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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________
FORM 10-Q
________________________
Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
Commission File Number: 001-38118
________________________
DERMTECH, INC.
(Exact Name of Registrant as Specified in its Charter)
________________________
Delaware84-2870849
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
11099 N. Torrey Pines Road, Suite 100
La Jolla, CA
92037
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (858) 450-4222
________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.0001 per shareDMTK
The Nasdaq Capital 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 for 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 x No o
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 Exchange Act.
Large accelerated filerxAccelerated filero
Non-accelerated fileroSmaller reporting companyx
Emerging growth companyo
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 Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of October 28, 2022, the registrant had 30,214,705 shares of common stock, $0.0001 par value per share, outstanding.


Table of Contents
Page
Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021
i

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
DERMTECH, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(Unaudited)
September 30, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$95,492 $176,882 
Short-term marketable securities53,636 48,449 
Accounts receivable6,101 3,847 
Inventory1,391 480 
Prepaid expenses and other current assets4,212 3,166 
Total current assets160,832 232,824 
Property and equipment, net4,943 4,549 
Operating lease right-of-use assets24,644 7,744 
Restricted cash3,477 3,025 
Other assets167 167 
Total assets$194,063 $248,309 
Liabilities and Stockholders’ Equity  
Current liabilities:  
Accounts payable$2,997 $2,880 
Accrued compensation8,321 5,120 
Accrued liabilities3,539 1,227 
Short-term deferred revenue417 1,380 
Current portion of operating lease liabilities1,588 1,453 
Current portion of finance lease obligations124 121 
Total current liabilities16,986 12,181 
Warrant liability20 146 
Long-term finance lease obligations, less current portion77 136 
Operating lease liabilities, long-term21,992 6,148 
Total liabilities39,075 18,611 
Stockholders’ equity:  
Common stock, $0.0001 par value per share; 50,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 30,213,206 and 29,772,922 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
3 3 
Additional paid-in capital450,904 436,183 
Accumulated other comprehensive loss(1,095)(124)
Accumulated deficit(294,824)(206,364)
Total stockholders’ equity154,988 229,698 
Total liabilities and stockholders’ equity$194,063 $248,309 
See accompanying notes to unaudited condensed consolidated financial statements.
1

DERMTECH, INC.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenues:
Assay revenue$3,433 $2,954 $11,098 $8,054 
Contract revenue140 76 426 619 
Total revenues3,573 3,030 11,524 8,673 
Cost of revenues:    
Cost of assay revenue3,644 2,875 10,410 7,450 
Cost of contract revenue50 23 111 74 
Total cost of revenues3,694 2,898 10,521 7,524 
Gross (loss) profit(121)132 1,003 1,149 
Operating expenses:    
Sales and marketing14,632 9,826 45,076 24,245 
Research and development5,702 4,426 18,955 10,271 
General and administrative8,806 6,199 26,258 17,672 
Total operating expenses29,140 20,451 90,289 52,188 
Loss from operations(29,261)(20,319)(89,286)(51,039)
Other income/(expense):    
Interest income, net485 38 700 107 
Change in fair value of warrant liability4 169 126 (1,350)
Total other income/(expense)489 207 826 (1,243)
Net loss$(28,772)$(20,112)$(88,460)$(52,282)
Weighted average shares outstanding used in computing net loss per share, basic and diluted30,096,261 29,639,802 29,969,435 28,599,375 
Net loss per share of common stock outstanding, basic and diluted$(0.96)$(0.68)$(2.95)$(1.83)
See accompanying notes to unaudited condensed consolidated financial statements.
2

DERMTECH, INC.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Net loss$(28,772)$(20,112)$(88,460)$(52,282)
Unrealized net loss on available-for-sale
    marketable securities
(230)(10)(971)(7)
Comprehensive loss$(29,002)$(20,122)$(89,431)$(52,289)
See accompanying notes to unaudited condensed consolidated financial statements.
