ended December 31, 2022 and 2021, was approximately $ 1.6 million and $ 0.9 million, respectively.

At December 31, 2021 and December 31, 2020, the gross book value of assets under capital lease was $ 2.5 million and $ 1.2 million, respectively, and is classified in "Laboratory equipment" in the table above.

At December 31, 2021, $ 1.5 million relates to leasehold improvements in connection

with the conversion of the Company's warehouse space into additional clinical laboratory space and research and development facility space, which is expected to be placed in service in calendar year 2022.

At December 31, 2022 and 2021, the gross book value of assets under finance leases was $ 2.8 million and $ 2.5 million, respectively, and is classified in "Laboratory equipment" in the table above.

Impairment of Long-Lived Assets and Goodwill

During the year ended December 31, 2022, the Company recorded an impairment charge of $ 0.4 million related to previously capitalized equipment used in research and development activities that were halted in the fourth quarter of 2022.

The Company based the fair values of these assets on their anticipated disposal values, which is considered a Level 3 measurement.

The impairment charge was classified within research and development expenses in the accompanying statements of operations.

The Company determined that the sustained decrease in its market capitalization constituted an indicator of impairment and as a result, instead of performing a qualitative test, the Company chose to proceed directly to performing a quantitative test during the fourth quarter.

The Company determined the fair value of the reporting unit using the discounted cash flow (DCF) method, which is considered a Level 3 measurement.

In applying the DCF

method, cash flows are estimated for a five-year financial forecast developed by management.

A terminal value, which represents the value of additional cash flows into perpetuity, is also calculated.

Cash flows are then discounted to present value at a discount rate commensurate with their risk.

Based on this analysis, the carrying value of the reporting unit was in excess of the fair value and the goodwill was fully impaired.

During the year ended December 31, 2022, the Company recorded an impairment charge of $ 5.5 million.

The following table presents details of the Company's goodwill for the year ended December 31, 2022 (in thousands):

Balance as of December 31, 2021 $ 5,506

Goodwill impairment ( 5,506 )

Balance as of December 31, 2022 $ —

Accrued and Other Current Liabilities

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Accrued clinical study activity 162 254

Capital lease obligations, current portion 587 308

Finance lease obligations, current portion 700 587

Refund liability 445 —

Other accrued liabilities 226 1,108

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2017 Term Loan

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.

The 2017 Term Loan was subsequently amended in November 2019 and November 2021.

In September 2017, the Company executed a term loan agreement (the 2017 Term Loan) with Innovatus Life Sciences Lending Fund I, LP (Innovatus), as amended, pursuant to which the Company has borrowed $ 25 million.

At December 31, 2022, no additional amounts remain available to borrow under the 2017 Term Loan.

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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, 2021 and 2020, the Company issued PIK Loans totaling $ 0.5 million.

For the years ended December 31, 2022 and 2021, the Company issued PIK Loans totaling $ 0.6 million and $ 0.5 million, respectively.

The 2017 Loan Amendment requires a prepayment premium of 2 % of the aggregate outstanding principal.

The prepayment premium decreases by 1 % on November 1, 2022, 2023 and 2024.

The prepayment premium decreases by 1 % on each of November 1, 2023 and 2024.

The 2017 Loan Amendment is collateralized by a first priority security interest in substantially all of the Company's assets, including intellectual property.

The affirmative covenants of the 2017 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, 2022.

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 affirmative covenants require that the Company achieve a specified level of revenue, as measured quarterly on a rolling twelve-month basis, commencing with the quarter ending December 31, 2022.

The 2017 Loan Amendment requires that the Company maintain certain levels of minimum liquidity and maintains an unrestricted cash balance of $ 2.0 million.

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Accordingly, the Company has reflected the amounts of the 2017 Loan Amendment due beyond twelve months of the balance sheet date as non-current.

2022 Equipment Notes Payable

In May 2022, the Company purchased laboratory equipment using notes payable.

At December 31, 2022, the total notes payable balance related to this financed equipment was $ 0.8 million, with $ 0.2 million classified within borrowings-current portion and $ 0.6 million within borrowings-non-current portion, net of discounts and debt issuance costs in the accompanying balance sheets.

The financed equipment is subject to a 5.28 % effective interest rate and will mature on October 1, 2026.

