EXAGEN INC. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our 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, and that the information we are required to disclose in such reports is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. 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, 2024, our disclosure controls and procedures were effective at a reasonable level of assurance. Management's Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. 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. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 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, 2024, 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 (2013) . Based on this assessment, our management concluded that, as of December 31, 2024, our internal control over financial reporting was effective. 81 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, 2024 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. 82 Item 9B. Other Information. Rule 10b5-1 trading arrangements During the twelve months ended December 31, 2024, none of our directors or officers adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408 of Regulation S-K. Insider Trading Policy We maintain an Insider Trading Policy that, among other things, prohibits all officers, directors, and other employees with access to sensitive Company information from engaging in “hedging” transactions with respect to our shares. This includes short sales, hedging of share ownership positions, and transactions involving derivative securities relating to our shares. The Insider Trading Policy also generally prohibits borrowing or other arrangements involving the non-recourse pledge of our shares. This policy is included as Exhibit 19 to this Annual Report. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 83 Part III Item 10. Directors, Executive Officers and Corporate Governance. The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report. Item 11. Executive Compensation. The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report. Item 14. Principal Accountant Fees and Services. Our independent registered public accounting firm is BDO USA, P.C., San Diego, California, PCAOB ID # 243 . The information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report. 84 Part IV Item 15. Exhibits and Financial Statement Schedules. Financial Statements and Financial Statement Schedules (1) Exhibits A list of exhibits is set forth on the Exhibit Index immediately preceding the signature page of this Annual Report and is incorporated herein by reference. (2) All financial statements The financial statements of Exagen Inc., together with the report thereon of BDO USA, P.C., an independent registered public accounting firm, are included in this Annual Report beginning on page F-2. (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. Item 16. Form 10-K Summary. None. 85 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 Amendment to 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 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 4.3 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 4.4 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 4.5 Form of Exchange Warrant. 10-Q 001-39049 4.5 8/9/2021 4.6 Description of Securities . 10-K 001-39049 4.8 3/18/2024 10.1# 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 10.2# Exagen Inc. 2019 Incentive Award Plan. S-1/A 333-233446 10.3 9/9/2019 10.3# Form of Option Agreement under Exagen Inc. 2019 Incentive Award Plan. S-1/A 333-233446 10.4 9/9/2019 10.4# Form of Restricted Stock Unit Agreement under Exagen Inc. 2019 Incentive Award Plan. 10-K 001-39049 10.5 3/16/2021 10.5# Exagen Inc. 2019 Employee Stock Purchase Plan. S-1/A 333-233446 10.5 9/9/2019 10.6† 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 10.7† 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 10.8 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 10.9†^ 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 10.10 Amendment No. Four to Asset Purchase Agreement and Consent , 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 10.11 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 10.12† 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 86 10.13† 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 10.14† 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 10.15† 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 10.16 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 10.17† 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 10.18† 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 10.19 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 10.20 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 10.21 Second A ddendum 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 10.22 Third A ddendum 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 10.23 Fourth A ddendum 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 10.24 Fifth A ddendum 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 10.25 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 10.26 First A ddendum 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 10.27 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 10.28 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 87 10.29 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 10.30 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 10.31 First A ddendum 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 10.32† 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 10.33 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 10.34 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 10.35 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 10.36 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 10.37 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 10.38 Form of Indemnification Agreement for Directors and Officers. S-1/A 333-233446 10.35 9/9/2019 10.39# Non-Employee Director Compensation Program. S-1/A 333-233446 10.38 9/9/2019 10.40# Exagen Inc. Amended and Restated Executive Change in Control and Severance Plan. 10-Q 001-39049 10.3 8/5/2024 10.41# 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 10.42# Employment Agreement, dated as of September 1, 2024, by and between the Company and Jeff Black. 8-K 001-39049 10.1 8/2/2024 10.43 Sales Agreement, dated as of September 15, 2022, by and between the Company and TD Securities (USA) LLC 8-K 001-39049 1.1 9/15/2022 10.44^ Third Amendment to Loan and Security Agreement dated April 28, 2023, by and among Innovatus Life Sciences Lending I, LP, other lenders and the Company. 8-K 001-39049 10.1 5/4/2023 10.45 Fourth Amendment to Loan and Security Agreement, dated April 12, 2024, by and among Innovatus Life Sciences Lending I, LP, other lenders, and the Company. 10-Q 001-39049 10.1 5/13/2024 10.46 Assignment and Assumption Agreement, by and among Liberty Vista, L.P., Mindera Corporation and the Company. 10-Q 001-39049 10.1 11/13/2023 10.47 Consulting Agreement, dated as of December 6, 2023, by and between the Company and Mark Hazeltine. 8-K 001-39049 10.1 12/11/2023 19 Insider Trading Policies and Procedures. X 23.1 Consent of Independent Registered Public Accounting Firm. X 88 24.1 Power of Attorney (included on signature page). X 31.1 Certificate of Principal Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 31.2 Certificate of Principal Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. X 32.1* Certifications Pursuant to U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002. X 97.1# Exagen Inc. Clawback Policy. 