exdx-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-39049

EXAGEN INC.

(Exact name of registrant as specified in its charter)

Delaware

20-0434866

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

1261 Liberty Way

Vista,

California

92081

(Address of Principal Executive Offices)

(Zip Code)


(760)			560-1501
(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

XGN

The Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Securities Exchange Act of 1934.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Total shares of common stock outstanding as of the close of business on May 7, 2021 was 16,928,278.

TABLE OF CONTENTS


		Page
Part I.	Financial Information
Item 1.	Condensed Financial Statements (unaudited)	1
	Condensed Balance Sheets as of March 31, 2021 and December 31, 2020	1
	Condensed Statements of Operations for the Three Months ended March 31, 2021 and 2020	2
	Condensed Statements of Stockholders' Equity for the Three Months ended March 31, 2021 and 2020	3
	Condensed Statements of Cash Flows for the Three Months ended March 31, 2021 and 2020	4
	Notes to Unaudited Condensed Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30

Part II.	Other Information
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	35
	Signatures	36

Part I. Financial Information

Item 1. Condensed Financial Statements

Exagen Inc.

Condensed Balance Sheets

(in thousands, except share and per share data)


	March 31, 2021		December 31, 2020
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	118,050	$	57,448
Accounts receivable, net	8,221		8,910
Prepaid expenses and other current assets	3,098		4,159
Total current assets	129,369		70,517
Property and equipment, net	2,378		2,102
Goodwill	5,506		5,506
Other assets	269		250
Total assets	$	137,522	$	78,375
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	2,170	$	3,014
Accrued and other current liabilities	5,714		5,757

Total current liabilities	7,884		8,771
Borrowings-non-current portion, net of discounts and debt issuance costs	26,864		26,659

Deferred tax liabilities	158		158
Other non-current liabilities	1,146		948
Total liabilities	36,052		36,536
Commitments and contingencies (Note 5)

Stockholders' equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized, no shares issued or outstanding at March 31, 2021 and December 31, 2020	—		—
Common stock, $0.001 par value; 200,000,000 shares authorized at March 31, 2021 and December 31, 2020; 16,925,680 and 12,652,308 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively	17		13
Additional paid-in capital	288,951		223,115
Accumulated deficit	(187,498)		(181,289)
Total stockholders' equity	101,470		41,839
Total liabilities and stockholders' equity	$	137,522	$	78,375

The accompanying notes are an integral part of these financial statements

Exagen Inc.

Unaudited Condensed Statements of Operations

(in thousands, except share and per share data)


	Three Months Ended March 31,
	2021		2020

Revenue	$	10,587	$	9,584
Operating expenses:
Costs of revenue	4,711		4,545
Selling, general and administrative expenses	10,040		9,626
Research and development expenses	1,403		634


Total operating expenses	16,154		14,805
Loss from operations	(5,567)		(5,221)
Interest expense	(645)		(631)

Other income, net	3		171
Loss before income taxes	(6,209)		(5,681)
Income tax benefit	—		118
Net loss	$	(6,209)	$	(5,563)



Net loss per share, basic and diluted (Note 2)	$	(0.48)	$	(0.44)
Weighted-average number of shares used to compute net loss per share, basic and diluted (Note 2)	12,943,237		12,595,715

The accompanying notes are an integral part of these financial statements

Exagen Inc.

Unaudited Condensed Statements of Stockholders' Equity

(in thousands, except share data)


	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balances at December 31, 2020	12,652,308	$	13	$	223,115	$	(181,289)	$	41,839
Issuance of stock in public offering, net of issuance costs of $4,435	4,255,000	4		64,705		—		64,709
Exercise of stock options	3,381	—		44		—		44
Issuance of stock under Employee Stock Purchase Plan	14,991	—		175		—		175
Stock-based compensation	—	—		912		—		912
Net loss	—	—		—		(6,209)		(6,209)
Balances at March 31, 2021	16,925,680	$	17	$	288,951	$	(187,498)	$	101,470


	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balances at December 31, 2019	12,560,990	$	13	$	220,248	$	(164,602)	$	55,659
Exercise of stock options	43,700	—		10		—		10
Stock-based compensation	—	—		431		—		431
Net exercise of common stock warrants	22,366	—		—		—		—
Net loss	—	—		—		(5,563)		(5,563)
Balances at March 31, 2020	12,627,056	$	13	$	220,689	$	(170,165)	$	50,537

The accompanying notes are an integral part of these financial statements

Exagen Inc.