3

DERMTECH, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share and per share data)
(Unaudited)
Common stockAdditional
paid-in
capital
Accumulated
other
comprehensive
loss
Accumulated
deficit
Total
stockholders’
equity
SharesAmount
Balance, December 31, 202129,772,922 $3 $436,183 $(124)$(206,364)$229,698 
Issuance of common stock from option exercises and RSU releases109,275 — 40 — — 40 
Issuance of common stock from warrant exercises11,101 — 12 — — 12 
Issuance of common stock from Employee Stock Purchase Plan47,339 — 515 — — 515 
Unrealized net loss on available-for-sale marketable securities— — — (570)— (570)
Stock-based compensation— — 3,894 — — 3,894 
Net loss— — — — (30,108)(30,108)
Balance, March 31, 202229,940,637 $3 $440,644 $(694)$(236,472)$203,481 
Issuance of common stock from RSU releases88,591 — — — —  
Issuance of common stock from warrant exercises9,219 — 10 — — 10 
Unrealized net loss on available-for-sale marketable securities— — — (171)— (171)
Stock-based compensation— — 4,837 — — 4,837 
Net loss— — — — (29,580)(29,580)
Balance, June 30, 202230,038,447 $3 $445,491 $(865)$(266,052)$178,577 
Issuance of common stock from RSU releases74,010 — — — —  
Issuance of common stock from Employee Stock Purchase Plan100,749 — 477 — — 477 
Unrealized net loss on available-for-sale marketable securities— — — (230)— (230)
Stock-based compensation— — 4,936 — — 4,936 
Net loss— — — — (28,772)(28,772)
Balance, September 30, 202230,213,206 $3 $450,904 $(1,095)$(294,824)$154,988 
See accompanying notes to unaudited condensed consolidated financial statements.
4

DERMTECH, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share and per share data)
(Unaudited)
Common stockAdditional
paid-in
capital
Accumulated
other
comprehensive
income/(loss)
Accumulated
deficit
Total
stockholders’
equity
SharesAmount
Balance, December 31, 202020,740,413 $2 $189,868 $(1)$(128,029)$61,840 
Issuance of common stock at $29.50 per share, net of $9.1 million in issuance costs
4,872,881 1 134,581 — — 134,582 
Issuance of common stock from option exercises and RSU releases176,673 — 408 — — 408 
Issuance of common stock from warrant exercises3,089,325 — 72,081 — — 72,081 
Issuance of common stock from Employee Stock Purchase Plan39,960 — 392 — — 392 
Unrealized net gain on available-for-sale marketable securities— — — 9 — 9 
Stock-based compensation— — 2,172 — — 2,172 
Reclassification of warrant liability due to Private SPAC Warrants not held by original holder— — 411 — — 411 
Net loss— — — — (15,068)(15,068)
Balance, March 31, 202128,919,252 $3 $399,913 $8 $(143,097)$256,827 
Issuance of common stock from option exercises and RSU releases157,277 — 188 — — 188 
Issuance of common stock at a weighted average price of $46.33 through at-the market offering, net of $0.7 million in issuance costs
530,551 — 23,836 — — 23,836 
Issuance of common stock from warrant exercises314 — 5 — — 5 
Unrealized net loss on available-for-sale marketable securities— — — (6)— (6)
Stock-based compensation— — 3,538 — — 3,538 
Reclassification of warrant liability due to Private SPAC Warrants not held by original holder— — 23 — — 23 
Net loss— — — — (17,102)(17,102)
Balance, June 30, 202129,607,394 $3 $427,503 $2 $(160,199)$267,309 
Issuance of common stock from option exercises and RSU releases76,768 — 81 — — 81 
Issuance of common stock from warrant exercises14,881 — 343 — — 343 
Issuance of common stock from Employee Stock Purchase Plan18,155 — 574 — — 574 
Unrealized net loss on available-for-sale marketable securities— — — (10)— (10)
Stock-based compensation— — 3,736 — — 3,736 
Net loss— — — — (20,112)(20,112)
Balance, September 30, 202129,717,198 $3 $432,237 $(8)$(180,311)$251,921 
See accompanying notes to unaudited condensed consolidated financial statements.