10-Q 001-39049 10.2 11/13/2023 101.SCH XBRL Taxonomy Extension Schema Document. X 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. X 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. X 101.LAB XBRL Taxonomy Extension Labels Linkbase Document. X 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. X 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. X * This certification is deemed not filed for purpose of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. # Indicates management contract or compensatory plan. † Portions of this exhibit (indicated by asterisks) have been omitted for confidentiality purposes. ^ Certain schedules to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. Copies of the omitted schedules will be furnished to the SEC upon request. 89 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. EXAGEN INC. Date: March 11, 2025 by: /s/ John Aballi 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 Jeffrey G. Black 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 11, 2025 John Aballi (Principal Executive Officer) /s/ Jeffrey G. Black Chief Financial Officer and Corporate Secretary March 11, 2025 Jeffrey G. Black (Principal Financial and Accounting Officer) /s/ Tina S. Nova, Ph.D. Executive Chairman of the Board March 11, 2025 Tina S. Nova, Ph.D. /s/ Ana Hooker Director March 11, 2025 Ana Hooker /s/ Scott Kahn, Ph.D. Director March 11, 2025 Scott Kahn, Ph.D. /s/ Paul Kim Director March 11, 2025 Paul Kim /s/ Bruce C. Robertson, Ph.D. Director March 11, 2025 Bruce C. Robertson, Ph.D. /s/ Frank Stokes Director March 11, 2025 Frank Stokes 90 Exagen Inc. Index to Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID No. 243) F- 2 Balance Sheets as of December 31, 202 4 and 202 3 F- 4 Statements of Operations for the Years Ended December 31, 202 4 and 20 23 F- 5 Statements of Stockholders' Equity for the Years Ended December 31, 202 4 and 202 3 F- 6 Statements of Cash Flows for the Years Ended December 31, 202 4 and 202 3 F- 7 Notes to Financial Statements F- 8 F-1 Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Exagen Inc. Vista, California Opinion on the Financial Statements We have audited the accompanying balance sheets of Exagen Inc. (the "Company”) as of December 31, 2024 and 2023, the related statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition – Estimation of Transaction Price As described in Note 2 to the financial statements, the Company’s revenue was $55.6 million for the year ended December 31, 2024, substantially all of which has been derived from sales of its testing products. Net revenues recognized consist of amounts billed net of allowances for differences between amounts billed and the estimated consideration the Company expects to receive from payors. The process for estimating revenues involves significant judgment and estimation. The Company considers historical denial and collection experience and insurance reimbursement policies and other factors, to estimate allowances and implicit price concessions. The transaction price is estimated using an expected value method on a portfolio basis. The Company's portfolios are grouped per payor (i.e., each individual commercial payor, Medicare, Medicaid, client payors, patient self-pay, etc.) and per test. We identified the estimation of the transaction price using an expected value method for certain portfolios as a critical audit matter. Significant judgment is used in considering historical denial and collection experience and insurance reimbursement policies to determine the estimated consideration the Company expects to receive. F-2 Auditing these elements involved especially subjective auditor judgment due to the nature and extent of audit effort required to address these matters. The primary procedures we performed to address this critical audit matter included: • Testing the Company’s process to estimate transaction price using an expected value method for certain portfolios by evaluating the reasonableness of the Company’s assumptions regarding historical denial and collection experience and insurance reimbursement policies by developing an expectation of those assumptions using historical data inputs. • Testing the completeness and accuracy of a sample of tests used by management as data inputs in their analysis to monitor historical denial and collection experience and insurance reimbursement policies by comparing the data to physician test requisition forms, evidence of test delivery and cash collection activity. /s/ BDO USA, P.C. We have served as the Company’s auditor since 2017. San Diego, California March 11, 2025 F-3 Exagen Inc. Balance Sheets (in thousands, except share and per share data) December 31, 2024 2023 Assets Current assets: Cash and cash equivalents $ 22,036 $ 36,493 Accounts receivable, net 7,835 6,551 Prepaid expenses and other current assets 6,584 4,797 Total current assets 36,455 47,841 Property and equipment, net 5,283 5,201 Operating lease right-of-use assets 2,401 3,286 Other assets 550 616 Total assets $ 44,689 $ 56,944 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 4,137 $ 3,131 Operating lease liabilities 1,096 976 Borrowings-current portion 423 264 Accrued and other current liabilities 7,850 7,531 Total current liabilities 13,506 11,902 Borrowings-non-current portion, net of discounts and debt issuance costs 19,822 19,231 Non-current operating lease liabilities 1,664 2,760 Other non-current liabilities 157 357 Total liabilities 35,149 34,250 Commitments and contingencies (Note 6) Stockholders' equity: Preferred stock, $ 0.001 par value per share; 10,000,000 shares authorized, no shares issued or outstanding at December 31, 2024 and December 31, 2023 — — Common stock, $ 0.001 par value per share; 200,000,000 shares authorized at December 31, 2024 and December 31, 2023; 17,640,328 and 17,045,954 shares issued and outstanding at December 31, 2024 and December 31, 2023, respectively 18 17 Additional paid-in capital 303,853 301,893 Accumulated deficit ( 294,331 ) ( 279,216 ) Total stockholders' equity 9,540 22,694 Total liabilities and stockholders' equity $ 44,689 $ 56,944 The accompanying notes are an integral part of these financial statements F-4 Exagen Inc. Statements of Operations (in thousands, except share and per share data) Year Ended December 31, 2024 2023 Revenue $ 55,641 $ 52,548 Costs of revenue 22,529 23,092 Gross margin 33,112 29,456 Operating expenses: Selling, general and administrative expenses 41,373 47,428 Research and development expenses 5,375 4,865 Total operating expenses 46,748 52,293 Loss from operations ( 13,636 ) ( 22,837 ) Interest expense ( 2,234 ) ( 2,335 ) Interest income 767 1,516 Loss before income taxes ( 15,103 ) ( 23,656 ) Income tax expense ( 12 ) ( 33 ) Net loss $ ( 15,115 ) $ ( 23,689 ) Net loss per share, basic and diluted (Note 2) $ ( 0.83 ) $ ( 1.34 ) Weighted-average number of shares used to compute net loss per share, basic and diluted (Note 2) 18,203,044 17,679,467 The accompanying notes are an integral part of these financial statements F-5 Exagen Inc. Statements of Stockholders' Equity (in thousands, except share amounts) Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders' Equity Shares Amount Balances at December 31, 2022 16,549,984 $ 17 $ 297,970 $ ( 255,527 ) $ 42,460 Issuance of stock from vested restricted stock units 273,042 — — — — Exercise of stock options 93,335 — 27 — 27 Issuance of stock under Employee Stock Purchase Plan 129,593 — 279 — 279 Stock-based compensation — — 3,617 — 3,617 Net loss — — — ( 23,689 ) ( 23,689 ) Balances at December 31, 2023 17,045,954 17 301,893 ( 279,216 ) 22,694 Issuance of stock from vested restricted stock units 413,202 — — — — Exercise of stock options 85,124 — 22 — 22 Issuance of stock under Employee Stock Purchase Plan 96,048 1 175 — 176 Stock-based compensation — — 1,763 — 1,763 Net loss — — — ( 15,115 ) ( 15,115 ) Balances at December 31, 2024 17,640,328 $ 18 $ 303,853 $ ( 294,331 ) $ 9,540 The accompanying notes are an integral part of these financial statements F-6 Exagen Inc. Statements of Cash Flows (in thousands) Year Ended December 31, 2024 2023 Cash flows from operating activities: Net loss $ ( 15,115 ) $ ( 23,689 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,724 2,168 Amortization of debt discount and debt issuance costs 154 156 Non-cash interest