diaDexus, Inc.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The ASU does not change the core principle of the guidance in the aforementioned ASU 2014-09, instead, the amendments in this Update are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations and whether an entity reports revenue on a gross or net basis. ASU 2016-08 will have the same effective date and transition requirements as ASU 2014-09. The Company is in the process of evaluating the impact of this ASU on its financial statements.

Effective January 1, 2016, the Company adopted ASU 2015-03 and changed its method of presentation relating to debt issuance cost. Prior to 2016, the Company's policy was to present these costs in other assets on the balance sheet, net of accumulated amortization. Beginning in 2016, the Company has presented these fees as a direct deduction to the related debt. As a result, we reclassified $95,000 and $114,000 of deferred financing costs as of March 31, 2016 and December 31, 2015, respectively, from other assets, which are currently presented as a direct deduction from notes payable.

Our significant accounting policies are described in the notes to the unaudited Condensed Financial Statements included elsewhere in this Quarterly Report on Form 10-Q, as well as in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.  While all significant accounting policies are important to our Condensed Financial Statements, certain of these policies may be viewed as being critical.  Such policies are those that are both most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective and complex estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, or the related disclosure of contingent assets and liabilities.  These estimates are based on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances.  Actual results may differ materially from these estimates.  

^{Total revenues for the quarter ended March 31, 2016 were $3.5 million, a decrease of approximately $2.0 million, or 36%, compared to the same period in 2015. The decrease is due to decreased product sales as a result of the loss of two of our largest customers, Health Diagnostics Laboratory (“HDL”), filing for bankruptcy on June 7, 2015, and Atherotech, filing for bankruptcy on March 4, 2016.  These decreases were partially offset by an increase in PLAC® ELISA Test volumes from other customers, and a significant growth in PLAC®} Activity Test volumes from new customers during the first quarter of 2016.

Our financial statements for the three months ended March 31, 2016 included in Item 1 of this quarterly report on Form 10-Q have been prepared assuming we will continue to operate as a going concern.  However, due to our ongoing operating losses, negative cash flows from operations, and our accumulated deficit, there is substantial doubt about our ability to continue as a going concern.  Because we continue to experience net operating losses, our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities or obtaining loans from financial institutions.  Our continued net operating losses increase the difficulty in completing such sales or securing alternative sources of funding, and there can be no assurances that we will be able to obtain such funding on favorable terms or at all.  If we are unable to obtain sufficient financing from the sale of our securities or from alternative sources, we may be required to reduce, defer or discontinue certain of our research and development activities and operating activities or we may not be able to continue as a going concern.  As a result, our former independent registered public accounting firm expressed a substantial doubt regarding our ability to continue as a going concern in its auditors’ report on the financial statements included in our Annual Report filed on March 29, 2016.  Our financial statements do not include any adjustments that might result from the outcome of the uncertainty regarding our ability to continue as a going concern. If we cannot continue as a going concern, our stockholders may lose their entire investment in the common stock.  Future reports from our independent registered public accounting firm may also contain statements expressing doubt about our ability to continue as a going concern.