Payment Terms

BIODESIX INC Management report and analysis of the financial situation and operating results. (Form 10-Q)

Biodesix, Inc. is referred to throughout this quarterly report on Form 10-Q for the period ended September 30, 2022 (Form 10-Q) such as “we”, “us”, “our” or the “company”.

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations (MD&A) should be read in conjunction with our Annual
Report on Form 10-K for the year ended December 31, 2021 (Form 10-K) and the
Condensed Financial Statements as of September 30, 2022 and for the three and
nine months ended September 30, 2022 and 2021, included in Part I, Item 1 of
this Form 10-Q, which provide additional information regarding our financial
position, results of operations and cash flows. To the extent that the following
MD&A contains statements which are not of a historical nature, such statements
are forward-looking statements, which involve risks and uncertainties, including
but not limited to those set forth under the caption "Special Note Regarding
Forward-Looking Statements" and Item 1A "Risk Factors" of Part II in this
Quarterly Report on Form 10-Q and those discussed in our other filings with the
Securities and Exchange Commission (SEC), including the risks described in Item
1A "Risk Factors" of Part I of our Annual Report on Form 10-K for the year ended
December 31, 2021, which was filed on March 14, 2022.

The following MD&A discussion is provided to supplement the Condensed Financial
Statements as of September 30, 2022 and 2021 and for the three and six months
then ended included in Part I, Item 1 of this Quarterly Report on Form 10-Q. We
intend for this discussion to provide you with information that will assist you
in understanding our financial statements, the changes in key items in those
financial statements from period to period, and the primary factors that
accounted for those changes.

Data for the three and nine months ended September 30, 2022 and 2021 has been
derived from our unaudited condensed financial statements included in Part I,
Item 1 of this Quarterly Report on Form 10-Q.

Insight

We are a leading data-driven diagnostic solutions company leveraging state of
the art technologies with our proprietary AI platform to discover, develop, and
commercialize solutions for clinical unmet needs, with a primary focus in lung
disease. By combining a technology multi-omic approach with a holistic view of
the patient's disease state, we believe our solutions provide physicians with
greater insights to help personalize their patient's care and meaningfully
improve disease detection, evaluation, and treatment. Our unique approach to
precision medicine provides timely and actionable clinical information, which we
believe helps improve overall patient outcomes and lowers the overall healthcare
cost by reducing the use of ineffective and unnecessary treatments and
procedures. In addition to our diagnostic tests, we provide biopharmaceutical
companies with services that include diagnostic research, clinical trial
testing, and the discovery, development, and commercialization of companion
diagnostics.

Our core belief is that no single technology will answer all clinical questions
that we encounter. Therefore, we employ multiple technologies, including
genomics, transcriptomics, proteomics, and radiomics, and leverage our
proprietary AI-based Diagnostic Cortex® platform to discover innovative
diagnostic tests for clinical use. The Diagnostic Cortex is an extensively
validated deep learning platform optimized for the discovery of diagnostic
tests, which we believe overcomes standard machine learning challenges faced in
life sciences research. Our data-driven and multi-omic approach is designed to
enable us to discover diagnostic tests that answer critical clinical questions
faced by physicians, researchers, and biopharmaceutical companies.

We continuously incorporate new market insights and patient data to enhance our
platform through a data-driven learning loop. We regularly engage with our
customers, key opinion leaders, and scientific experts to stay ahead of the
rapidly evolving diagnostic treatment landscape to identify additional clinical
unmet needs where a diagnostic test could help improve patient care.
Additionally, we incorporate clinical and molecular profiling data from our
commercial clinical testing, research studies, clinical trials, and
biopharmaceutical customers or academic partnerships, to continue to advance our
platform. We have a variety of samples with associated data in our biobank,
including tumor profiles and immune profiles, which are used for both internal
and external research and development initiatives.

We have commercialized eight diagnostic tests which are currently available for
use by physicians. Our Nodify XL2 and Nodify CDT tests, marketed as part of the
Nodify Lung Nodule Risk Assessment testing strategy, assess the risk of lung
cancer to help identify the most appropriate treatment pathway. The Nodify Lung
Risk Assessment testing strategy has resulted in a change in the calculated risk
of malignancy in 80-85% of the cases. We believe we are the only company to
offer two commercial blood-based tests to help physicians reclassify risk of
malignancy in patients with suspicious lung nodules. Our GeneStrat ddPCR,
GeneStrat NGS, and VeriStrat tests, marketed as the IQLung testing strategy, are
used following diagnosis of lung cancer to measure the presence of mutations in
the tumor and the state of the patient's immune system to establish the
patient's prognosis and help guide treatment decisions. The GeneStrat targeted
tumor profiling test and the VeriStrat immune profiling test now have a 36-hour
average turnaround time, down from the previous 72-hour average turnaround time,
providing physicians with timely results to facilitate treatment decisions. The
GeneStrat NGS test is our 72-hour average turnaround time blood-based NGS test,
which was launched in November 2021 to a select group of physicians, with
national launch in January 2022. The 52-gene panel includes guideline
recommended mutations to help physicians treating advanced-stage lung cancer
patients identify all four major mutation classes and genes, such as EGFR, ALK,
KRAS, MET, NTRK, ERBB2, and others, and delivers them in an expedited timeframe
so patient treatment can begin sooner.

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In response to the COVID-19 pandemic, through our partnership with Bio-Rad, we
commercialized the Biodesix WorkSafe™ testing program. Our scientific diagnostic
expertise, technologies, and existing commercial infrastructure enabled us to
rapidly commercialize two FDA EUA authorized tests, a part of our customizable
program. Both diagnostic tests are owned and were developed by Bio-Rad and
Bio-Rad has granted us permission to utilize both tests for commercial
diagnostic services. The Bio-Rad SARS-CoV-2 ddPCR test was FDA EUA authorized on
May 1, 2020, authorizing performance of the test in laboratories certified under
CLIA to perform high complexity tests. The second test is the Platelia
SARS-CoV-2 Total Ab test, which is an antibody test intended for detecting a
B-cell immune response to SARS-CoV-2, indicating recent or prior infection. The
Platelia SARS-CoV-2 Total Ab test was FDA EUA authorized on April 29, 2020.
Prior to using the Bio-Rad SARS-CoV-2 tests as part of our testing program, we
performed feasibility, verification, and validation studies, including
developing software for process automation, sample accessioning, data management
and reporting, all required to demonstrate the test operated as claimed by the
manufacturer and as required by our certifying regulatory agencies for high
complexity laboratory testing. We secured independent reference specimens run
with EUA tests to validate these tests as fit for diagnostic use in our
laboratories. Beginning in the quarter ended June 30, 2021, we began partnering
with GenScript Biotech Corporation to commercialize the blood-based cPass
SARS-CoV-2 Neutralizing Antibody testing as a service. The test is the first
surrogate neutralizing antibody test with FDA EUA and uses ELISA technology to
qualitatively detect circulating neutralizing antibodies to the RBD in the spike
protein of SARS-CoV-2 that are produced in response to a previous SARS-CoV-2
infection.

Medical products that are granted an EUA are only permitted to commercialize
their products under the terms and conditions provided in the authorization. The
FDA may revoke an EUA where it is determined that the underlying health
emergency no longer exists or warrants such authorization, if the conditions for
the issuance of the EUA are no longer met, or if other circumstances make
revocation appropriate to protect the public health or safety, and we cannot
predict how long the EUAs for the SARS-CoV-2 tests will remain in place.

These tests under the Biodesix WorkSafe testing program are utilized by
healthcare providers, including hospitals and nursing homes, and are also
offered to businesses and educational systems. We announced multiple
partnerships for COVID-19 testing, and maintained an agreement with the State of
Colorado to be one of the diagnostic companies to support widespread COVID-19
testing for the State which expired on August 31, 2022. Additionally, we oversaw
and managed onsite testing and validating testing for the Big Ten Conference
athletic competitions through the term of our contract which expired on June 30,
2021.

In addition to the eight diagnostic tests currently on the market, we perform
over 30 assays for research use as part of our laboratory services that have
been used by over 60 biopharmaceutical companies and academic partners. All of
our diagnostic testing is performed at one of our two accredited,
high-complexity clinical laboratories in Boulder, Colorado and De Soto, Kansas.