expense 276 363 Loss on disposal of assets 111 189 Loss on lease assignment — 1,470 Non-cash lease expense 884 939 Stock-based compensation 1,763 3,617 Changes in assets and liabilities: Accounts receivable, net ( 1,284 ) ( 474 ) Prepaid expenses and other current assets ( 1,787 ) ( 654 ) Other assets 63 ( 101 ) Operating lease liabilities ( 976 ) ( 1,010 ) Accounts payable 308 67 Accrued and other current liabilities 600 2,497 Net cash used in operating activities ( 13,279 ) ( 14,462 ) Cash flows from investing activities: Purchases of property and equipment ( 515 ) ( 828 ) Proceeds from disposal of property and equipment — 24 Net cash used in investing activities ( 515 ) ( 804 ) Cash flows from financing activities: Proceeds from exercise of stock options 22 27 Proceeds from common stock issued under Employee Stock Purchase Plan 176 279 Principal payment on finance lease obligations ( 490 ) ( 697 ) Principal payment on note payable obligations ( 371 ) ( 241 ) Principal payment on long-term debt — ( 10,000 ) Net cash used in financing activities ( 663 ) ( 10,632 ) Net change in cash, cash equivalents and restricted cash ( 14,457 ) ( 25,898 ) Cash, cash equivalents and restricted cash, beginning of year 36,693 62,591 Cash, cash equivalents and restricted cash, end of year $ 22,236 $ 36,693 Supplemental disclosure of cash flow information: Cash paid for interest expense $ 1,719 $ 1,737 Supplemental disclosure of non-cash items: Equipment purchased under notes payable obligations $ 706 $ 250 Costs incurred, but not paid, in connection with capital expenditures $ 717 $ 66 The accompanying notes are an integral part of these financial statements F-7 Exagen Inc. Notes to Financial Statements Note 1. Organization Description of Business Exagen Inc. (the Company) is a medical technology company primarily focused on the design, development and commercialization of a next-generation portfolio of testing products under our AVISE ® brand, which allow for the differential diagnosis, prognosis and monitoring of complex rheumatic, autoimmune and autoimmune-related disease including, among others, systemic lupus erythematosus (SLE) and rheumatoid arthritis (RA). Liquidity The Company has incurred recurring losses and negative cash flows from operating activities since inception. The Company anticipates that it will continue to incur net losses in future periods. At December 31, 2024, the Company had cash and cash equivalents of $ 22.0 million and had an accumulated deficit of $ 294.3 million. 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. To execute its business plans, the Company may need additional funding to support its continuing operations and pursue its growth strategy. Until such time as the Company can achieve significant cash flows from operations, if ever, it may need to finance its operations through the sale of its stock, debt financings or other strategic transactions. Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all. The terms of any financing may adversely affect the holdings or the rights of the Company's stockholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its programs, product portfolio expansion plans or commercialization efforts, which could have a material adverse effect on the Company's business, operating results and financial condition and the Company's ability to achieve its intended business objectives. Note 2. Summary of Significant Accounting Policies Basis of Presentation and Use of Estimates The Company's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of the accompanying financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates. Significant estimates and assumptions made in the accompanying financial statements include, but are not limited to revenue recognition, the estimated incremental borrowing rate for the determination of the Company's operating lease right-of-use (ROU) assets and the recoverability of its long-lived assets and net deferred tax assets (and related valuation allowance). The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates. Concentration of Credit Risk and Other Risk and Uncertainties Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents and accounts receivable. Substantially all the Company's cash and cash equivalents are held at one financial institution that management believes is of high credit quality. Such deposits may, at times, exceed federally insured limits. The Company has not experienced any losses on its 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, F-8 revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable are as follows: Revenue Year Ended December 31, 2024 2023 Medicare 25 % 34 % Medicare Advantage 20 % 17 % United Healthcare 10 % * * Less than 10%. Accounts Receivable December 31, 2024 2023 Medicare Advantage 25 % 16 % Medicare 13 % 42 % For the years ended December 31, 2024 and 2023, approximately 91 % and 88 %, respectively, of the Company's revenue was related to the AVISE ® CTD test. The Company is dependent on key suppliers for certain laboratory materials. For the year ended December 31, 2024, approximately 71 % and 26 % of the Company's diagnostic testing supplies were purchased from two suppliers, respectively. For the year ended December 31, 2023, approximately 66 % and 30 % of the Company's diagnostic testing supplies were purchased from two suppliers, respectively. An interruption in the supply of these materials would impact the Company's ability to perform testing services. Disaggregation of Revenue The following table includes the Company's revenues as disaggregated by payor and customer category (in thousands): Year Ended December 31, 2024 2023 Revenue: Commercial $ 29,600 $ 23,985 Government 14,323 18,002 Client(1) 11,360 9,949 Other(2) 358 612 Total revenue $ 55,641 $ 52,548 (1) Includes hospitals, other laboratories, etc. (2) Includes patient self-pay. Cash, Cash Equivalents and Restricted Cash The Company considers all highly-liquid investments purchased with a remaining maturity date of three months or less upon acquisition to be cash equivalents. These investments 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 certificate of deposit with this financial institution in the amount of $ 0.2 million as collateral for the balances borrowed on these cards. The Company has classified the value of this certificate of deposit (including all interest earned thereon) within other assets in the accompanying balance sheets. The Company has the right to terminate the credit card program at any time. Upon termination of the credit card program and repayment of all outstanding balances owed, the Company may redeem the certificate of deposit (and all interest earned thereon). F-9 Cash, cash equivalents and restricted cash presented in the accompanying statements of cash flows consist of the following (in thousands): December 31, 2024 2023 Cash and cash equivalents $ 22,036 $ 36,493 Restricted cash 200 200 $ 22,236 $ 36,693 Property and Equipment Property and equipment are stated at cost, net of depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally between three and five years . Leasehold improvements are amortized on a straight-line basis over the lesser of the estimated useful life or the remaining term of the related lease. Maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and 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 and operating lease assets. The Company amortizes 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, the Company combines its long-lived assets into groupings, a determination which is made principally on the basis of whether the assets are specific to a particular test offered or technology being developed. If the Company identifies a change in the circumstances related to its long-lived assets that indicates the carrying value of any such asset may not be recoverable, the Company will perform an impairment analysis. A long-lived asset 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. Leases The Company categorizes leases at their commencement as either operating or finance leases. 