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Section 1: 10-Q (FORM 10-Q)

  

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

   
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2016

 

OR

   
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from               to             

 

Commission File Number: 001-36483

 

SIGNAL GENETICS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 47-1187261

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

5740 Fleet Street, Carlsbad, California 92008
(Address of principal executive offices) (Zip Code)

 

Registrant's telephone number, including area code: (760) 537-4100

 

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     ☐  No

 

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

 

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

 

Large accelerated filer Accelerated filer
       
Non-accelerated filer ☐  (Do not check if a smaller reporting company) Smaller reporting company filer

 

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

 

As of October 20, 2016, there were 10,790,422 shares of the issuer’s common stock, par value $0.01 per share, outstanding.

 

 

 

 

 

TABLE OF CONTENTS

 

    Page No.
PART I FINANCIAL INFORMATION 4
ITEM 1. UNAUDITED CONDENSED FINANCIAL STATEMENTS 4
  Condensed Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015 4
  Unaudited Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2016 and 2015 5
  Unaudited Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 6
  Notes to Unaudited Condensed Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 23
ITEM 4. CONTROLS AND PROCEDURES 23
PART II OTHER INFORMATION 24
ITEM 1A. RISK FACTORS 24
ITEM 6. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 24
SIGNATURES  

 

 

 

2
 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.

 

In some cases, you can identify forward-looking statements by terminology, such as “expects,” “anticipates,” “intends,” “estimates,” “plans,” “believes,” “seeks,” “may,” “should,” “continue,” “could” or the negative of such terms or other similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this Quarterly Report on Form 10-Q.

 

You should read this quarterly report and the documents that we reference herein and therein and have filed as exhibits to this report, completely and with the understanding that our actual future results may be materially different from what we expect. You should assume that the information appearing in this quarterly report is accurate as of the date of this report only. Because the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements. These risks and uncertainties, along with others, are described under the heading “Risk Factors” in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission on March 21, 2016. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New risk factors may emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each risk factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this Quarterly Report on Form 10-Q, and particularly our forward-looking statements, by these cautionary statements.

 

 

3
 

PART I—FINANCIAL INFORMATION

 

Item 1. Unaudited Condensed Financial Statements.

 

SIGNAL GENETICS, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and par value data)

 

   September 30,
2016
  December 31,
2015
   (unaudited)   
ASSETS          
Current assets:          
Cash and cash equivalents  $5,351   $10,832 
Accounts receivable, net   733    394 
Inventory   62    187 
Prepaid expenses and other current assets   366    321 
Total current assets   6,512    11,734 
Property and equipment, net   1,014    1,153 
Security deposits   15    15 
Total assets  $7,541   $12,902 
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $51   $242 
Accrued liabilities   1,649    1,018 
Note payable – related party   1,105    1,105 
Other current liabilities   48    103 
Total current liabilities   2,853    2,468 
Other noncurrent liabilities   2    24 
Commitments and contingencies          
Stockholders’ equity:          
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued or outstanding at September 30, 2016 or December 31, 2015        
Common stock, $0.01 par value, 50,000,000 shares authorized, 10,790,422 and 10,635,454 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively   108    106 
Additional paid in capital   29,650    28,272 
Accumulated deficit   (25,072)   (17,968)
Total stockholders’ equity   4,686    10,410 
Total liabilities and stockholders’ equity  $7,541   $12,902 

 

See accompanying notes to unaudited condensed financial statements.

 

4
 

SIGNAL GENETICS, INC.

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

 

   Three Months Ended
September 30,
  Nine Months Ended
September 30,
   2016  2015  2016  2015
Net revenue  $889   $501   $2,581   $1,879 
Operating expenses:                    
Cost of revenue   599    577    1,856    2,016 
Research and development   226    253    867    546 
Selling and marketing   373    796    1,438    1,804 
General and administrative   1,507    2,003    5,455    5,743 
Total operating expenses   2,705    3,629    9,616    10,109 
Loss from operations   (1,816)   (3,128)   (7,035)   (8,230)
Interest expense   (23)   (24)   (69)   (118)
Net loss  $(1,839)  $(3,152)  $(7,104)  $(8,348)
Net loss per common share, basic and diluted  $(0.17)  $(0.39)  $(0.66)  $(1.15)
Weighted-average number of shares outstanding, basic and diluted   10,787,837    8,125,133    10,754,359    7,234,628 

 

See accompanying notes to unaudited condensed financial statements.

 

5
 

SIGNAL GENETICS, INC.

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

 

   Nine Months Ended
September 30,
   2016  2015
OPERATING ACTIVITIES          
Net loss  $(7,104)  $(8,348)
Adjustments to reconcile net loss to net cash used in operating activities:          
Stock-based compensation   1,441    2,258 
Depreciation and amortization   142    137 
Noncash interest on note payable – related party   66    110 
Changes in operating assets and liabilities:          
Accounts receivable   (339)   541 
Inventory   125    (185)
Prepaid expenses and other current assets   (45)   (171)
Accounts payable and other current liabilities   360    307 
Lease termination/abandonment payable       (248)
Net cash used in operating activities   (5,354)   (5,599)
INVESTING ACTIVITIES          
Purchases of property and equipment   (3)   (100)
Decrease in security deposit on lease       28 
Net cash used in investing activities   (3)   (72)
FINANCING ACTIVITIES          
Proceeds from issuance of common stock, net of costs to issue       13,095 
Shares repurchased to satisfy tax withholding obligation for restricted stock awards   (61)   (363)
Repayment of capital lease obligation   (63)   (56)
Net cash provided by (used in) financing activities   (124)   12,676 
Net increase (decrease) in cash   (5,481)   7,005 
Cash and cash equivalents, beginning of period   10,832    5,119 
Cash and cash equivalents, end of period  $5,351   $12,124 
NONCASH FINANCING AND INVESTING ACTIVITIES          
Conversion of amounts due to related party to note payable – related party  $   $1,045 
Fair value of warrants and options for overallotment shares to underwriters issued in connection with public stock offering  $   $330 

 

See accompanying notes to unaudited condensed financial statements.

 

6
 

SIGNAL GENETICS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

1.Basis of Presentation

 

Signal Genetics, Inc. (the “Company”) is a commercial stage, molecular genetics diagnostic company focused on providing innovative diagnostic services that help physicians make better-informed decisions concerning the care of their patients suffering from cancer. In 2010, the Company became the exclusive licensee to the intellectual property stemming from the renowned research on multiple myeloma (“MM”), performed at the University of Arkansas for Medical Sciences (“UAMS”). Myeloma Prognostic Risk Signature (“MyPRS®”) is based upon 30 years of clinical research on over 10,000 MM patients who received their care at UAMS. The Company currently generates revenues from the performance of its MyPRS® diagnostic test, which was launched in April 2011.

 

Basis of Presentation and Liquidity

 

The Company's unaudited condensed financial statements for the three and nine months ended September 30, 2016 have been prepared on the assumption that it will continue as a going concern, which assumes that the Company will continue to operate for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business.

 

Since its inception, the Company has devoted substantial effort in developing its products and services and has incurred losses and negative cash flows from operations. Existing cash resources will not be sufficient to meet the Company’s operating plan for the full 12-month period after the date of this filing. Based on available resources, the Company believes it can maintain current operations into the second quarter of 2017. As a result, to continue to fund ongoing operations beyond the second quarter of 2017, the Company would need to (1) raise additional capital through the issuance of equity, debt or other securities, (2) convert existing debt into equity, (3) enter into strategic partnerships, alliances, collaborations or other similar transactions or (4) a combination thereof. The unaudited condensed financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Due to current market conditions, the Company’s current liquidity position and its depressed stock price, the Company believes it may be difficult to obtain additional equity or debt financing on acceptable terms, if at all, thus raising substantial doubt about the Company’s ability to continue as a going concern. If it is unable to raise additional capital or successfully complete a strategic partnership, alliance, collaboration or other similar transaction, the Company will need to delay or reduce expenses or limit or curtail operations, any of which would have a material adverse effect on its business. Further, if the Company is unable to raise additional capital or successfully complete a strategic partnership, alliance, collaboration or other similar transaction on a timely basis and on terms that are acceptable, the Company would also be required to sell or license its assets, sell the Company or otherwise liquidate all or a portion of its assets and/or cease its operations altogether.

