# iSpecimen Inc.: Form 10-Q for the period ended Mar 31, 2022

- Company: [iSpecimen Inc.](/companies/ispc.md) (CIK 1558569)
- Form: 10-Q
- Filed: 2022-05-10
- Accepted by EDGAR: May 10, 2022, 07:27 ET
- Period: 2022-03-31
- Accession: 0001558370-22-007969
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1558569/000155837022007969/ispc-20220331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1558569/000155837022007969/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-01-01 to 2022-03-31 | $2.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-01-01 to 2022-03-31 | $1.2m | us-gaap:CostOfGoodsAndServicesSold |
| Operating income | 3 months, 2022-01-01 to 2022-03-31 | −$2.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-01-01 to 2022-03-31 | $38.0k | us-gaap:InterestExpense |
| Net income | 3 months, 2022-01-01 to 2022-03-31 | −$2.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-01-01 to 2022-03-31 | −$0.27 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-01-01 to 2022-03-31 | −$0.27 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-01-01 to 2022-03-31 | 8,765,437 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2022-01-01 to 2022-03-31 | −$1.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2022-03-31 | $26.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-03-31 | $30.2m | us-gaap:AssetsCurrent |
| Total assets | at 2022-03-31 | $33.3m | us-gaap:Assets |
| Current liabilities | at 2022-03-31 | $2.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-03-31 | $5.6m | us-gaap:Liabilities |
| Long-term debt | at 2022-03-31 | $3.4m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2022-03-31 | $27.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 48,837 characters.

References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to iSpecimen Inc. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

### Special Note Regarding Forward-Looking Statements

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s annual report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 22, 2022. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

### Overview

We were incorporated in 2009 under the laws of the state of Delaware. Our mission is to accelerate life science research and development via a single global marketplace platform, the iSpecimen Marketplace, which connects researchers to subjects, specimens, and associated data. We are headquartered in Lexington, Massachusetts. We operate as one operating and reporting segment.

In addition to creating a single global platform where both specimen providers and researchers can connect, the iSpecimen Marketplace automates the process of searching for and selecting specimens for research. The platform taps into healthcare provider data to gain insights into the available samples in biobanks or laboratories, or to gain insights into the patient populations to support specimen collections directly from research subjects. The platform receives de-identified data from electronic medical records, laboratory information systems, and other healthcare data sources of available specimens and research subjects and harmonizes the data across all participating organizations.

Researchers can search this data using our intuitive web-based user interface to obtain specimens more efficiently. They can instantly find the specific specimens they need for their studies, request quotes for these specimens or for custom collections directly from research subjects, place orders, and track and manage their specimens and associated data across projects.

Biospecimen providers also gain efficiencies using the iSpecimen Marketplace, not only because the platform provides instant access to a large researcher base, but because the technology orchestrates the bioprocurement workflow from specimen request to fulfilment. Specimen providers access intuitive dashboards to view requests, create proposals, and track and manage their orders.

Finally, the platform helps with administrative and reporting functions for researchers, suppliers, and our internal personnel, including user and compliance management.

The iSpecimen Marketplace is composed of four major functional areas: search, workflow, data, and administration and reporting. We continue to invest in the evolution of these areas to improve engagement with the platform and liquidity across it. Our core business objective is to retain and grow both researcher and supplier usage of our platform to support biospecimen procurement, as well as to position the Company to explore other adjacent business opportunities that can benefit from the use of the iSpecimen Marketplace.

The iSpecimen Marketplace currently supports the supply chain management and bioprocurement process for specimens and associated data. We generate revenue by procuring various specimens from hospitals, laboratories, and other supply sites comprising our network, and delivering them to our medical research customers using our proprietary software to identify and locate the required specimens. Costs paid to acquire specimens from hospitals and laboratories generally varies depending upon the sample type, collection requirements, and data provided. We generally operate in a “just in time” fashion, meaning we procure specimens from our suppliers and distribute specimens to our customers after we obtain an order for specimens from a research client. Generally, we do not speculatively purchase and bank samples in anticipation of future, unspecified needs. We believe our approach offers many advantages over a more traditional inventory-based supplier business model where biorepositories take inventory risks, and where inventory turnover and cash conversion cycles can be lengthy.

### Impact of the COVID-19 Pandemic on Our Operations

We are subject to the risks arising from the COVID-19 outbreak’s social and economic impacts on the healthcare services industry. Our management believes that the social and economic impacts could have a significant impact on future financial condition, liquidity, and results of operations, which include but are not limited to the following: (i) restrictions on in-person activities arising from shelter-in- place, or similar isolation orders, that limit our ability to procure specimens through our supply chain; (i) decline in researcher demand for specimens; and (iii) deteriorating economic conditions, such as increased unemployment rates and recessionary conditions.