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. 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 in a similar economic environment, an amount equal to the total lease payments. The Company primarily considers industry data, its credit rating and the lease term to determine its incremental borrowing rate. 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 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. F-10 Revenue Recognition Substantially all of the Company's revenue has been derived from sales of its testing products and is primarily comprised of a high volume of relatively low-dollar transactions. The Company primarily markets its testing products to rheumatologists and their physician assistants in the United States. The healthcare professionals who order the Company's testing products and to whom test results are reported are generally not responsible for payment for these products. The parties that pay for these services (each, a payor) consist of commercial payors (healthcare insurers), government payors (primarily Medicare and Medicaid), client payors (hospitals, other laboratories, etc.) and patient self-pay. The Company recognizes revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers and follows a five-step process to determine the amount and timing of revenue recognized: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to performance obligations in the contract, and (5) recognize revenue when (or as) the performance obligation is satisfied. The Company's service is a single performance obligation that is completed upon the delivery of test results to the prescribing physician which triggers revenue recognition. Payors are generally billed at the Company's list price, unless a separate pricing contract is in place. Net revenues recognized consist of amounts billed net of allowances for differences between amounts billed and the estimated consideration the Company expects to receive from such payors. The process for estimating revenues and the ultimate collection of accounts receivable involves significant judgment and estimation. The Company follows a standard process, which considers historical denial and collection experience, insurance reimbursement policies and other factors, to estimate allowances and implicit price concessions. Adjustments are recorded in the current period as changes in estimates occur. Further adjustments to the allowances, based on actual receipts, are recorded upon settlement. Included in revenues for the years ended December 31, 2024 and 2023 were net revenue increases of $ 6.6 million and $ 3.4 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 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, along with any requested medical or other claims-related information to the healthcare insurers. This generally occurs within 30 to 90 days of billing, however, the amount and timing of any reimbursements or collections for the Company's billed tests may vary by payor and other circumstances. Contracts do not contain significant financing components based on the typical period of time between performance of services and collection of consideration. Accounts Receivable and Allowance for Credit Losses We accrue an allowance for credit losses against our accounts receivable based on management’s current estimate of amounts that will not be collected. Management’s estimates are typically based on historical loss information adjusted for current conditions. We generally do not perform evaluations of the financial condition of our customers and generally do not require collateral. The allowance for credit losses was zero as of each of December 31, 2024 and 2023. Adjustments for implicit price concessions attributable to variable consideration, as discussed above, are incorporated into the measurement of the accounts receivable balances and are not part of the allowance for credit losses. Accounts receivable was $ 7.8 million, $ 6.6 million, and $ 6.1 million for the years ended December 31, 2024, 2023 and 2022, respectively. Research and Development Costs associated with research and development activities are expensed as incurred and include, but are not limited to, personnel-related expenses, including stock-based compensation expense; materials; laboratory F-11 supplies; consulting costs; costs associated with setting up and conducting clinical studies; depreciation; amortization and allocated overhead, including rent and utilities. Advertising and Marketing Costs Costs associated with advertising and marketing activities are expensed as incurred. Total advertising and marketing costs were approximately $ 1.4 million and $ 1.5 million for the years ended December 31, 2024 and 2023, respectively, and are included in selling, general and administrative expenses in the accompanying statements of operations. Shipping and Handling Costs Costs incurred for shipping and handling are included in costs of revenue in the accompanying statements of operations and were approximately $ 3.1 million and $ 2.5 million for the years ended December 31, 2024 and 2023, respectively. 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. Equity award forfeitures are recorded as they occur. The fair value of each restricted stock unit (RSU) is determined on the grant date using the closing price of the Company's common stock on that date. The Company's RSUs 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 the RSU is subject to the holder's continued service with the Company. The Company issues new shares of common stock to satisfy the RSUs upon vesting. Comprehensive Loss Comprehensive loss is defined as a change in equity of a business enterprise during a period, resulting from transactions from nonowner sources. There have been no items qualifying as other comprehensive loss and, therefore, for all periods presented, the Company's comprehensive loss was the same as its reported net loss. Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized as an expense in the period that includes the enactment date. The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would adjust the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company records uncertain tax positions on the basis of a two-step process whereby (i) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability. Net Loss Per Share Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common stock outstanding during the period. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common F-12 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 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, stock options, RSUs outstanding under the Company's 2019 Incentive Award Plan (the 2019 Plan) and shares of the Company's common stock pursuant to the Exagen Inc. 2019 Employee Stock Purchase Plan (ESPP). For each of the years ended December 31, 2024 and 2023, 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): Year Ended December 31, 2024 2023 Warrants to purchase common stock 325,330 409,108 Common stock options 489,296 986,819 Restricted stock units 1,710,373 1,387,459 Employee stock purchase plan 57,461 44,700 Total 2,582,460 2,828,086 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. Unless otherwise discussed, Accounting Standards Updates (ASU) not included in the Company’s disclosures were assessed and determined to be either not applicable or are not expected to have a material impact on the Company’s financial statements or disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which requires additional income tax disclosures in the rate reconciliation table for federal, state and foreign income taxes, in addition to more details about the reconciling items in some categories when items meet a certain quantitative threshold. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 with early adoption permitted. This update will result in enhanced income tax disclosures, and the Company does not expect any impact to income tax expense. In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) (“ASU 2024-03”). This update requires entities to include more detailed information about the types of expenses, including purchases of inventory, employee compensation, depreciation, amortization, and depletion, in commonly presented expense captions such as cost of sales, research and development, and selling, general and administrative expenses. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, with early adoption permitted. The company is currently evaluating the impact of this standard on its financial statement presentation and disclosures. Recently Adopted Accounting Standards In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires public entities to disclose significant segment expenses that are regularly provided to the Chief Operating Decision Maker (CODM) and details of how the CODM uses financial reporting to assess the performance of a segment. The Company adopted this pronouncement in 2024 and retrospectively to all prior periods using the significant segment expense categories identified. The impact of the adoption of the amendments in this update was not material to the Company’s financial position and results of operations, as the requirements impact only segment reporting disclosures in the footnotes to the Company’s financial statements. Note 3. Other Financial Information Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following (in thousands): F-13 December 31, 2024 2023 Diagnostic testing supplies $ 5,725 $ 2,871 Other prepaid expenses and other current assets 859 1,926 Prepaid expenses and other current assets $ 6,584 $ 4,797 Property and Equipment, net Property and equipment consist of the following (in thousands): December 31, 2024 2023 Furniture and fixtures $ 105 $ 98 Laboratory equipment 4,248 5,312 Computer equipment and software 2,113 2,185 Leasehold improvements 3,286 3,316 Construction in progress 1,543 59 Total property and equipment 11,295 10,970 Less: accumulated depreciation and amortization ( 6,012 ) ( 5,769 ) Property and equipment, net $ 5,283 $ 5,201 Depreciation and amortization expense for the years ended December 31, 2024 and 2023, was approximately $ 1.7 million and $ 2.2 million, respectively. At December 31, 2024 and 2023, the gross book value of assets under finance leases was $ 2.0 million and $ 2.5 million, respectively. Loss on Lease Assignment On October 24, 2023, the Company entered into an assignment and assumption (the Assignment and Assumption Agreement) of the Company’s previously executed lease agreement with Liberty Vista, LP (formerly known as Geiger Court, LLC) and Mindera Corporation (Mindera), pursuant to which the Company assigned to Mindera the lease of a building located adjacent to the Company's headquarters in Vista, CA. Under the terms of the Assignment and Assumption Agreement, Mindera assumed all obligations under the lease, effective October 31, 2023. As a result of the lease assignment, the Company derecognized the remaining balances related to the associated operating lease ROU asset of $ 0.7 million, operating lease liability of $ 0.8 million and leasehold improvements of $ 1.6 million, resulting in a $ 1.5 million loss on lease assignment. The loss was classified within selling, general and administrative expenses in the accompanying statements of operations. Accrued and Other Current Liabilities Accrued and other current liabilities consist of the following (in thousands): December 31, 2024 2023 Accrued payroll and related expenses $ 5,046 $ 4,738 Other accrued liabilities 2,804 2,793 Accrued and other current liabilities $ 7,850 $ 7,531 Note 4. Borrowings 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), as amended (the Amended Loan Agreement), pursuant to which the Company borrowed $ 25.0 million. At December 31, 2024, no additional amounts remained available to borrow under the Amended Loan Agreement. On April 28, 2023, the Company entered into the Amended Loan Agreement. The Amended Loan Agreement was treated as a modification. In connection with the Amended Loan Agreement, the Company repaid $ 10.0 million of F-14 the principal balance outstanding, for which the prepayment premium was waived. Pursuant to the Amended Loan Agreement, the interest rate on all borrowings under the Amended Loan Agreement is the sum (the Basic Rate) of (a) the greater of 8.0 % or The Wall Street Journal prime rate (the Prime Rate), plus (b) 2.0 %, which is paid-in-kind in the form of additional term loans (PIK Loans). Under the Amended Loan Agreement, an amount equal to 1.5 % of the Basic Rate will be payable in-kind and capitalized to the principal amount of the outstanding term loan on a monthly basis until April 1, 2026, after which interest is scheduled to accrue at the Basic Rate. The maturity date of the loan was extended to December 31, 2026. The Company estimated the effective interest rate of this loan to be approximately 10.6 % and 11.0 % as of December 31, 2024 and 2023, respectively. Accrued interest is due and payable monthly, unless the Company elects to pay paid-in-kind interest. The outstanding principal and accrued interest under the Amended Loan Agreement is to be repaid in ten equal monthly installments commencing in April 2026. Upon repayment of the final installment under the Amended Loan Agreement, the Company is required to pay an additional fee of $ 1.0 million. This obligation is being accreted into interest expense over the term of the loan using the effective interest method. For the years ended December 31, 2024 and 2023, the Company issued PIK Loans totaling $ 0.3 million and $ 0.4 million, respectively. At December 31, 2024, $ 18.5 million in principal and PIK loans are outstanding, all of which is included in borrowings-non-current portion on the accompanying balance sheet. The Amended Loan Agreement is collateralized by a first priority security interest in substantially all of the Company's assets, including intellectual property. The affirmative covenants of the Amended Loan Agreement 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, however the Company is not required to comply with the revenue covenant for any quarter during which it maintains a minimum aggregate cash balance equal to fifty percent of the aggregate principal amount of the Amended Loan Agreement (excluding any capitalized interest paid-in-kind) at all times during such quarter. The consequences of failing to achieve the performance covenants, when applicable, will be cured if, (i) within thirty days of failing to achieve the performance covenant, the Company submits a new financial plan approved by the Company's board of directors (the Board) to Innovatus under which the Company is expected to break even on a cash flow basis prior to the maturity date, and (ii) within thirty days of the submission of such financial plan, the Company issues additional equity securities or subordinated debt with net proceeds sufficient to fund any cash flow deficiency generated from operations, as defined in the Amended Loan Agreement. The Amended Loan Agreement requires that the Company maintain certain levels of minimum liquidity and maintains an unrestricted cash balance of $ 2.0 million. The negative covenants provide, among other things, that without the prior consent of Innovatus, subject to certain exceptions, the Company may not dispose of certain assets, engage in certain business combinations or acquisitions, incur additional indebtedness or encumber any of the Company's property, pay dividends on the Company's capital stock or make prohibited investments. The Amended Loan Agreement provides that an event of default will occur if, among other triggers, (i) the Company defaults in the payment of any amount payable under the agreement when due, (ii) there occurs any circumstance(s) that could reasonably be expected to result in a material adverse effect on the Company's business, operations or condition, or on the Company's ability to perform its obligations under the agreement, (iii) the Company becomes insolvent, (iv) the Company undergoes a change in control or (v) the Company breaches any negative covenants or certain affirmative covenants in the agreement or, subject to a cure period, otherwise neglects to perform or observe any material item in the agreement. At December 31, 2024, the Company was in compliance with all covenants of the Amended Loan Agreement. Upon an event of default in any of the Amended Loan Agreement covenants, the repayment of the 2017 Term Loan may be accelerated, and the applicable interest rate will be increased by 4.0 % until the default is cured. Although repayment of the 2017 Term Loan can be accelerated under certain circumstances, the Company believes acceleration of this loan is not probable as of the date of these financial statements. Accordingly, the Company has reflected the amounts of the Amended Loan Agreement due beyond twelve months of the balance sheet date as non-current. Equipment Notes Payable The Company has purchased laboratory equipment in the normal course of business using notes payable. At December 31, 2024, the total notes payable balance related to the financed equipment was $ 1.1 million, with F-15 $ 0.4 million classified within borrowings-current portion and $ 0.7 million within borrowings-non-current portion, net of discounts and debt issuance costs in the accompanying balance sheets. At December 31, 2023, the total notes payable balance related to this financed equipment was $ 0.8 million, with $ 0.3 million classified within borrowings-current portion and $ 0.5 million within borrowings-non-current portion, net of discounts and debt issuance costs in the accompanying balance sheets. The financed equipment is subject to effective interest rates between 5.28 % and 10.50 %, and will mature between October 1, 2026 and April 1, 2028. Future Minimum Payments on Outstanding Borrowings As of December 31, 2024, future minimum aggregate payments, including interest, for outstanding borrowings are as follows (in thousands): Years Ending December 31, 2025 $ 2,076 2026 21,400 2027 215 2028 67 Total 23,758 Less: Unamortized debt discount and issuance costs ( 70 ) Interest ( 3,443 ) Total borrowings, net of discounts and debt issuance costs 20,245 Less: Borrowings-current portion ( 423 ) Borrowings-non-current portion, net of discounts and debt issuance costs $ 19,822 Note 5. Leases Leases Operating Leases The Company leases office and laboratory space located in Vista, California. The lease expires in April 2027, with an option to extend portions of the lease for additional 5-year periods. The Company has not included the optional renewal periods in the measurement of the lease liability, because it is not reasonably certain that the Company will exercise these renewal options. The Company's payments under the lease are subject to escalation clauses. The Company leases additional office space in Carlsbad, California, under a sublease which commenced in October 2021 and expires in April 2027. Monthly base rent under the sublease agreement is $ 72,143 . The monthly base rent increases by approximately 3 % annually, each October 1, through the remainder of the lease term. 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): F-16 December 31, Lease Balance Classification 2024 2023 Lease Assets Operating Operating lease right-of-use assets $ 2,401 $ 3,286 Finance Property and equipment, net $ 486 $ 810 Lease Liabilities Current Operating Operating lease liabilities $ 1,096 $ 976 Finance Accrued and other current liabilities $ 201 $ 490 Non-current Operating Non-current operating lease liabilities $ 1,664 $ 2,760 Finance Other non-current liabilities $ 157 $ 358 Costs associated with the Company's leases were included in the statements of operations as follows (in thousands): Year Ended December 31, Lease Cost 2024 2023 Operating leases Operating lease cost (1) $ 1,345 $ 1,463 Finance lease cost Amortization of lease assets 280 556 Interest on finance lease liabilities 84 128 Total lease cost $ 1,709 $ 2,147 (1) Includes variable lease cost of $ 196,000 and $ 129,000 for the years ended December 31, 2024 and 2023, respectively. Supplemental cash flow information on leases is as follows (in thousands): Year Ended December 31, Cash paid for amounts included in the measurement of lease liabilities 2024 2023 Operating cash out flows from operating leases $ 1,240 $ 1,405 Operating cash out flows from interest paid on finance leases $ 84 $ 128 Financing cash out flows from finance leases $ 490 $ 697 Information regarding the weighted-average lease term and weighted average discount rate are as follows: Year Ended December 31, 2024 2023 Weighted-average remaining lease term (years) Operating leases 2.3 3.3 Finance leases 1.76 2.06 Weighted-average discount rate Operating leases 8.0 % 8.0 % Finance leases 17.3 % 12.2 % Future payments under operating and finance leases as of December 31, 2024 are as follows (in thousands): F-17 Operating Leases Finance Leases 2025 $ 1,277 $ 248 2026 1,315 147 2027 445 28 Total minimum lease payments 3,037 423 Less: imputed interest ( 277 ) ( 65 ) Total lease liabilities 2,760 358 Less: current portion ( 1,096 ) ( 201 ) Lease obligations, net of current portion $ 1,664 $ 157 Note 6. Commitments and Contingencies Licensing Agreements The Company has licensed technology for use in its diagnostic tests. In addition to the milestone payments required by these agreements, individual license agreements generally provide for ongoing royalty payments ranging from 2.0 % to 7.0 % on net sales of products which incorporate licensed technology, as defined in such agreements. Royalties are accrued when incurred and recorded in costs of revenue in the accompanying statements of operations. Supply Agreements In August 2024, the Company amended a supply agreement with one supplier for reagents, which includes pricing terms and minimum purchase commitments, through December 31, 2025, for new consumable products related to the Company's launch of the Anti-RA33 IgA, Anti-RA33 IgG and Anti-RA33 IgM biomarkers. The aggregate minimum annual purchase commitment related to such agreement for the year ending December 31, 2025 is $ 10.4 million. Collaboration Obligations In May 2021, the Company entered into an exclusive license agreement with Allegheny Health Network Research Institute (AHN), pursuant to which the Company is required to pay AHN a collaboration fee of $ 0.4 million per year. Collaboration expenses under the master research collaboration agreement were $ 0.3 million for each of the years ended December 31, 2024 and 2023. Collaboration expenses under the AHN collaboration are included in research and development expenses in the accompanying statements of operations. Contingencies In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications; including 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. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. Litigation From time to time, the Company may be subject to various legal proceedings that arise in the ordinary course of business activities. The Company does not believe the outcome of any such matters as of December 31, 2024 will have a material effect on its financial position or results of operations. In October 2023, the Company resolved an investigation with the U.S. Attorney’s Office for the District of Massachusetts that was initiated by a qui tam lawsuit (the October 2023 Lawsuit). Pursuant to a settlement agreement entered into by and between the Company and the U.S. Department of Justice (the Settlement Agreement), the Company made a single lump-sum remittance to the government in the amount of $ 0.7 million, including interest, in connection with specimen processing arrangements that Exagen historically had with F-18 physicians. The U.S. Attorney’s Office dismissed this “covered conduct” in the October 2023 Lawsuit with prejudice, while non-covered conduct was dismissed without prejudice. The Department of Justice excused itself from the case in connection with the settlement. In November 2023, the complaint was unsealed by the court and served on Exagen by the relator. Exagen filed a motion to dismiss the complaint. In December 2023, the Company's insurance carrier provided reimbursement for certain defense costs the Company incurred in the October 2023 Lawsuit. In February 2024, the relator filed a motion for leave to amend the complaint. Exagen opposed this motion, and all motions are still pending. The Company cannot predict when these matters will be resolved, the outcome of these matters, or their potential impact, which may materially and adversely affect the Company's business, prospects, and financial condition. The Company intends to vigorously defend against the claims being asserted in the complaint. The Company's participation in federal healthcare programs is not affected by the Settlement Agreement. Note 7. Fair Value Measurements The carrying values 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 are determined to be a Level 1 measurement. The carrying values of these items approximate their fair values due to their short-term nature. The estimated fair value of the Company's long-term borrowings is determined by Level 2 inputs and based primarily on quoted market prices for similar issues. As of December 31, 2024, the Amended Loan Agreement had a carrying value of $ 19.1 million and a fair value of $ 19.2 million. As of December 31, 2023, the Amended Loan Agreement had a carrying value of $ 18.7 million and a fair value of $ 19.7 million. The estimated fair value of the Amended Loan Agreement 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 aggregate carrying value of the Company's other long-term borrowings as of December 31, 2024 was $ 1.1 million and approximated its fair value. 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. Techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The three-levels of the valuation hierarchy for disclosure of fair value measurements are defined 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 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and Level 3 - Unobservable inputs that are supported by little or no market activity for the related assets or liabilities. The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following table sets forth the Company's financial instruments that were measured at fair value on a recurring basis within the fair value hierarchy (in thousands): December 31, 2024 Total Level 1 Level 2 Level 3 Assets: Money market funds, included in cash and cash equivalents $ 15,144 $ 15,144 $ — $ — December 31, 2023 Total Level 1 Level 2 Level 3 Assets: Money market funds, included in cash and cash equivalents $ 14,386 $ 14,386 $ — $ — F-19 The fair value of the Company's money market funds is based on quoted market prices. Note 8. Stockholders' Equity Common Stock Shelf Registration Statement On November 17, 2023, the Company filed a registration statement on Form S-3, as amended (the 2023 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. The 2023 Shelf Registration Statement became effective on November 29, 2023, and all $ 150.0 million remain available for sale as of December 31, 2024. At The Market Sales Agreement On September 15, 2022, the Company entered into a sales agreement, as amended on November 17, 2023 (the Sales Agreement) with TD Securities (USA) 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, 2024, the Company has not sold any shares of its common stock pursuant to the Sales Agreement . Outstanding Warrants The following equity classified warrants to purchase common stock were outstanding as of December 31, 2024: Shares Exercise Price Issuance date Expiration date Common stock warrants 237,169 $ 1.84 January 19, 2016 January 19, 2026 Common stock warrants 67,086 1.84 March 31, 2016 March 31, 2026 Common stock warrants 131 1.84 April 1, 2016 April 1, 2026 Common stock warrants 20,944 14.32 December 7, 2018 December 7, 2025 Common stock warrants (Exchange Warrants) 804,951 0.001 June 22, 2021 None 1,130,281 No warrants to purchase common stock were exercised during the years ended December 31, 2024 and 2023. Note 9. Stock Option Plan 2019 Incentive Award Plan In September 2019, the Board adopted, and the Company's stockholders approved, the 2019 Plan. Under the 2019 Plan, which expires in September 2029, the Company may grant stock options, stock appreciation rights, restricted stock, RSUs 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 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. As of December 31, 2024, 2,189,228 shares of common stock remained available for future awards. Pursuant to the evergreen provision, on January 1, 2025, an additional 705,613 shares of common stock became available for issuance under the 2019 Plan. Restricted Stock Units RSU activity under the Company's 2019 Plan is set forth below: F-20 Number of Shares Weighted- Average Grant Date Fair Value Per Share Aggregate Intrinsic Value (in thousands) Outstanding, December 31, 2023 1,387,459 $ 4.24 $ 2,761 Awards granted 1,324,275 $ 2.11 Awards released ( 413,202 ) $ 4.87 Awards canceled ( 588,159 ) $ 4.11 Outstanding, December 31, 2024 1,710,373 $ 2.48 $ 7,013 As of December 31, 2024, all of the outstanding RSUs are unvested. The fair value of RSUs vested in the years ended December 31, 2024 and 2023 was $ 0.9 million and $ 0.6 million, respectively. The weighted average grant date fair value per share for RSUs granted during the years ended December 31, 2024 and 2023 was $ 2.11 and $ 2.39 , respectively. As of December 31, 2024, total unrecognized compensation cost related to RSUs was $ 3.4 million, which is expected to be recognized over a remaining weighted-average vesting period of 2.8 years. Stock Options Stock option activity under the 2019 Plan is set forth below: Number of Options Weighted- Average Exercise Price Per Share Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in thousands) Outstanding, December 31, 2023 986,819 $ 11.87 6.44 $ 228 Granted 55,500 $ 1.99 Exercised ( 85,124 ) $ 0.26 Forfeited ( 9,623 ) $ 16.70 Expired ( 458,276 ) $ 16.46 Outstanding, December 31, 2024 489,296 $ 8.39 6.53 $ 370 Vested and expected to vest, December 31, 2024 489,296 $ 8.39 6.53 $ 370 Options exercisable, December 31, 2024 468,706 $ 8.65 6.42 $ 332 The weighted-average grant date fair value per share of options granted during the years ended December 31, 2024 and 2023 was $ 1.44 and $ 2.17 , respectively. The aggregate intrinsic value of options exercised during the years ended December 31, 2024 and 2023 was $ 0.3 million and $ 0.2 million, respectively. The intrinsic value is calculated as the difference between the fair value of the Company's common stock and the exercise price of the stock options. The fair value of the Company's common stock was $ 4.10 and $ 1.99 per share at December 31, 2024 and 2023, respectively. As of December 31, 2024, total unrecognized compensation cost related to option awards was negligible. 