Future Minimum Payments on the Outstanding Borrowings

As of December 31, 2021, future minimum aggregate payments, including interest, for outstanding borrowings under the Loan Amendment are as follows (in thousands):

As of December 31, 2022, future minimum aggregate payments, including interest, for outstanding borrowings are as follows (in thousands):

Years Ending December 31,

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Total borrowings, net of discounts and debt issuance costs 28,968

Borrowings-current portion ( 190 )

Borrowings-non-current portion, net of discounts and debt issuance costs $ 28,778

Commitments and Contingencies

As of December 31, 2021, the Company leases office and laboratory space in Vista, California, under leases that expire in April 2027, with an option to extend a portion of the lease for an additional 5-year period.

The Company also leases additional office space in Vista, California, under a lease that expires in April 2027 with an option to extend the lease for an additional 5-year period.

The Company adopted ASC 842, Leases , as of January 1, 2022.

Prior period amounts have not been adjusted and continue to be reported in accordance with the Company's historic accounting under ASC 840, Leases .

Operating Leases

The Company leases office and laboratory spaces in Vista, California, under leases that expire in April 2027, with an option to extend portions of the leases for additional 5-year periods.

The Company has not included the optional renewal periods in the measurement of the lease liabilities because it is not reasonably certain that the Company will exercise these renewal options.

The Company's lease payments under each of these leases are subject to escalation clauses.

In addition, effective on August 23, 2021, the Company entered into a sub-lease agreement for an additional office space in Carlsbad, California.

The sub-lease commended in October 2021 and expires in April 2027.

Minimum annual lease payments under non-cancelable lease arrangements at December 31, 2021 are as follows (in thousands):

Years Ending December 31,

Capital Leases Operating Leases

Effective on August 23, 2021, the Company entered into a sub-lease agreement for an additional office space in Carlsbad, California.

The sub-lease commenced in October 2021 and expires in April 2027.

The sub-lease agreement provides for monthly base rent of $ 66,021 which began on October 1, 2021, and such amount increases by approximately 3 % annually beginning October 1, 2022.

The Company determines if a contract contains a lease at inception or modification of a contract.

The Company discounts their lease obligations using its incremental borrowing rate at the commencement date.

The incremental borrowing rate is the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment.

The Company primarily considers industry data, its credit rating and the lease term to determine its incremental borrowing rate.

Finance Leases

The Company has entered into various finance lease agreements to obtain laboratory equipment.

The terms of the Company's finance leases generally range from three to five years and are typically secured by the underlying equipment.

The portion of the future payments designated as principal repayments were classified as finance lease liabilities on the Company's balance sheet.

Operating and Finance Leases Balances and Costs

Operating and finance leases consist of the following (in thousands):

Lease Balance Classification December 31, 2022

Operating Operating lease right-of-use assets $ 4,885

Finance Property and equipment, net $ 1,427

Lease Liabilities

Operating Operating lease liabilities $ 1,040

Finance Accrued and other current liabilities $ 700

Operating Non-current operating lease liabilities $ 4,493

Finance Other non-current liabilities $ 848

Costs associated with the Company's leases were included in the statements of operations as follows (in thousands):

Lease Cost Year Ended December 31, 2022

Operating leases

Operating lease cost (1)

Finance lease cost

Amortization of lease assets 679

Interest on finance lease liabilities 80

Total lease cost $ 2,299

(1) Includes variable lease cost of $ 165,000 for the year ended December 31, 2022.

Supplemental cash flow information on leases is as follows (in thousands):

Cash paid for amounts included in the measurement of lease liabilities Year Ended December 31, 2022

Operating cash out flows from operating leases $ 1,262

Operating cash out flows from interest paid on finance leases $ 80

Financing cash out flows from finance leases $ 667

Information regarding the weighted-average lease term and weighted average discount rate are as follows:

December 31, 2022

Weighted-average remaining lease term (years)

Operating leases 4.3

Finance leases 1.94

Weighted-average discount rate

Operating leases 8.0 %

Finance leases 4.8 %

Future payments under operating and finance leases as of December 31, 2022 are as follows (in thousands):

Operating Leases Finance Leases

2023 $ 1,446 $ 828

4 unchanged sentences

Total minimum lease payments 6,591 1,826

amount representing interest ( 116 )

Present value of future minimum lease payments 1,470

imputed interest ( 1,058 ) ( 278 )

Total lease liabilities 5,533 1,548

current portion ( 1,040 ) ( 700 )

Long-term capital lease obligations $ 883

For the years ended December 31, 2021 and 2020, rent expense was $ 0.9 million and $ 0.6 million, respectively.