Since our inception, we have performed over 550,000 clinical diagnostic tests,
and continue to generate a large and growing body of clinical evidence
consisting of over 300 clinical and scientific peer-reviewed publications,
presentations, and abstracts. Through ongoing study of each of our tests, we
continue to grow our depth of understanding of disease biology and the broad
utility of each of our tests. We believe we are poised for rapid growth by
leveraging our scientific development and laboratory operations expertise along
with our commercial infrastructure which includes sales, marketing,
reimbursement, and regulatory affairs.

In the United States, we market our tests to clinical customers through our
targeted sales organization, which includes sales representatives that are
engaged in sales efforts and promotional activities primarily to pulmonologists,
oncologists, cancer centers and nodule clinics. We market our tests and services
to biopharmaceutical companies globally through our targeted business
development team, which promotes the broad utility of our tests and testing
capabilities throughout drug development and commercialization which is of value
to pharmaceutical companies and their drug-development process.

The Company continues to address our liquidity needs through improvements to our
capital structure. During the three months ended June 30, 2022, the Company
entered into: (i) a private placement that raised approximately $11.7 million in
net equity proceeds, (ii) an amendment and partial repayment of our 2021 Term
Loan, (iii) modifications to extend payment terms under the Integrated
Diagnostics asset purchase agreement (the Indi APA), (iv) common stock sales
raising additional funds through our at-the-market facility, and (v) the closing
of a $25.0 million debt facility with funding for up to $25.0 million occurring
in two tranches. On May 9, 2022, we closed on the first tranche for gross
proceeds of $15.0 million (approximately $12.8 million, net, after deducting
debt issuance costs and OID) (Promissory Note One). Each of these strategic
initiatives is described in further detail within the Notes to our condensed
financial statements in Part 1 of this Quarterly Report on Form 10-Q as well as
our Liquidity and Capital Resources section below.

We have funded our operations to date principally from net proceeds from the
issuances of our common stock, the sale of convertible preferred stock, revenue
from diagnostic testing and services, and the incurrence of indebtedness. We had
cash and cash equivalents of $15.2 million and $32.7 million as of September 30,
2022 and December 31, 2021, respectively.

Factors affecting our performance

We believe that several important factors affect our operating performance and results of operations, including:

Testing volume and customer mix. Our revenues and costs are affected by the
volume of testing and mix of customers from period to period. We evaluate both
the volume of our commercial tests, or the number of tests that we perform for
patients on

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behalf of clinicians, as well as tests for biopharmaceutical companies. Our
performance depends on our ability to retain and broaden adoption with existing
customers, as well as attract new customers. We believe that the test volume we
receive from clinicians and biopharmaceutical companies are indicators of growth
in each of these customer verticals. Customer mix for our tests has the
potential to significantly impact our results of operations, as the average
selling price for biopharmaceutical sample testing is currently significantly
greater than our average selling price for clinical tests since we are not a
contracted provider for, or our tests are not covered by all clinical patients'
insurance. We evaluate our average selling price for tests that are covered by
Medicare, Medicare Advantage and commercial payers to understand the trends in
reimbursement and apply those trends to our revenue recognition policies.

Reimbursement for clinical diagnostic testing. Our revenue depends on achieving
broad coverage and reimbursement for our tests from third-party payers,
including both commercial and government payers. On June 7, 2022, we announced
that WPS Government Health Administrators, the Medicare Administrative
Contractor with jurisdiction for Biodesix's De Soto, Kansas laboratory, has
provided coverage for the Nodify CDT lung nodule test. All five Biodesix
blood-based lung diagnostic tests within the Nodify Lung Nodule Risk Assessment
testing strategy and IQLung strategy for lung cancer patients are now covered by
Medicare. Payment from third-party payers differs depending on whether we have
entered into a contract with the payers as a "participating provider" or do not
have a contract and are considered a "non-participating provider." Payers will
often reimburse non-participating providers, if at all, at a lower rate than
participating providers.

Historically, we have experienced situations where commercial payers proactively
reduced the amounts they were willing to reimburse for our tests, and in other
situations, commercial payers have determined that the amounts they previously
paid were too high and have sought to recover those perceived excess payments by
deducting such amounts from payments otherwise being made. When we contract to
serve as a participating provider, reimbursements are made pursuant to a
negotiated fee schedule and are limited to only covered indications. Becoming a
participating provider generally results in higher reimbursement for covered
indications and lack of reimbursement for non-covered indications. As a result,
the impact of becoming a participating provider with a specific payer will vary.
If we are not able to obtain or maintain coverage and adequate reimbursement
from third-party payers, we may not be able to effectively increase our testing
volume and revenue as expected. Additionally, retrospective reimbursement
adjustments can negatively impact our revenue and cause our financial results to
fluctuate.

On October, 17, 2022, the Company announced that the U.S. Department of Veterans
Affairs (the VA), the largest integrated health care system in the United
States, has awarded a Federal Supply Schedule Contract for the Company's entire
portfolio of lung cancer diagnostic tests. The VA provides care at 1,298 health
care facilities, including 171 VA Medical Centers and 1,113 outpatient sites of
care of varying complexity to over 9 million veterans enrolled in the VA health
care program. All of our existing lung diagnostic tests will be payable when
performed and partnering with the VA represents a large opportunity for Biodesix
to help improve care for our Veterans by integrating our five diagnostic
products and testing strategies into our country's largest health system.

Investment in clinical studies and product innovation to support growth. A
significant aspect of our business is our investment in research and
development, including the development of new products and our investments in
clinical utility studies. We have invested heavily in clinical studies for our
on market and pipeline products. Our studies focus primarily on the clinical
utility of our tests including the ongoing INSIGHT study which seeks to enroll
up to 5,000 patients to continue our clinical understanding of the predictive
and prognostic value of the VeriStrat test. The ALTITUDE study, launched during
the fourth quarter 2020, seeks to further demonstrate the efficacy of the Nodify
XL2 and Nodify CDT tests. A secondary focus of our studies is understanding the
economic impact of our tests in assisting with decisions related to patient
management and the potential impact of our tests in reducing overall healthcare
costs.

Our clinical research has resulted in approximately 90 peer-reviewed
publications for our tests. In addition to clinical studies, we are
collaborating with investigators from multiple academic cancer centers. For
example, on June 3, 2022, we announced the intent to develop a new novel
molecular minimal residual disease (MRD) test as a part of a master sponsored
research agreement (MSRA) with Memorial Sloan Kettering Cancer Center (MSK). In
addition, the MSRA between MSK and the Company also includes the potential
future development of other diagnostic tests aimed at improving the treatment of
cancer. We believe these studies are critical to gaining physician adoption and
driving favorable coverage decisions by payers and expect our investments in
research and development to increase. Further we also expect to increase our
research and development expenses to fund further innovation and develop new
clinically relevant tests.

Ability to attract new biopharmaceutical customers and maintain and expand
relationships with existing customers. Our business development team promotes
the broad utility of our products for biopharmaceutical companies in the United
States and internationally. Our revenue, business opportunities and growth
depend in part on our ability to attract new biopharmaceutical customers and to
maintain and expand relationships with existing biopharmaceutical customers. We
expect to increase our sales and marketing expenses in furtherance of this as we
continue to develop these relationships and expect to support a growing number
of investigations and clinical trials. If our relationships expand, we believe
we may have opportunities to offer our platform for companion diagnostic
development, novel target discovery and validation efforts, and

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to expand into other business opportunities. For example, we believe that our multi-omics data, including genomics and proteomics data, combined with clinical outcomes or claims data, has revenue generation potential, including for the identification of new targets and the discovery and the development of companion diagnostics.

On June 30, 2022, the Company announced an arrangement with Royal Philips, a
global leader in health care technology, in which our Nodify Lung blood-based
lung nodule risk assessment testing will be incorporated into Philips Lung
Cancer Orchestrator lung cancer patient management system. The incorporation of
proteomics data - along with the radiologic and patient history data currently
used to determine treatment decisions - can help create diagnostic efficiency
for cancer care centers in the management of a growing number of lung nodule
cases, via the contextual launch of Biodesix Nodify Lung application within Lung
Cancer Orchestrator. Philips Lung Cancer Orchestrator solution is designed to
enable health systems to operationalize lung cancer screening and lung nodule
management programs at scale.