Unaudited Statements of Cash Flows

(in thousands)


	Three Months Ended March 31,
		2021		2020

Cash flows from operating activities:
Net loss		$	(6,209)	$	(5,563)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		187		126
Amortization of debt discount and debt issuance costs		73		65
Non-cash interest expense		132		131

Deferred income taxes		—		(117)

Stock-based compensation		912		431
Changes in assets and liabilities:
Accounts receivable, net		689		(128)
Prepaid expenses and other current assets		1,061		367
Other assets		(48)		(14)
Accounts payable		(792)		1,054
Accrued and other current liabilities		(317)		347

Net cash used in operating activities		(4,312)		(3,301)
Cash flows from investing activities:
Purchases of property and equipment		(167)		(84)



Net cash used in investing activities		(167)		(84)
Cash flows from financing activities:
Proceeds from exercise of stock options		44		10
Proceeds from common stock issued under Employee Stock Purchase Pan		175		—

Principal payment on capital lease obligations		(96)		(61)



Proceeds from the issuance of common stock in public offering, gross		69,144		—
Payment of issuance costs related to public offering		(4,186)		—





Net cash provided by (used in) financing activities		65,081		(51)
Net change in cash, cash equivalents and restricted cash		60,602		(3,436)
Cash, cash equivalents and restricted cash, beginning of period		57,548		72,184
Cash, cash equivalents and restricted cash, end of period		$	118,150	$	68,748
Supplemental disclosure of cash flow information:
Cash paid for interest expense		$	439	$	432
Supplemental disclosure of non-cash items:

Equipment purchased under capital lease obligations		$	384	$	2

Costs incurred, but not paid, in connection with capital expenditures		$	44	$	37


Issuance costs included in accounts payable and accrued liabilities		$	221	$	—
Deferred offering costs reclassified to equity		$	28	$	—

The accompanying notes are an integral part of these financial statements

Exagen Inc.

Notes to Unaudited Interim Condensed Financial Statements

Note 1. Organization

Description of Business

Exagen Inc. (the Company) is dedicated to transforming the care continuum for patients suffering from debilitating and chronic autoimmune diseases by enabling timely differential diagnosis and optimizing therapeutic intervention.

Liquidity

The Company has incurred recurring losses and negative cash flows from operating activities since inception. The Company anticipates that it will continue to incur net losses into the foreseeable future. At March 31, 2021, the Company had cash and cash equivalents of $118.1 million and had an accumulated deficit of $187.5 million. Since inception, the Company has financed its operations primarily through a combination of equity financings of common stock and private placements of preferred securities, debt financing arrangements, and revenue from sales of the Company's products. 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 condensed financial statements.

To execute its business plans, the Company may need additional funding to support its continuing operations and pursue its growth strategy. Until such time as the Company can achieve significant cash flows from operations, if ever, it expects to finance its operations through the sale of its stock, debt financings or other strategic transactions. Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all. The terms of any financing may adversely affect the holdings or the rights of the Company's stockholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its programs, product portfolio expansion plans or commercialization efforts, which could have a material adverse effect on the Company's business, operating results and financial condition and the Company's ability to achieve its intended business objectives.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying interim condensed balance sheet as of March 31, 2021, the condensed statements of operations and the condensed statements of stockholders' equity for the three months ended March 31, 2021 and 2020 and cash flows for the three months ended March 31, 2021 and 2020 and the related footnote disclosure are unaudited and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC), and with accounting principles generally accepted in the United States (GAAP) applicable to interim financial statements. In management's opinion, the unaudited interim condensed financial statements have been prepared on the same basis as the audited financial statements and include all normal adjustments, necessary for the fair presentation of the Company's financial position as of March 31, 2021 and its results of operations for the three month periods presented. The results for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the full fiscal year or any other interim period. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2020, included in its Annual Report on Form 10-K filed with the SEC on March 16, 2021.

The preparation of the accompanying condensed 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 condensed 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 condensed financial statements include, but are not limited to revenue recognition, the fair value of financial instruments measured at fair value, the recoverability of its long-lived assets (including goodwill) and net deferred tax assets (and related valuation allowance). 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.

Significant payors and customers are those which represent more than 10% of the Company's total revenue or accounts receivable balance at each respective balance sheet date. For each significant payor and customer, revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable are as follows:


	Revenue
	Three Months Ended March 31,
	2021		2020
Medicare	18	%	25	%

Blue Shield	12	%	12	%
Medicare Advantage	12	%	13	%
United Healthcare	*		10	%



*						Less than 10%.