 

The accompanying unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual audited financial statements prepared in accordance with generally accepted accounting principles have been omitted. The accompanying unaudited financial statements include all known adjustments necessary for a fair presentation of the results of interim periods as required by accounting principles generally accepted in the United States. These adjustments consist primarily of normal recurring accruals and estimates that impact the carrying value of assets and liabilities. Actual results may materially differ from these estimates. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2015, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on March 21, 2016.

 

2.Significant Accounting Policies

 

Use of Estimates

 

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in the Company’s financial statements and accompanying notes. Significant estimates in the financial statements have been made for revenue, accounts receivable and allowance for doubtful accounts, accounting for income taxes, depreciation of property and equipment and stock-based compensation. Actual results could differ materially from those estimates.

 

7
 

Cash and Cash Equivalents

 

Cash is comprised of cash on hand and deposits in banks. The Company considers all highly liquid investments with a maturity at date of purchase of three months or less to be cash equivalents, which, at September 30, 2016, are comprised of money market funds.

 

Accounts Receivable, Contractual Allowances and Allowance for Doubtful Accounts

 

Accounts receivable are recorded net of contractual allowances and an allowance for doubtful accounts. At September 30, 2016 and December 31, 2015, accounts receivable were $733,000 and $394,000, respectively, and are net of contractual allowances of $3.1 million and $2.1 million, respectively. The Company estimates an allowance for doubtful accounts based on the aging of the accounts receivable and the historical collection experience for each type of payor. Account balances are charged-off against the allowance when it is probable the receivable will not be recovered.

 

During the three months ended September 30, 2016 and 2015, the Company recognized $7,000 and $4,000, respectively, in bad debt expense. During the nine months ended September 30, 2016 and 2015, the Company recognized $8,000 and $32,000, respectively, in bad debt expense. At September 30, 2016 and December 31, 2015, allowances for doubtful accounts were $10,000 and $0, respectively.

 

Inventory

 

Inventory, which consists entirely of raw materials, and includes laboratory materials and supplies, is valued at the lower of cost or market using the first-in, first-out (“FIFO”) method.

 

Revenue Recognition

 

Revenues that are derived from testing services are recognized in accordance with revenue recognition accounting guidance, which requires that four basic criteria be met before revenue can be recognized: (1) persuasive evidence that an arrangement exists; (2) delivery has occurred and title and the risks and rewards of ownership have been transferred to the client or services have been rendered; (3) the price is fixed or determinable; and (4) collectability is reasonably assured.

 

Revenues are recorded on an accrual basis when the contractual obligations are completed as tests are processed through the Company’s laboratory and test results are delivered to ordering physicians. Revenues are billed to various payors, including Medicare, contracted insurance companies, directly billed customers (UAMS, pharmaceutical companies, reference laboratories and hospitals) and non-contracted insurance companies. Revenues from Medicare, contracted insurance companies and directly billed customers are reported based on the contractual rate. The difference between the amounts billed and the contractual rates from Medicare and contracted insurance companies are recorded as contractual allowances at the same time the revenue is recognized, to arrive at reported net revenue. The contractual rate is based on established agreed upon rates between the Company and the respective payor. Directly billed customers are invoiced at the contractual rate by the Company. Revenues from non-contracted insurance companies are reported based on the amount expected to be collected, which is based on the historical collection experience of each payor or payor group, as appropriate, and anticipated effects of changes in the healthcare industry, if any. The difference between the amount billed and the amount estimated to be collected from non-contracted insurance companies is recorded as a contractual allowance at the same time the revenue is recognized, to arrive at reported net revenue. The Company does not record revenue from individuals for billings until cash is collected; as collectability is not assured at the time services are provided, therefore there are no accounts receivable from self-payors. Gross revenues from individuals have been immaterial to date.

 

The Company’s estimates of net revenue for non-contracted insurance companies are subject to change based on the contractual status and payment policies of the third-party payors with whom the Company deals. The Company regularly refines its estimates in order to make estimated revenue as accurate as possible based on its most recent collection experience with each third-party payor. The Company regularly reviews its historical collection experience for non-contracted payors and anticipated changes in the healthcare industry and adjusts expected revenues for current and subsequent periods accordingly. During the three and nine months ended September 30, 2016, net favorable changes in estimates were recorded to revenue related to non-contracted revenues recorded in the prior year of $6,000 and $229,000, respectively. During the three and nine months ended September 30, 2015, net unfavorable changes in estimates were recorded to revenue related to non-contracted revenues recorded in the prior year of $64,000 and $137,000, respectively.

 

8
 

The table below shows the adjustments made to gross revenues to arrive at net revenues, the amount reported in the statements of operations:

 

   Three Months Ended
September 30,
  Nine Months Ended
September 30,
(in thousands)  2016  2015  2016  2015
Gross revenues  $2,238   $1,335   $6,397   $4,089 
Less: contractual allowances   (1,349)   (834)   (3,816)   (2,210)
Net revenue  $889   $501   $2,581   $1,879 
Contractual allowances as a percentage of gross revenues   60%   62%   60%   54%

 

The increase in the contractual allowances is due to an increase in the volume of tests billed to third-party payors including non-contracted payors for which we estimate net revenues based on historical collections.

 

Stock-Based Compensation

 

Compensation expense for all stock-based payments made to employees, directors, and consultants are measured and recognized based on estimated fair value. These stock-based awards include stock options and restricted stock units. The Company estimates the fair value of stock options granted using the Black-Scholes-Merton (“BSM”), option-pricing model, which requires the use of estimates such as stock price volatility and expected option lives. The fair value of stock options granted to employees and directors is estimated at the date of grant.

 

The fair value of restricted stock units issued to employees and directors is based on the market price of the Company’s common stock on the date of grant and, for nonemployees, at the date when performance is complete. For stock-based compensation awards granted to non-employees, the fair value of the awards are remeasured at each reporting date until vested, with changes in the estimated fair value recognized as an adjustment to compensation expense in the period of change. Upon settlement of all or a portion of the award in cash, the recognized fair value of the corresponding amount of awards is reversed from additional paid-in capital and the excess of the cash payment over this amount is recognized as additional stock-based compensation expense.

 

Stock-based compensation cost is recognized on a straight-line basis over the requisite service period of the award. The Company accounts for forfeitures when they occur and reverses any compensation cost previously recognized for awards for which the requisite service has not been completed in the period that the awards are forfeited.

 

Due to the Company’s net loss position, no tax benefits for stock-based compensation have been recognized in the statements of cash flows. The Company has not recognized, and does not expect to recognize in the near future, any tax benefit related to stock-based compensation cost as a result of its full valuation allowance on net deferred tax assets, including those related to net operating loss carryforwards.

 

Fair Value of Financial Instruments

 

The Company’s financial instruments that are measured at fair value on a recurring basis consist principally of cash and cash equivalents, accounts receivable, accounts payable and note payable-related party.

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Accounting guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

 

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

Level 2—Includes other inputs that are directly or indirectly observable in the marketplace.

 

Level 3—Unobservable inputs that are supported by little or no market activities, therefore requiring an entity to develop its own assumptions.

 

At September 30, 2016 and December 31, 2015, the Company’s cash equivalent instruments consisted of $5.1 million and $10.4 million, respectively, in money market funds that were measured at fair value using the net asset value per share that have not been classified using the fair value hierarchy. The fund invests primarily in short-term U.S. Treasury and government securities.