Lease obligations, net of current portion $ 4,493 $ 848

Disclosures Under ASC 840

Minimum annual lease payments under non-cancelable operating lease arrangements as of December 31, 2021 are as follows (in thousands):

Years Ending December 31,

Operating Leases

Thereafter 539

Total minimum lease payments $ 7,927

For the year ended December 31, 2021, rent expense was $ 0.9 million.

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.

One such license agreement, the license agreement, dated September 13, 2007, between the Company and Prometheus Laboratories, Inc.

(the Prometheus License), was terminated by mutual agreement on September 28, 2021.

In consideration for terminating the Prometheus License, including with respect to the remaining potential milestone payments thereunder, the Company agreed to pay Prometheus Laboratories, Inc.

a fee of approximately $ 0.1 million and acquired the intellectual property previously licensed to the Company pursuant to the Prometheus Agreement.

The Company has ongoing royalty payment obligations of 2.5 % on net sales of products which incorporate certain acquired technologies.

Future royalties payable under these arrangements are limited to the lesser of (i) an aggregate of $ 1.2 million (including an upfront payment of $ 100,000 ) and (ii) the total royalties earned through January 1, 2024.

In connection with the acquisition of the medical diagnostics division of Royalty Pharma Collection Trust (Royalty Pharma) (formerly known as 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, for which the obligations no longer exist at December 31, 2022.

In addition, the Company has ongoing royalty payment obligations with Royalty Pharma of 2.5 % on net sales of products which incorporate certain acquired technologies.

Future royalties payable under these arrangements are limited to the lesser of (i) an aggregate of $ 1.2 million (including an upfront payment of $ 0.1 million) and (ii) 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 ranging from 1.5 % to 7.0 % on net sales of products which incorporate licensed technology, as defined in such agreements.

In addition to the milestone payments required by these agreements, individual license agreements generally provide for ongoing royalty payments ranging from 1.5 % to 7.0 % on net sales of products which incorporate licensed technology, as defined in such agreements.

Royalties are accrued when earned and recorded in costs of revenue in the accompanying statement of operations.

In May 2021, the Company entered into an exclusive license agreement with Allegheny Health Network Research Institute, or AHN, to obtain an exclusive license to AHN's patent rights in certain inventions, pursuant to which the Company paid AHN an initial license fee of $ 0.4 million.

In May 2021, the Company entered into an exclusive license agreement with Allegheny Health Network Research Institute (AHN) to obtain an exclusive license to AHN's patent rights in certain inventions, pursuant to which the Company paid AHN an initial license fee of $ 0.4 million.

In addition, under the terms of the exclusive license agreement, the Company is required to pay the greater of royalties in the low single digits on net sales of diagnostic tests using the assigned patents or a flat annual minimum royalty amount, pending approvals and commercialization.

In November 2021, the Company entered into an exclusive license agreement with Queen Mary University of London, or QMUL, to obtain an exclusive license to QMUL's patent rights in certain inventions, pursuant to which the Company is required to pay QMUL an initial license fee of $ 0.4 million.

In November 2021, the Company entered into an exclusive license agreement with Queen Mary University of London (QMUL) to obtain an exclusive license to QMUL's patent rights in certain inventions, pursuant to which the Company paid QMUL an initial license fee of $ 0.4 million.

The Company is obligated to make a one-time payment of $ 0.1 million relating to the first commercial sale of the licensed products.

In addition, after the first 18 months of commercial sales under the terms of the exclusive license agreement, the Company is required to

pay royalties in the high single-digits on net sales of testing products using the assigned patents, pending approvals and commercialization.

In addition, after the first 18 months of commercial sales under the terms of the exclusive license agreement, the Company is required to pay royalties in the high single-digits on net sales of testing products using the assigned patents, pending approvals and commercialization.