5

DERMTECH, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Nine Months Ended September 30,
20222021
Cash flows from operating activities:  
Net loss$(88,460)$(52,282)
Adjustments to reconcile net loss to net cash used in operating activities:  
Depreciation1,187 654 
Change in fair value of warrant liability(126)1,350 
Amortization of operating lease right-of-use assets1,788 909 
Stock-based compensation13,667 9,446 
Amortization of premiums, net of accretion of discounts on marketable securities328 463 
Loss on disposal of equipment350 13 
Changes in operating assets and liabilities:  
Accounts receivable(2,254)(1,339)
Inventory(911)(320)
Prepaid expenses and other current assets(1,046)(104)
Operating lease liabilities(2,709)(1,130)
Accounts payable, accrued liabilities and deferred revenue955 1,525 
Accrued compensation3,201 1,389 
Net cash used in operating activities(74,030)(39,426)
Cash flows from investing activities:  
Purchases of marketable securities(26,420)(25,150)
Sales of marketable securities 350 
Maturities of marketable securities19,934 18,475 
Purchases of property and equipment(1,372)(1,664)
Net cash used in investing activities(7,858)(7,989)
Cash flows from financing activities:  
Proceeds from issuance of common stock in connection with public follow-on offering, net 134,582 
Proceeds from issuance of common stock in connection with at-the-market offering, net 23,836 
Proceeds from exercise of common stock warrants22 70,271 
Proceeds from RSU releases (par value only) and the exercise of stock options40 677 
Proceeds from contributions to the employee stock purchase plan992 966 
Principal repayments of finance lease obligations(104)(80)
Net cash provided by financing activities950 230,252 
Net (decrease)/increase in cash, cash equivalents and restricted cash(80,938)182,837 
Cash, cash equivalents and restricted cash, beginning of period179,907 24,248 
Cash, cash equivalents and restricted cash, end of period$98,969 $207,085 
Reconciliation of cash, cash equivalents and restricted cash, end of period:
Cash and cash equivalents$95,492 $204,061 
Restricted cash3,477 3,024 
Total cash, cash equivalents and restricted cash$98,969 $207,085 
Supplemental cash flow information:  
Cash paid for interest on finance lease obligations$10 $13 
Supplemental disclosure of noncash investing and financing activities:  
Purchases of property and equipment recorded in accounts payable$511 $462 
Reclassification of warrant liability due to Private SPAC Warrants not held by original holder$ $434 
Cashless exercise of common stock warrants$ $2,158 
Right-of-use assets obtained in exchange for lease obligations$18,688 $9,071 
Property and equipment acquired under finance leases$48 $105 
Change in net unrealized losses on available-for-sale marketable securities$(971)$(7)
See accompanying notes to unaudited condensed consolidated financial statements.
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DERMTECH, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
1.    The Company and a Summary of its Significant Accounting Policies
(a)    Nature of Operations
On August 29, 2019, DermTech, Inc., formerly known as Constellation Alpha Capital Corp, (the “Company”), and DermTech Operations, Inc., formerly known as DermTech, Inc., (“DermTech Operations”), consummated the transactions contemplated by the Agreement and Plan of Merger, dated as of May 29, 2019, by and among the Company, DT Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), and DermTech Operations. The Company refers to this agreement, as amended by that certain First Amendment to Agreement and Plan of Merger dated as of August 1, 2019, as the Merger Agreement. Pursuant to the Merger Agreement, Merger Sub merged with and into DermTech Operations, with DermTech Operations surviving as a wholly-owned subsidiary of the Company. The Company refers to this transaction as the Business Combination. In connection with and two days prior to the completion of the Business Combination, the Company domesticated from the British Virgin Islands to Delaware. DermTech Operations changed its name from DermTech, Inc. to DermTech Operations, Inc. shortly before the completion of the Business Combination. On August 29, 2019, immediately following the completion of the Business Combination, the Company changed its name from Constellation Alpha Capital Corp. to DermTech, Inc., and then effected a one-for-two reverse stock split of its common stock.