 

The carrying amounts of financial instruments such as accounts receivable, accounts payable and note payable-related party approximate their relative fair values due to the short-term maturities and market rates of interest of these instruments.

 

9
 

Net Loss Per Share

 

Basic and diluted net loss per common share for the periods presented is computed by dividing net loss by the weighted-average number of common shares outstanding during the respective periods, without consideration of common stock equivalents. Basic and diluted net loss per common share includes vested, but unissued restricted stock units from the date of vesting.

 

Common stock equivalents, determined on a weighted-average outstanding basis, that could potentially reduce net income per common share in the future that were not included in the determination of diluted loss per common share as their effects were antidilutive are as follows:

 

   Three Months Ended
September 30,
  Nine Months Ended
September 30,
   2016  2015  2016  2015
Unvested restricted stock units   666,780    363,207    565,889    466,950 
Options to purchase common stock   611,825    416,345    611,893    256,573 
Warrants to purchase common stock   203,214    203,214    203,214    172,857 
Total   1,481,819    982,766    1,380,996    896,380 

 

Concentration of Credit Risk, Major Customers and Suppliers

 

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. Cash is maintained at two financial institutions and, at times, balances may exceed federally insured limits. The Company has not experienced any losses related to these balances. The Company invests excess cash in money market funds under the custodianship of a major financial institution. This diversification of risk is consistent with the Company's policy to ensure safety of principal and maintain liquidity.

 

During the three and nine months ended September 30, 2016, the Company had three major customers, including UAMS. Revenue sourced either from or through UAMS as a percentage of net revenue during the three months ended September 30, 2016 and 2015 accounted for 21% and 35%, respectively, and 22% and 64% during the nine months ended September 30, 2016 and 2015, respectively. Revenue sourced either from or through the other two major customers as a percentage of net revenue during the three months ended September 30, 2016 and 2015 accounted for 29% and 3%, and 9% and 16%, respectively, and 27% and 1%, and 11% and 11% during the nine months ended September 30, 2016 and 2015, respectively.

 

Accounts receivable from the Company’s three major customers as a percentage of total accounts receivable as of September 30, 2016 and December 31, 2015 were 12% and 19%, respectively. UAMS accounted for 9% and 19% of total accounts receivable as of September 30, 2016 and December 31, 2015, respectively. The Company has minimal accounts receivable from the other two major customers since revenue sourced through them is billed to various third-party payors, depending on a patient’s medical insurance policy.

 

Inventory used in the Company’s testing process is procured from one supplier. Any supply interruption or an increase in demand beyond such supplier’s capabilities could have an adverse impact on the Company’s business. Management believes it could identify alternative suppliers, if necessary, but it is possible such suppliers may not be identified in a timely manner to avoid an adverse impact on the Company’s business.

 

Recently Adopted Accounting Pronouncements

 

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The update is effective for fiscal years and the interim periods within those fiscal years beginning after December 15, 2016, with early adoption permitted. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements and forfeitures are applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement is applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement are applied prospectively. The Company elected to early adopt this guidance effective January 1, 2016. The impact of adoption of this guidance had no effect on the Company’s financial position, statements of operations or statements of cash flows.

 

In May 2015, the FASB issued ASU No. 2015-07 that eliminates the requirement to categorize investments within the fair value hierarchy if their fair value is measured using the net asset value per share practical expedient in the FASB’s fair value measurement guidance. The amendments also limit certain disclosures to investments for which the entity has elected to measure at fair value using the net asset value per share practical expedient. The amendments were applied retrospectively by removing from the fair value hierarchy any investments for which fair value is measured using the net asset value per share practical expedient. Adoption of this guidance did not have an impact on the Company’s financial position or results of operations.

 

10
 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02, which replaces the existing accounting guidance for leases. This standard requires entities that lease assets to recognize the assets and liabilities for the rights and obligations created by those leases on the balance sheet. The standard is effective for fiscal years and the interim periods within those fiscal years beginning after December 15, 2018. The guidance is required to be applied by the modified retrospective transition approach and early adoption is permitted. The Company is currently assessing the impact that adoption of this guidance will have on its financial statements and footnote disclosures.

 

In November 2015, the FASB issued ASU 2015-17 that provides guidance on the presentation of deferred income taxes which requires deferred tax assets and liabilities, along with related valuation allowances, to be classified as noncurrent on the balance sheet. As a result, each tax jurisdiction will now only have one net noncurrent deferred tax asset or liability. The new guidance does not change the existing requirement that prohibits offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The new guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early application permitted. The amendments may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company does not expect the adoption of this standard to have a material impact on its financial statements.

 

In July 2015, the FASB issued ASU 2015-11, which simplifies the measurement of inventories valued under most methods, including the Company’s inventories valued under the FIFO method. Under this new guidance, inventories valued under these methods would be valued at the lower of cost and net realizable value, with net realizable value defined as the estimated selling price less reasonable costs to sell the inventory. The new guidance is effective prospectively for the Company’s quarterly reporting period beginning January 1, 2017, with early adoption permitted. The Company is currently assessing the impact that this standard will have on its financial statements.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which outlines a single comprehensive model for entities to use in accounting for revenue from contracts with customers and supersedes most current revenue recognition guidance in FASB ASC 605, Revenue Recognition, including industry-specific guidance. This standard is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard also requires additional disclosure about the nature, amount, timing and uncertainty of assets recognized from costs incurred to fulfill a contract and was originally effective for the Company’s annual reporting period beginning January 1, 2018, including interim periods within that reporting period. In July 2015, the FASB voted to defer the effective date of this ASU by one year, which is effective for the Company’s annual reporting period beginning January 1, 2019, with early adoption permitted beginning with the annual reporting period ending December 31, 2017. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. The Company is currently assessing the impact that this standard will have on its financial statements.

 

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements — Going Concern, which provides guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and the related footnote disclosure. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financials are issued. When management identifies conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern, this standard also outlines disclosures that are required in the company’s footnotes based on whether or not there are any plans intended to mitigate the relevant conditions or events to alleviate the substantial doubt. This standard becomes effective for the Company’s annual reporting period ending December 31, 2016, and for annual and interim periods thereafter. Early application is permitted. The Company does not expect the adoption of this standard to have a material impact on its financial statements.

 

11
 

 

3.Balance Sheet Accounts and Supplemental Disclosures

 

Property and Equipment

 

Property and equipment consist of the following:

 

(in thousands)  September 30,
2016
  December 31,
2015
Laboratory and computer equipment  $1,820   $1,817 
Furniture and fixtures   69    69 
Leasehold improvements   6    6 
    1,895    1,892 
Less: accumulated depreciation and amortization   (881)   (739)
Total property and equipment, net  $1,014   $1,153 

 

An asset with a cost of $300,000 recorded under a capital lease is included in the laboratory equipment balances at September 30, 2016 and December 31, 2015.

 

Accrued Expenses

 

Accrued expenses consist of the following:

 

(in thousands)  September 30,
2016
  December 31,
2015
Accrued bonuses  $722   $592 
Accrued contract research and development   310    35 
Accrued compensation and related expenses   250    234 
Accrued interest payable – related party   139    73 
Other   228    84 
Total accrued expenses  $1,649   $1,018 

 

4.Note Payable – Related Party and Capital Lease Obligations

 

Note Payable — Related Party

 

On March 6, 2015, the amounts due to related party, aggregating $1,045,000, were converted into an unsecured note payable – related party, bearing interest at 8% per annum and due on demand. The principal amount of the note was increased by $60,000 over the amounts due to related party to $1,105,000 to provide the equivalent of 8% per annum interest for the period of time the amounts due to related party were held as a payable in exchange for a provision that the related party would not call the note prior to June 30, 2015. The increase in the principal amount of the note was deferred and amortized to interest expense over the initial term of the note to June 30, 2015. Interest expense related to this note during each of the three months ended September 30, 2016 and 2015 was $22,000, and during the nine months ended September 30, 2016 and 2015 was $66,000 and $110,000, respectively. The note balance at September 30, 2016 and December 31, 2015 was $1,105,000. Accrued interest payable of $139,000 and $73,000 is included in accrued liabilities in the balance sheets at September 30, 2016 and December 31, 2015, respectively.