Supply Agreement

In December 2021, the Company entered into an amended supply agreement with one supplier for reagents which includes minimum annual purchase commitments of $ 3.7 million and $ 6.0 million for the years ended December 31, 2021 and 2022, respectively, with a 15 % annual increase thereafter for unconditional minimum purchase commitments through the year ended December 31, 2025.

In December 2021, the Company entered into an amended supply agreement with one supplier for reagents which includes minimum annual purchase commitments of $ 6.0 million and $ 6.9 million for the years ended December 31, 2022 and 2023, respectively, with a 15 % annual increase thereafter for unconditional minimum purchase commitments through the year ending December 31, 2025.

Collaboration Obligations

4 unchanged sentences

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.

including for subpoenas and other civil investigative demands, from governmental agencies, Medicare or Medicaid 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 that the Company believes to be immaterial.

1 unchanged sentence

From time to time, the Company may be subject to various legal proceedings that arise in the ordinary course of business activities.

The Company does not believe the outcome of any such matters will have a material effect on its financial position or results of operations.

Fair Value Measurements

The carrying value of the Company's cash, cash equivalents and restricted cash, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued and other current liabilities approximate their fair values due to their short-term nature, which are determined to be a Level 1 measurement.

The estimated fair values of the Company's long-term borrowings are determined by Level 2 inputs and are based primarily on quoted market prices for the same or similar issues.

As of December 31, 2022, the 2017 Term Loan had a carrying value of $ 28.3 million and a fair value of $ 26.9 million.

The estimated fair value of the 2017 Term Loan, which uses Level 2 fair value inputs, was determined based on a discounted cash flow approach using available market information on discount and borrowing rates with similar terms, maturities, and credit ratings.

The recorded value of the Company's long-term borrowings as of December 31, 2021 approximated their fair values as the interest rate and other terms were that which were available to the Company at the time.

See footnote 3 for discussion of recorded impairment charges related to long-lived assets and goodwill.

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 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.

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):

2 unchanged sentences

Money market funds, included in cash and cash equivalents $ 29,438 $ 29,438 $ — $ —

Certificate of deposit, included in cash and cash equivalents 30,100 30,100 — —

Total $ 59,538 $ 59,538 $ — $ —

December 31, 2021

3 unchanged sentences

Stockholders' Equity

Shelf Registration Statement

On November 10, 2020, the Company filed a registration statement on Form S-3 (the Shelf Registration Statement), covering the offering, from time to time, of up to $ 150.0 million of common stock, preferred stock, debt securities, warrants and units, which Shelf Registration Statement became effective on November 19, 2020.

2 unchanged sentences

The shares were registered pursuant to the Company's Shelf Registration Statement discussed above.

At The Market Sales Agreement

On September 15, 2022, the Company entered into a sales agreement (the Sales Agreement) with Cowen and Company, LLC, as sales agent, pursuant to which the Company may offer and sell, from time to time, shares of Company common stock having an aggregate offering price of up to $ 50.0 million.

The Company is not obligated to sell any shares of Company common stock in the offering.

As of December 31, 2022, the Company has not sold any shares of its common stock pursuant to the Sales Agreement .

Exchange Agreement

14 unchanged sentences

Common stock warrants (Exchange Warrants) 804,951 0.001 June 22, 2021 None

During the year ended December 31, 2021, warrants to purchase common stock were exercised resulting in the issuance of 17,719 shares of the Company's common stock and cash proceeds of an immaterial amount.

During the year ended December 31, 2022, no warrants to purchase common stock were exercised.

Stock Option Plan

2 unchanged sentences

Under the 2019 Plan, which expires in September 2029, 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 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 or, for grants to new hires, date of hire.

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.

(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, 2022, 1,452,435 shares remained available for future awards.

26 unchanged sentences

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 $ 11.63 and $ 13.20 per share at December 31, 2021 and 2020, respectively.

The fair value of the Company's common stock was $ 2.40 and $ 11.63 per share at December 31, 2022 and 2021, respectively.

The intrinsic value of options exercised for the years ended December 31, 2022 and 2021 was $ 0.6 million and $ 0.1 million, respectively.