The Company is a molecular diagnostic company developing and marketing its Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) laboratory services including genomic tests to facilitate the diagnosis of dermatologic conditions including melanoma. The Company has developed a proprietary, non-invasive technique for sampling the surface layers of the skin using an adhesive patch called the DermTech Smart Sticker™ (the “Smart Sticker”) to collect biological information for commercial applications in the medical diagnostic field.
The ongoing COVID-19 pandemic has affected many segments of the global economy, including the cancer screening and diagnostics industry. The Company is considered an essential business due to the importance of early melanoma detection, which has allowed the Company’s CLIA laboratory to remain fully operational. The Company implemented additional safety measures in accordance with Centers for Disease Control and Prevention, Occupational Safety and Health Administration and other guidance within its CLIA laboratory operations. Additionally, and during this time, the Company transitioned administrative functions to predominantly remote work. The pandemic reduced patient access to clinician offices for in-person testing and reduced access by the Company's sales force for in-office sales calls, which negatively impacted the volume of billable samples. The level and nature of the disruption caused by COVID-19 is unpredictable, may be cyclical, and long-lasting and may again in the future, adversely affect the Company's operating results.
(b)    Basis of Presentation
The condensed consolidated financial statements include the accounts of DermTech, Inc. and its subsidiaries. All intercompany balances and transactions among the consolidated entity have been eliminated in consolidation. These unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission (“SEC”), Regulation S-X. Accordingly, these unaudited condensed consolidated financial statements and accompanying notes do not include all the information and disclosures required by U.S. GAAP for complete financial statements and should be read together with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. In the opinion of management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included.
The accompanying unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the unaudited condensed consolidated financial statements. As of September 30, 2022, there have been no material changes in the Company's significant accounting policies from those that were disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
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(c)    Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the amounts of revenues and expenses reported during the period. On an ongoing basis, management evaluates these estimates and judgments, including but not limited to those related to assay revenue, stock-based compensation, short-term marketable securities, accounts receivable, accrued bonus, warrant liability, right-of-use (“ROU”) assets and the realization of deferred tax assets. Actual results may differ from those estimates.
(d)    Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with remaining maturities of three months or less when purchased to be cash equivalents. The Company maintains its cash balances at banks and financial institutions. The balances are insured up to the Federal Deposit Insurance Corporation legal limit. The Company maintains cash balances that have in the past and may, at times, exceed this insured limit.
Restricted cash consists of cash deposited with a financial institution as collateral for the Company’s letters of credit for its facility leases. Restricted cash is classified as noncurrent based on the terms of the underlying lease arrangement.
(e)    Property and Equipment, Net
Property and equipment, net is recorded at cost less accumulated depreciation. Property and equipment consists mainly of assets such as leasehold improvements, office, computer and laboratory equipment, including laboratory equipment acquired under finance lease arrangements. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from two to eleven years. Leasehold improvements are depreciated over the shorter of the remaining term of the lease or the useful life of the asset. The Company recorded depreciation expense of $0.4 million and $0.3 million for the three months ended September 30, 2022 and 2021, respectively, which includes amortization of laboratory equipment acquired under finance leases (previously referred to as “capital leases”) of $21,000 and $17,000 for the three months ended September 30, 2022 and 2021, respectively. The Company recorded depreciation expense of $1.2 million and $0.7 million for the nine months ended September 30, 2022 and 2021, respectively, which includes amortization of laboratory equipment acquired under finance leases of $0.1 million and $0.1 million for the nine months ended September 30, 2022 and 2021, respectively.
Amortization of assets that are recorded under finance leases in depreciation expense is included in cost of revenues on the condensed consolidated statements of operations. Gross assets recorded under finance leases were $0.4 million as of September 30, 2022 and December 31, 2021. Accumulated amortization associated with finance leases was $0.1 million as of September 30, 2022 and December 31, 2021. Maintenance and repairs are expensed as incurred, and material improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in the condensed consolidated statements of operations in the period realized. Loss of disposal on equipment was $0.1 million for the three months ended September 30, 2022 and $8,000 for the three months ended September 30, 2021. Loss on disposal of equipment was $0.4 million and $13,000 for the nine months ended September 30, 2022 and 2021, respectively. The Company assesses its long-lived assets, consisting primarily of property and equipment, for impairment when material events or changes in circumstances indicate that the carrying value may not be recoverable. There were no impairment losses for the three or nine months ended September 30, 2022 and 2021.
(f)    Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. As of September 30, 2022, the Company maintained $64.6 million in a sweep account, which maintains cash balances throughout various interest-bearing bank accounts under the $250,000 insurance limit provided by the Federal Deposit Insurance Corporation for one federally insured financial institution. Approximately $0.3 million was held in excess of the Federal Deposit Insurance Corporation insured limit as of September 30, 2022. The Company has not experienced any losses in such accounts.
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(g)    Revenue Recognition
The Company’s revenue is generated from two revenue streams: contract revenue and assay revenue. The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is that the Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The ASC 606 revenue recognition model consists of the following five steps: (1) identify the contracts with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
The Company recognizes revenue from its assay and contract services in accordance with the core principles and key aspects considered by the Company. These considerations are described in detail below, first for Assay Revenue and then for Contract Revenue.
Assay Revenue
The Company generates revenues from its Pigmented Lesion Assay (“PLA”) and PLAplus (now referred to as the DermTech Melanoma Test or “DMT” which may consist at the option of the ordering clinician of either (i) the PLA or (ii) the PLA and PLAplus), which assists a clinician’s diagnosis of melanoma in patients. The Company provides prescribing clinicians with its Smart Sticker to perform non-invasive skin biopsies of clinically ambiguous pigmented skin lesions on patients. The Company also offers clinicians a telemedicine solution where they can request the Smart Sticker collection kit be sent to the patient’s home for a clinician-guided remote collection on ambiguous pigmented skin lesions. A patient can also initiate the process by downloading the Company’s telemedicine app, DermTech Connect, which uses store-and-forward technology to allow the patient to take a picture of a suspicious lesion with their phone and have the picture reviewed by an independent clinician who is subscribing to the DermTech Connect platform to assess the suspicious lesion, and if medically necessary, order a DMT where a collection kit would be sent to the patient’s home. The DermTech Connect app and telemedicine service were initially beta tested in Florida and is currently available in most states where permitted by law and applicable standards of practice guidelines. Once the sample is collected by the patient via the telemedicine solution or by a healthcare clinician in person, it is returned to the Company’s CLIA laboratory for analysis. The patient’s ribonucleic acid (“RNA”) and deoxyribonucleic acid (“DNA”) are extracted from the Smart Sticker and analyzed using gene expression and sequencing technology to determine if the pigmented skin lesion contains certain genomic features indicative of melanoma. Upon completion of the gene expression analysis, a final report is drafted and provided to the clinician detailing the test results for the pigmented skin lesion indicating whether the sample collected is indicative of melanoma or not.
The Company periodically updates its estimate of the variable consideration recognized for previously delivered performance obligations. These updates resulted in a decrease of $0.5 million and $0.5 million of revenue reported for the three and nine months ended September 30, 2022, respectively, and an additional $18,000 and $0.1 million of revenue reported for the three and nine months ended September 30, 2021, respectively. These amounts included (i) adjustments for actual collections versus estimated variable consideration as of the beginning of the reporting period and (ii) cash collections and the related recognition of revenue in the current period for tests delivered in prior periods due to the release of the constraint on variable consideration, offset by (iii) reductions in revenue for the accrual for reimbursement claims and settlements.
Contract Revenue
Contract revenue is generated from the sale of laboratory services and Smart Stickers to third-party companies through contract research agreements. Revenues are generated from providing genomic services to facilitate the development of drugs designed to treat dermatologic conditions. The provision of services may include sample collection using the Smart Sticker, assay development for research partners, patient segmentation and stratification, extraction, isolation, expression, amplification and detection of RNA, DNA, protein and microbiome, including data analysis and reporting.
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(a) Disaggregation of Revenue
The following table presents the Company’s revenues disaggregated by revenue source during the three and nine months ended September 30, 2022 and 2021 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Assay Revenue
DermTech Melanoma Test$3,433 $2,954 $11,098 $8,054 
Contract Revenue
Adhesive patch kits22 14 126 329 
RNA extractions94 19 204 158 
Project management fees24 43 96 132 
Total revenues$3,573 $3,030 $11,524 $8,673 
The following table sets forth the percentages of total revenue or accounts receivable for the Company’s third-party payors that represent 10% or more of the respective amounts for the periods shown:
Total RevenuesAccounts Receivable
Three Months Ended September 30,Nine Months Ended September 30,As of September 30, 2022As of December 31, 2021
2022202120222021
Assay Revenue
Payor A46 %36 %41 %35 %20 %23 %
Payor B****15 %15 %
*Less than 10%
There were no other third-party payors or pharmaceutical customers that individually accounted for more than 10% of the Company’s total revenue or accounts receivable for the periods shown in the table above.
(b) Deferred Revenue and Remaining Performance Obligations
The timing of revenue recognition, billings and cash collections results in billed accounts receivable and deferred revenue on the condensed consolidated balance sheets.
In a majority of historical agreements that produced contract revenue, the Company received a substantial up-front payment and additional payments upon the achievement of various milestones over the life of the agreement. This results in deferred revenue and is relieved upon delivery of the applicable Smart Stickers or RNA extraction results. Changes in accounts receivable and deferred revenue were not materially impacted by any other factors.
The Company records a deferred revenue liability if a customer pays consideration before the Company transfers a good or service to the customer. Deferred revenue primarily represents upfront milestone payments, for which consideration is received prior to when goods/services are completed or delivered. Upfront fees that are estimated to be recognized as revenue more than one year from the date of collection are classified as long-term deferred revenue. Short-term deferred revenue as of September 30, 2022 and December 31, 2021 was $0.4 million and $1.4 million, respectively. As of September 30, 2022 we reclassified $0.9 million of short-term deferred revenue to accrued liabilities for a customer refund obligation in connection with cancellation of future services.
Remaining performance obligations include deferred revenue and amounts the Company expects to receive for goods and services that have not yet been delivered or provided under existing agreements. For agreements that have an original duration of one year or less, the Company has elected the practical expedient applicable to such agreements and does not disclose the remaining performance obligations at the end of each reporting period. As of September 30, 2022, the estimated revenue expected to be recognized in future periods related to performance obligations that are unsatisfied for executed agreements with an original duration of one year or more was immaterial. The Company expects to recognize revenue on the majority of these remaining performance obligations over the next two to three years.
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(h)    Accounts Receivable
Assay Accounts Receivable
Due to the nature of the Company’s assay revenue, it can take a significant amount of time to collect upon billed tests. The Company prepares an analysis on reimbursement collections and data obtained for each financial reporting period to determine the amount of receivables to be recorded relating to tests performed in the applicable period. The Company generally does not perform evaluations of customers’ financial condition and generally does not require collateral. Accounts receivables are written off when all efforts to collect the balance have been exhausted. Adjustments for implicit price concessions attributable to variable consideration are incorporated into the measurement of the accounts receivable balances. The Company recorded $5.9 million and $3.6 million of gross assay accounts receivable as of September 30, 2022 and December 31, 2021, respectively.
Contract Accounts Receivable
Contract accounts receivable are recorded at the net invoice value and are not interest bearing. The Company reserves specific receivables if collectability is no longer reasonably assured, and as of September 30, 2022, the Company did not maintain any reserves over contract receivables as they relate to large established credit worthy customers. The Company re-evaluates such reserves on a regular basis and adjusts its reserves as needed. Once a receivable is deemed to be uncollectible, such balance is charged against the reserve. The Company recorded $0.2 million and $0.2 million of contract accounts receivable as of September 30, 2022 and December 31, 2021, respectively.
(i)    Net Loss Per Share
Basic and diluted net loss per share of common stock is determined by dividing net loss applicable to holders of common stock by the weighted average number of shares of common stock outstanding during the period. Because there is a net loss attributable to holders of common stock during the three and nine months ended September 30, 2022 and 2021, the outstanding common stock warrants, stock options, and restricted stock units (“RSUs”) have been excluded from the calculation of diluted loss per share of common stock because their effect would be anti-dilutive. Therefore, the weighted average shares used to calculate both basic and diluted loss per share are the same. Diluted net loss per share of common stock for the three and nine months ended September 30, 2022 excludes the effect of anti-dilutive equity instruments including 714,261 shares of common stock issuable upon the exercise of outstanding common stock warrants and 5,024,323 shares of common stock issuable upon the exercise of stock options and release of RSUs. Diluted net loss per share of common stock for the three and nine months ended September 30, 2021 excludes the effect of anti-dilutive equity instruments including 734,581 shares of common stock then issuable upon the exercise of outstanding warrants and 2,564,059 shares of common stock then issuable upon the exercise of stock options and release of RSUs.
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(j)    Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The Company uses a three-tier fair value hierarchy to prioritize the inputs used in the Company’s fair value measurements. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The following table provides a summary of the assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2022 (in thousands):
September 30, 2022
Level 1Level 2Level 3Total
Assets:    
Cash equivalents$30,529 $ $ $30,529 
Restricted cash3,477   3,477 
Marketable securities, available for sale:
Corporate debt securities 14,938  14,938 
Municipal debt securities 2,320  2,320 
U.S. government debt securities 36,378  36,378 
Total marketable securities, available for sale 53,636  53,636 
Total assets measured at fair value on a recurring basis$34,006 $53,636 $ $87,642 
Liabilities:
Warrant liability$ $ $20 $20 
Total liabilities measured at fair value on a recurring basis$ $ $20 $20 
The following table provides a summary of the assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2021 (in thousands):
December 31, 2021
Level 1Level 2Level 3Total
Assets:
Cash equivalents$16,380 $ $ $16,380 
Restricted cash3,025   3,025 
Marketable securities, available for sale:
Corporate debt 15,352  15,352 
Municipal debt securities 7,412  7,412 
U.S. government debt securities 25,685  25,685 
Total marketable securities, available for sale 48,449  48,449 
Total assets measured at fair value on a recurring basis$19,405 $48,449 $ $67,854 
Liabilities:
Warrant liability$ $ $146 $146 
Total liabilities measured at fair value on a recurring basis$ $ $146 $146 
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The Company’s marketable debt securities are classified as available-for-sale securities based on management’s intentions and are at Level 2 of the fair value hierarchy, as these investment securities are valued based upon quoted prices for identical or similar instruments in markets that are not active. The Company has classified marketable securities with original maturities of greater than one year as short-term investments based upon the Company’s ability to use all of those marketable securities to satisfy the liquidity needs of the Company’s current operations.
The fair value of the Private SPAC Warrants (as defined below) was determined using the Black-Scholes-Merton valuation model and included an unobservable input: expected volatility. Expected volatility is considered by the Company to be an unobservable input and is calculated using a weighted average of historical volatilities of a combination of the Company and peer companies, due to the lack of sufficient historical data of the Company’s own stock price. The model also incorporated several observable assumptions at each valuation date including: the price of the Company’s common stock on the date of valuation, the remaining contractual term of the warrant and the risk-free interest rate over the remaining term.
The following assumptions were used to calculate the fair value of the Company’s warrant liability using the Black-Scholes-Merton valuation model:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Assumed risk-free interest rate4.22%0.53%
2.37% - 4.22%
0.46% - 0.64%
Assumed volatility118.13%89.77%
92.77% - 118.13%
85.85% - 89.77%
Expected term1.92 years2.92 years
1.92 - 2.42 years
2.92 - 3.42 years
Expected dividend yield
The following table summarizes the changes in the fair value of the Company’s Level 3 liabilities (in thousands):
Balance as of December 31, 2021$146 
Change in fair value of warrant liability(17)
Balance as of March 31, 2022129 
Change in fair value of warrant liability(105)
Balance as of June 30, 2022$24 
Change in fair value of warrant liability(4)
Balance as of September 30, 2022$20 
As of September 30, 2022 and December 31, 2021, the Company maintains letters of credit of $3.5 million and $3.0 million, respectively, related to its lease arrangements, which are secured by money market accounts in accordance with certain of its lease agreements. The amounts are recorded at fair value using Level 1 inputs and included as restricted cash in the condensed consolidated balance sheets.
The Company believes the carrying amount of cash and cash equivalents, accounts payable and accrued expenses approximate their estimated fair values due to the short-term nature of these accounts.
(k)    Accounting Pronouncements Issued But Not Yet Effective
In June 2022, the Financial Accounting Standards Board issued ASU No. 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03“). Under the guidance of ASU 2022-03, a contractual restriction on the sale of an equity security is not considered in measuring the security’s fair value. ASU 2022-03 also requires certain disclosures for equity securities that are subject to contractual restrictions. For public business entities, the provisions of ASU 2022-03 are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2024, and interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company is still evaluating the impact of this pronouncement on the consolidated financial statements.
The Company does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material impact on its condensed consolidated financial statements or disclosures.
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2.    Balance Sheet Details
Short-Term Marketable Securities
The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value of debt securities classified as available-for-sale securities by major security type and class of security as of September 30, 2022 were as follows (in thousands):
September 30, 2022
Amortized CostGross Unrealized
Gains
Gross Unrealized
Losses
Estimated
Market
Value
Short-term marketable securities, available-for-sale:
Corporate debt securities$15,259 $ $(321)$14,938 
Municipal debt securities2,339  (19)2,320 
U.S. government debt securities37,133 3 (758)36,378 
Total short-term marketable securities, available-for-sale$54,731 $3 $(1,098)$53,636 
The amortized cost, gross unrealized holding gains, gross unrealized holding losses, and fair value of debt securities classified as available-for-sale securities by major security type and class of security as of December 31, 2021 were as follows (in thousands):
December 31, 2021
Amortized CostGross Unrealized
Gains
Gross Unrealized
Losses
Estimated
Market
Value
Short-term marketable securities, available-for-sale:
Corporate debt securities$15,385 $ $(33)$15,352 
Municipal debt securities7,417  (5)7,412 
U.S. government debt securities25,771 1 (87)25,685 
Total short-term marketable securities, available-for-sale$48,573 $1 $(125)$48,449 
As of September 30, 2022, the estimated market value of debt securities with contractual maturities of less than twelve months was $38.3 million; the remaining debt securities that the Company held at that date had an estimated market value of $15.3 million and contractual maturities of up to 21 months. As of December 31, 2021, the estimated market value of debt securities with contractual maturities of less than twelve months was $21.2 million; the remaining debt securities that the Company held at that date had an estimated market value of $27.2 million and contractual maturities of up to 23 months.
The Company evaluates securities with unrealized losses to determine whether such losses, if any, are due to credit-related factors. It was determined that no credit losses existed as of September 30, 2022 or December 31, 2021, because the change in market value for those securities in an unrealized loss position has resulted from fluctuating interest rates rather than a deterioration of the credit worthiness of the issuers. Gross realized gains and losses on the Company’s debt securities for the three and nine months ended September 30, 2022 and 2021 were not significant.
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Prepaid Expenses and Property and Equipment, Net
Condensed consolidated balance sheet details are as follows (in thousands):
September 30,
2022
December 31,
2021
Prepaid expenses and other current assets:
Prepaid insurance$1,547 $1,801 
Prepaid trade shows693 440 
Prepaid software fees1,038 551 
Prepaid employee compensation291 238 
Other current assets643 136 
Total prepaid expenses and other current assets