 

Capital Lease Obligation

 

The Company has a two-year capital lease obligation for laboratory equipment which expires in January 2017, and provides for monthly rent of $7,200. The lease obligations at September 30, 2016 and December 31, 2015 were $25,000 and $88,000, which are net of $3,000 and $6,000, respectively, in unamortized discounts. Future maturities of this obligation at September 30, 2016 are $22,000 and $7,000 during the remainder of 2016 and 2017, respectively. Laboratory equipment with a net book value of $247,000 at September 30, 2016 serves as collateral for this obligation.

 

12
 

 

5.Stockholders’ Equity

 

Changes in common shares outstanding and total stockholders’ equity during the nine months ended September 30, 2016 were as follows:

 

   Shares of
Common
Stock
  Total
Stockholders’
Equity
(in thousands)
Balance, December 31, 2015   10,635,454   $10,410 
Stock-based compensation       1,441 
Shares issued under employee stock incentive plan, net of shares repurchased to satisfy tax withholding obligations   154,968    (61)
Net loss       (7,104)
Balance, September 30, 2016   10,790,422   $4,686 

 

Common Shares

 

The Company has authorized 50,000,000 shares of common stock, of which 10,790,422 and 10,635,454 shares were issued and outstanding at September 30, 2016 and December 31, 2015, respectively. Common shares reserved for future issuance upon the exercise, issuance or conversion of the respective equity instruments at September 30, 2016 is as follows:

 

Issued and Outstanding:     
Restricted stock units   638,865 
Stock options   580,941 
Warrants   203,214 
Shares reserved for future award grants   709,248 
Total   2,132,268 

 

Public Offerings of Common Stock

 

During the three and nine months ended September 30, 2015, the Company sold 2,734,983 shares of common stock for cash proceeds of $4.0 million, which is net of $429,000 in sales agent’s commissions and offering expenses, pursuant to its July 2015 “at the market offering” program.

 

On February 20, 2015, the Company completed a public offering of 3,214,285 shares of its common stock, at $2.80 per share, for cash proceeds of $7.8 million, which is net of $1.2 million in underwriter commissions and offering expenses. In connection with the offering, the Company granted a 45-day option to the underwriter to purchase up to 482,142 shares of common stock to cover overallotments, with an aggregate grant date fair value of $132,000. On February 26, 2015, the underwriters exercised the overallotment option for cash proceeds of $1.3 million, which is net of $95,000 in underwriter commissions. In connection with this offering, as a portion of the underwriting compensation payable to the underwriters, the Company issued warrants to purchase 160,714 shares of its common stock to the representative of the underwriters with an aggregate grant date fair value of $198,000. The warrants are exercisable at any time from February 2016 through February 2020 at an exercise price of $3.50 per share. The aggregate fair values of the warrants and overallotment option issued were recorded as an increase to additional paid-in capital with an offset to the proceeds from the offering. The net contribution to additional paid-in capital was $8.8 million after deducting the noncash fair values of warrants and overallotment option issued in connection with the offering.

 

The estimated fair values of the warrants and overallotment option were determined on their respective measurement dates using the BSM option valuation model with the following assumptions:

 

   Warrants  Overallotment
Option
Fair value of underlying common stock  $2.57   $2.62 
Exercise price  $3.50   $2.60 
Risk-free interest rate   1.61%   0.02%
Volatility   65.5%   73.0%
Dividend yield   0%   0%
Contractual term (in years)   5.0    0.12 
Weighted-average measurement date fair value per share  $1.23   $0.27 

 

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6.Stock Compensation Plan

 

The Company’s 2014 Stock Incentive Plan, as amended (the “Plan”), provides for stock awards that may be made in the form of incentive or non-statutory stock options, stock appreciation rights, restricted or unrestricted stock awards, restricted stock units, performance awards, or other stock-based awards. No awards may be granted after June 16, 2024. The Plan provides for an annual increase in the number of shares of common stock available for grant on the first day of each calendar year that is equal to the lesser of four percent of the shares of common stock outstanding on the last day of the immediately preceding fiscal year or a smaller number of shares as determined by the board of directors. Under this provision, the number of shares of common stock reserved for issuance under the Plan was increased from 2,100,000 to 2,525,418 as of January 1, 2016. At September 30, 2016, up to 1,929,054 shares of common stock may be issued under the Plan, of which 1,219,806 shares are reserved for issuance upon the exercise of outstanding options and issuance of outstanding restricted stock units, and 709,248 shares are available for future grants.

 

Restricted Stock Units (“RSUs”)

 

All of the Company’s outstanding RSU agreements provide for the settlement of the vested RSUs in shares of the Company’s common stock equal to the number of vested RSUs or an amount in cash equal to the product of the fair market value of the common stock on the respective payment date and the number of vested RSUs, or some combination of common shares and cash as determined by the plan administrator as of each settlement date.

 

RSUs generally vest over a period of one to four years, subject to earlier cancellation or forfeiture prior to vesting upon cessation of service to the Company. The total fair value of RSUs that vested during the three and nine months ended September 30, 2016 was $12,000 and $73,000, respectively, and during the three and nine months ended September 30, 2015 was $67,000 and $605,000, respectively. A summary of the activity related to RSUs is as follows:

 

   Number of
Shares
  Weighted-
Average Grant
Date Fair Value
per Share
Unvested at December 31, 2015   215,992   $8.43 
Granted during the period   596,045   $0.51 
Vested during the period   (154,308)  $9.27 
Forfeitures and cancelations   (22,000)  $0.51 
Unvested at September 30, 2016   635,729   $1.08 

 

The Company issued shares of common stock in settlement of RSUs that vested and were issued during the period aggregating 12,516 and 154,968 shares during the three and nine months ended September 30, 2016, respectively, and 54,941 and 421,415 shares during the three and nine months ended September 30, 2015, respectively. As permitted under the Plan, to satisfy tax withholding obligations for employees in connection with the vesting of restricted stock units previously granted, the Company repurchased 10,484 and 131,970 shares of common stock, with aggregate values of $5,000 and $61,000 during the three and nine months ended September 30, 2016, respectively, and 10,587 and 186,920 shares with aggregate values of $18,000 and $363,000 during the three and nine months ended September 30, 2015, respectively.

 

Stock Options

 

Stock options generally vest over a four-year period and have a maximum term of ten years from the date of grant, subject to earlier cancellation prior to vesting upon cessation of service to the Company. A summary of the activity related to stock option awards is as follows:

 

   Shares
Subject to
Options
  Weighted-
Average
Exercise
Price per
Share
  Weighted-
Average
Remaining
Contractual
Term
(in years)
  Aggregate
Intrinsic Value
(in thousands)
Outstanding at December 31, 2015   631,567   $2.28           
Granted   86,800   $0.51           
Forfeitures and cancellations   (137,426)  $2.64           
Outstanding at September 30, 2016   580,941   $1.93    8.8   $ 
Options exercisable at September 30, 2016   262,194   $2.08    8.8   $ 
Options vested and expected to vest as of September 30, 2016   580,941   $1.93    8.8   $ 

 

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Stock-Based Compensation Expense

 

The estimated fair value of each stock option award was determined on the date of grant using the BSM option valuation model with the following assumptions:

 

   Nine Months Ended
September 30,
   2016  2015
Risk-free interest rate  0.52% -1.38%  1.34% -1.94%
Expected volatility  66.2% -75.4%  58.9% -67.8%
Weighted-average volatility   73.9%   60.1%
Dividend yield   0%   0%
Weighted-average expected term (in years)   1.8    6.0 
Weighted-average grant date fair value per share  $0.17   $0.91 

 

The fair value of each stock option is estimated on the date of grant using the BSM option pricing model which requires the input of highly subjective assumptions. Because the option-pricing model is sensitive to change in the input assumptions, different determinations of the required inputs may result in different fair value estimates of the options. The risk-free interest rate is based on the rate currently available on U.S. Treasury issues with terms approximating the expected term of the option. Due to the Company’s limited historical stock data, the estimated future stock price volatility is based upon the average historical volatilities of a group of peer companies. The Company has not paid any dividends on common stock and does not anticipate paying dividends on common stock in the foreseeable future. Due to the Company’s limited historical stock option exercise data, the ‘simplified’ method has been used to estimate the expected term of options.