5 unchanged sentences

Outstanding, December 31, 2021

415,325 $ 16.54 $ 4,830

Awards granted 1,076,725 $ 5.89

4 unchanged sentences

As of December 31, 2022, all of the outstanding restricted stock units are unvested.

The fair value of restricted stock units vested in the year ended December 31, 2022 was $ 0.7 million.

No restricted stock units vested in the year ended December 31, 2021.

The weighted average grant date fair value for restricted stock units granted during the years ended December 31, 2022 and 2021 was $ 5.89 and $ 16.53 , respectively.

As of December 31, 2022, total unrecognized compensation cost related to restricted stock units was $ 6.0 million, which is expected to be recognized over a remaining weighted-average vesting period of 3.3 years.

1 unchanged sentence

Stock Options

The fair value of employee stock options was estimated using the following assumptions to determine the fair value of stock options granted:

Years Ended December 31,

The fair value of employee stock options was estimated using the following assumptions in the Black-Scholes options pricing model to determine the fair value of stock options granted:

Year Ended December 31,

Expected volatility 54 %

4 unchanged sentences

The following assumptions were used to calculate the stock-based compensation for each stock purchase right granted under the ESPP:

Years Ended December 31,

Year Ended December 31,

Expected volatility 45 %- 57 %

58.0 %- 83.0 %

Risk-free interest rate 0.6 %- 3.3 %

1 unchanged sentence

Expected term (in years) 0.5 0.5

Stock-based compensation expense related to the ESPP for the years ended December 31, 2021 and 2020 was $ 0.2 million and less than $ 0.1 million, respectively.

Stock-based compensation expense related to the ESPP for the years ended December 31, 2022 and 2021 was less than $ 0.1 million and $ 0.2 million, respectively.

As of December 31, 2022, total unrecognized compensation cost related to stock purchase rights granted under the ESPP was less than $ 0.1 million, which is expected to be recognized over a remaining weighted-average vesting period of 0.2 years.

Total non-cash stock-based compensation expense recorded related to options granted, restricted stock units granted and stock purchase rights granted under the ESPP in the statement of operations is as follows (in thousands):

Years Ended December 31,

Year Ended December 31,

Cost of revenue $ 213 $ 164

10 unchanged sentences

The provision for income taxes consists of the following (in thousands):

Years Ended December 31,

Year Ended December 31,

Federal $ — $ —

1 unchanged sentence

Federal ( 137 ) 137

State ( 169 ) 11

Total deferred ( 306 ) 148

1 unchanged sentence

The effective tax rate of our provision for income taxes differs from the federal statutory rate as follows:

Years Ended December 31,

Year Ended December 31,

Federal statutory tax rate ( 21.0 ) % ( 21.0 ) %

4 unchanged sentences

Change in valuation allowance 23.9 % 24.6 %

Other — % 0.2 %

Effective tax rate ( 0.6 ) % 0.6 %

Significant components of the Company’s deferred tax assets at December 31, 2021 and 2020 are shown below.

Significant components of the Company’s deferred tax assets at December 31, 2022 and 2021 are shown below (in thousands).

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).

Deferred tax assets:

3 unchanged sentences

Interest expense 2,236 1,953

Basis differences in fixed and intangible assets — 117

Indefinite lived assets 362 —

Stock compensation 1,606 1,407

Lease liability 1,374 —

Capitalization of research and experimentation costs 2,047 —

Total gross deferred tax assets 39,979 27,882

4 unchanged sentences

Indefinite lived assets — ( 521 )

Right of use assets ( 1,206 ) —

Basis differences in fixed and intangible assets ( 206 ) ( 175 )

1 unchanged sentence

Net deferred tax liabilities $ — $ ( 307 )

Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2021 and 2020, which related primarily to increases in net operating loss (NOL) carryforwards, accrued revenue and accruals and reserves were as follows (in thousands):

Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2022 and 2021, which related primarily to increases in net operating loss (NOL) carryforwards, research and development tax credits, capitalization of research and experimentation costs, and impairment of goodwill were as follows (in thousands):

Valuation allowance at the beginning of the year $ 27,158 $ 20,596

Decreases recorded as benefits to income tax provision — —

Increases recorded to income tax provision 11,409 6,562

7 unchanged sentences

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 NOL 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 is subject to taxation in the United States and in various state jurisdictions.