Beginning in March 2020, COVID-19 affected our supply chain’s ability to fulfill specimen requests. As healthcare providers dealt with the COVID-19 pandemic, many temporarily shuttered their research operations, including biospecimen collection capabilities, as they deployed resources to more critical parts of their organization or their employees stayed home to support social distancing measures.

In response to the COVID-19 outbreak, we implemented measures to help stabilize revenue, improve our cash position, and reduce costs. In May 2020, we applied for and received a loan in the amount of $783,008 from the Paycheck Protection Program under the CARES Act. Cost saving measures included the elimination of non-essential travel and in-person training activities, deferral of certain planned expenditures, and the furlough of 7% of our employees in August 2020.

To stabilize revenue, we added COVID-19 samples to our product line to support growing research in this area and also contracted with mobile phlebotomy service providers to more easily collect specimens from research subjects who may be practicing social distancing. We received our first request for samples from patients with a prior or current COVID-19 infection on March 18, 2020, and through March 31, 2022, we fulfilled additional COVID-19 specimen requests. Because of our large, geographically diverse network with many sites around the country and the world, we were able to respond quickly to this new demand and match requests for COVID-19 specimens to sites in areas of outbreak. As a result, during the three months ended March 31, 2022 and 2021, approximately 19%, and 20%, respectively, of our total purchase orders were related to COVID-19 specimens.

While our supply sites were mostly operational as of March 31, 2022, we expect that while the pandemic lasts, we will continue to experience slowdowns in specimen collections as the pandemic surges in various parts of the world due to social distancing on the part of research subjects, supply partner site employees, and customer research organizations. There is still considerable uncertainty around the duration of this COVID-19 outbreak and its future impact. While we implemented measures to help stabilize revenue as well as measures to reduce costs in response to the COVID-19 outbreak, given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, we expect this matter to continue to have an impact on our results of operations, financial condition, or liquidity, which cannot be reasonably estimated at this time.

### Impact of Russia’s Invasion of Ukraine on Our Operations

Our business was negatively impacted during the first quarter of 2022 by Russia’s invasion of Ukraine. At the start of the conflict, we had approximately $1 million of purchase orders that were slated to be fulfilled by our supply network in Ukraine and Russia. This supply network shut down quickly at the start of the conflict. Ukrainian suppliers were disabled due to conflict conditions and evacuations and Russian suppliers were disabled by sanctions. While we mobilized to shift these purchase orders to other suppliers in our network, the process of getting specimen collections from other supply sites took time, which has caused a delay in the fulfillment of such purchase orders.

The short and long-term implications of Russia’s invasion of Ukraine are difficult to predict at this time. Our Russian and Ukrainian suppliers may continue to be inaccessible to us throughout the conflict and we may have difficulty finding alternate suppliers with similar unit economics. Additionally, the imposition of sanctions and counter sanctions may have an adverse effect on the economic markets and could impact our business and the businesses of our supply partners and customers generally. Because of the highly uncertain and dynamic nature of these events, it is not currently possible to estimate the impact of Russia’s invasion of Ukraine on our business and the companies from which we obtain supplies and distribute specimens.

### Known Trends, Demands, Commitments, Events or Uncertainties Impacting Our Business

We are committed to investing in and developing our technology. For the first quarter of 2022 we capitalized approximately $339,000 for internally developed software and have plans to continue investing at the level for the remainder of the year. We anticipate that these investments will increase revenue opportunities and result in operational efficiencies, positively impacting our liquidity, capital resources and results of operations in the future with a less than two-year rate of return on the investment.

We continue to experience declines in our COVID-19 revenue. For the first quarter of 2022 our COVID-19 revenue was approximately $479,000 compared to approximately $682,000 for the same quarter in 2021, a $203,000, or 30%, decrease in COVID-19 revenue. We anticipate that our COVID-19 revenue will continue to decline, negatively impacting our liquidity, capital resources and results of operations at a level that is not currently determinable due to the uncertainty of the continued impact of COVID-19.

Director and officer insurance is a significant cost for us. Our current annual premium for this insurance is approximately $1.2 million. We are currently in the process of renegotiating this policy for the upcoming year. The trend in the insurance market for this type of insurance is continually rising premiums. If we are unable to effectively renegotiate this policy, we may have an increase in our annual premium, which would negatively impact our liquidity, capital resources and results of operations. This uncertainty is expected to be resolved by the end of the second quarter of 2022.

### Components of Our Results of Operations

### Revenue

We generate revenue by procuring various specimens from hospitals, laboratories, and other supply sites, for our medical research customers using our proprietary software, the iSpecimen Marketplace, to identify, locate, and ultimately validate the required specimens to our customers’ requested specifications. The Company’s performance obligation is to procure a specimen meeting the customer specification(s) from a supplier, on a “best efforts” basis, for our customer at the agreed price per specimen as indicated in the customer contract with the Company. We do not currently charge suppliers or customers for the use of our proprietary software. Each customer will execute a material and data use agreement with the Company or agrees to online purchase terms, each of which includes terms such as specimen and data use, shipment terms, payment and cancellation terms. These are then supplemented by purchase orders that specify specimen requirements including detailed inclusion/exclusion criteria, quantities to be collected, and pricing. Collectively, these customer agreements represent the Company’s contracts with its customer. Generally, contracts have fixed unit pricing. For certain specimen orders, a refundable customer deposit may be required prior to order fulfillment depending on project set-up requirements, presented as deferred revenue. The Company expects to recognize the deferred revenue within the next twelve months.

We recognize revenue over time, as we have created an asset with no alternative use and we have an enforceable right to payment for performance completed to date. At contract inception, we review a contract and related order upon receipt to determine if the specimen ordered has an alternative use to us. Generally, specimens ordered do not have an alternative future use to us and our performance obligation is satisfied when the related specimens are accessioned. We use an output method to recognize revenue for specimens with no alternative future use. The output is measured based on the number of specimens accessioned.

Customers are typically invoiced upon shipment. Depending on the quantity of specimens ordered, it may take several accounting periods to completely fulfill a purchase order. In other words, there can be multiple invoices issued for a single purchase order, reflecting the specimens being accessioned over time. However, specimens are generally shipped as soon as possible after they have been accessioned.

### Cost of Revenue

Cost of revenue primarily consists of the purchase price to acquire specimens from hospitals and laboratories, inbound and outbound shipping costs, supply costs related to samples, payment processing and related transaction costs, and costs paid to the supply sites to support sample collections. Shipping costs upon receipt of products from suppliers are recognized in cost of revenue.

Additionally, we believe that loss from operations is a more meaningful measure of profitability than gross profit due to the nature of specimens accessioned and the diversity of our pricing.

### Technology

Technology costs include payroll and related expenses for employees involved in the development and implementation of our technology, software license and system maintenance fees, outsourced data center costs, data management costs, depreciation and amortization, and other expenses necessary to support technology initiatives. Collectively, these costs reflect the efforts we make to offer a wide variety of products and services to our customers. Technology and data costs are generally expensed as incurred.

A portion of technology costs are related to research and development. Costs incurred for research and development are expensed as incurred, except for software development costs that are eligible for capitalization. Research and development costs primarily include salaries and related expenses, in addition to the cost of external service providers.

### Sales and Marketing

Sales and marketing costs primarily consist of payroll and related expenses for personnel engaged in marketing and selling activities, including salaries and sales commissions, travel expenses, public relations and social media costs, ispecimen.com website development and maintenance costs, search engine optimization fees, advertising costs, direct marketing costs, trade shows and events fees, marketing and customer relationship management software, and other marketing-related costs.

### Supply Development

We have agreements with supply partners that allow us to procure specimens from them and distribute these samples to customers. Supply development costs primarily include payroll and related expenses for personnel engaged in the development and management of this supply network, related travel expenses, regulatory compliance costs to support the network, and other supply development and management costs.

### Fulfillment

Fulfillment costs primarily consist of those costs incurred in operating and staffing operations and customer service teams, including costs attributable to assess the feasibility of specimen requests, creating and managing orders, picking, packaging, and preparing customer orders for shipment, responding to inquiries from customers, and laboratory equipment and supplies.

### General and Administrative

General and administrative expenses primarily consist of costs for corporate functions, including payroll and related expenses for human resources, legal, finance, and executive teams, associated software licenses, facilities and equipment expenses, such as depreciation and amortization expense and rent, outside legal expenses, insurance costs, and other general and administrative costs.

### Financial Operations Overview and Analysis for the Three Months Ended March 31, 2022 and 2021 (Unaudited)

### Comparison of the Three Months Ended March 31, 2022 and 2021

| ​ ​ ​ | ​ ​ ​ | ​ ​ ​ Three months ended March 31, 2022 | ​ ​ | ​ ​ 2021 | ​ ​ ​ | ​ ​ Change Dollars | ​ ​ | ​ ​ Percentage |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Revenue |  | $2,518,660 |  | $2,963,807 |  | $(445,147) |  | (15)% |
| Operating expenses: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Cost of revenue | ​ | 1,165,917 | ​ | 1,623,651 | ​ | (457,734) |  | (28)% |
| Technology | ​ | 527,522 | ​ | 409,951 | ​ | 117,571 |  | 29% |
| Sales and marketing | ​ | 747,432 | ​ | 529,387 | ​ | 218,045 |  | 41% |
| Supply development | ​ | 182,070 | ​ | 111,576 | ​ | 70,494 |  | 63% |
| Fulfillment | ​ | 443,794 | ​ | 269,096 | ​ | 174,698 |  | 65% |
| General and administrative | ​ | 1,810,313 | ​ | 962,790 | ​ | 847,523 |  | 88% |
| Total operating expenses | ​ | 4,877,048 | ​ | 3,906,451 | ​ | 970,597 |  | 25% |
| Loss from operations | ​ | (2,358,388) | ​ | (942,644) | ​ | 1,415,744 |  | 150% |
| Other income (expense), net | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Interest expense | ​ | (38,048) | ​ | (853,147) | ​ | 815,099 |  | 96% |
| Interest income | ​ | 12,654 | ​ | 47 | ​ | 12,607 |  | 100% |
| Other expense, net | ​ | ​ 40 | ​ | ​ (3,732) | ​ | ​ 3,772 | ​ | 100% |
| Loss on extinguishment of bridge notes and bridge notes, related parties | ​ | — | ​ | (2,750,171) | ​ | 2,750,171 |  | 100% |
| Gain on extinguishment of note payable | ​ | ​ — | ​ | ​ 788,156 | ​ | ​ (788,156) | ​ | 100% |
| Change in fair value of derivative liability on convertible notes | ​ | ​ — | ​ | ​ (154,000) | ​ | ​ 154,000 | ​ | 100% |
| Change in fair value of derivative liability on bridge notes and bridge notes, related parties | ​ | — | ​ | (48,000) | ​ | 48,000 |  | (100)% |
| Other expense, net | ​ | (25,354) | ​ | (3,020,847) | ​ | 2,995,493 |  | 99% |
| Net loss | ​ | $(2,383,742) | ​ | $(3,963,491) | ​ | ​ 1,579,749 |  | 40% |

### Revenue

Revenue decreased by approximately $445,000 or 15%, from approximately $2,964,000 for the three months ended March 31, 2021 to approximately $2,519,000 for the three months ended March 31, 2022. This was primarily due to the reduction in demand for COVID-19 specimens in the three months ended March 31, 2022, a shutdown in our Ukrainian and Russian supply network which impacted our ability to fulfill orders at the start of the conflict and offset by a slight increase in the average selling price of specimens overall. For the three months ended March 31, 2022 and 2021, revenue derived from specimens related to COVID-19 accounted for approximately $479,000 and $682,000 or 19% and 23%, respectively, of our total revenue. Specimens accessioned during the three months ended March 31, 2022 decreased by 1,267, or 20%, to 4,924, compared to 6,191 of specimens accessioned during the three months ended March 31, 2021. There was a change in specimen mix that resulted in an increase in the average selling price per specimen of approximately $10 or 2% compared to the same prior year's period.

### Cost of Revenue

Cost of revenue decreased by approximately $458,000, or 28%, from approximately $1,624,000 for the three months ended March 31, 2021 to approximately $1,166,000 for the three months ended March 31, 2022, which was attributable to an 11% decrease in the average cost per specimen as well as a decrease of 20% in specimens accessioned for the current period compared to the same prior year's period.

### Technology

Technology expenses increased by approximately $118,000, or 29% from approximately $410,000 for the three months ended March 31, 2021 to approximately $528,000 for the three months ended March 31, 2022. The period over period increase was related to increases in payroll and related expenses of approximately $87,000 and in depreciation and amortization of approximately $31,000.

### Sales and Marketing Expenses

Sales and marketing expenses increased approximately $218,000, or 41%, from approximately $529,000 for the three months ended March 31, 2021 to approximately $747,000 for the three months ended March 31, 2022. The period over period increase was attributable to increases in payroll and related expenses of approximately $110,000, external marketing efforts of approximately $105,000 and an increase in general operating expenses of approximately $3,000.

### Supply Development

Supply development expenses increased approximately $70,000, or 63%, from approximately $112,000 for the three months ended March 31, 2021 to approximately $182,000 for the three months ended March 31, 2022. The period over period increase was primarily attributable to increases in payroll and related expenses of approximately $74,000, partially offset by decreases in operating and regulatory compliance costs of approximately $4,000.

### Fulfillment

Fulfillment costs increased approximately $175,000, or 65%, from approximately $269,000 for the three months ended March 31, 2021 to approximately $444,000 for the three months ended March 31, 2022. The period over period increase was primarily attributable to increases in payroll and related expenses of approximately $175,000 for personnel engaged in pre-sales feasibility assessments and post-sales fulfillment activities.

### General and Administrative Expenses

General and administrative expenses increased approximately $848,000, or 88%, from approximately $963,000 for the three months ended March 31, 2021 to approximately $1,810,000 for the three months ended March 31, 2022. The period over period increase was attributable to increases in compensation costs of approximately $249,000, stock compensation of approximately $111,000, directors’ and officers’ insurance of approximately $336,000 and operating and maintenance expenses of approximately $152,000.

### Other Expense, Net

Other expense, net, decreased approximately $2,995,000, or 99%, from approximately $3,021,000 for the three months ended March 31, 2021 to approximately $25,000 for the three months ended March 31, 2022. The period over period decrease in other expense, net, was attributable to the decreases in loss on extinguishment of secured promissory notes the Company issued from 2018 to 2021 to investors and existing stockholders (the “bridge notes”) of approximately $2,750,000, interest expense of approximately $815,000, the change in fair value of derivative liabilities related to the convertible notes that the Company issued to related parties in 2017 and 2018 (the “convertible notes”), bridge notes of approximately $202,000 and an increase in interest income of approximately $16,000 offset by a gain in extinguishment of notes payable of approximately $788,000 which was recognized in the three months ended March 31, 2021.

### Liquidity and Capital Resources

*(unaudited)*

| ​ ​ ​ ​ Balance Sheet Data: | ​ ​ ​ ​ ​ | ​ ​ ​ ​ March 31, 2022 ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Dollars ​ ​ | ​ Change ​ ​ | ​ ​ ​ ​ | ​ Percentage ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | ---: | --- | --- | ---: |
| Cash | ​ | $26,099,178 | ​ | $27,738,979 | ​ | ​ | (1,639,801) | ​ | ​ | (6)% |
| Working capital | ​ | ​ 28,104,041 | ​ | ​ 30,442,955 | ​ | ​ | (2,338,914) | ​ | ​ | (8)% |
| Total assets | ​ | ​ 33,287,316 | ​ | ​ 35,719,598 | ​ | ​ | (2,432,282) | ​ | ​ | (7)% |
| Accrued interest | ​ | ​ 8,167 | ​ | ​ 8,167 | ​ | ​ | — | ​ | ​ | —% |
| Term loan, net of debt discount | ​ | ​ 3,425,664 | ​ | ​ 3,422,616 | ​ | ​ | 3,048 | ​ | ​ | —% |
| Total stockholders' equity | ​ | ​ 27,667,314 | ​ | ​ 29,791,588 | ​ | ​ | (2,124,274) | ​ | ​ | (7)% |

| ​ ​ ​ ​ Statement of Cash Flow Data: | ​ ​ ​ ​ | ​ ​ Three months ended March 31, 2022 ​ ​ ​ ​ | ​ ​ ​ | ​ ​ 2021 ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Change Dollars ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Percentage ​ ​ ​ ​ | ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- |
| Net cash flows used in operating activities | ​ | $(1,375,916) | ​ | $(126,249) | ​ | $(1,249,667) | ​ | (990)% | ​ |
| Net cash flows used in investing activities | ​ | (339,162) | ​ | (214,534) | ​ | (124,628) |  | (58)% | ​ |
| Net cash flows provided by financing activities | ​ | 75,277 | ​ | — | ​ | 75,277 |  | 100% | ​ |
| Net decrease in cash and cash equivalents | ​ | $(1,639,801) | ​ | $(340,783) | ​ | $(1,299,018) | ​ | ​ ​ | ​ |

### Capital Resources

As of March 31, 2022, our available cash totaled approximately $26,100,000, which represented a decrease of approximately $1,640,000 compared to December 31, 2021. As of March 31, 2022, we had working capital of approximately $28,100,000. Since inception, we have relied upon raising capital to finance our operations. We intend to use our existing cash to further develop our technology, grow our supply network, increase our marketing and sales presence, scale our operations, and for working capital and general corporate purposes.

We believe our cash and cash equivalents, together with anticipated cash flow from operations will be sufficient to meet our working capital, and capital expenditure requirements for at least the next 12 months. During the three months ended March 31, 2022, our revenue was negatively impacted because of a shutdown of our Ukrainian and Russian supply network at the start of the conflict, resulting in, among other things, our failure to comply with one of the financial covenants in our Term Loan with Western Alliance Bank (the "Lender"). Additionally, we are continuing to experience a reduction in COVID-19 revenue that has not been more than the offset by increases in non-COVID-19 revenue. In the event that revenue, during the next 12 months, continues to fall short of our projections or if our plans or assumptions change, including as a result of the Russia invasion of Ukraine or the impact of COVID-19 or if inflation begins to have a greater impact on our business or if we decide to move forward with any activities that require more outlays of cash than originally planned, we may need to raise additional capital sooner than expected. Our ability to obtain capital to implement our growth strategy over the longer term will depend on our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets, and other factors, many of which are beyond our control. In addition, any additional debt service requirements we take on could be based on higher interest rates and shorter maturities and could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to stockholders.

### Cash Flows

### Operating Activities

For the three months ended March 31, 2022, net cash used in operating activities was approximately $1,376,000, which consisted of a net loss of approximately $2,384,000 offset by non-cash charges of approximately $623,000, which included $266,000 related to amortization of internally developed software, $184,000 in stock-based compensation, $165,000 in bad debt expense, $5,000 related to depreciation and amortization of property and equipment, and $3,000 of amortization of discount on the Term Loan with the Lender. Total changes in assets and liabilities of approximately $385,000 were attributable to a $481,000 decrease in accounts receivable-unbilled, a $481,000 decrease in accounts receivable, a $36,000 decrease in operating lease right-of-use asset, a $31,000 decrease in prepaid expenses and other current assets and a $30,000 increase in accrued expenses partially offset by a $551,000 decrease in accounts payable and a $87,000 decrease in deferred revenue.

For the three months ended March 31, 2021, net cash used in operating activities was approximately $126,000, which consisted of a net loss of approximately $3,963,000 offset by non-cash charges of approximately $2,744,000, which included a $2,750,000 loss on extinguishment of bridge notes, $290,000 of amortization of discount on amended bridge notes, $235,000 related to amortization of internally developed software, a $202,000 loss on derivative liabilities, $22,000 in stock based compensation, $21,000 in bad debt expense, $11,000 related to depreciation and amortization of property and equipment, and $1,000 of amortization of discount and debt issuance costs on convertible notes, offset by a $788,000 gain on the extinguishment of the note payable. Total changes in assets and liabilities of approximately $1,093,000 were attributable to a $926,000 decrease in accounts receivable, a $562,000 increase in accrued interest, an increase in accrued expenses of $308,000, an increase of $299,000 in accounts payable, offset by $496,000 of due from factor, an increase in accounts-receivable unbilled of $427,000, a decrease of $69,000 in deferred revenue, and a $10,000 increase in prepaid expenses and other current assets.

### Investing Activities

Net cash used in investing activities was approximately $339,000 and $215,000 for the three months ended March 31, 2022 and 2021 respectively, which consisted of approximately $339,000 and $215,000 of capitalization of internally developed software, respectively.

### Financing Activities

Net cash provided by financing activities was approximately $75,000 and $0 for the three months ended March 31, 2022 and 2021, respectively. Net cash provided by financing activities for the three months ended March 31, 2022 consisted of approximately $75,000 in proceeds from the exercise of stock options.

### Effects of Inflation and Supply Chain Shortages

Our operations are heavily reliant on specimen availability, and as a result, we often receive more requests than we can fulfill. While the Company is subject to these types of supply chain constraints that are specific to the specimen industry, we have not been affected by the more common supply chain issues currently affecting the economy, specifically surrounding transportation. Due to the small size of the packages that we ship, our carriers were able to continue making timely deliveries during the three months ended March 31, 2022.

We have experienced negative effects of inflation in certain areas of our business due to the high rates of inflation in the world’s current economy. This inflation is affecting employee salaries, which account for a significant portion of our operating costs. Additionally, costs of supplies have been affected by inflation; however, these costs are not significant to the Company’s results.

Inflation has not had a significant impact on the cost of specimens due to our long-term contracts maintained with vendors, which include revenue sharing plans.

### Non-GAAP Financial Measure

To supplement our financial statements, which are prepared and presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), we use adjusted earnings before interest, taxes, depreciation, and amortization (“Adjusted EBITDA”), a non-GAAP financial measure, to understand and evaluate our core operating performance. This non-GAAP financial measure, which may be different than similarly titled measures used by other companies, is presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We define our non-GAAP financial measure of Adjusted EBITDA as net loss, excluding income tax benefit, change in fair value of derivative liabilities, loss on extinguishment of bridge notes and related party bridge notes, gain on extinguishment of note payable, interest expense, depreciation and amortization, and share-based compensation expense.

We believe that Adjusted EBITDA provides useful information about our financial performance, enhances the overall understanding of our past performance and future prospects, and allows for greater transparency with respect to a key metric used by our management for financial and operational decision-making. We believe that Adjusted EBITDA helps identify underlying trends in our business that otherwise could be masked by the effect of the expenses that we exclude in Adjusted EBITDA. In particular, we believe the exclusion of the change in fair value of derivative liabilities on the bridge notes and convertible notes provides a useful supplemental measure in evaluating the performance of our operations and provides better transparency into our results of operations.

We are presenting the non-GAAP measure of Adjusted EBITDA to assist investors in seeing our financial performance through the eyes of management, and because we believe this measure provides an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA compared to net loss, the closest comparable GAAP measure. Some of these limitations are that:

- Adjusted EBITDA excludes the change in fair value of the derivative liability, which represents a non-cash charge related to the change in fair value for the embedded features on the convertible notes, bridge notes, and related party bridge notes;
- Adjusted EBITDA excludes the loss on the extinguishment of bridge notes and related party bridge notes;
- Adjusted EBITDA excludes the loss on the extinguishment of convertible notes;
- Adjusted EBITDA excludes the gain on the extinguishment of note payable;
- Adjusted EBITDA excludes amortization of debt issuance costs and discounts on convertible notes which are components to interest expense;
- Adjusted EBITDA excludes certain recurring, non-cash charges such as depreciation of leasehold improvements, property and equipment and amortization of internally developed software and, although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future; and
- Adjusted EBITDA excludes share-based compensation expense which has been, and will continue to be for the foreseeable future, significant recurring expenses in our business and an important part of our compensation strategy.

The following table presents a reconciliation of Adjusted EBITDA to net loss, the most comparable GAAP financial measure, for each of the three months ended March 31:

| ​ ​ | ​ | ​ ​ 2022 | ​ | ​ ​ 2021 | ​ ​ |
| --- | --- | ---: | --- | ---: | --- |
| Net loss | ​ | $(2,383,742) | ​ | $(3,963,491) | ​ |
| Depreciation and amortization | ​ | 270,932 | ​ | 246,359 | ​ |
| Share-based compensation | ​ | 184,191 | ​ | 22,036 | ​ |
| Interest expense | ​ | 38,048 | ​ | 853,147 | ​ |
| Loss on extinguishment of bridge notes and bridge notes, related parties | ​ | — | ​ | 2,750,171 | ​ |
| Gain on extinguishment of note payable | ​ | — | ​ | (788,156) | ​ |
| Change in fair value of derivative liability on convertible notes | ​ | — | ​ | 154,000 | ​ |
| Change in fair value of derivative liability on bridge notes and bridge notes, relates parties | ​ | — | ​ | 48,000 | ​ |
| Adjusted EBITDA | ​ | $(1,890,571) | ​ | $(677,934) | ​ |

### Critical Accounting Policies

A summary of the significant accounting policies is provided in Note 2 of our unaudited condensed financial statements included in this Quarterly Report.

Discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these unaudited condensed financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue, and expenses at the date of the unaudited condensed financial statements. Generally, we base our estimates on historical experience and on various other assumptions in accordance with GAAP that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The following accounting policies involve estimates that are considered critical due to the level of subjectivity and judgment involved, as well as the impact on our financial position and results of operations.

### Internally Developed Software

We capitalize certain internal and external costs incurred during the application development stage of internal use software projects until the software is ready for its intended use. Amortization of the asset commences when the software is complete and placed into service and is recorded in operating expenses. We amortize completed internal-use software over its estimated useful life of five years on a straight-line basis. Costs incurred during the planning, training and post-implementation stages of the software development life cycle are classified as technology costs and expensed to operations as incurred. Costs that do not meet the capitalization criteria are expensed as incurred.

### Share-based Compensation

We record share-based compensation for options granted to employees, non-employees, and to members of the board of directors for their services on the board of directors based on the grant date fair value of awards issued, and the expense is recorded on a straight-line basis over the requisite service period. Forfeitures are recognized when they occur.

We use the Black-Scholes-Merton option pricing model to determine the fair value of stock options. The use of the Black-Scholes-Merton option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. We have concluded that its historical share option exercise experience does not provide a reasonable basis upon which to estimate expected term. Therefore, the expected term was determined according to the simplified method, which is the average of the vesting tranche dates and the contractual term. Due to the lack of Company-specific historical and implied volatility data, the estimate of expected volatility is primarily based on the historical volatility of a group of similar companies that are publicly traded. For these analyses, companies with comparable characteristics are selected, including enterprise value and position within the industry, and with historical share price information sufficient to meet the expected life of the share-based awards. We compute the historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of its share-based awards. The risk-free interest rate is determined by reference to U.S. Treasury zero-coupon issues with remaining maturities similar to the expected term of the options. We have not paid, and do not anticipate paying, cash dividends on shares of our common stock.

### Common Stock Valuations

For all periods prior to our initial public offering, there was no public market for our common stock, and, as a result, the fair value of the shares of common stock underlying our share-based awards was estimated on each grant date by our board of directors. To determine the fair value of our common stock underlying option grants, our board of directors considered, among other things, input from management, valuations of our common stock prepared by unrelated third-party valuation firms in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant, and factors that may have changed from the date of the most recent valuation through the date of the grant. These factors included, but were not limited to:

- our results of operations and financial position, including our levels of available capital resources;
- our stage of development and material risks related to our business;
- our business conditions and projections;
- the valuation of publicly traded companies in the life sciences and scientific research & development sectors, as well as recently completed mergers and acquisitions of peer companies;
- the lack of marketability of our common stock;
- the prices at which we sold shares of our convertible preferred stock to outside investors in arm’s length transactions;
- the rights, preferences, and privileges of our convertible preferred stock relative to those of our common stock;
- the likelihood of achieving a liquidity event for our securityholders, such as an initial public offering or a sale of the Company, given prevailing market conditions;
- the hiring of key personnel and the experience and expertise of management;
- trends and developments in our industry; and
- external market conditions affecting the life sciences and scientific research & development industry sectors.

For our valuations of common stock performed, we used a hybrid method of the Option Pricing Method (“OPM”) and the Probability-Weighted Expected Return Method (“PWERM”). PWERM considers various potential liquidity outcomes. Our approach included the use of an initial public offering scenario and a scenario assuming continued operation as a private entity. Under the hybrid OPM and PWERM, the per share value calculated under the OPM and PWERM are weighted based on expected exit outcomes and the quality of the information specific to each allocation methodology to arrive at a final estimated fair value per share of the common stock before a discount for lack of marketability is applied.

To determine the fair value of our common stock, we first determined our enterprise value using accepted valuation approaches; adjusted these valuation approaches with relevant discounts; weighted the results appropriately; and then allocated the equity value to our common stock and common stock equivalents. Our enterprise value was estimated using two generally accepted approaches: the income approach and the market approach. The income approach estimates enterprise value based on the estimated present value of future cash flows the business is expected to generate over its remaining life. The estimated present value is calculated using a discount rate reflective of the risks associated with an investment in a similar company in a similar industry or having a similar history of revenue growth. The market approach measures the value of a business through an analysis of recent sales or offerings of comparable investments or assets, and in our case, focused on comparing us to a group of our peer companies. In applying this method, valuation multiples are derived from historical and projected operating data of the peer company group. We then apply the selected multiples to our operating data to arrive at a range of indicated enterprise values of the Company. We then subtracted the net debt to determine equity value.

As a result of our initial public offering in June 2021, it is not necessary to determine the fair value of our common stock, as our shares are traded in the public market.

### Recent Accounting Standards

For information on recent accounting standards, see Note 2 to our annual report on Form 10-K filed on March 22, 2022.

### JOBS Act Transition Period

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, (the “JOBS Act”) was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 and (ii) complying with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) December 31, 2026; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

## Controls and procedures

As filed, 1,744 characters.

### Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended March 31, 2022, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that during the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level and, accordingly, provided reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2022 covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 219 characters.

There have been no material changes with respect to risk factors previously disclosed in the Company’s Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on March 22, 2022.

Filed May 10, 2022.
Source: SEC EDGAR, the filing index for accession 0001558370-22-007969. Last ingested by Listed: Nov 5, 2026, 19:56 ET. No prices; not investment advice.