 

Total non-cash stock-based compensation expense for all stock awards, net of forfeitures recognized as they occur, that was recognized in the statements of operations is as follows:

 

   Three Months Ended
September 30,
  Nine Months Ended
September 30,
(in thousands)  2016  2015  2016  2015
Cost of revenue  $7   $12   $20   $45 
Research and development   7    27    16    69 
Selling and marketing   14    15    49    38 
General and administrative   65    784    1,356    2,106 
Total  $93   $838   $1,441   $2,258 

 

At September 30, 2016, there was $485,000 of unamortized compensation cost related to unvested RSUs which is expected to be recognized over a remaining weighted-average vesting period of 2.7 years. At September 30, 2016, there was $316,000 of unamortized compensation cost related to unvested stock option awards, which is expected to be recognized over a remaining weighted-average vesting period of 2.2 years.


15
 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Introduction

 

The following discussion and analysis should be read together with our financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (the “SEC”) on March 21, 2016.

 

Overview

 

We are a commercial stage, molecular genetics diagnostic company focused on providing innovative diagnostic services that help physicians make better-informed decisions concerning the care of their patients suffering from cancer. Our mission is to develop, validate and deliver innovative diagnostic services that enable better patient-care decisions.

 

We were founded in January 2010 and hold an exclusive license to the intellectual property stemming from the renowned research on multiple myeloma (“MM”) performed at UAMS. Our flagship service offering is the MyPRS® test, which is a microarray-based Gene Expression Profiling (“GEP”) assay that tests for the presence of specific groups of genes that can predict low or high level risk of early relapse in patients suffering from MM. The information provided by our MyPRS® test aids physicians in selecting the optimal treatment regimen for each patient’s unique MM condition.

 

To our knowledge, we are the only company marketing a GEP test for assessing the status of MM in the United States. The MyPRS® test is protected by a substantial patent portfolio of issued and pending patents.

 

Our growth strategy includes the following key elements:

 

Expanding the U.S. market penetration of our MyPRS® test by increasing the geographic coverage of our commercial organization.
Broadening the base of health care insurance companies that have approved reimbursements for MyPRS®.
Expanding the diagnostic indications for MyPRS® to include asymptomatic monoclonal gammopathy (“AMG”), the precursor conditions to MM.
Pursuing additional collaborations with pharmaceutical companies who focus on developing therapies to treat MM and its precursor disease.
Expanding our information technology infrastructure to further improve our customer service experience.
Continuing to leverage our relationship with UAMS and other key academic centers.
Expanding our test offering with the addition of other molecular tests useful to physicians who care for MM patients.
Expanding and leveraging our capabilities into additional blood cancer indications.
Pursuing additional collaborations, mergers and acquisitions, and other strategic opportunities.
Continuing to reduce the costs associated with the development, manufacture and interpretation of our proprietary genomic tests and services.

 

We believe a key challenge to achieving our growth strategy will be our ability to become contracted with additional payors beyond Medicare and Arkansas Blue Cross Blue Shield (“AR-BCBS”). MyPRS® has been studied extensively and there are more than 30 peer-reviewed scientific publications that describe the validity and utility of the test. MyPRS® is one of the most extensively validated genomic assays available today. Further, the MyPRS® assay has been validated on patient cohorts totaling over 4,500 patients and detailed in 17 peer-reviewed publications. Please visit our website at www.signalgenetics.com in the “Publications” section under the “Physicians” tab for a list of these publications.

 

Other challenges to our growth strategy include: (1) if medical oncologists do not adopt the use of MyPRS® to evaluate the risk of developing MM in patients with AMG, our growth strategy could be adversely affected, (2) if other tests that more accurately predict the severity of MM, the risk of progression of AMG to MM or the likelihood of response to therapy, are developed, physicians could stop ordering MyPRS®, adversely affecting our ability to generate revenue, and (3) if payors, including our currently contracted payors, decide to reduce payment for MyPRS®.

 

We operate in only one segment and, currently, have no operations outside of the United States.

 

Sources of Revenues and Expenses

 

Revenues

 

We generate revenues primarily from the completion of tests processed through our CAP-accredited and CLIA certified laboratory when test results are delivered to ordering physicians. During the first nine months of 2016, we had three major customers, including UAMS. Revenue sourced either from or through UAMS as a percentage of net revenue during the first nine months of 2016 and 2015 were 22% and 64%, respectively. Revenue sourced either from or through our other two major customers as a percentage of net revenue during the first nine months of 2016 and 2015 were 27% and 1%, and 11% and 11%, respectively.

 

16
 

A significant portion of our revenues consist of payments or reimbursements received from various payors, including Medicare, contracted insurance companies, directly billed customers (UAMS, pharmaceutical companies, reference laboratories and hospitals) and non-contracted insurance companies. We report revenues from contracted payors and directly billed customers based on the contractual rate. Medicare reimburses MyPRS® based on the local coverage determination at approximately $1,900 per test and AR-BCBS reimburses MyPRS® based on the contractual rate of approximately $2,000 per test. Revenues from non-contracted payors are reported based on the amount expected to be collected, which is based on the historical collection experience of each payor or payor group, as appropriate. Our estimates of net revenue are subject to change based on the contractual status and payment policies of third-party payors with whom we deal as well as anticipated changes in the healthcare industry and related legislation. We regularly refine our estimates in order to make our estimated revenue as accurate as possible based on our most recent collection experience with each third-party payor.

 

Cost of Revenue

 

Our cost of revenue consists primarily of the cost of materials and supplies, labor, and other costs associated with processing specimens including pathological review, quality control analyses, delivery charges necessary to render an individualized test result, depreciation, amortization and royalty expense. Costs associated with performing tests are recorded as the tests are processed.

 

Research and Development Expenses

 

Our research and development expenses primarily include personnel costs, laboratory supplies, reagents, consulting costs associated with developing and validating new testing services and sponsored research agreements with leading academic institutions for clinical trials and other studies to further validate the use of MyPRS® for MM and AMG.

 

Selling and Marketing Expenses

 

Our selling and marketing expenses consist primarily of sales commissions and support costs, salaries and related employee benefits, travel, and marketing costs for our commercial, business development, medical affairs and managed care functions.

 

General and Administrative Expenses

 

Our general and administrative expenses consist primarily of personnel costs, professional service fees and other costs related to our being a publicly-traded company.

 

Interest Expense

 

Interest expense primarily reflects interest on our note payable - related party.

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures in the financial statements. Critical accounting policies are those accounting policies that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on financial condition or operating performance. While we base our estimates and judgments on our experience and on various other factors that we believe to be reasonable under the circumstances, actual results may differ from these estimates under different assumptions or conditions.

 

We believe the following critical accounting policies used in the preparation of our financial statements require significant judgments and estimates:

 

Revenue Recognition
Accounts Receivable, Contractual Allowance and Allowance for Doubtful Accounts
Stock-Based Compensation
Accounting for Income Taxes

 

During the nine months ended September 30, 2016, other than as discussed below, there were no significant changes in our critical accounting policies and estimates. Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015 for a more complete discussion of our critical accounting policies.

 

17
 

Revenue Recognition

 

We recognize revenue from testing services in accordance with the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), 605, Revenue Recognition, which requires that four basic criteria be met before revenue can be recognized: (1) persuasive evidence that an arrangement exists; (2) delivery has occurred and title and the risks and rewards of ownership have been transferred to the client or services have been rendered; (3) the price is fixed or determinable; and (4) collectability is reasonably assured.

 

Revenues are recorded on an accrual basis when the contractual obligations are completed as tests are processed through our laboratory and test results are delivered to ordering physicians. Revenues are billed to various payors, including Medicare, contracted insurance companies, directly billed customers (UAMS, pharmaceutical companies, reference laboratories and hospitals) and non-contracted insurance companies. Revenues from Medicare, contracted insurance companies and directly billed customers are reported based on the contractual rate. The difference between the amounts billed and the contractual rates from Medicare and contracted insurance companies are recorded as contractual allowances at the same time the revenue is recognized, to arrive at reported net revenue. The contractual rate is based on established agreed upon rates between us and the respective payor. Directly billed customers are invoiced at the contractual rate by us. Revenues from non-contracted insurance companies are reported based on the amount expected to be collected, which is based on the historical collection experience of each payor or payor group, as appropriate, and anticipated effects of changes in the healthcare industry, if any. The difference between the amount billed and the amount estimated to be collected from non-contracted insurance companies is recorded as a contractual allowance at the same time the revenue is recognized, to arrive at reported net revenue. We do not record revenue from individuals for billings until cash is collected; as collectability is not assured at the time services are provided, therefore there are no accounts receivable from self-payors. Gross revenues from individuals have been immaterial to date.

 

Our estimates of net revenue for non-contracted insurance companies are subject to change based on the contractual status and payment policies of the third-party payors with whom we deal. We regularly refine our estimates in order to make estimated revenue as accurate as possible based on its most recent collection experience with each third-party payor. We regularly review our historical collection experience for non-contracted payors and anticipated changes in the healthcare industry and adjust expected revenues for current and subsequent periods accordingly, including previously recorded revenues related to outstanding accounts receivable for such non-contracted payors.

 

Accounts Receivable, Contractual Allowances and Allowance for Doubtful Accounts

 

We record accounts receivable net of contractual allowances and an allowance for doubtful accounts. At September 30, 2016 and December 31, 2015, contractual allowances were $3.1 million and $2.1 million, respectively. We estimate an allowance for doubtful accounts based on the aging of the accounts receivable and the historical collection experience for each of our contracted payors. When the amounts are determined to be uncollectible, they are expensed as bad debt and subsequently charged-off against the allowance. During the third quarters of 2016 and 2015, we recognized $7,000 and $4,000, respectively, in bad debt expense. During first nine months of 2016 and 2015, we recognized $8,000 and $32,000, respectively, in bad debt expense. At September 30, 2016 and December 31, 2015 allowances for doubtful accounts were $10,000 and $0, respectively. Uncollectability of accounts receivable for a non-contracted payor is typically a reflection of an estimate in excess of actual collections and is adjusted in the period of collection as a change in estimate resulting in an increase in contractual allowances and, therefore, a reduction in current period net revenue.

 

The following tables present our gross accounts receivable from customers outstanding by aging category reduced by total contractual and doubtful account allowances to arrive at the net accounts receivable balances at September 30, 2016 and December 31, 2015. Other than our direct bill customers, all of our receivables were pending approval by third-party payors as of the date that the receivables were recorded:

 

   September 30, 2016
(in thousands)  0 - 30 Days  31 - 60 Days  61 - 90 Days  Over 90 Days  Total
Medicare  $270   $155   $9   $31   $465 
Contracted insurance companies   53    9    4    14    80 
Direct bill   151    6        3    160 
Non-contracted insurance companies   365    243    286    2,239    3,133 
Accounts receivable, gross   839    413    299    2,287    3,838 
Less: contractual and doubtful account allowances   (450)   (274)   (235)   (2,146)   (3,105)
Accounts receivable, net  $389   $139   $64   $141   $733 

 

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   December 31, 2015
(in thousands)  0 - 30 Days  31 - 60 Days  61 - 90 Days  Over 90 Days  Total
Medicare  $116   $55   $32   $16   $219 
Contracted insurance companies   13        9    16    38 
Direct bill   101    12    24    14    151 
Non-contracted insurance companies   336    256    215    1,244    2,051 
Accounts receivable, gross   566    323    280    1,290    2,459 
Less: contractual allowances   (347)   (245)   (230)   (1,243)   (2,065)
Accounts receivable, net  $219   $78   $50   $47   $394 

 

The day sales outstanding (“DSO”) at September 30, 2016 has increased to 78 days, compared to 53 days at December 31, 2015, attributable to the growth in net accounts receivable which was influenced by the increase in both test volume and average selling price for billings to non-contracted insurance payors. Since private non-contracted insurance payors are slower to pay, we expect our DSO’s to increase as net revenues from these payors increase.

 

Recently Adopted Accounting Pronouncements

 

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The update is effective for fiscal years and the interim periods within those fiscal years beginning after December 15, 2016, with early adoption permitted. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements and forfeitures are applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirement is applied retrospectively. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement are applied prospectively. We elected to early adopt this guidance effective January 1, 2016. The impact of adoption of this guidance had no effect on our financial position, statements of operations or statements of cash flows.

 

In May 2015, the FASB issued ASU No. 2015-07 that eliminates the requirement to categorize investments within the fair value hierarchy if their fair value is measured using the net asset value per share practical expedient in the FASB’s fair value measurement guidance. The amendments also limit certain disclosures to investments for which the entity has elected to measure at fair value using the net asset value per share practical expedient. The amendments were applied retrospectively by removing from the fair value hierarchy any investments for which fair value is measured using the net asset value per share practical expedient. Adoption of this guidance did not have an impact on the Company’s financial position or results of operations.

 

Recent Accounting Pronouncements

 

We have reviewed all recently issued standards and have determined that other than as disclosed above and in Note 2 to the financial statements included herein, such standards will not have a material impact on our financial statements or do not otherwise apply to our operations.

 

Future Accounting Pronouncements

 

Section 107 of the JOBS Act provides that an emerging growth company, such as our company, can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Although to date, we have not yet taken advantage of this delay, we have elected to avail ourselves of this extended transition period for adopting new or revised accounting standards in the future. Therefore, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. In the future, we may elect to opt out of the extended period for adopting new or revised accounting standards. If we do so, we will be required to disclose such decision, which will be irrevocable.

 

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Results of Operations

 

Third Quarter of 2016 Compared to the Third Quarter of 2015

 

Net Revenue

 

Our net revenue was $889,000 during the third quarter of 2016, an increase of $388,000, or 77%, compared to $501,000 during the third quarter of 2015. Net revenue and tests billed during the third quarters of 2016 and 2015 were as follows:

 

   Three Months Ended September 30,
   Net Revenue (in 000s)  Tests Billed
      Increase (Decrease)     Increase (Decrease)
   2016  2015  $  %  2016  2015  #  %
Clinical patients at U.S. hospitals and direct billed customers  $821   $421   $400    95%   527    343    184    54%
Research testing services   52    75    (23)   (31)%   46    94    (48)   (51)%
Pharmaceutical services   16    5    11    220%   5    10    (5)   (50)%
Total  $889   $501   $388    77%   578    447    131    29%

 

The number of tests we billed for clinical patients at U.S. hospitals and direct billed customers increased 54% during the third quarter of 2016 compared to the same period in 2015 due to an increase in new hospital customers and an increase in tests sourced from existing customers. Net revenue recognized for such tests billed increased 95% during the third quarter of 2016 when compared to the same period in 2015. The increase in net revenue was driven primarily by the increased test volume and an increase in test average selling price estimates used to calculate revenue for billings to non-contracted insurance payors based on our positive collections experience with such payors. Additionally, net favorable changes in estimates of $6,000 were recorded in the third quarter of 2016, related to revenues recorded in prior years. Net revenue of $421,000 in the third quarter of 2015 was reduced by $64,000 of net unfavorable changes in estimates related to revenue recorded in 2014.

 

Both the net revenue recognized and number of tests reported and billed for research testing services, primarily UAMS, decreased 31% and 51% during the third quarter of 2016 compared to the third quarter of 2015 primarily due to the decrease in funds available at UAMS for such services.

 

In our pharmaceutical services business, MyPRS® is being run across multiple clinical trials in connection with the development of novel treatments for patients with multiple myeloma. We recognized net revenue of $16,000 for services rendered during the third quarter of 2016.

 

Cost of Revenue

 

Cost of revenue was $599,000, or 67% of net revenues, during the third quarter of 2016, an increase of $22,000, or 4%, compared to $577,000, or 115% of net revenues, during the third quarter of 2015. The increase in cost of revenue is primarily attributable to an increase in assigned laboratory personnel costs to fulfill the higher test volumes from clinical patients at U.S. hospitals for the third quarter of 2016 and an increase in the royalties due to UAMS for the higher test volume.

 

Research and Development Expenses

 

Research and development expenses were $226,000 during the third quarter of 2016, a decrease of $27,000, or 11%, when compared to $253,000 during the third quarter of 2015. The decrease is primarily attributable to a $132,000 decrease in our usage of labor, materials and supplies for internal research projects compared to the third quarter of 2015, offset by a $105,000 increase in sponsored research programs related to research to further validate the use of MyPRS® in MM and AMG.

 

Selling and Marketing Expenses

 

Selling and marketing expenses were $373,000 during the third quarter of 2016, a decrease of $423,000, or 53%, when compared to $796,000 during the third quarter of 2015. The decrease is primarily attributed to $137,000 in recruiting and hiring costs incurred during the third quarter of 2015 related to establishing our medical affairs functions, a $209,000 decrease in marketing projects due to one-time projects incurred in the third quarter of 2015 and a $77,000 decrease in personnel costs due to a reduction in staff during 2016.

 

General and Administrative Expenses

 

General and administrative expenses were $1.5 million during the third quarter of 2016, a decrease of $496,000, or 25%, when compared to $2.0 million during the third quarter of 2015. The decrease was primarily attributable to a $720,000 decrease in stock-based compensation expense, $40,000 in decreased expenses related to facility and other administrative costs, offset by $242,000 in increased spending related to professional services, and $22,000 in increased personnel costs related to hiring of accounting, internal billing and IT staff.

 

20
 

First Nine Months of 2016 Compared to the First Nine Months of 2015

 

Net Revenue

 

Our net revenue was $2.6 million during the first nine months of 2016, an increase of $702,000, or 37%, compared to $1.9 million during the first nine months of 2015. Net revenue and tests billed during the first nine months of 2016 and 2015 were as follows:

 

   Nine Months Ended September 30,
   Net Revenue (in 000s)  Tests Billed
      Increase (Decrease)     Increase (Decrease)
   2016  2015  $  %  2016  2015  #  %
Clinical patients at U.S. hospitals and direct billed customers  $2,368   $974   $1,394    143%   1,492    878    614    70%
Research testing services   131    900    (769)   (85)%   144    1,106    (962)   (87)%
Pharmaceutical services   82    5    77    1,540%   17    10    7    70%
Total  $2,581   $1,879   $702    37%   1,653    1,994    (341)   (17)%

 

The number of tests we billed for clinical patients at U.S. hospitals and direct billed customers increased 70% during the first nine months of 2016 compared to the same period in 2015 due to an increase in new hospital customers and an increase in tests sourced from existing customers. Net revenue recognized for such tests billed increased 143% during the first nine months of 2016 when compared to the same period in 2015. The increase in net revenue was driven primarily by the increased test volume and an increase in test average selling price estimates used to calculate revenue for billings to non-contracted insurance payors based on our positive collections experience with such payors. Additionally, net favorable changes in estimates of $229,000 were recorded in the first nine months of 2016, related to revenues recorded in prior years. Net revenue of $974,000 in the first nine months of 2015 was reduced by $137,000 of net unfavorable changes in estimates related to revenue recorded in 2014.

 

Both the net revenue recognized and number of tests reported and billed for research testing services, primarily UAMS, decreased 85% and 87% during the first nine months of 2016 compared to the first nine months of 2015 primarily due to the decrease in funds available at UAMS for such services.

 

In our pharmaceutical services business, MyPRS® is being run across multiple clinical trials in connection with the development of novel treatments for patients with multiple myeloma. We recognized net revenue of $82,000 for services rendered during the first nine months of 2016.

 

Cost of Revenue

 

Cost of revenue was $1.9 million, or 72% of net revenues, during the first nine months of 2016, a decrease of $160,000, or 8%, compared to $2.0 million, or 107% of net revenues, during the first nine months of 2015. The decrease in cost of revenue is primarily attributable to a decrease of $46,000 of assigned laboratory personnel and $160,000 decrease in laboratory supply costs, a reflection of lower test volumes from UAMS, offset by a $46,000 increase in royalty expense, related to an increase in clinical patient-related revenues.

 

Research and Development Expenses

 

Research and development expenses were $867,000 during the first nine months of 2016, an increase of $321,000, or 59%, when compared to $546,000 during the first nine months of 2015. The increase is primarily attributable to $486,000 increase in sponsored research programs related to research to further validate the use of MyPRS® in MM and AMG, offset by a $165,000 decrease in our usage of labor, materials and supplies for internal research projects compared to the first nine months of 2015.

 

Selling and Marketing Expenses

 

Selling and marketing expenses were $1.4 million during the first nine months of 2016, a decrease of $366,000, or 20% when compared to $1.8 million during the first nine months of 2015. The decrease is primarily attributed to $90,000 in recruiting and hiring costs incurred during the first nine months of 2015 related to establishing our medical affairs functions, a $241,000 decrease in marketing projects due to one-time projects incurred in the first nine months of 2015 and a $35,000 decrease in personnel costs due to a reduction in staff during 2016.

 

General and Administrative Expenses

 

General and administrative expenses were $5.5 million during the first nine months of 2016, a decrease of $288,000, or 5%, when compared to $5.7 million during the same period in 2015. The decrease was primarily attributable to a $750,000 decrease in stock-based compensation expense and $42,000 in decreased expenses related to facility and other administrative costs, offset by $255,000 in increased personnel costs related to hiring of accounting, internal billing and IT staff, $174,000 in increased spending related to professional services, and $75,000 in increased fees and expenses for our board of directors.

 

21
 

Interest Expense

 

Interest expense was $69,000 during the first nine months of 2016, compared to $118,000 during the first nine months of 2015. The decrease was primarily due to interest expense recorded in the third quarter of 2015 related to the increase in the principal amount of an unsecured note payable due to a related party. The increase in the principal amount of the note was deferred and was amortized to interest expense over the initial term of the note to June 30, 2015.

 

Liquidity and Capital Resources

 

We had cash and cash equivalents of $5.4 million at September 30, 2016 compared to $10.8 million at December 31, 2015. At September 30, 2016, we had working capital of $3.7 million.

 

Our existing cash resources will not be sufficient to meet our operating plan for the full 12-month period after the date of this filing. Based on available resources, we believe we can maintain our current operations into the second quarter of 2017. As a result, to continue to fund our ongoing operations beyond the second quarter of 2017, we would need to (1) raise additional capital through the issuance of equity, debt or other securities, (2) convert our existing debt into equity, (3) enter into strategic partnerships, alliances, collaborations or other similar transactions or (4) a combination thereof. Our financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

Due to current market conditions, our current liquidity position and our depressed stock price, we believe it may be difficult to obtain additional equity or debt financing on terms acceptable to us, if at all, thus raising substantial doubt about our ability to continue as a going concern. If we are unable to raise additional capital or successfully complete a strategic partnership, alliance, collaboration or other similar transaction, we will need to delay or reduce expenses or limit or curtail operations, any of which would have a material adverse effect on our business. Further, if we are unable to raise additional capital or successfully complete a strategic partnership, alliance, collaboration or other similar transaction on a timely basis and on terms that are acceptable to us, we would also be required to sell or license our assets, sell the Company or otherwise liquidate all or a portion of our assets and/or cease our operations altogether. If we cannot continue as a viable entity, our stockholders might lose some or all of their investment in us.

 

We have no material commitments for capital expenditures at this time.

 

Operating activities

 

Cash used by operations during the first nine months of 2016 was $5.4 million, compared to $5.6 million during the first nine months of 2015.

 

During the first nine months of 2016, the provision of cash from changes in operating assets and liabilities of $101,000 includes a decrease in inventory of $125,000 and an increase in accounts payable and accrued liabilities of $360,000, partially offset by a $339,000 increase in accounts receivable, which primarily reflects an increase in our net revenue during the first nine months of 2016 when compared to the fourth quarter of 2015, and an increase in prepaid expenses and other current assets of $45,000.

 

During the first nine months of 2015, the provision of cash from changes in operating assets and liabilities of $244,000 includes a $541,000 decrease in accounts receivable and a $307,000 increase in accounts payable and accrued liabilities, primarily due to higher accrued compensation, partially offset by an increase in inventory of $185,000, an increase in prepaid expenses and other current assets of $171,000 and a reduction in our lease termination/abandonment payable of $248,000.

 

Investing activities

 

Net cash used by investing activities during the first nine months of 2016 and 2015 of $3,000 and $72,000, respectively, were for the purchase of property and equipment.

 

As of this time, we are focusing on our growth strategies and do not plan to use a material amount of our cash resources for the purchase of property and equipment during the remainder of 2016.

 

Financing activities

 

Net cash used by financing activities during the first nine months of 2016 of $124,000 consisted of $61,000 used to repurchase shares from employees to satisfy tax withholding obligations for restricted stock awards and $63,000 for repayment of our capital lease obligation.

 

Net cash provided by financing activities during the first nine months of 2015 of $12.7 million consisted primarily of the net proceeds from our public offerings of common stock in February and September 2015 of $13.1 million, partially offset by $363,000 used to repurchase shares from employees to satisfy tax withholding obligations for restricted stock awards and $56,000 for repayment of our capital lease obligation.

 

22
 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable to smaller reporting companies.

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

In evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective, at the reasonable assurance level, as of the end of the period covered by this report to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, (1) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (2) is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

23
 

PART II – OTHER INFORMATION

 

Item 1A. Risk Factors

 

We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. In addition to the additional risk factor set forth below and other information set forth in this report, you should carefully consider the factors discussed in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on March 21, 2016, which could have a material effect on our business, results of operations, financial condition and/or liquidity and that could cause operating results to vary significantly from period to period. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

 

Risks Related to our Financial Condition

 

We will require, and may not be able to obtain, substantial additional financial resources in order to carry out our planned activities and to continue as a going concern beyond the second quarter of 2017.

 

As of September 30, 2016, we had cash and cash equivalents totaling $5.4 million. Our existing cash resources will not be sufficient to meet our operating plan for the full 12-month period after the date of this filing. Based on available resources, we believe we can maintain our current operations into the second quarter of 2017. As a result, to continue to fund our ongoing operations beyond the second quarter of 2017, we would need to (1) raise additional capital through the issuance of equity, debt or other securities, (2) convert our existing debt into equity, (3) enter into strategic partnerships, alliances, collaborations or other similar transactions or (4) a combination thereof. Due to current market conditions, our current liquidity position and our depressed stock price, we believe it may be difficult to obtain additional equity or debt financing on terms acceptable to us, if at all, thus raising substantial doubt about our ability to continue as a going concern. If we are unable to raise additional capital or successfully complete a strategic partnership, alliance, collaboration or other similar transaction, we will need to delay or reduce expenses or limit or curtail operations, any of which would have a material adverse effect on our business. Further, if we are unable to raise additional capital or successfully complete a strategic partnership, alliance, collaboration or other similar transaction on a timely basis and on terms that are acceptable to us, we would also be required to sell or license our assets, sell the Company or otherwise liquidate all or a portion of our assets and/or cease our operations altogether. If we cannot continue as a viable entity, our stockholders might lose some or all of their investment in us. Our financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

Item 6. Exhibits

 

The exhibits listed below are required by Item 601 of Regulation S-K. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report has been identified.

 

Exhibit

Number

    Description of Exhibit
     
     
31.1   Certification of Principal Executive Officer pursuant to Rule13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act, as amended.
31.2   Certification of Principal Financial Officer pursuant to Rule13a-14(a) and Rule 15d-14(a) of the Securities and Exchange Act, as amended.
32*   Section 1350 Certification.
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
101.DEF   XBRL Taxonomy Extension Definition Linkbase
101.LAB   XBRL Taxonomy Extension Label Linkbase
101.PRE   XBRL Taxonomy Extension Presentation Linkbase

_________________

 

  * This certification is being furnished pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof.
     

 

24
 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: October 26, 2016   SIGNAL GENETICS, INC.
     
    By:   /sSamuel D. Riccitelli
      Samuel D. Riccitelli, President and
Chief Executive Officer (Principal Executive Officer)
       
       
    By:   /sTamara A. Seymour
      Tamara A. Seymour, Chief Financial Officer
(Principal Financial Officer)
     
     

 

 

 

 

 

 

 

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Section 2: EX-31.1 (EXHIBIT 31.1)

Exhibit 31.1

 

CERTIFICATION

 

I, Samuel D. Riccitelli, certify that:

 

1.    I have reviewed this quarterly report on Form 10-Q of Signal Genetics, Inc., a Delaware corporation;

 

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.    The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.    The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: October 26, 2016 /s/ Samuel D. Riccitelli
 

Samuel D. Riccitelli

President and Chief Executive Officer

(Principal Executive Officer)

 

 

 

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Section 3: EX-31.2 (EXHBIIT 31.2)

Exhibit 31.2

 

CERTIFICATION

 

I, Tamara A. Seymour, certify that:

 

1.    I have reviewed this quarterly report on Form 10-Q of Signal Genetics, Inc., a Delaware corporation;

 

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.    The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.    The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

Date: October 26, 2016   /s/ Tamara A. Seymour
   

Tamara A. Seymour

Chief Financial Officer

(Principal Financial Officer)

 

 

 

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Section 4: EX-32 (EXHIBIT 32)

Exhibit 32

 

SECTION 1350 CERTIFICATION

 

Each of the undersigned, Samuel D. Riccitelli, President and Chief Executive Officer of Signal Genetics, Inc., a Delaware corporation (the “Company”), and Tamara A. Seymour, Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge (1) the quarterly report on Form 10-Q of the Company for the quarterly period ended September 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. 

 

 

    /s/ Samuel D. Riccitelli
    Name: Samuel D. Riccitelli
    Title: President and Chief Executive Officer
(Principal Executive Officer)
    Dated: October 26, 2016
     
     
    /s/ Tamara A. Seymour
    Name: Tamara A. Seymour
    Title: Chief Financial Officer (Principal Financial Officer)
    Dated: October 26, 2016

 

 

This certification accompanies and is being “furnished” with this Report, shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that Section and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report, irrespective of any general incorporation language contained in such filing. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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