The Company’s tax years for 2003 and forward are subject to examination by the U.S.

1 unchanged sentence

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.

The Company does not have any material accruals for, and did not recognize any, material interest or penalties in these financial statements in any period presented.

Uncertain Tax Positions

4 unchanged sentences

Additionally, the Company may elect to make contributions into the savings plan at its sole discretion.

For each of the years ended December 31, 2021 and 2020, the Company made contributions to the Plan at 3 % of qualified employee compensation, which totaled approximately $ 0.5 million.

Effective January 1, 2022, the Company will make contributions to the Plan at 4 % of qualified employee compensation.

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 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 or treat COVID-19, including, the success of ongoing vaccination efforts, the emergence and prevalence of variant strains of COVID-19, the institution or reinstitution of shutdowns, "stay-at-home-orders" and other public health measures as well as the related economic impact of these matters on local, regional and international markets.

On March 27, 2020, the 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.

The CARES Act did not have a material impact on the Company's effective tax rate or income tax provision for the year ended December 31, 2020.

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.

The release of valuation allowance resulted in a discrete tax benefit of $ 0.1 million for the year ended December 31, 2020.

As of the year ended December 31, 2021, some tax benefits under the CARES Act have expired including the ability to use certain NOLs to offset 100% of taxable income.

Accordingly, the Company increased its valuation allowance that resulted in a tax expense of $ 0.1 million for the year ended December 31, 2021.

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 been met.

The Company accepted the terms and conditions of the grant in May 2020.

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 and as an operating activity in the statement of cash flows.

On April 16, 2020, the Company entered into a promissory note (the Note) with BOKF, NA dba Bank of Oklahoma (BofO), 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 Note.

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.

The Consolidated Appropriations Act, 2021 did not have a material impact on the Company's financial statements.

Index to Exhibits

Incorporated by Reference

Exhibit Number Exhibit Description Form File No.

Exhibit Exhibit Filing Date Filed/Furnished Herewith

3.1 Amended and Restated Certificate of Incorporation.

8-K 001-39049 3.1 9/23/2019

3.2 Amended and Restated Bylaws.

8-K 001-39049 3.1 3/22/2021

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 Company and certain of its stockholders.

S-1/A 333-233446 4.2 9/9/2019

4.3 Amended and Restated Stockholders' Agreement, dated July 12, 2019, by and among the Company and certain of its stockholders.

S-1/A 333-233446 4.3 9/9/2019

4.4 Form of Common Stock Purchase Warrant issued to investors by the Company in connection with private placement financings.

S-1/A 333-233446 4.4 9/9/2019

4.5 Form of Common Stock Purchase Warrant to purchase common stock issued to investors by the Company in 2016.

S-1/A 333-233446 4.8 9/9/2019

4.6 Form of Warrant to Purchase Stock issued to Innovatus Life Sciences Lending Fund I, LP in connection with the Company's 2018 loan agreement.

S-1/A 333-233446 4.9 9/9/2019

4.7 Form of Exchange Warrant .

10-Q 001-39049 4.5 8/9/2021

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.

10-K 001-39049 10.5 3/16/2021

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 Company (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 Company (as successor in interest to Cypress Bioscience, Inc.).

S-1/A 333-233446 10.7 9/9/2019

10.9 Letter Agreement, dated September 28, 2021, by and between the Company and Prometheus Laboratories Inc.

10-Q 001-39049 10.6 11/10/2021

10.10† Asset Purchase Agreement, dated October 8, 2010, by and between Cypress Bioscience, Inc., Proprius, Inc.

and the Company.

S-1/A 333-233446 10.11 9/9/2019

10.11† Amendment No.

One to Asset Purchase Agreement, dated March 10, 2011, by and between Cypress Bioscience, Inc., Proprius, Inc.

and the Company.

S-1/A 333-233446 10.12 9/9/2019

10.12 Amendment No.

Two to Asset Purchase Agreement, dated August 21, 2012, by and between Royalty Pharma Collection Trust, Proprius, Inc.

and the Company.

S-1/A 333-233446 10.13 9/9/2019

10.13† Amendment No.

Three to Asset Purchase Agreement, dated February 6, 2013, by and between Royalty Pharma Collection Trust, Proprius, Inc.

and the Company.