	Accounts Receivable
	March 31, 2021		December 31, 2020

Janssen (SIMPONI®)	25	%	35	%

Blue Shield	13	%	11	%



*						Less than 10%.

For the three months ended March 31, 2021 and 2020, approximately 81%, and 83%, 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 three months ended March 31, 2021 and 2020, approximately 98% and 96%, respectively, of the Company's diagnostic testing supplies were purchased from two suppliers. An interruption in the supply of these materials would impact the Company's ability to perform testing services.

Disaggregation of Revenue

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


	Three Months Ended March 31,
	2021		2020
Revenue:
Healthcare insurers	$	6,027	$	6,062
Government	2,009		2,245
Client(1)	1,965		1,082
Other(2)	286		195
Janssen (SIMPONI®)	300		—
Total revenue	$	10,587	$	9,584

(1)Includes hospitals, other laboratories, etc.

(2)Includes patient self-pay that is immaterial.

Fair Value Measurements

The carrying value of the Company's cash and cash equivalents approximate fair value due to the short-term nature of these items. Based on the borrowing rates currently available to the Company for debt with similar terms and consideration of default and credit risk, the carrying value of the Company's long-term borrowings approximates its fair value, which is considered a Level 2 input.

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 - Inputs other than quoted prices included within Level I that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3 - Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly-liquid investments purchased with a remaining maturity date upon acquisition of three months or less to be cash equivalents and are stated at cost, which approximates fair value.

In 2016, the Company entered into an arrangement with a financial institution with which it has an existing banking relationship whereby in exchange for the issuance of corporate credit cards, the Company agreed to obtain a $0.1 million certificate of deposit with this financial institution as collateral for the balances borrowed on these credit cards. The Company has classified the value of this certificate of deposit (including all interest earned thereon) within other assets in the accompanying balance sheets. The Company has the right to terminate the credit card program at any time. Upon termination of the credit card program and repayment of all outstanding balances owed, the Company may redeem the certificate of deposit (and all interest earned thereon).

Cash, cash equivalents and restricted cash presented in the accompanying condensed statements of cash flows consist of the following (in thousands):


	March 31, 2021		December 31, 2020

Cash and cash equivalents	$	118,050	$	57,448
Restricted cash	100		100
	$	118,150	$	57,548

Revenue Recognition

Substantially all of the Company's revenue has been derived from sales of its testing products and is primarily comprised of a high volume of relatively low-dollar transactions. The Company primarily markets its testing products to rheumatologists and their physician assistants in the United States. The healthcare professionals who order the Company's testing products and to whom test results are reported are generally not responsible for payment for these products. The parties that pay for these services (the Payors) consist of healthcare insurers, government payors (primarily Medicare and Medicaid), client payors (i.e., hospitals, other laboratories, etc.), and patient self-pay. The Company's service is a single performance obligation that is completed upon the delivery of test results to the prescribing physician which triggers revenue recognition.

Payors are billed at the Company's list price. Net revenues recognized consist of amounts billed net of allowances for differences between amounts billed and the estimated consideration the Company expects to receive from such payors. The process for estimating revenues and the ultimate collection of accounts receivable involves significant judgment and estimation. The Company follows a standard process, which considers historical denial and collection experience, insurance reimbursement policies and other factors, to estimate allowances and implicit price concessions, recording adjustments in the current period as changes in estimates occur. Further adjustments to the allowances, based on actual receipts, is recorded upon settlement. The transaction price is estimated using an expected value method on a portfolio basis. The Company's portfolios are grouped per payor (i.e. each individual third-party insurance, Medicare, client payors, patient self-pay, etc.) and per test basis.

Collection of the Company's net revenues from payors is normally a function of providing complete and correct billing information to the healthcare insurers and generally occurs within 30 to 90 days of billing. Contracts do not contain significant financing components based on the typical period of time between performance of services and collection of consideration.

Janssen Promotion Agreement

In December 2018, the Company entered into a co-promotion agreement (the Janssen Agreement) with Janssen Biotech, Inc. (Janssen) to co-promote SIMPONI® in the United States. The Company is responsible for the costs associated with its sales force over the course of such co-promotion. Janssen is responsible for all other aspects of the commercialization of SIMPONI® under the Janssen Agreement. In exchange for the Company's sales and co-promotional services, the Company is entitled to a quarterly tiered promotion fee based on the incremental increase in total prescribed units of SIMPONI® for that quarter over a predetermined baseline. For quarter ended March 31, 2020, the tiered promotion fee ranged from $750 to $1,250 per prescription over a predetermined baseline. Due in part to COVID-19, in June 2020, the Janssen Agreement was amended (June Amended Janssen Agreement) to adjust the predetermined average baseline for the third and fourth quarters of 2020, and for each of the third and fourth quarters of 2020, the Company received a minimum promotion fee of $0.3 million and the fee was capped at 5% above the adjusted predetermined baseline. In December 2020, the Janssen Agreement was further amended. The Janssen Agreement, as amended in June 2020 and December 2020 is collectively referred to as the Amended Janssen Agreement. In accordance with the Amended Janssen Agreement, the predetermined average baseline for prescribed units for the quarters ending December 31, 2020, March 31, 2021 and June 30, 2021, was adjusted to approximately 28,750 prescribed units per quarter, subject to adjustment under certain circumstances. For the first and second quarter of 2021, the Company will be entitled to an amended tiered promotion fee ranging from $500 to $1,000 per prescription based on the incremental increase in total prescribed units. Pursuant to the Amended Janssen Agreement, for the first and second quarters of 2021, the Company will receive a minimum promotion fee of $0.3 million and the fee will be capped at 10% above the adjusted predetermined baseline. The quarterly tiered promotion fee for the remaining term of the Janssen Promotion Agreement beginning on July 1, 2021 will revert to the terms set forth in the Janssen Agreement prior to amendment, with no minimum promotion fee and no cap on predetermined baseline units. In addition, during the term of the Janssen Agreement, the Company is restricted

from promoting any other biologic or Janus kinase inhibitor, or JAK inhibitor, used for treatment of indications covered by the agreement without first obtaining Janssen's written consent.

The Janssen Agreement expires on December 31, 2021, unless extended by the Company for an additional 12 months upon 180 days written notice prior to the end of the current term. If the Company elects to extend the term, the predetermined baseline for 2022 will be subject to future agreement by the Company and Janssen. Janssen may terminate the Amended Janssen Agreement at any time for any reason upon 30 days' notice to the Company, and the Company may terminate the Amended Janssen Agreement for any reason at the end of any calendar quarter upon 30 days' notice to Janssen. Either party may terminate the Amended Janssen Agreement in the event of the other party's default of any of its material obligations under the agreement if such default remains uncured for a specified period of time following receipt of written notice of such default.

The Company's obligations relating to sales and co-promotion services for SIMPONI® is a series of single performance obligations since Janssen simultaneously receives and consumes benefits provided by the Company's sales and co-promotional services. The method for measuring progress towards satisfying the performance obligations is based on prescribed units in excess of the contractual baseline at the contractual rate earned per unit since the agreement is cancelable. The Company recognized co-promotion revenue of approximately $0.3 million and no co-promotion revenue during the three months ended March 31, 2021 and 2020, respectively. The related expenses for marketing SIMPONI® are included in selling, general and administrative expenses and are expensed as incurred.

Research and Development

Costs associated with research and development activities are expensed as incurred and include, but are not limited to, personnel-related expenses, including stock-based compensation expense, materials, laboratory supplies, consulting costs, costs associated with setting up and conducting clinical studies and allocated overhead including rent and utilities.

Advertising and Marketing Costs

Costs associated with advertising and marketing activities are expensed as incurred. Total advertising and marketing costs were approximately $0.3 million and $0.4 million for the three months ended March 31, 2021 and 2020, respectively, and are included in selling, general and administrative expenses in the accompanying condensed statements of operations.

Shipping and Handling Costs

Costs incurred for shipping and handling are included in costs of revenue in the accompanying condensed statements of operations and totaled approximately $0.5 million and $0.4 million for the three months ended March 31, 2021 and 2020, 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. The fair value of stock options and purchases under the employee stock purchase plan (ESPP) rights is determined using the Black-Scholes-Merton (BSM) option pricing model, which requires management to make certain assumptions regarding a number of complex and subjective variables. Equity award forfeitures are recorded as they occur.

The BSM option pricing model incorporates various estimates, including the fair value of the Company's common stock, expected volatility, expected term and risk-free interest rates. The weighted-average expected term of options was calculated using the simplified method. The risk-free interest rate for periods within the contractual term of the option is based on the U.S. Treasury yield in effect at the time of grant. The dividend yield was zero, as the Company has never declared or paid dividends and has no plans to do so in the foreseeable future.

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

During the three months ended March 31, 2021, the Company awarded 185,000 RSUs to certain employees, all of which are outstanding and unvested as of March 31, 2021.

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

Comprehensive Loss

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.

Net Loss Per Share

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. Potentially dilutive common stock equivalents are comprised of warrants for the purchase of common stock, options and restricted stock units outstanding under the Company's 2019 Incentive Award Plan and shares of the Company's common stock pursuant to Employee Stock Purchase Plan. For the three months ended March 31, 2021 and 2020, there is no difference in the number of shares used to calculate basic and diluted shares outstanding as the inclusion of the potentially dilutive securities would be antidilutive.

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):


	Three Months Ended March 31,
	2021	2020


Warrants to purchase common stock	426,827	436,581
Common stock options	2,041,580	1,630,014
Restricted stock units	185,000	—
Employee stock purchase plan	2,869	2,021
Total	2,656,276	2,068,616

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations as, and manages its business in, one operating segment.

Recent Accounting Pronouncements Not Yet Adopted

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB), or other standard setting bodies and adopted by the Company as of the specified effective date. Under the Jumpstart Our Business Startups Act of 2012 (JOBS Act), the Company meets the definition of an emerging growth company. The Company has elected to use the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company's financial position or results of operations upon adoption.

In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). The new topic supersedes Topic 840, Leases, and increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requires disclosures of key information about

leasing arrangements. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, which provides narrow amendments to clarify how to apply certain aspects of the new lease standard, and ASU 2018-11, Leases: Targeted Improvements, which was issued to provide relief to companies from restating comparative periods. Pursuant to this ASU, in the period of adoption the Company will not restate comparative periods presented in its condensed financial statements. The effective date of this guidance for public companies is for reporting periods beginning after December 15, 2018. In June 2020, the FASB issued ASU 2020-05, which delays the adoption of ASU 2016-02 for non-public entities to fiscal years beginning after December 15, 2021, and interim periods beginning after December 15, 2022. As an emerging growth company as defined in the JOBS Act, the Company has elected to delay adoption of this ASU until January 1, 2022. Topic 842 mandates a modified retrospective transition method. The Company intends to adopt the new lease standard using a cumulative effect to accumulated deficit and will elect the package of practical expedients, which among other things will allow the Company to carry forward its historical lease classification. The Company is currently evaluating the impact of Topic 842 on its condensed financial statements.

Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The new guidance removes certain exceptions to the general principles of ASC 740 in order to simplify the complexities of its application. These changes include eliminations to the exceptions for intraperiod tax allocation, recognizing deferred tax liabilities related to outside basis differences, and year-to-date losses in interim periods, among others. The effective date of this guidance for public companies is for fiscal years, and interim period within those fiscal years, beginning after December 15, 2020. The Company adopted this guidance on January 1, 2021, and the adoption did not have a material impact on its condensed 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):


	March 31, 2021		December 31, 2020
Diagnostic testing supplies	$	921	$	1,203
Prepaid product royalties	65		68
Prepaid maintenance and insurance contracts	1,892		2,229
Other prepaid and other current assets	220		659
Prepaid and other current assets	$	3,098	$	4,159

Property and Equipment

Property and equipment consist of the following (in thousands):


	March 31, 2021		December 31, 2020
Furniture and fixtures	$	64	$	64
Laboratory equipment	3,148		2,679
Computer equipment and software	1,079		927
Leasehold improvements	1,073		1,072
Construction in progress	142		301
Total property and equipment	5,506		5,043
Less: accumulated depreciation and amortization	(3,128)		(2,941)
Property and equipment, net	$	2,378	$	2,102

Depreciation and amortization expense for the three months ended March 31, 2021 and 2020 was approximately $0.2 million and $0.1 million, respectively. At March 31, 2021 and December 31, 2020, the gross book value of assets under capital lease was $1.6 million and $1.2 million, respectively, and is classified in "Laboratory equipment" in the table above.

Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following (in thousands):


	March 31, 2021		December 31, 2020
Accrued payroll and related expenses	$	3,318	$	3,589

Accrued interest	148		147
Accrued purchases of goods and services

SEC Form 10-Q filed by Exagen Inc.