2019 Employee Stock Purchase Plan In September 2019, the Board adopted, and the Company's stockholders approved, the ESPP. The ESPP became effective on the day the ESPP was adopted by the Board. The ESPP permits participants to purchase common stock through payroll deductions of up to 20 % of their eligible compensation. The number of shares of common stock available for issuance under the ESPP will be annually increased on the first day of each calendar year during the term of the ESPP through January 1, 2029 in an amount equal to the lesser of (i) 1% of the outstanding capital stock on each December 31st, or (ii) such lesser amount determined by the Board. During the year ended December 31, 2024, the Company issued 96,048 shares of common stock pursuant to scheduled purchases under the ESPP. As of December 31, 2024, 523,744 shares of common stock remained available for issuance. Pursuant to the evergreen provision, on January 1, 2025, an additional 176,403 shares became available for issuance under the ESPP. Stock-based compensation expense related to the ESPP for each of the years ended December 31, 2024 and 2023 was less than $ 0.1 million. As of December 31, 2024, 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. Stock-Based Compensation Expense F-21 Total non-cash stock-based compensation expense recorded related to options granted, RSUs granted and stock purchase rights granted under the ESPP in the statement of operations is as follows (in thousands): Year Ended December 31, 2024 2023 Cost of revenue $ 159 $ 191 Selling, general and administrative 1,374 3,174 Research and development 230 252 Total $ 1,763 $ 3,617 Common stock reserved for future issuance consists of the following at December 31, 2024: Warrants to purchase common stock 1,130,281 Common stock option grants issued and outstanding 489,296 Common stock reserved for issuance upon vesting of outstanding restricted stock units 1,710,373 Common stock available for grant under the 2019 Plan 2,189,228 Common stock available for future issuance under ESPP 523,744 Total 6,042,922 Note 10. Income Taxes The provision for income taxes consists of the following (in thousands): Year Ended December 31, 2024 2023 Current: Federal $ — $ — State ( 12 ) ( 33 ) Total current ( 12 ) ( 33 ) Deferred: Federal — — State — — Total deferred — — Income tax expense $ ( 12 ) $ ( 33 ) The effective tax rate of our provision for income taxes differs from the federal statutory rate as follows: Year Ended December 31, 2024 2023 Federal statutory tax rate 21.0 % 21.0 % State income taxes, net of federal tax benefits 2.2 % 2.2 % Research and development tax credits 0.1 % 0.1 % Stock compensation ( 5.9 ) % ( 3.4 ) % Non-deductible expenses ( 2.5 ) % ( 1.4 ) % Change in valuation allowance ( 15.2 ) % ( 18.5 ) % Other — % ( 0.1 ) % Effective tax rate ( 0.3 ) % ( 0.1 ) % Significant components of the Company’s deferred tax assets at December 31, 2024 and 2023 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 F-22 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). December 31, 2024 2023 Deferred tax assets: Net operating loss carryforwards $ 35,348 $ 32,479 Research and development tax credits 2,360 2,353 Accruals, reserves and other 955 1,119 Interest expense 2,785 2,547 Indefinite lived assets 276 300 Stock compensation 598 1,391 Lease liability 681 925 Capitalization of research and experimentation costs 2,942 2,929 Total gross deferred tax assets 45,945 44,043 Less: valuation allowance ( 45,237 ) ( 42,942 ) Deferred tax assets, net 708 1,101 Deferred tax liabilities: Right of use assets ( 592 ) ( 814 ) Basis differences in fixed and intangible assets ( 116 ) ( 287 ) Deferred tax liabilities ( 708 ) ( 1,101 ) Net deferred tax assets $ — $ — Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2024 and 2023, which related primarily to increases in net operating loss (NOL) carryforwards, research and development tax credits, and capitalization of research and experimentation costs were as follows (in thousands): December 31, 2024 2023 Valuation allowance at the beginning of the year $ 42,942 $ 38,567 Increases recorded to income tax provision 2,295 4,375 Valuation allowance at the end of the year $ 45,237 $ 42,942 At December 31, 2024 and 2023, the Company had federal NOL carryforwards of approximately $ 141.5 million and $ 129.8 million, respectively. At December 31, 2024 and 2023, the Company had state NOL carryforwards of $ 98.7 million and $ 91.0 million, respectively. Approximately $ 43.5 million of the federal tax loss carryforwards will begin to expire in 2025, unless previously utilized. The federal NOL carryforwards generated after December 31, 2017 of $ 98.0 million will carryforward indefinitely. The Company’s state tax loss carryforwards will begin to expire in 2030, unless previously utilized. At December 31, 2024, the Company's deferred tax assets are primarily comprised of federal and state tax NOL carryforwards. The Company completed a formal study through the year ended December 31, 2019 and determined ownership changes within the meaning of Internal Revenue Code (IRC), Section 382 had occurred in 2003, 2008, 2012, 2017 and 2019. Based on the analysis, $ 58.4 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. F-23 The Company is subject to taxation in the United States and in various state jurisdictions. The Company’s tax years for 2004 and forward are subject to examination by the U.S. and state tax authorities due to the carryforward of unutilized NOLs and research and development credits. The Company recognizes interest and/or penalties related to income tax matters in its provision for income taxes. 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 At December 31, 2024 and 2023, the Company had no unrecognized tax benefits. The Company does not believe that the balance of unrecognized tax benefits will materially change within the next twelve months. Note 11. 401(k) Plan The Company sponsors an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Code. Participating employees may defer up to the Internal Revenue Service annual contribution limit. Additionally, the Company may elect to make contributions into the savings plan at its sole discretion. For each of the years ended December 31, 2024 and 2023, the Company made contributions to the 401(k) Plan at 4 % of qualified employee compensation. For each of the years ended December 31, 2024 and 2023, these contributions totaled approximately $ 0.8 million. Note 12. Segment Reporting Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the CODM in making decisions regarding resource allocation and assessing performance. The Company operates in a single operating segment focused on the design, development and commercialization of testing products which allow for the differential diagnosis, prognosis and monitoring of complex rheumatic, autoimmune and autoimmune-related disease. Segment revenue is primarily derived from the sale of the Company’s testing products, most of which is attributable to its AVISE ® CTD test. The Company’s CODM is its Chief Executive Officer. The CODM assesses performance for the segment and decides how to allocate resources based on revenue and net loss as reported on the Statement of Operations, after taking into account the Company’s strategic priorities, its cash balance and its expected use of cash. The CODM considers budget/forecast versus actual results on a quarterly basis when making decisions about the allocation of resources. The measure of segment assets is reported on the balance sheet as total assets and were $ 44.7 million and $ 56.9 million for the years ended December 31, 2024 and 2023, respectively. Segment revenue and net loss, including significant segment expenses regularly provided to the CODM are as follows (in thousands): F-24 Year Ended December 31, 2024 2023 Revenue $ 55,641 $ 52,548 Costs of revenue 22,529 23,092 Gross margin 33,112 29,456 Segment operating expenses: Employee expense 27,753 27,070 Outside services 4,253 5,920 Facilities related 3,674 5,125 Travel & entertainment 2,440 2,469 Stock compensation 1,604 3,426 Depreciation and amortization 1,041 1,426 Other 1 5,983 6,857 Total segment operating expenses 46,748 52,293 Loss from operations ( 13,636 ) ( 22,837 ) Interest expense ( 2,234 ) ( 2,335 ) Interest income 767 1,516 Loss before income taxes ( 15,103 ) ( 23,656 ) Income tax expense ( 12 ) ( 33 ) Segment net loss $ ( 15,115 ) $ ( 23,689 ) 1 Other segment items included in Segment net loss include insurance expenses, trade show and conference expenses, fulfillment expenses, board compensation, clinical trial expenses, collaboration expenses and bank fees, among others. F-25