S-1/A 333-233446 10.14 9/9/2019

10.14 Amendment No.

Four to Asset Purchase Agreement, dated October 8, 2013, by and between Royalty Pharma Collection Trust, Proprius, Inc.

and the Company.

S-1/A 333-233446 10.15 9/9/2019

10.15 Amendment No.

Five to Asset Purchase Agreement, dated January 26, 2016, by and between Royalty Pharma Collection Trust, Proprius, Inc.

and the Company.

S-1/A 333-233446 10.16 9/9/2019

10.16† Amendment No.

Six to Asset Purchase Agreement, dated February 16, 2017, by and between Royalty Pharma Collection Trust, Proprius, Inc.

and the Company.

S-1/A 333-233446 10.17 9/9/2019

10.17† 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 Company.

S-1/A 333-233446 10.18 9/9/2019

S-1/A 333-233446 10.19 9/9/2019

S-1/A 333-233446 10.20 9/9/2019

S-1/A 333-233446 10.21 9/9/2019

10.21† Exclusive License Agreement, dated September 30, 2013, by and between the University of Pittsburgh-Of the Commonwealth System of Higher Education and the Company.

S-1/A 333-233446 10.22 9/9/2019

10.22† Exclusive License Agreement, dated September 5, 2011, by and between Thierry Dervieux, Ph.D.

and the Company.

S-1/A 333-233446 10.23 9/9/2019

10.23† Co-Promotion Agreement, dated December 10, 2018, by and between Janssen Biotech, Inc.

and the Company.

S-1/A 333-233446 10.24 9/9/2019

10.24† Amendment #1 to Co-Promotion Agreement, dated January 1, 2019 by and between Janssen Biotech, Inc.

and the Company.

10-Q 001-39049 10.1 7/28/2020

10.25† Amendment #2 to Co-Promotion Agreement, dated June 18, 2020 by and between Janssen Biotech, Inc.

and the Company.

10-Q 001-39049 10.2 7/28/2020

10.26† Amendment #3 to Co-Promotion Agreement, dated December 23, 2020 by and between Janssen Biotech, Inc.

and the Company.

10-K 001-39049 10.25 3/16/2021

10.27† Amendment #4 to Co-Promotion Agreement, dated June 30, 2021 by and between Janssen Biotech, Inc.

and the Company.

10-Q 001-39049 10.1 8/9/2021

10.28 Standard Industrial/Commercial Multi-Tenant Lease, dated January 13, 2012, by and between RGS Properties and the Company.

10-Q 001-39049 10.1 7/28/2020

10.29 First Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated December 1, 2013, by and between RGS Properties and the Company.

10-Q 001-39049 10.2 7/28/2020

10.30 Second Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated April 29, 2016, by and between RGS Properties and the Company.

10-K 001-39049 10.27 3/25/2020

10.31 Third Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated June 16, 2017, by and between RGS Properties and the Company.

10-K 001-39049 10.28 3/25/2020

10.32 Fourth Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated March 16, 2020, by and between RGS Properties and the Company.

10-K 001-39049 10.29 3/25/2020

10.33 Fifth Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated October 19, 2021, by and between RGS Properties and the Company.

10-Q 001-39049 10.3 11/10/2021

10.34 Standard Industrial/Commercial Single-Tenant Lease, dated September 4, 2014, by and between Geiger Court, LLC and the Company.

S-1/A 333-233446 10.31 9/9/2019

10.35 First Amendment to Standard Industrial/Commercial Single-Tenant Lease, dated August 2, 2017, by and between Geiger Court, LLC and the Company.

10-K 001-39049 10.31 3/25/2020

10.36 Extension of Lease to Standard Industrial/Commercial Single-Tenant Lease, dated March 12, 2020, by and between Liberty Vista and the Company.

10-K 001-39049 10.32 3/25/2020

10.37 First Amendment to Standard Industrial/Commercial Single-Tenant Lease, dated January 6, 2021, by and between Liberty Vista and the Company.

10-K 001-39049 10.34 3/16/2021

10.38 Second Amendment to Standard Industrial/Commercial Single-Tenant Lease, dated October 11, 2021, by and between Liberty Vista and the Company.