Motivating and expanding our field sales force and customer support team. Our
field sales force is the primary point of contact in the clinical setting. These
representatives of the company must cover expansive geographic regions which
limits their time for interaction and education of our products in the clinical
setting. We plan to continue investing in the field sales force, increasing the
total number of sales representatives to drive continued growth, and thereby
reduce the geographic footprint each representative must cover. This investment
will allow the larger sales force to maximize their education and selling
efforts and achieve greater returns. Additionally, we plan to invest in the
Boulder-based marketing and customer support teams to continue to provide the
field team with the resources to be successful in the field.

While each of these areas present significant opportunities for us, they also
pose significant risks and challenges that we must address. See Part II, Item 1A
"Risk Factors" within this Form 10-Q and Item 1A "Risk Factors" of Part I of our
Annual Report on Form 10-K for the year ended December 31, 2021 for more
information.

Covid-19 pandemic

The COVID-19 pandemic has disrupted, and may continue to disrupt, our lung
diagnostic testing operations. To protect the health and well-being of our
workforce, partners, vendors and customers, we provide voluntary COVID-19
testing for employees working on-site, implemented social distance and building
entry policies at work, restricted travel and facility visits, and followed the
States of Colorado and Kansas' public health orders and the guidance from the
Centers for Disease Control and Prevention (CDC). Employees who can perform
their duties remotely have the option to work from home. Our sales, marketing
and business development efforts may be constrained by our operational response
to future COVID-19 variant outbreaks. We will continue to adjust our operational
norms, as needed, to help slow the spread of COVID-19, including complying with
government directives and guidelines as they are modified and supplemented.

The COVID-19 pandemic and the surge associated with multiple variants have
negatively affected our lung diagnostic testing-related revenue and our clinical
studies. Beginning in the third quarter 2020, the Company's COVID-19 testing
services began to experience rapid growth with a peak in the first quarter 2021;
however, subsequent to this peak, we experienced a rapid decline in COVID-19
testing revenue primarily as a result of a few significant contracts that
expired as well as the ongoing increase in COVID-19 vaccination rates across the
U.S. and the adoption and availability of at-home testing. We do not anticipate
the need for COVID-19 testing to be commensurate with the peak demand
experienced during the first quarter 2021 and instead expect the demand to
moderate as new variants and infections occur. There is no assurance that our
COVID-19 testing program will continue to be accepted by the market or that
other diagnostic tests will become more accepted, produce quicker results or are
more accurate. Further, the longevity and extent of the COVID-19 pandemic is
uncertain and the need for COVID-19 testing could vary which could have a
significant effect on our results of operations and profitability. As a result,
increases in revenue due to any increase in demand for these diagnostic tests
may not be indicative of our future revenue.

See Item 1A "Risk Factors" of Part II in this Quarterly Report on Form 10-Q and
those discussed in our other filings with the SEC, including the risks described
in Item 1A "Risk Factors" of Part I of our Annual Report on Form 10-K for the
year ended December 31, 2021, which was filed on March 14, 2022, for a
description of how the COVID-19 pandemic may adversely affect our business,
financial condition and results of operations.

Third Quarter 2022 Financial and Operational Highlights

The following significant developments impacted our business, capital structure and liquidity during the three months ended September 30, 2022 compared to the same period in 2021, unless otherwise indicated:

Total income of $11.1 millionan increase of 70%, primarily due to strong year-over-year growth in key pulmonary diagnoses:

o

Core Pulmonary Diagnostics Revenue of $9.2 millionreflected a 102% year-over-year increase, primarily due to increased adoption of Nodify lung nodule management assays (Nodify CDT and Nodify XL2 assays) and the recent commercial launch of GeneStrat NGS;

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o
COVID-19 testing revenue of $1.3 million reflected a year-over-year increase of
154% that was driven primarily by testing volume under a now expired contract
with the State of Colorado;

o
Services revenue of $0.7 million decreased 55% year-over-year. COVID-related
delays in clinical study enrollment and sample shipping logistics have begun to
recover but are still impacting timelines for existing and new agreements;

Third quarter 2022 gross profit of $7.5 million, or 67% gross margin as compared
to 58% gross margin in the comparable prior year period primarily driven by the
growth of sales in our higher-margin core lung diagnostics;

Operating expenses (excluding direct costs and expenses) of $18.1 million, an
increase of 7% driven primarily by growth in sales and marketing which support
the record growth in core lung diagnostics sales as well as the recent GeneStrat
NGS commercial launch;

o

Includes non-cash stock compensation expense of $1.2 million compared to $1.4 million;

Net loss of $13.7 million, an increase of 19%, driven primarily by a gain on
extinguishment of $3.1 million in the third quarter 2021 related to the debt
forgiveness under the Small Business Administration Loan forgiveness program and
higher interest costs of $1.5 million partially offset by a reduction in
operating loss of $2.5 million or 19%;

Cash and cash equivalents of $15.2 million of the September 30, 2022;

o

Net proceeds raised from $1.8 million during the quarter through share offerings;

o

Includes payments during the quarter for principal repayment of $2.0 million on the 2021 Term Loan and $2.1 million for the scheduled milestone payment to Indi.

Components of operating results

Revenue

We derive our revenue from two primary sources: (i) providing diagnostic testing
in the clinical setting (Diagnostic Tests); and (ii) providing biopharmaceutical
companies with services that include diagnostic research, clinical research,
clinical trial testing, development and testing services generally provided
outside the clinical setting and governed by individual contracts with third
parties as well as development and commercialization of companion diagnostics
(Services).

Diagnostic Tests

Diagnostic test revenue is generated from delivery of results from our
diagnostic tests. In the United States, we performed tests as both an in-network
and out-of-network service provider depending on the test performed and the
contracted status of the insurer. We provide diagnostic tests in two primary
categories: (i) core lung diagnostics testing and (ii) COVID-19 testing.

We consider diagnostic testing to be completed upon the delivery of test results
to our customer, either the prescribing physician or third-party to which we
contracted for services to be performed, which is considered the performance
obligation. The fees for such services are billed either to a third party such
as Medicare, medical facilities, commercial insurance payers, or to the patient.
We determine the transaction price related to our contracts by considering the
nature of the payer, the historical amount of time until payment by a payer and
historical price concessions granted to groups of customers.

Services

Services revenue is generated from the delivery of our on-market tests, pipeline
tests, custom diagnostic testing, and other scientific services for a purpose as
defined by any individual customer. At times we collaborate with large
biopharmaceutical companies in an attempt to discover biomarkers that would be
helpful in their drug development or marketing. The performance obligations and
related revenue for these sales is defined by a written agreement between us and
our customer. These services are generally completed upon the delivery of
testing results, or other contractually defined milestone(s), to the customer,
which is considered the performance obligation. Customers for these services are
typically large pharmaceutical companies where collectability is reasonably
assured and therefore revenue is accrued upon completion of the performance
obligations. Revenue derived from services is often unpredictable and can cause
dramatic swings in our overall net revenue line from quarter to quarter.

Functionnary costs

Direct costs and expenses

Cost of diagnostic testing generally consists of cost of materials, direct
labor, including bonus, employee benefits, equipment and infrastructure expenses
associated with acquiring and processing test samples, including sample
accessioning, test performance, quality control analyses, charges to collect and
transport samples; curation of test results for physicians; and in some cases,
license or royalty fees due to third parties. Costs associated with performing
our tests are recorded as the tests are processed regardless of whether revenue
was recognized with respect to the tests. Infrastructure expenses include
depreciation of laboratory equipment, rent costs, amortization

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of leasehold improvements and information technology costs. Royalties for
licensed technology are calculated as a percentage of revenues generated using
the associated technology and recorded as expense at the time the related
revenue is recognized. One-time royalty payments related to signing of license
agreements or other milestones, such as issuance of new patents, are amortized
to expense over the expected useful life of the patents. While we do not believe
the technologies underlying these licenses are necessary to permit us to provide
our tests, we do believe these technologies are potentially valuable and of
possible strategic importance to us or our competitors. Under these license
agreements, we are obligated to pay aggregate royalties ranging from 1% to 8% of
sales in which the patents or know-how are used in the product or service sold,
sometimes subject to minimum annual royalties or fees in certain agreements.

We expect the aggregate cost of diagnostic testing to increase in line with the
increase in the number of tests we perform, but the cost per test to decrease
modestly over time due to the efficiencies we may gain as test volume increases,
and from automation and other cost reductions. Cost of services includes costs
incurred for the performance of development services requested by our customers.
Costs of development services will vary depending on the nature, timing and
scope of customer projects.

Research and development

Research and development expenses consist of costs incurred to develop
technology and include salaries and benefits, reagents and supplies used in
research and development laboratory work, infrastructure expenses, including
allocated facility occupancy and information technology costs, contract
services, clinical studies, other outside costs and costs to develop our
technology capabilities. Research and development expenses account for a
significant portion of our operating expenses and consist primarily of external
and internal costs incurred in connection with the discovery and development of
our product candidates.

External expenses include: (i) payments to third parties in connection with the
clinical development of our product candidates, including contract research
organizations and consultants; (ii) the cost of manufacturing products for use
in our preclinical studies and clinical trials, including payments to contract
manufacturing organizations (CMOs) and consultants; (iii) scientific development
services, consulting research fees and for sponsored research arrangements with
third parties; (iv) laboratory supplies; and (v) allocated facilities,
depreciation and other expenses, which include direct or allocated expenses for
IT, rent and maintenance of facilities. External expenses are recognized based
on an evaluation of the progress to completion of specific tasks using
information provided to us by our service providers or our estimate of the level
of service that has been performed at each reporting date. We track external
costs by the stage of program, clinical or preclinical.

Internal expenses include employee-related costs, including salaries and related
benefits for employees engaged in research and development functions. We do not
track internal costs by product candidate because these costs are deployed
across multiple programs and, as such, are not separately classified.

Research and development costs are expensed as incurred. Payments made prior to
the receipt of goods or services to be used in research and development are
deferred and recognized as expense in the period in which the related goods are
received or services are rendered. Costs to develop our technology capabilities
are recorded as research and development.

We expect our research and development expenses to increase as we continue to
innovate and develop additional products and expand our data management
resources. As our services revenue grows, an increasing portion of research and
development dollars are expected to be allocated to cost of services for
biopharmaceutical service contracts. This expense, though expected to increase
in dollars, is expected to decrease as a percentage of revenue in the long term,
though it may fluctuate as a percentage of our revenues from period to period
due to the timing and extent of these expenses.

Sales, marketing, general and administrative

Our sales and marketing expenses are expensed as incurred and include costs
associated with our sales organization, including our direct sales force and
sales management, client services, marketing and reimbursement, as well as
business development personnel who are focused on our biopharmaceutical
customers. These expenses consist primarily of salaries, commissions, bonuses,
employee benefits, and travel, as well as marketing and educational activities
and allocated overhead expenses. We expect our sales and marketing expenses to
increase in dollars as we expand our sales force, increase our presence within
the United States, and increase our marketing activities to drive further
awareness and adoption of our tests and our future products. These expenses,
though expected to increase in dollars, are expected to decrease as a percentage
of revenue in the long term, though they may fluctuate as a percentage of our
revenues from period to period due to the timing and extent of these expenses.

Our general and administrative expenses include costs for our executive,
accounting, finance, legal and human resources functions. These expenses consist
principally of salaries, bonuses, employee benefits, and travel, as well as
professional services fees such as consulting, audit, tax and legal fees, and
general corporate costs and allocated overhead expenses. We expect that our
general and administrative expenses will continue to increase in dollars,
primarily due to increased headcount and costs associated with operating as a
public company, including expenses related to legal, accounting, regulatory,
maintaining compliance with exchange listing and requirements of the SEC,
director and officer insurance premiums and investor relations. These expenses,
though expected to increase in dollars, are expected to decrease as a percentage
of revenue in the long term, though they may fluctuate as a percentage from
period to period due to the timing and extent of these expenses.

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Change in fair value of contingent consideration

In connection with the purchase transaction of Indi, we recorded contingent
consideration pertaining to the amounts potentially payable to Indi shareholder
pursuant to the terms of the asset purchase agreement. The fair value of
contingent consideration was assessed at each balance sheet date and changes, if
any, to the fair value were recognized as operating expenses within the
statement of operations. The Company met the gross margin target of $2.0 million
for three consecutive months during the three months ended June 30, 2021.
Subsequent changes to the contingent consideration following the achievement of
the gross margin target are recorded as 'Interest expense' in the statements of
operations resulting from the passage of time and fixed payment schedule. The
significant unobservable inputs used in the measurement of fair value included
the probability of successful achievement of the specified product gross margin
targets, the period in which the targets were expected to be achieved, and
discount rates which ranged from 11% to 16%. As a result of the achievement of
the gross margin target, the only significant unobservable input used in the
measurement of fair value includes the discount rate since all other inputs
became fixed and determinable. During the period ended June 30, 2022, the
Company increased the discount rate to reflect current market and Company
specific conditions.

On April 7, 2022, the Company entered into Amendment No. 3 to the Indi APA in
which the parties agreed to restructure the milestone payments whereby the
Company will make five quarterly installments of $2.0 million each beginning in
April 2022, three quarterly installments of $3.0 million beginning in July 2023,
one installment of $5.0 million in April 2024, and one installment of
approximately $8.4 million in July 2024. In addition, the Company agreed to an
exit fee of approximately $6.1 million in October 2024. Interest shall accrue on
the difference between the payment schedule as agreed in the August 2021
amendment and the April 2022 amended payment schedule, at an aggregate per annum
rate equal to 10%, with such interest to be payable quarterly on the following
installment payment date.

Non-Operating Expenses

Interest expense and interest income

For the three and nine months ended September 30, 2022, interest expense
consists of cash and non-cash interest from Promissory Note One, the 2021 Term
Loan and changes in the value of our contingent consideration associated with
the passage of time subsequent to the achievement of the gross margin target in
the second quarter 2021. For the three and nine months ended September 30, 2021,
interest expense primarily consists of cash and non-cash interest from our 2021
Term Loan. Interest income, which is included in 'Other income, net' in the
statements of operations consists of income earned on our cash and cash
equivalents.

Operating results

The following table sets forth the significant components of our results of operations for the periods presented (in thousands, except percentages).

                                       Three Months Ended                                   Nine Months Ended September
                                          September 30,                  Change                         30,                        Change
                                      2022             2021           $           %            2022             2021            $            %
Revenues                           $   11,107       $    6,531     $  4,576

70% $28,605 $47,282 ($18,677) (40)% Operating expenses: Direct costs and expenses

               3,633            2,722          911         33 %        10,848           28,025       (17,177 )       (61 )%
Research and development                2,970            3,293         (323 )      (10 )%        9,537            9,937          (400 )        (4 )%
Sales, marketing, general and
administrative                         15,114           13,607        1,507         11 %        44,836           36,959         7,877          21 %
Change in fair value of
contingent consideration                    -                -            -          -               -            1,622        (1,622 )      (100 )%
Impairment loss on intangible
assets                                      -                -            -          -              81                -            81         100 %
Total operating expenses               21,717           19,622        2,095         11 %        65,302           76,543       (11,241 )       (15 )%
Loss from operations                  (10,610 )        (13,091 )      2,481 

19% (36,697 ) (29,261 ) (7,436 ) (25 )% Other income (expenses): Debit interest

                       (3,039 )         (1,546 )     (1,493 

) (97 )% (5,522 ) (3,012 ) (2,510 ) (83 )% (Loss) gain on extinguishment of liabilities, net

                          (52 )          3,123       (3,175 

) (102 )% (3,004 ) 2,395 (5,399 ) 225% Other net income

                           2                -            2        100 %           114                1           113       11300 %
Total other (expense) income           (3,089 )          1,577       (4,666 )      296 %        (8,412 )           (616 )      (7,796 )     (1266 )%

Net loss                           $  (13,699 )     $  (11,514 )   $ (2,185 )      (19 )%   $  (45,109 )     $  (29,877 )   $ (15,232 )       (51 )%

Stock-based compensation(1) $1,170 $1,386 $ (216 ) (16)% $3,884 $3,677 $207

           6 %




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(1)

The amounts represent the stock-based compensation expense reported in the Company’s results of operations above.

Revenue

We generate revenue from our diagnostic tests and the services we provide. Our revenues for the periods indicated were as follows (in thousands, except percentages):

                             Three Months Ended September                                 Nine Months Ended
                                         30,                        Change                  September 30,                  Change
                                2022              2021           $          %           2022            2021            $           %
Revenues
COVID-19                     $    1,286         $     506     $   780        154 %    $   5,224       $  29,802     $ (24,578 )      (82 )%
Lung Diagnostic                   9,157             4,533       4,624       

102% 21,058 13,270 7,788 59% Revenue from diagnostic tests 10,443

             5,039       5,404        107 %       26,282          43,072       (16,790 )      (39 )%
Services revenue                    664             1,492        (828 )      (55 )%       2,323           4,210        (1,887 )      (45 )%
Total revenues               $   11,107         $   6,531     $ 4,576         70 %    $  28,605       $  47,282     $ (18,677 )      (40 )%




Total revenue increased $4.6 million or 70%, and decreased $18.7 million or 40%
for the three and nine months ended September 30, 2022, respectively, compared
to the same periods in 2021.

Diagnostic test revenue increased $5.4 million or 107%, and decreased $16.8
million or 39% for the three and nine months ended September 30, 2022,
respectively, compared to the same periods in 2021. The increase for the three
months ended September 30, 2022 compared to the same period in 2021 is due to a
$0.8 million increase in COVID-19 revenue and $4.6 million increase in lung
diagnostic revenue driven primarily from an increase in Nodify XL2 and CDT, and
GeneStrat NGS tests delivered. The decrease in Diagnostic test revenue for the
nine months ended September 30, 2022 compared to the same period in 2021 is due
to a $24.6 million reduction in COVID-19 revenue resulting from an increase in
COVID-19 vaccination rates across the U.S. and the adoption and availability of
at-home testing, including the expiration of significant testing contracts. The
reduction in COVID-19 revenue was partially offset by an increase in our core
lung diagnostic revenue of $7.8 million driven primarily from an increase in
Nodify XL2 and CDT, and GeneStrat NGS tests delivered. The Company's core lung
diagnostic sales efforts continued to gain momentum during the three months
ended September 30, 2022 as the COVID-19 pandemic recedes and as health care
practitioners, including pulmonologists, increasingly returned to pre-pandemic
related care.

Services revenue decreased $0.8 million or 55%, and $1.9 million or 45% for the
three and nine months ended September 30, 2022, respectively, compared to the
same periods in 2021 due to lower testing volumes driven by sample shipping
logistics impacting timelines for existing and new agreements. In addition to
delayed receipts in samples, service revenue can fluctuate due to several
factors including contract timing, which can be long under normal circumstances,
and currently reflects the slower pace of overall prospective clinical trial
enrollment recovering from disruptions put forth by COVID-19.

Operating Expenses

Direct costs and expenses

Direct costs and expenses related to revenue increased $0.9 million or 33%, and
decreased $17.2 million or 61% for the three and nine months ended September 30,
2022, respectively, compared to the same periods in 2021. The increase in costs
for the three months ended September 30, 2022 was due primarily to increased
lung diagnostic revenue, testing volume, and the reserve recorded for excess
inventory primarily associated with the wind down of the COVID-19 testing
operation. The decrease in costs for the nine months ended September 30, 2022
was driven primarily by the overall decline in COVID-19 testing, as vaccinations
increase as well as broader adoption and availability of at-home testing,
partially offset by an increase in direct costs and expenses associated with
increased lung diagnostic revenue and the reserve recorded for excess inventory.

Research and development

Research and development spending fell $0.3 million or 10%, and $0.4 million or 4% for the three and nine month periods ended September 30, 2022respectively, compared to the same periods in 2021. The decrease in costs for the three and nine months ended September 30, 2022 was primarily due to lower employee compensation and benefit costs and other laboratory costs.

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The following table summarizes our external and internal costs for the three and nine months ended September 30, 2022 and 2021 (in thousands, except percentages).

                                  Three Months Ended                                 Nine Months Ended September
                                     September 30,                 Change                        30,                      Change
                                2022              2021          $          %           2022              2021          $          %
External expenses:
Clinical trials and
associated costs              $     433         $     364     $   69         19 %    $   1,641         $   1,671     $  (30 )       (2 )%
Other external costs                846             1,039       (193 )      (19 )%       2,685             3,049       (364 )      (12 )%
Total external costs              1,279             1,403       (124 )       (9 )%       4,326             4,720       (394 )       (8 )%
Internal expenses                 1,691             1,890       (199 )      (11 )%       5,211             5,217         (6 )       (0 )%
Total research and
development expenses          $   2,970         $   3,293     $ (323 )      (10 )%   $   9,537         $   9,937     $ (400 )       (4 )%

Sales, marketing, general and administrative

Sales, marketing, general and administrative expenses increased $1.5 million or
11%, and $7.9 million or 21% for the three and nine months ended September 30,
2022, respectively, compared to the same periods in 2021. This increase was
driven primarily by increases in employee compensation and benefits for both the
three and nine months ended September 30, 2022 associated with an increase in
sales headcount and variable compensation during 2022 as compared to 2021. This
is also the result of increases in non-employee costs for both the three and
nine months ended September 30, 2022 associated with increased spending on
various sales meetings, training, and campaigns.

Change in fair value of contingent consideration

Change in fair value of contingent consideration decreased $1.6 million or 100%
for the nine months ended September 30, 2022 compared to the same period in
2021. The net change to contingent consideration through the date the gross
margin target was met is recorded as operating expenses in the statements of
operations. The decrease of $1.6 million is a result of the gross margin target
being met during the three months ended June 30, 2021 and subsequent changes to
the contingent consideration following the achievement of the gross margin
target are recorded as 'Interest expense' in the statements of operations
resulting from the passage of time and fixed payment schedule.

Non-operating expenses

Interest expense

Interest expense increased $1.5 million or 97%, and $2.5 million or 83% for the
three and nine months ended September 30, 2022, respectively, compared to the
same periods in 2021. This increase for the three and nine months ended
September 30, 2022 is primarily related to interest associated with the
contingent consideration, the securities purchase agreement with Streeterville
Capital, LLC (the Lender), in which the Lender purchased Promissory Note One for
which the Company recorded $0.9 million and $1.3 million, respectively and the
accelerated accretion of the $2.7 million Silicon Valley Bank (SVB) final
payment as interest expense over the expected remaining term of the loan.

(Loss) gain on extinguishment of liabilities, net

The Company recorded a loss on extinguishment of liabilities of $0.1 million and
$3.0 million for the three and nine months ended September 30, 2022,
respectively. During the three months September 30, 2022, the Company recorded a
loss on debt extinguishment of $0.1 million resulting from the partial repayment
of our 2021 Term Loan and the write-off of associated debt issuance costs. On
April 7, 2022, the Company entered into Amendment No. 3 to the Indi APA in which
all parties agreed to restructure the milestone payments. During the three
months ended June 30, 2022, the Company evaluated Amendment No. 3 to the Indi
APA in accordance with applicable accounting standards under U.S. GAAP which
resulted in the extinguishment of the original instrument due to the
substantially different terms. As a result, during the three months ended June
30, 2022, we recorded a loss on the extinguishment of $2.9 million.

During the three and nine months ended September 30, 2021, the Company
recognized a $3.1 million and $2.4 million net gain on debt extinguishment. The
Company recorded a gain on debt extinguishment of $3.1 million related to the
legal release and forgiveness of the Paycheck Protection Program Loan in full.
The gain was partially offset by losses on debt extinguishment of $0.7 million
and $0.1 million resulting from the repayment and termination of our 2018
secured promissory note with Innovatus and the write-off of debt issuance costs
associated with a $20 million prepayment of our 2021 Term Loan, respectively.

Cash and capital resources

We are an emerging growth company and, as such, have yet to generate positive
cash flows from operations. We have funded our operations to date principally
from net proceeds from the sale of our common stock, the sale of convertible
preferred stock, revenue from diagnostic testing and services, and the
incurrence of indebtedness.

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As a result of the pandemic, the Company diversified its diagnostic testing
beyond lung diagnostic testing to include the critical service of COVID-19
diagnostic testing. Beginning in the third quarter 2020, the Company's COVID-19
testing services began to experience rapid growth with a peak in the first
quarter 2021; however, subsequent to this peak, we experienced a rapid decline
in COVID-19 testing revenue primarily as a result of a few significant contracts
that expired as well as the ongoing increase in COVID-19 vaccination rates
across the U.S. and the adoption and availability of at-home testing. In
addition, the COVID-19 pandemic negatively affected our lung diagnostic
testing-related revenue and our clinical studies. We began to see recovery
during the fourth quarter 2020 in our core lung diagnostic testing as our
delivered tests exceeded first quarter 2020 delivered tests. The Company's sales
efforts continued to be impacted by the COVID-19 pandemic during the first half
of the first quarter 2022 due to surges associated with variants, which
negatively affected the growth rate of our core lung diagnostic testing-related
revenue and our clinical studies. However, we began to see further recovery
during the latter half of the first quarter and throughout the second quarter
2022 in lung diagnostic testing as health care practitioners, including
pulmonologists, increasingly returned to pre-pandemic related care. As a result,
the items identified above have had an adverse effect on our revenue, results of
operations and cash flows.

In March 2021, we completed the closing of our 2021 Term Loan for a principal
amount of $30 million and extinguished our prior 2018 term loan for $25.9
million. The 2021 Term Loan contains customary affirmative covenants, including
covenants regarding compliance with applicable laws and regulation, payment of
taxes, insurance coverage, notice of certain events, and reporting requirements.
Further, the 2021 Term Loan contains customary negative covenants limiting the
ability to, among other things, incur future debt, transfer assets except for
the ordinary course of business, make acquisitions, make certain restricted
payments, and sell assets, subject to certain exceptions. The 2021 Term Loan
requires the Company to comply with a minimum liquidity ratio covenant (as
defined in the 2021 Term Loan) of not less than 0.95 to 1.00, and had a trailing
six-month rolling revenue requirement of not less than 70% of the Company's
projected revenue performed at the end each reporting period.

The gross margin target associated with the purchase transaction of Indi was
achieved in the quarter ending June 30, 2021, giving rise to the previously
disclosed contingent obligations of $37.0 million in the aggregate payable
through the issuance of Company's shares of common stock subject to a fixed
price put option. The Company entered into an amendment in August 2021 to the
original agreement in which all parties agreed to forgo the issuance of shares
of common stock of the Company that would otherwise be issued, and the Company
will instead make six quarterly installment payments of $4.6 million beginning
in January 2022 and a final payment of approximately $9.3 million in July 2023
for a total of $37.0 million (the Milestone Payments and each individually a
Milestone Payment). The aggregate amount of payments owed by the Company under
this amendment is the same as if Indi had exercised the put right or the Company
had exercised the call right provided for in the original agreement.

On September 30, 2021, we entered into the Consent and First Amendment to Loan
and Security Agreement (the 2021 Term Loan Amendment) to, among other things,
amend our 2021 Term Loan to eliminate the revenue covenant for the period ended
September 30, 2021 and modify the revenue covenant threshold for the three month
period ended December 31, 2021. In addition, we agreed to establish a restricted
cash collateral account for $15 million for the benefit of SVB if the balance of
our cash and cash equivalents declined below $40 million.

On December 30, 2021, the Company raised approximately $16.3 million in gross
proceeds from the sale of 3,756,994 common shares at a public offering price of
$4.35 per share in an at-the-market offering. The Company received net proceeds
of $15.7 million after deducting underwriting discounts and commissions and
offering expenses payable by the Company.

On December 31, 2021, we entered into the Consent and Second Amendment to Loan
and Security Agreement (Second Amendment) to, among other things, amend our 2021
Term Loan and First Amendment to: (i) obtain consent for the $4.6 million
January 2022 Milestone Payment due under the Indi APA, (ii) repay $20 million in
outstanding principal on December 31, 2021, (iii) waive the $600,000 prepayment
fee on the $20 million 2021 Term Loan repayment, (iv) waive the minimum revenue
covenant as of December 31, 2021, and (v) modify the minimum revenue requirement
to not less than 75% for the three months ended March 31, 2022 and not less than
75% on a trailing six month rolling basis for each quarter thereafter of the
Company's projected revenue performed at the end of each reporting period. SVB
agreed to apply the full amount of funds previously established within the
restricted cash collateral account to partially repay the $20 million in
outstanding principal, thereby eliminating the restricted cash collateral
account.

On March 7, 2022 (the Effective Date), the Company entered into a purchase
agreement with Lincoln Park, pursuant to which Lincoln Park has committed to
purchase up to $50.0 million of the Company's common stock (the Purchase
Agreement). Under the terms and subject to the conditions of the Purchase
Agreement, the Company has the right, but not the obligation, to sell to Lincoln
Park, and Lincoln Park is obligated to purchase up to $50.0 million of the
Company's common stock. Such sales of common stock by the Company, if any, will
be subject to certain limitations, and may occur from time to time, at the
Company's sole discretion, over the 36-month period commencing on the Effective
Date. As consideration for Lincoln Park's irrevocable commitment to purchase our
common stock upon the terms of and subject to satisfaction of the conditions set
forth in the purchase agreement, on the Effective Date, the Company issued
184,275 shares of common stock to Lincoln Park as a commitment fee valued at
$600,000 for which no consideration was received.

On April 7, 2022the Company has entered into subscription agreements (the Subscription Agreements) with a consortium of investors (the Investors), comprising three members of our Board of Directors and other existing shareholders of the Company, for the issue and sale

                                       33
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by the Company of an aggregate of 6,508,376 common shares of the Company pursuant to an offer for an aggregate purchase price of approximately $11.7 million.

On April 7, 2022, the Company entered into the Consent and Third Amendment to
Loan and Security Agreement (Third Amendment) whereby subject to the terms and
conditions of the Third Amendment, certain waivers and consents were provided.
Under the terms of the Third Amendment to our 2021 Term Loan, the Company agreed
to the repayment of $3.0 million in outstanding principal in April 2022 with an
additional $2.0 million to be paid no later than September 30, 2022, in exchange
for the following:

Consent for a $2.0 million April 2022 mutually agreed milestone payment under the Indi APA, as amended;

Waiver of the minimum income requirement for the three months ended March 31, 2022
and adjustment of remaining revenue milestones for 2022; and

Waiver and elimination of prepayment charges on the $3.0 million Partial repayment of the 2021 term loan in April 2022 And subsequent $2.0 million Principal repayment.

The Company further amended the Indi APA agreement in April 2022 in which all
parties agreed to restructure the Milestone Payments whereby the Company will
make five quarterly installments of $2.0 million each beginning in April 2022,
three quarterly installments of $3.0 million beginning in July 2023, one
installment of $5.0 million in April 2024, and one installment of approximately
$8.4 million in July 2024. In addition, the Company agreed to an exit fee of
approximately $6.1 million in October 2024. Interest shall accrue on the
difference between the payment schedule as agreed in the August 2021 amendment
and the April 2022 amended payment schedule, at an aggregate per annum rate
equal to 10%, with such interest to be payable quarterly on the following
installment payment date. Our ability to make these payments are subject to
consent from our lender under the 2021 Term Loan and related amendments. We have
obtained SVB consent for contractual payments through the fourth Milestone
Payment and interest payment of $2.1 million paid in October 2022 and we are in
discussions with SVB to obtain consents for future payments.

On May 9, 2022, the Company entered into a securities purchase agreement with
Streeterville Capital, LLC (the Lender), pursuant to which, among other things,
the Lender: (i) purchased a secured promissory note (Promissory Note One) in the
aggregate principal amount totaling $16.0 million in exchange for $15.0 million
less certain expenses and (ii) agreed to purchase another secured promissory
note at the Company's election (Promissory Note Two and, together with
Promissory Note One, the Promissory Notes), subject to certain conditions
precedent in aggregate principal amount totaling $10.3 million in exchange for
$10.0 million in cash proceeds. Each of the Promissory Notes may, at the
Company's option, be settled in cash or shares of common stock of the Company,
upon the terms and subject to the limitations and conditions set forth in the
Promissory Notes. On May 9, 2022, the Company closed on the first tranche for
gross proceeds of $15.0 million (approximately $12.8 million, net, after
deducting debt issuance costs and OID), and intends to use the proceeds from
such issuance for general corporate purposes.

On September 30, 2022, the Company entered into the Consent and Fourth Amendment
to Loan and Security Agreement (the 2021 Term Loan Fourth Amendment). Under the
terms of the 2021 Term Loan Fourth Amendment, the Company agreed to a repayment
of $2.0 million in outstanding principal on the earlier of (a) November 30,
2022, or (b) the date on which our unrestricted cash held with SVB falls below
$10.0 million, which could be extended to December 15, 2022, subject to equity
fund raising of at least $5 million, in exchange for: (i) consent for the $2.1
million October 2022 milestone and interest payment under the Indi APA, as
amended, and (ii) waiver and elimination of the prepayment fee on the subsequent
$2.0 million 2021 Term Loan principal repayment.

As mentioned above, the Company maintains two facilities that enable equity
financing on an ongoing basis at the Company's sole discretion, our
at-the-market offering and our common stock purchase agreement with Lincoln Park
Capital Fund, LLC (the LPC facility). During the three and nine months ended
September 30, 2022, the Company raised approximately $1.8 million and $6.3
million, respectively ($1.7 million and $5.8 million, respectively, after
deducting underwriting discounts and commissions and offering expenses payable),
in gross proceeds from the sale of 923,720 and 3,051,611 common shares at a
weighted average price per share of $1.98 and $2.07, respectively, under these
programs. As of September 30, 2022, the Company had remaining available capacity
for share issuances of approximately $29.5 million under the at-the-market
facility and up to $47.9 million under the LPC facility, each subject to the
restrictions and limitations of the underlying facilities, as applicable.

As of September 30, 2022, we maintained cash and cash equivalents of $15.2
million and we have $21.4 million in outstanding aggregate principal amount on
our 2021 Term Loan and Promissory Note One. We have incurred significant losses
since inception and, as a result, we have funded our operations to date
primarily through the sale of common stock, the sale of convertible preferred
stock, the issuance of notes payable, and from our two primary revenue sources:
(i) diagnostic testing, which include lung diagnostic testing and COVID-19
testing, and (ii) providing biopharmaceutical companies with development and
testing services. In accordance with Accounting Standards Update 2014-15 (ASC
Topic 205-40), Presentation of Financial Statements - Going Concern: Disclosure
of Uncertainties about an Entity's Ability to Continue as a Going Concern, the
Company is required to evaluate whether there is substantial doubt about its
ability to continue as a going concern each reporting period, including interim
periods. In evaluating the Company's ability to continue as a going concern,
management projected its cash flow sources, including the debt and equity
funding and amendments to the 2021 Term Loan and Indi APA, and evaluated the
conditions and events that could raise substantial doubt about the Company's
ability to continue as a going concern within one year after the date that these
financial statements were issued. Management considered the

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Company's current projections of future cash flows, current financial condition,
sources of liquidity and debt obligations for at least one year from the date of
issuance of this Form 10-Q in considering whether it has the ability to meet its
obligations.

Our ability to meet our obligations as they come due may be impacted by our
ability to remain compliant with financial covenants in our loan agreements or
to obtain waivers or amendments that impact the related covenants. As of
September 30, 2022, the Company was in compliance with all restrictive and
financial covenants associated with its borrowings. However, due to the
continued uncertainty caused by the COVID-19 pandemic, significant risks remain
with respect to our ability to meet these thresholds and any material adverse
effect on our revenues, income and expenses could impact our ability to maintain
compliance with these covenants.

Based on our current operating plan, unless we continue to raise additional
capital (debt or equity) or obtain waiver from complying with such financial
covenants, we expect that we will be unable to maintain our financial covenants
under our existing loan agreements during the next twelve months, which could
result in an Event of Default, as defined, causing an acceleration of the
outstanding balances. We have taken steps to improve our liquidity through the
actions noted above and have also undertaken several proactive measures to
mitigate the financial and operational impacts of COVID-19 through the reduction
of planned capital expenditures and certain operating expenses but we do not
expect that these actions alone will be sufficient to maintain our financial
covenants. We plan to raise additional funding through the issuance of equity or
debt securities and any such financing activities are subject to market
conditions. If we do raise additional capital through public or private equity
offerings, the ownership interest of our existing stockholders will be diluted,
and the terms of these securities may include liquidation or other preferences
that adversely affect our existing stockholders' rights. If we raise additional
capital through debt financing, we may be subject to covenants limiting or
restricting our ability to take specific actions, such as incurring additional
debt, making capital expenditures or declaring dividends. There can be no
assurance that additional capital will be available to us or, if available, will
be available in sufficient amounts or on terms acceptable to us or on a timely
basis nor can there be any assurance that the Company will be a beneficiary of
the COVID-19 Action Plan. If adequate capital resources are not available on a
timely basis, we intend to consider limiting our operations substantially. This
limitation of operations could include a hiring freeze, reductions in our
workforce, reduction in cash compensation, deferring capital expenditures, and
reducing other operating costs.

The Company's revenues, results of operations and cash flows have been
materially adversely impacted by the items noted above. We expect to continue to
incur operating losses in the near term while we make investments to support our
anticipated growth. Our current operating plan, which is in part determined
based on our most recent historical actual results and trends, along with the
items noted above, raises substantial doubt about the Company's ability to
continue as a going concern for a period beyond one year from when the September
30, 2022 financial statements are issued. Our unaudited financial statements
have been prepared assuming we will continue as a going concern and do not
include any adjustments that might be necessary should we be unable to continue
as a going concern.

Cash Flows

The following summarizes our cash flows for the periods indicated (in
thousands):

                                                            Nine Months Ended September 30,
                                                              2022                   2021
Net cash flows (used in) provided by:
Operating activities                                    $        (33,024 )     $        (18,026 )
Investing activities                                              (1,547 )               (1,906 )
Financing activities                                              17,034                  5,625
Net decrease in cash and cash equivalents and
restricted cash                                         $        (17,537 )     $        (14,307 )



Our cash flows resulted in a net decrease in cash and cash equivalents of $17.5
million during the nine months ended September 30, 2022 as compared to the net
decrease in cash of $14.3 million for the nine months ended September 30, 2021.
For the nine months ended September 30, 2022, net cash used in operating
activities increased by approximately $15.0 million due to a year-over-year
increase in net loss from operations of $15.2 million, which includes an
increase in non-cash expenses of approximately $9.9 million, and unfavorable
changes in net working capital of $9.7 million primarily as a result of the $5.0
million cash collateralized letter of credit (classified as long-term restricted
cash as of the second quarter 2022) under the operating lease agreement with
Centennial Valley Properties I, LLC being released and the funds subsequently
transferred to the landlord as a refundable deposit to secure the performance of
the Company's obligations and a decrease in cash collections from customers and
payments to vendors.

Net cash used in investing activities during the nine months ended September 30,
2022 totaled $1.5 million, a decrease of $0.4 million compared to the same
period in 2021. The decrease in net cash used in investing activities was
primarily due to decreases in purchases of property and equipment and payments
for patents and trademarks.

Net cash provided by financing activities during the nine months ended September
30, 2022 totaled $17.0 million, an increase of $11.4 million compared to the
same period in 2021. The net cash provided by financing activities for the nine
months ended September 30, 2022 primarily resulted from $18.0 million net
proceeds from the issuance of common stock, $12.8 million net proceeds from the
issuance of Promissory Note One, partially offset by the milestone payments to
Indi of $8.7 million and partial repayment of the 2021

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Term Loan of $5.0 million. The net cash provided by financing activities for the
nine months ended September 30, 2021 primarily resulted from the net proceeds
from our 2021 Term Loan of $29.9 million, and proceeds from the exercise of
stock options and issuance of common stock under the ESPP of approximately $1.1
million, primarily offset by the repayment of $25.4 million from our 2018 Term
Loan.

Contractual obligations and commitments

As a result of the entering into additional operating lease agreements, the
secured promissory note, and Amendment No. 3 to the Indi APA, our non-cancelable
contractual obligations and commitments for lease and debt obligations as
presented in our Form 10-K have been modified. The following table provides an
update as follows as of September 30, 2022 (in thousands):

                                                             Payments due by period
                                                      Less than       1 to 3       4 to 5      More than
                                         Total         1 year         years        years        5 years
Borrowings and interest (1)            $  25,243     $    19,244     $  5,987     $     12     $        -
Contingent consideration (2)              36,806           9,919       26,887            -              -
Operating lease obligations(3)            49,245           2,010        5,951        7,999         33,285
Total                                  $ 111,294     $    31,173     $ 38,825     $  8,011     $   33,285




(1)
Includes the Promissory Note One, assuming exercise of cash redemption by
lender, and 2021 Term Loan payments of principal, interest and final payment fee
of $2.7 million. All outstanding obligations under the 2021 Term Loan are
presented in less than 1 year as the requirements of Promissory Note One include
the repayment of all amounts outstanding under the 2021 Term Loan within nine
months of the inception of Promissory Note One.

(2)

The gross margin target associated with the purchase transaction of Indi was
achieved in the quarter ending June 30, 2021, giving rise to the previously
disclosed contingent obligations of $37.0 million in the aggregate payable
through the issuance of Company's shares of common stock subject to a fixed
price put option. The Company entered into an amendment in August 2021 to the
original agreement in which all parties agreed to forgo the issuance of shares
of common stock of the Company that would otherwise be issued, and the Company
will instead make six quarterly installment payments of $4.6 million beginning
in January 2022 and a final payment of approximately $9.3 million in July 2023
for a total of $37.0 million. The aggregate amount of payments owed by the
Company under this amendment is the same as if Indi had exercised the put right
or the Company had exercised the call right provided for in the original
agreement. On April 7, 2022, the Company entered into Amendment No. 3 to the
Indi APA in which all parties agreed to restructure the milestone payments
associated with the contingent consideration whereby the Company will make five
quarterly installments of $2.0 million each beginning in April 2022, three
quarterly installments of $3.0 million beginning in July 2023, one installment
of $5.0 million in April 2024, and one installment of approximately $8.4 million
in July 2024. In addition, the Company agreed to an exit fee of approximately
$6.1 million in October 2024. Interest shall accrue on the difference between
the original payment schedule and the amended payment schedule, at an aggregate
per annum rate equal to 10%, with such interest to be payable quarterly on the
following installment payment date.

(3)

The contractually agreed upon $20.8 million of tenant improvement allowances are
expected to be received in less than 1 year, during the remainder of 2022 and
the first half of 2023.

There have been no other material changes to our future contractual obligations as disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2021.

Off-balance sheet arrangements

From September 30, 2022we have not entered into any off-balance sheet arrangements.

Critical Accounting Policies and Significant Judgments and Estimates

In accordance with accounting principles generally accepted in the United
States, we are required to make estimates and assumptions that affect the
amounts reported in the condensed financial statements and accompanying notes.
Certain of these estimates significantly influence the portrayal of our
financial condition and results of operations and require us to make difficult,
subjective or complex judgments. Our critical accounting policies are described
in greater detail below and in Note 2 to our condensed financial statements in
Part 1 of this Quarterly Report on Form 10-Q.

Revenue recognition

We recognize revenue when our customers obtain control of promised goods or
services, in an amount that reflects the consideration which we expect to
receive in exchange for our goods or services. To determine revenue recognition
for our arrangements with our customers, we perform a five-step process, which
includes: (i) identifying the contract(s) with a customer; (ii) identifying the
performance obligations in the contract; (iii) determining the transaction
price; (iv) allocating the transaction price to the performance obligations in
the contract; and (v) recognizing revenue when (or as) we satisfy our
performance obligations.

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Revenue from diagnostic tests

Diagnostic test revenues are recognized upon completion of our performance
obligation to the deliver test results to our customer, either the prescribing
physician or third-party to which we contracted for services to be performed. We
consider diagnostic testing to be completed upon the delivery of test results to
our customer which is considered the performance obligation. The fees for such
services are billed either to a third party such as Medicare, medical
facilities, commercial insurance payers, or to the patient. We determine the
transaction price related to our contracts by considering the nature of the
payer, the historical amount of time until payment by a payer and historical
price concessions granted to groups of customers. These estimates require
significant judgment by management.

Service revenue

Service revenues are recognized upon completion of our performance obligation to
deliver testing results for assay development and testing services. The
performance obligations and related revenue for these sales is defined by a
written agreement between us and our customer. These services are generally
completed upon the delivery of testing results, or other contractually defined
milestone(s), to the customer, which is considered the performance obligation.
Customers for these services are typically large pharmaceutical companies where
collectability is reasonably assured and therefore revenue is accrued upon
completion of the performance obligations. Revenue derived from services is
often unpredictable and can cause dramatic swings in our overall net revenue
line from quarter to quarter.

Share-based compensation and fair value at grant date

Share-based compensation related to stock options granted to our employees,
directors and non-employees is measured at the grant date based on the fair
value of the award. For our service-based awards, the fair value of each award
is recognized as expense on a straight-line basis over the requisite service
period, which is generally the vesting period of the respective awards.
Compensation expense for share-based awards with performance conditions is
recognized based upon the probability the performance conditions will be met as
defined in the grant. Restricted stock units are measured at their grant date
fair value using the closing price of our common stock on the date of grant and
recognized to expense on a straight-line basis over the vesting period of each
award. We estimate forfeitures and adjust these estimates to actual forfeitures
as they occur.

We use the Black-Scholes option-pricing model to estimate the fair value of our
share-based option awards, which requires assumptions to be made related to
expected term of an award, expected volatility, the risk-free rate and expected
dividend yield. The fair value of our common stock is based on our closing price
as reported on the date of grant on the primary stock exchange on which our
common stock is traded. Changes in these subjective assumptions can materially
affect the estimated value of equity grants and the share-based compensation
that we record in our financial statements.

Recently published accounting pronouncements

In February 2016, the FASB issued ASU No. 2016-2, Leases (Topic 842). This ASU
intends to make accounting for leasing activities more transparent and
comparable, and requires substantially all leases be recognized by lessees on
their balance sheet as a right-of-use asset and corresponding lease liability,
including leases currently accounted for as operating leases. In addition to
other related amendments, the FASB issued ASU No. 2018-11, Leases (Topic 842):
Targeted Improvements, which offers an additional transition method whereby
entities may apply the new leases standard at the adoption date and recognize a
cumulative-effect adjustment to the opening balance of retained earnings rather
than application of the new leases standard at the beginning of the earliest
period presented in the financial statements. The Company elected this
transition method and adopted ASC 842 on January 1, 2022 and as a result,
recorded operating lease right-of-use (ROU) assets of $1.3 million, including
offsetting deferred rent of $0.1 million, along with the associated operating
lease liabilities of $1.3 million. On January 1, 2022, the Company did not have
any finance leases. Additional information and disclosures required by this new
standard are contained in Note 3 and Note 7 to our condensed financial
statements in Part 1 of this Quarterly Report on Form 10-Q.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit
Losses: Measurement of Credit Losses on Financial Instruments (ASC Topic 326).
This ASU requires measurement and recognition of expected credit losses for
financial assets. This guidance will become effective for the Company beginning
January 1, 2023 with early adoption permitted. The Company is currently
evaluating this guidance and assessing the overall impact on its financial
statements.

Implications of being a Emerging Growth Company and Small filing company

We are an "emerging growth company" within the meaning of the Jumpstart Our
Business Startups Act (JOBS Act). As an emerging growth company, we may take
advantage of certain exemptions from various public company reporting
requirements, including the requirement that our internal control over financial
reporting be audited by our independent registered public accounting firm
pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley
Act"), certain requirements related to the disclosure of executive compensation
in our periodic reports and proxy statements, the requirement that we hold a
nonbinding advisory vote on executive compensation and any golden parachute
payments. We may take advantage of these exemptions until we are no longer an
emerging growth company. 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

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an emerging growth company may delay adopting certain accounting standards until those standards otherwise apply to private companies.

We have elected to take advantage of the extended transition period to comply
with new or revised accounting standards and to adopt certain of the reduced
disclosure requirements available to emerging growth companies. As a result of
the accounting standards election, we will not be subject to the same
implementation timing for new or revised accounting standards as other public
companies that are not emerging growth companies, which may make comparison of
our financials to those of other public companies more difficult.

We will remain an emerging growth company until the earliest to occur of (i) the
last day of the fiscal year in which we have more than $1.07 billion in annual
revenue; (ii) the date we qualify as a "large accelerated filer," with at least
$700 million of equity securities held by non-affiliates; (iii) the date on
which we have issued, in any three-year period, more than $1.0 billion in
non-convertible debt securities; and (iv) until December 31, 2025 (the year
ended December 31st following the fifth anniversary of our initial public
offering).

Additionally, we are a "smaller reporting company" as defined in Item 10(f)(1)
of Regulation S-K. Smaller reporting companies may take advantage of certain
reduced disclosure obligations, including, among other things, providing only
two years of audited financial statements. We will remain a smaller reporting
company until the last day of the fiscal year in which: (i) the market value of
our common shares held by non-affiliates exceeds $250 million as of the end of
that year's second fiscal quarter, or (ii) our annual revenues exceeded $100
million during such completed fiscal year and the market value of our common
shares held by non-affiliates exceeds $700 million as of the end of that year's
second fiscal quarter.

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