10-Q 001-39049 10.2 11/10/2021

10.39 Standard Industrial/Commercial Multi-Tenant Lease, dated March 17, 2020 by and between RGS Properties and the Company.

10-K 001-39049 10.33 3/25/2020

10.40 First Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated October 19, 2021, by and between RGS Properties and the Company.

10-Q 001-39049 10.4 11/10/2021

10.41† Sublease Agreement, dated August 19, 2021, by and between Plum Healthcare Group, LLC and the Company.

10-Q 001-39049 10.1 11/10/2021

10.42 Master Lease Agreement, dated February 1, 2018, by and between Celtic Commercial Finance, a division of MB Equipment Finance, LLC and the Company.

S-1/A 333-233446 10.32 9/9/2019

10.43 Loan and Security Agreement, dated September 7, 2017, by and between Innovatus Life Sciences Lending Fund I, LP and the Company.

S-1/A 333-233446 10.33 9/9/2019

10.44 First Amendment to Loan and Security Agreement, dated November 19, 2019, by and between Innovatus Life Sciences Lending I, LP and the Company.

10-K 001-39049 10.36 3/25/2020

10.45 Acknowledgement Letter to Loan and Security Agreement, dated October 7, 2020, by and between Innovatus Life Sciences Lending Fund I, LP and the Company.

10-Q 001-39049 10.1 11/10/2020

10.46 Second Amendment to Loan and Security Agreement, dated November 1, 2021, by and among Innovatus Life Sciences Lending Fund I, LP, other lenders and the Company.

10-Q 001-39049 10.5 11/10/2021

10.47# Offer Letter, dated October 12, 2010, by and between Thierry Dervieux, Ph.D.

and the Company, as amended on September 9, 2011 and September 6, 2019.

S-1/A 333-233446 10.34 9/9/2019

10.48 Form of Indemnification Agreement for Directors and Officers.

S-1/A 333-233446 10.35 9/9/2019

10.49# Offer Letter, dated October 7, 2011, by and between Fortunato Ron Rocca and the Company, as amended on September 4, 2019.

S-1/A 333-233446 10.36 9/9/2019

10.50# Offer Letter, dated May 16, 2017, by and between Kamal Adawi and the Company, as amended on September 4, 2019.

S-1/A 333-233446 10.37 9/9/2019

10.51# Offer Letter dated February 21, 2020, by and between Debra Zack, MD Ph.D.

and the Company.

10-K 001-39049 10.41 3/25/2020

10.52# Non-Employee Director Compensation Program.

S-1/A 333-233446 10.38 9/9/2019

10.53# Executive Change in Control Severance Plan.

10-K 001-39049 10.46 3/16/2021

23.1 Consent of Independent Registered Public Accounting Firm.

24.1 Power of Attorney (included on signature page).

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.

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.

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.

101.SCH XBRL Taxonomy Extension Schema Document.

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.

104 The cover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2021, has been formatted in Inline XBRL.

# Indicates management contract or compensatory plan.

† Portions of this exhibit (indicated by asterisks) have been omitted for confidentiality purposes.

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.

March 22, 2022

/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.

Signature Title Date

/s/ Fortunato Ron Rocca President, Chief Executive Officer and Director March 22, 2022

Fortunato Ron Rocca (Principal Executive Officer)

/s/ Kamal Adawi Chief Financial Officer and Corporate Secretary March 22, 2022

Kamal Adawi (Principal Financial and Accounting Officer)

/s/ Brian Birk Chairman of the Board of Directors March 22, 2022

/s/ Ana Hooker Director March 22, 2022

Johnson Director March 22, 2022

Director March 22, 2022

/s/ Ebetuel Pallares, Ph.D.

Director March 22, 2022

Ebetuel Pallares, Ph.D.

Robertson, Ph.D.

Director March 22, 2022

Robertson, Ph.D.

/s/ Frank Stokes Director March 22, 2022

/s/ James L.L.

Tullis Director March 22, 2022

For the years ended December 31, 2022 and 2021, the Company made contributions to the Plan at 4 % and 3 % of qualified employee compensation, respectively.

For the years ended December 31, 2022 and 2021, these contributions totaled approximately $ 0.9 million and $ 0.5 million, respectively.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures